Vietnam pushes US to grant it 'market economy' status

Vietnam hopes the United States will quickly change its rules over alleged export "dumping," bringing them closer in line with the European Union's reformed criteria. 

Hanoi, said a Vietnamese government official who asked not to be named, is "very keen" for the Biden administration to change its "non-market economy" classification before the US presidential elections in November.

The United States continues to classify communist-run Vietnam as a non-market economy, which is loosely defined as a country in which the state has either a monopoly or near-monopoly on trade.

China and Russia are also on Washington's list of 12 non-market economies.

Impact on anti-dumping proceedings

This designation primarily affects responses to "dumping," when a country's export prices are deemed to be intentionally set below domestic prices, thus causing harm to industries in the importing country.

Washington uses different criteria to assess dumping in market and non-market economies, the latter of which are liable to pay significantly higher anti-dumping duties.

On October 24, 2023, the US Commerce Department announced it would review Vietnam's non-market economy classification, a decision that must be made within 270 days, meaning around mid-July.

A change of status by Washington would essentially bring US anti-dumping rules in line with the EU's, analysts say.

Difference between EU and US approach

In December 2017, the EU did away with the distinction between "market economies" and "non-market economies." Instead, a distinction is now made between countries that are World Trade Organization (WTO) members and those that are not, an EU official told DW.

For WTO members, including Vietnam, the EU uses an undistorted benchmark to determine the "normal value" of the product, the source explained. The EU's new system simplifies how Brussels determines the cost of a product in its domestic market, giving more weight to the exporting country's estimation when assessing if it engages in anti-dumping activity.

By comparison, the United States — because it considers Vietnam a non-market economy — assesses a Vietnamese product's value based on what it is worth in a third country (a market economy) and then assumes this is the likely production cost to a Vietnamese company, rather than using data provided by the company itself.

This calculation, which the EU has moved away from, causes the "dumping margin to be pushed up very high" and does not actually reflect the situation of Vietnamese companies, according to Vietnam's Center for WTO and International Trade, a unit under the Vietnam Chamber of Commerce and Industry.

'Market economy status helps Vietnam'

Despite the changes, the EU still monitors Vietnam for alleged dumping. In November, the European Commission launched anti-dumping and anti-subsidy tax investigations over stainless steel product imports from Vietnam, for instance.

The move was based on an assessment that "existing anti-dumping measures on imports of the product concerned are being circumvented by imports of the product under investigation," according to a Commission statement.

A few months earlier, in July 2023, Brussels had extended tariffs on various types of steel imports from Vietnam until the end of June 2024 as a safeguard measure to protect European steel manufacturers.

Hanoi has spent the past year lobbying Washington intensely to bring its anti-dumping rules closer in line with the EU's framework.

"Of course, we want Vietnam to be removed from the US list of non-market-economy countries," Vietnam's ambassador to the United States, Nguyen Quoc Dzung, said at a conference organized by a Washington-based think tank last month, according to Reuters.

Vietnamese Prime Minister Pham Minh Chinh also discussed the issue with US Secretary of Commerce Gina Raimondo during a meeting in Washington last September.

"Market economy status helps Vietnam avoid anti-dumping duties by the US, so by getting the status, Vietnam would be able to make their products more competitive," said Trinh Nguyen, a senior economist covering emerging Asia at Natixis, a banking subsidiary of the French banking group BPCE.

She added: "The US is a key market, so having that status would help Vietnam."

Added pressure on Vietnam

One more aspect of this year's US presidential election seems to be adding pressure on Vietnam, too.

Former President Donald Trump, who is the frontrunner for the Republican presidential nomination, has said he intends to impose a 60% tariff on all Chinese imports if reelected — five times the current average rate — according to US media reports.

During his first term in office, Trump also lashed out at Vietnam for allegedly dumping cheap goods on the US market, as well as for its vast trade surplus. In 2019, he even described Vietnam as "the single worst abuser of everybody," a reference to the effects of its low-cost exports on American industry.

Even in the EU, several national parliaments, including the legislatures of Germany, France, Belgium and the Netherlands, have yet to ratify the EU-Vietnam Investment Protection Agreement (EVIPA).

Although the European Parliament ratified the EVIPA in February 2020 alongside the EU-Vietnam Free Trade Agreement, the investment pact will only come into force when the national parliaments of all 27 EU member states agree to it. Currently, ten countries have yet to do so.

The governments of some of those countries last week announced that they will move forward with the ratification process after meetings with Vietnamese Foreign Minister Bui Thanh Son at the 24th EU-ASEAN ministerial meeting in Brussels.

But a leading reason for delays is that some political parties in hold-out European parliaments are wary that increased investment in Vietnam will hurt their local industries, according to an article published by the Vietnam Investment Review, an outlet run by Vietnam's Ministry of Planning and Investment.

Edited by: Srinivas Mazumdaru