Vietnam has urged President Joe Biden's administration to quickly change its classification as a “non-market economy” to a “market economy” to avoid the US imposing high taxes on goods imported from the southeastern country.
Although Vietnam has become one of the USA's most important trading partners and helped thwart China's growing influence in the region, the country has remained on Washington's list of non-market economies for more than two decades. In total, the list includes twelve non-market economy countries such as Russia, China and some countries that were formerly part of the former Soviet Union.
What are “non-market economies”?
The United States classifies a country as a non-market economy based on several factors. These are: if the country's currency is convertible; when wage rates are determined through free negotiations between workers and management; whether joint ventures or other foreign investments are permitted; whether the means of production are the property of the state; and whether the state controls the allocation of resources and price and production decisions. Other factors such as human rights are also taken into account.
The “non-market economy” label allows the U.S. to impose “anti-dumping” tariffs on goods imported from certain countries. In international trade, dumping occurs when it is assumed that a country's export prices are deliberately lower than domestic prices, thereby causing damage to the industry in the importing country. Anti-dumping duties essentially make up the difference between the export price of the imported product and its normal value.
The level of anti-dumping duties is determined based on a third country, such as Bangladesh, which has a market economy. The US assesses the value of a product to be imported from a non-market economy such as Vietnam based on its value in Bangladesh and then assumes that this is the alleged cost of production by a Vietnamese company. The company's own information on costs is not taken into account.
Why does Vietnam want to achieve “market economy” status?
Vietnam has argued that it has undertaken enough economic reforms in recent years to remove its name from the list of non-market economy countries. The country meets a number of criteria for the change of status. For example, according to a report by the Center for Strategic and International Studies (CSIS), Vietnam allows foreign investment, wages are set through free negotiations between workers and management, and most means of production are not owned by the state.
The status change will also help Vietnam eliminate anti-dumping duties, making its products more competitive in the US market. The Vietnam Center for WTO and International Trade has said that the method of calculating anti-dumping duties is flawed as it “inflates the dumping margin very much” and does not truly reflect the situation of Vietnamese companies, a report by DW said.
What are the challenges?
Vietnam's path to a market economy is littered with obstacles. U.S. steelmakers and the American Shrimp Processors Association have asked the Biden administration not to change Vietnam's status. The association cited Vietnam's restrictions on land ownership, the country's weak labor laws and lower shrimp tariffs as hurting its members.
The move could also face opposition in Congress, where eight U.S. senators and 31 members of the House of Representatives claim that changing Vietnam's status would “help Chinese state-owned companies that have invested heavily in Vietnam by giving them the opportunity to pursue U.S “Easier to avoid tariffs on their goods,” a Reuters report said.
The US Department of Commerce is currently reviewing Vietnam's status – the process began last year. The review is expected to be completed at the end of July.
© The Indian Express Pvt Ltd
First uploaded on: 08-05-2024 at 18:04 IST
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