U.S. Commerce Department Rejects Vietnam's 'Market Economy' Classification Request

2 August 2024

The U.S. Commerce Department recently rejected Vietnam’s request for a "market economy" classification, citing the country's extensive state intervention in economic affairs such as trade, pricing, and currency. Vietnam has been categorised as a "non-market economy" by the United States since 2002, alongside 12 other nations including China, Russia, and North Korea.

Despite Vietnam's recent economic reforms and policy commitments, Washington has opted to uphold the "non-market economy" classification following a thorough evaluation of feedback from U.S. domestic industries and the Vietnamese government. The Department of Commerce emphasised that despite 20 years of substantive reforms, the significant government involvement in Vietnam’s economy distorts prices and costs, rendering them unusable for the calculation of U.S. antidumping duties.

Last year, Vietnam made a formal request for reclassification, citing improved economic conditions and strengthening relations with the U.S., including upgraded diplomatic ties and numerous free trade agreements. This request coincided with President Joe Biden's visit to Vietnam, during which the two nations elevated their ties to a "comprehensive strategic partnership."

The decision not to upgrade Vietnam's status has sparked mixed reactions. While Vietnam's Ministry of Industry and Trade expressed regret over the non-recognition of its market economy status, opponents voiced concerns about the country's impact on U.S. manufacturing. As Vietnam emerges as a crucial part of the global supply chain, shifts away from China and geopolitical considerations have highlighted its growing significance.

Amidst the delicate timing of the decision before U.S. elections, bipartisan disagreements have surfaced. Republican Senator Tom Cotton and a group of Democrats, including senators Elizabeth Warren and Bernie Sanders, have expressed opposing views, highlighting controlled currency, lack of labour rights, and extensive state intervention as key considerations.

It is important to note that while Vietnam has been removed from the U.S. monitoring list for currency manipulation and has signed various free trade agreements with the United States, the decision to maintain its "non-market economy" classification underscores the complexities of global trade dynamics.

The U.S. Commerce Department's decision to reject Vietnam's request for a "market economy" classification carries significant implications for Vietnam's global trade. Here’s what this means for Vietnam:

1. Antidumping Duties: As a "non-market economy," Vietnam will continue to face stricter scrutiny and potentially higher antidumping duties from the U.S. This classification allows the U.S. to use third-country prices to determine if Vietnam is dumping goods at unfairly low prices, often resulting in higher tariffs on Vietnamese exports.

2. Trade Relations: The decision underscores ongoing concerns about state intervention in Vietnam's economy, despite recent economic reforms and strengthening ties between the two nations. This could affect Vietnam's efforts to further integrate into the global market and attract foreign investment.

3. Economic Reforms: The rejection highlights the need for Vietnam to continue and possibly intensify its economic reforms. The U.S. Commerce Department’s emphasis on significant government involvement in Vietnam’s economy suggests that more substantial changes are required to meet the criteria for a market economy status.

4. Geopolitical Impact: The decision comes at a time when Vietnam is becoming an increasingly crucial part of the global supply chain, especially as companies seek alternatives to China. The classification decision could influence geopolitical strategies and business decisions related to Vietnam.

5. Domestic and International Reactions: The mixed reactions to the decision reflect the complexity of Vietnam's economic and political landscape. While some view the non-recognition as a setback, others are concerned about the impact of Vietnam’s economic practices on U.S. industries.

Overall, maintaining the "non-market economy" classification for Vietnam highlights the intricate balance between economic reforms, international trade dynamics, and geopolitical considerations. For businesses and policymakers, this decision underscores the ongoing challenges and opportunities in engaging with Vietnam in the global trade arena. What are your opinions on this decision?

This report contains information from Reuters and serves to deepen our understanding of global trade dynamics and the intricacies of diplomatic and economic relations.

Stay informed for further developments in this evolving landscape #ExportUnlocked.