Members of Congress from both parties were among those who urged the Commerce Department to maintain Vietnam’s non-market status.
Vietnam will remain on the list of 12 nations officially classified by the United States as a “non-market economy,” the Commerce Department announced on Friday. It’s the correct decision, as the Southeast Asian country simply fails to meet any of the criteria necessary to be granted market status — and providing it with that status would have been a win for China.
Vietnamese officials had pushed hard for a change in status, even making it one of the key points of discussion during President Biden’s trip to Vietnam in September. While the officials argued that their country made enough economic reforms to be granted market economy status, the Commerce Department ultimately (and quite rightly) ruled it wasn’t enough:
“Despite Vietnam’s substantive reforms made over the past 20 years, 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. 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.”
There are six statutory criteria that the Commerce Department must follow in determining whether a nation meets market status, including the convertibility of currency; the extent to which wage rates are determined by free bargaining between labor and management; the extent to which foreign investments are permitted; the extent to which government controls the means of production; the extent of government control over allocation of resources and price and output decisions of enterprises; and other factors the “administering authority considers appropriate.”
Vietnam fails all six criteria. Its banking system continues to operate under government control and it remains on the Treasury Department’s monitoring list for currency manipulation; labor laws are minimal and largely unenforced, and child labor remains a big concern; Vietnam is still a communist country with a central, state-run economy, making foreign investment difficult and state-owned enterprises the norm; and price controls remain a priority for the government, especially in key sectors.
Vietnam’s failure to meet the actual criteria to be granted market economy status is more than enough to keep it as a non-market economy. But there was another big concern looming over Commerce’s decision: China.
There’s growing evidence that China is using third-party countries like Vietnam to dodge U.S. trade enforcement efforts; the Commerce Department already has determined that exact thing is happening with some solar products. Had Commerce granted Vietnam market economy status, the U.S. would effectively had given China a leg-up, voluntarily eliminating some of the trade tools needed to address China’s unfair trade tactics like circumvention.
In fact, that is one of the main reasons why there was strong bipartisan opposition on Capitol Hill to granting Vietnam market status, with progressives like Sen. Elizabeth Warren (D-Mass.) and conservatives like Sen. J.D. Vance (R-Ohio) sounding the alarm.
Warren was one of eight senators, including Sens. Sherrod Brown (D-Ohio) and Bernie Sanders (I-Vt.), who wrote to Commerce Secretary Gina Raimondo to “urge Commerce to take into account Vietnam’s close economic relationship with China, especially as China and Vietnam actively seek to further deepen their trade ties.” The lawmakers continued:
“Vietnam’s manufacturing sector relies heavily on inputs from China, making it ‘vulnerable to forced labor risks in supply chains.’ Moreover, Commerce itself has raised the alarm about China’s use of Vietnam to circumvent U.S. antidumping duties on Chinese-made products. Vietnam currently has 25 antidumping orders against it, with four more investigations pending; these active and pending orders range across industries, from tires, mattresses, and paper shopping bags to wind towers. Granting Vietnam market economy status would impact the outcome of all pending antidumping investigations and could prevent Commerce from protecting domestic workers and producers from market distorting practices.”
Meanwhile, Vance and fellow Republican Sens. Josh Hawley (Mo.) and Tom Cotton (Ark.) wrote their own letter to Raimondo, arguing that “Vietnam may be an important regional partner, but it does not have a market economy.” The trio wrote:
“Our industries—from steel to catfish—compete with Vietnamese exporters and rely on Commerce to enforce and uphold U.S. trade laws. In just the last twenty years, over 30 different American industries across at least 35 states have filed petitions against imported goods from Vietnam alleging dumping or circumvention. Anti-dumping and countervailing duty concerns have only gotten worse, with more than half of these lawsuits being filed within the past five years. Granting Vietnam market economy status would allow Vietnamese producers to mask price discrimination in the American market and further tip the scales in their favor.”
For a whole host of reasons, the Commerce Department did the correct thing in maintaining Vietnam’s status as a non-market economy. If Vietnam wants to earn some of the privileges awarded as a market economy, it needs to make far more substantial reforms. In the meantime, the United States must ensure we maintain and strengthen the trade tools at our disposal to take on trade cheating, be it from companies in Vietnam or Chinese firms seeking to use third-party nations to dodge tariffs and other enforcement mechanisms already in place.