Vietnam is urging the Biden administration to grant it the status of a market economy to avoid high anti-dumping tariffs imposed by the US on its exports. Although Vietnam has become a key trade partner and geopolitical ally for the United States in Asia, it still remains classified as a non-market economy under US trade law.
Why Vietnam Is A Non Market Economy
- Although Vietnam has emerged as one of the top trading partners of the US and helped thwart China’s expanding influence in the region, it has continued to be on Washington’s list of non-market economies for more than two decades.
- In US, a Non-Market Economy (NME) refers to any foreign country that the US Department of Commerce determines does not follow market-based cost or pricing structures.
- Consequently, sales of goods in such countries may not accurately reflect their fair value.
- In total, the list includes 12 non-market economies such as Armenia, Azerbaijan, Belarus, China, Georgia, Kyrgyz Republic, Moldova, Russia, Tajikistan, Turkmenistan, Uzbekistan and Vietnam.
Key Features of a Non Market Economy
- The US designates a country as a non-market economy based on several factors. These are:
- if the country’s currency is convertible;
- if wage rates are determined by free bargaining between labour and management;
- if joint ventures or other foreign investment are allowed;
- whether the means of production are owned by the state; and
- if the state controls the allocation of resources and price and output decisions.
- Other factors like human rights are also considered.
Anti-Dumping and Non Market Economy
- The non-market economy label allows the US to impose “anti-dumping” duties on goods imported from designated countries.
- In international trade, dumping is when a country’s export prices are considered to be intentionally set below domestic prices, thereby inflicting harm to industries in the importing country.
- Anti-dumping duties essentially compensate for the difference between the imported good’s export price and their normal value.
- The level of anti-dumping duties is determined by relying on a third country, for instance, Bangladesh, which is a market economy.
- The US assesses the value of a product to be imported from a non-market economy like Vietnam based on what it is worth in Bangladesh and then assumes that this is the supposed production cost to a Vietnamese company.
What Is Market Economy?
- It is a system in which production decisions and the prices of goods and services are guided primarily by the interactions of consumers and businesses, e. the law of supply and demand is allowed to determine what is available and at what price.
- A market economy gives entrepreneurs the freedom to pursue profits by creating new products, and the freedom to fail if they misread the market.
Why Does Vietnam Want To Get The ‘Market Economy’ Status?
- Vietnam has argued that in recent years it has implemented enough economic reforms that should get its name off the non-market economies list.
- The country does meet a number of criteria for the status to be changed. For instance, Vietnam allows foreign investment, wages are determined by free negotiations between workers and management, and most of the means of production are not owned by the state
- The change in status will also help Vietnam get rid of the anti-dumping duties, making its products more competitive in the US market.
US Perspective on Vietnam’s Market Economy Status
- The US Commerce Department is currently reviewing Vietnam’s status.
- The US steelmakers and the American Shrimp Processors Association have asked the US administration not to change Vietnam’s status to a market economy.
- They cited Vietnam’s restrictions on land ownership, weak labour laws, and lower shrimp duties that would hurt their members as reasons for their request.
- The change in Vietnam could benefit Chinese state firms invested in Vietnam by allowing them to bypass US tariffs more easily.
- Currently, the US Commerce Department is in the midst of reviewing — the process began last year — Vietnam’s status. The review is set to end by late July.
To Download Monthly Current Affairs PDF Click here
Click here to get a free demo
Discover all about CLAT Exam
