The fall of Kabul has drawn comparisons to America’s chaotic withdrawal from Saigon, raising concerns about the timing of Vice President Kamala Harris’ visit to Vietnam. His travel aims to reassure Southeast Asian countries that the United States views the region as more than just real estate in its rivalry with China. It’s a tough job at the best of times, and these aren’t those. There is something Harris can do to get the job done: give Vietnam “market economy” status.
Vietnam is one of 11 countries the United States refers to as a “non-market economy”. This means Washington does not believe that the Vietnamese economy operates on “market principles of cost or price structures…”. Instead, Washington asserts that the visible hand of government orchestrates economic outcomes, not the invisible hand of the market. It’s not just a slight. The result of being designated as a non-market economy is that Vietnamese exporters are heavily exposed to US trade remedies, especially anti-dumping duties. Let me explain.
Imagine that a US company alleges that a foreign company is selling below cost. This is called dumping, the remedy for which is an anti-dumping duty, or tariff, to compensate for this discount. You would think that dumping would be welcome, given that it means cheaper imports. But the United States, like other countries, is fighting back. This is because of the fear of predation: a foreign company may sell at a loss to drive out its competitors, and then fix its prices like a monopolist.
If that foreign company is from a “market economy,” like Canada, it is allowed to defend itself with its own cost data. But if the foreign company is from a non-market economy, such as Vietnam, it cannot, because this data is supposed to be tainted by government intervention. Thus, like other countries, the United States can use a third country as a proxy for the company’s cost structure. This choice of a proxy is politically charged because if its cost structure does not really align, the outcome of the investigation risks being lost in advance.
It was expected that the United States would designate Vietnam as a market economy in 2019. The idea was that Vietnam would be able to transition from a “socialist-oriented market economy”, as it is called in the country’s constitution, to a market economy within 12 years of joining the World Trade Organization (WTO).
But in 2019, US trade relations with Vietnam were at an all-time low. President Trump saw Vietnam as a major economic threat, saying in an interview that the country “is almost the worst – it’s a lot smaller than China, a lot – but it’s almost everyone’s worst abuser.” It was, and is, nonsense.
The United States certainly complains about access to the Vietnamese market. But if you just count the pages of the 2021 National Trade Estimate Report on Foreign Trade Barriers spent on each US trading partner, the US Trade Representative only spends 10 on Vietnam. To put that into perspective, there are seven pages on Canada, 35 on China, and 50 on the European Union (EU). Also, if you look closely at what these complaints are about, they are mostly about the kind of complex measures that confuse the United States’ trade relationship with all countries, such as food safety standards.
Or consider WTO litigation as a measure. The United States has never prosecuted Vietnam. No country has. For its part, Vietnam has filed four WTO complaints against the United States, three concerning anti-dumping duties on seafood and one concerning food safety standards on pangasius. Vietnam’s only other WTO case was against Indonesia, also over anti-dumping duties. More tellingly, about two-thirds of Vietnam’s 34 third-party appearances in WTO disputes relate to trade remedies, and anti-dumping duties in particular. That says a lot about the weight of the problem.
Designating Vietnam as a market economy will not end US anti-dumping duties against the country, let alone on catfish. It will simply mean that Vietnamese producers can use their own cost data to defend themselves. It may not seem like a big deal, but it will mean everything for Vietnam.
From Vietnam’s point of view, this would be the most credible signal that the United States is finally interested in “normalize” bilateral exchange. Countries like Australia, India, Japan and South Korea have already granted Vietnam market economy status. Nor would the message be lost on China, the other non-market economy that the United States was supposed to reclassify in 2016 but did not. There are few, if any, gestures that would have this same political signal-to-noise ratio.
Moreover, the Biden administration does not have a long list of economic concessions it can credibly offer Vietnam right now. A bilateral investment treaty has been in the works since 2008, but it’s not on Biden’s radar. The United States also does not seem to be in a hurry to join the Trans-Pacific Partnership, much to Vietnam’s regret. Perhaps something could be done to deepen the US-Vietnam trade and investment framework of 2007. But in comparison to Vietnam’s free trade agreements with Canada, the EU and the Mexico, for example, it will seem banal.
The outlook for visiting Vietnam this week is far from ideal. But Harris can achieve the goal of the trip by promising to give the country market economy status.
Marc L. Busch is the Karl F. Landegger Professor of International Commercial Diplomacy at Georgetown University’s Walsh School of Foreign Service. Follow him on Twitter @marclbusch.
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