For the purposes of U.S. anti-dumping/countervailing duty law, the Commerce Department maintains a list of non-market economies. Vietnam is one of the economies on that list. A March 2024 Congressional Research Service paper on "Vietnam’s Nonmarket Economy (NME) Status" notes that the government of Vietnam "has long sought to remove the designation, arguing it may hinder closer ties." Vietnam officially submitted a removal request in September 2023, and on October 30, 2023, the Commerce Department initiated a review of Vietnam’s NME status.
On August 2, the Commerce Department announced its determination that "Vietnam will continue to be classified as a non-market economy (NME) country for purposes of calculating U.S. antidumping duties (ADs) on imports from Vietnam." While acknowledging "Vietnam’s substantive reforms made over the past 20 years," Commerce nevertheless concluded that "the extensive government involvement in Vietnam’s economy distorts Vietnamese prices and costs and ultimately render them unusable for the purpose of calculating U.S. antidumping duties." Therefore, Commerce "will continue to use market-based prices and costs from a country at a comparable level of economic development to Vietnam that produces comparable merchandise to calculate ADs."
In terms of the practical impact of this determination, the Congressional Research Service paper explains that "Commerce’s usual practice of applying alternative methods when calculating dumping margins in antidumping investigations involving NMEs generally leads to higher tariffs in affirmative determinations."
Commerce's full reasoning on this issue can be found in a memo entitled "Review of Vietnam’s Status as a Non-market Economy Country." In the memo, Commerce explained that:
Vietnam has implemented notable market-oriented economic reforms for nearly two decades under a broader economic initiative known as the “Doi Moi” (often translated as “renovation” or “innovation”). Those reforms aimed to transition Vietnam out of an economic system that relied on intensive government direction and intervention, which Commerce characterized as an NME for purposes of U.S. AD laws when it last reviewed Vietnam’s NME status in 2002.
However, Commerce said, "based on the assessment of the record evidence, persistent structural and institutional issues in Vietnam remain," as "[t]he extensive and pervasive government involvement in Vietnam’s economy that pertains to the six statutory factors Commerce relies upon in making a market economy determination distorts Vietnamese prices and costs, and ultimately renders them unusable for purposes of calculating U.S. AD duties." The six factors considered were:
- The Extent to Which the Currency of the Foreign Country is Convertible Into the Currencies of Other Countries
- The Extent to Which Wage Rates in the Foreign Country are Determined by Free Bargaining Between Labor and Management
- The Extent to Which Joint Ventures or Other Investments by Firms of Other Foreign Countries are Permitted in the Foreign Country
- The Extent of Government Ownership or Control of the Means of Production
- The Extent of Government Control Over the Allocation of Resources and Over the Price and Output Decisions of Enterprises
- Such Other Factors as the Administering Authority Considers Appropriate (here, rule of law and corruption)
Commerce said its determination to maintain Vietnam’s status as an NME country "is the result of a collective analysis of all statutory factors, and not any singular issue or statutory factor."
It's interesting to read this analysis, but it leaves me wondering about the way forward on the big picture related to the structure of Vietnam's economy.
The Commerce Department seems happy with the reforms Vietnam has undertaken so far, but disappointed that it has not gone further. So what might cause Vietnam to adopt further reforms? Will this updated NME classification for AD purposes induce Vietnam to make additional reforms and become more market-oriented? Or is the NME classification simply designed as a defensive mechanism while Vietnam remains an NME, without any sense that it will lead to additional reforms?
If the NME classification will not push Vietnam in a market-oriented direction, what might do so? One option is to make use of the commitments Vietnam made in its 2006 WTO Accession Protocol and Working Party Report. For example, on the issue of the price and output decisions of state-owned enterprises (see factor 5 above), the Working Party Report states:
78. The representative of Viet Nam confirmed that Viet Nam would ensure that all enterprises that were State-owned or State-controlled, including equitized enterprises in which the State had control, and enterprises with special or exclusive privileges, would make purchases, not for governmental use, and sales in international trade, based solely on commercial considerations, e.g., price, quality, marketability, and availability, and that the enterprises of other WTO Members would have an adequate opportunity in accordance with customary business practice to compete for participation in sales to and purchases from these enterprises on non-discriminatory terms and conditions. In addition, the Government of Viet Nam would not influence, directly or indirectly, commercial decisions on the part of enterprises that are State-owned, State-controlled, or that have special and exclusive privileges, including decisions on the quantity, value or country of origin of any goods purchased or sold, except in a manner consistent with the WTO Agreement and the rights accorded to non-governmental enterprise owners or shareholders. The Working Party took note of these commitments.
(Not all explanations and statements in the Working Party Report are incorporated into the Accession Protocol as binding commitments, but paragraph 527 of the Working Party Report notes that paragraph 78 is, and para. 2 of the Protocol states: "This Protocol, which shall include the commitments referred to in paragraph 527 of the Working Party Report, shall be an integral part of the WTO Agreement.")
The commitments in paragraph 78 are a good start, but from what I could see, many of the other factors relied on by Commerce are not mentioned in the Working Party Report/Accession Protocol. That suggests additional rules may be needed. Given the difficulty of negotiating rules at the WTO, one way to approach this is with a bilateral or regional trade agreement through which Vietnam agrees to make structural changes to its economy in exchange for concessions or commitments of some sort from the U.S.
How the U.S. government approaches this issue going forward depends on its goals. Is it a priority to push trading partners with high levels of state involvement in the economy in a more market-oriented direction? On balance, this would be good for both them and us, but there has been a reluctance to pursue this objective recently. U.S. government officials express concern about foreign non-market practices in various ways, but few concrete actions are taken. It often feels like restrictions on trade are the U.S. priority these days, and that may mean no action is taken on Vietnam beyond the Commerce Department NME determination.
(And yes, to state the obvious, the logic above does apply to China as well, although the geopolitical considerations are different of course. I will have more to say on this at some point.)
