The U.S. has rejected Vietnam’s bid to change its non-market economy status after a year-long review, despite acknowledging reforms. The decision means that the U.S. will retain the methodology used in calculating anti-dumping duties on imports from Vietnam.
In a decision that has sparked disappointment in Hanoi, the U.S. Commerce Department announced on August 2 that it will continue to classify Vietnam as a ‘non-market economy’ (NME).
This determination, following a year-long review, comes despite Vietnam’s extensive economic reforms and its strategic importance to the United States in counterbalancing China’s growing influence in the region.
The US Commerce Department had postponed its decision by a week due to IT failures caused by a recent software update by cybersecurity firm CrowdStrike, which had impacted computer systems worldwide.
Background and implications
Vietnam has long sought an upgrade to market economy status, a change that would significantly reduce the punitive anti-dumping duties it currently faces. These duties are imposed on goods from countries classified as NMEs, where heavy state influence is seen to distort market prices. Vietnam’s Ministry of Industry and Trade (MoIT) expressed regret over the decision, stating that the move was not reflective of the substantial improvements in the Vietnamese economy and was contrary to the growing ties between the two nations.
The U.S. currently designates 12 other economies, including China, Russia, and North Korea, as NMEs. For Vietnam, shedding this label has been a priority, especially as the country continues to grow as a key manufacturing hub.
The non-market economy designation complicates trade relations by maintaining higher tariffs and stricter trade barriers on Vietnamese goods entering the U.S. market.
Domestic and international reactions
The decision to retain Vietnam’s NME status has been met with mixed reactions in the U.S.
On one hand, U.S. steelmakers, Gulf Coast shrimpers, and honey farmers, along with their Congressional representatives, had actively opposed the upgrade throughout the Congressional review process, citing concerns over unfair competition and market distortions. These groups argued that Vietnam’s economy still operates under the heavy hand of the state, with policies that do not fully align with free-market principles. They are also key electoral groups, when keeping in mind upcoming U.S. presidential elections.
On the other hand, U.S. retailers and certain business groups had advocated for the upgrade, emphasizing Vietnam’s role in diversifying supply chains away from China.
Meanwhile, Vietnam’s Ministry of Industry and Trade expressed regret that the United States has not yet recognized Vietnam’s market economy status, despite acknowledging positive changes in its economy. This decision means Vietnamese businesses will continue to face U.S. discrimination in anti-dumping and anti-subsidy investigations. The MoIT argued that an objective and fair assessment by the U.S. Department of Commerce would have shown that Vietnam meets the criteria for market economy status, as recognized by countries like the UK, Canada, and Japan. The ministry highlighted that it had submitted over 20,000 pages of documentation demonstrating Vietnam’s progress on all six U.S.-defined criteria for market economy recognition.
Analysts warn that failing to recognize Vietnam’s market economy status could strain U.S.-Vietnam relations. Vietnam’s government was keen to secure the upgrade as a critical milestone in their relationship with the U.S., which was further solidified last year when the two countries elevated their ties to a comprehensive strategic partnership. This will be seen as a missed opportunity by many stakeholders.
Strategic considerations
The U.S. decision is especially significant given the broader geopolitical context. As Washington intensifies its efforts to counter China’s influence in Southeast Asia, Vietnam has emerged as a crucial ally. The U.S. government has even promoted Vietnam as a “friend-shoring” destination, encouraging U.S. companies to shift supply chains away from China and towards more reliable partners like Vietnam.
However, the timing of this decision, just months before the U.S. presidential elections, has led to speculation about its political motivations. Some analysts suggest that any potential upgrade could have been reversed by a future administration, particularly if led by former President Donald Trump, who is known for his tough stance on trade issues, triggering the US-China tariff escalation, among others, during his term in office.
Meanwhile, defending the decision, some argue that Vietnam’s economy has not transformed enough to warrant market economy status and ignoring market distortions in trading partners’ economies could be detrimental to American interests.
Conclusion
The U.S. decision to maintain Vietnam’s non-market economy status, despite its economic reforms and strategic importance, reflects the complex interplay of domestic interests, international relations, and geopolitical strategy. As Vietnam continues to push for recognition as a market economy, this decision may impact the trajectory of U.S.-Vietnam relations, particularly as both nations navigate the challenges posed by an increasingly assertive China.
Source: vietnam-briefing.com