Price on trade: Commerce got it right in Vietnam NME case

The government of Vietnam had requested that Commerce reconsider its NME designation. It argued that Commerce Secretary Gina Raimondo had pledged to support the changing of its status to a market economy.

Commerce made the right call

But Commerce’s determination makes clear that the agency followed its statutory directive. It correctly found that Vietnam’s economy remains heavily controlled by government influence. This decision ensures that Commerce will have all the tools available to counter distortions in the Vietnamese economy when addressing unfairly traded Vietnamese imports.

Vietnam was first designated as an NME in 2002 after Commerce determined that it did not operate based on free market principles. Commerce made that decision in large part because of the Vietnamese government’s involvement in Vietnam’s economy.

As a result of government intervention, prices and costs in an NME can mask unfair trading practices and cannot be used to calculate accurate dumping margins. Thus, under the trade remedy laws, the NME designation allows Commerce to use market-based prices and costs to accurately evaluate the level of dumping from NME countries.

The government of Vietnam had been requesting graduation to market economy status. That would have removed Commerce’s ability to account for certain distortions when calculating duties to address unfair trade.

Commerce received more than 36,000 pages of comments in response to Vietnam’s request. They included significant comments in opposition submitted by numerous US manufacturers.

Parties representing a wide range of domestic industries participated. They included steel, aluminum extrusions, hardwood plywood, honey, and catfish, among many others. Also participating were organizations like the United Steelworkers (USW) union and human rights experts.

They all presented information documenting the Vietnamese government’s control over Vietnam’s economy. And they highlighted the significant negative impact on domestic manufacturing that would result from treating Vietnam as a market economy.

The details

In conducting its review, Commerce followed the statute and examined economic conditions in Vietnam pursuant to six criteria, which we outlined in an earlier column. The department found that each of these factors supported the conclusion that Vietnam remains an NME. Specifically:

• The Vietnamese government continues to maintain convertibility restrictions on its currency, the dong. And Vietnam’s central bank is not an independent entity.
• Vietnam does not legally recognize independent unions. Its control of labor organizations has compromised the ability of workers to organize and bargain collectively for higher wages. Moreover, the presence of child and forced labor remains a significant concern in Vietnam.
• The government of Vietnam maintains excessive restrictions on foreign investment and creates numerous challenges for foreign direct investment. That includes general market access barriers, red tape, lack of transparency in regulatory processes, and failure to protect intellectual property rights.
• State-owned enterprises (SOEs) continue to play a significant role in the Vietnamese economy – with a presence in several sectors, such as manufacturing, without clear justification. Vietnamese SOEs continue to receive preferential treatment from the Vietnamese government, and corporate governance over SOEs is poor – with significant government involvement. The government also continues to own all land in Vietnam. Restrictions on individual land rights give it considerable control over land use and market outcomes.
• The Vietnamese government continues to exert significant controls over resource allocation, with more pervasive price controls than in other Asian countries. That includes significant control over the banking sector. It also includes state-directed planning that provide the basis for the government to allocate resources at its own discretion.
• Vietnam continues to suffer from high-level and widespread corruption and a lack of judicial independence.

Based on these factors, Commerce found that extensive and pervasive government involvement in Vietnam’s economy persists, distorting Vietnamese prices and costs and preventing the country from operating on market principles. Consequently, the Department concluded that Vietnam should maintain its designation as an NME.

Balancing trade policy and geopolitics

The department’s decision is an important victory for domestic industries that rely on the trade remedy laws, including the steel industry. Vietnam has built out massive steel capacity over the past decade, and Vietnamese imports have significantly increased for many products.

Maintaining Vietnam’s status as an NME provides the domestic steel industry with a greater ability to combat unfairly traded imports from Vietnam and ensures that accurate dumping margins can be calculated in both ongoing and future trade cases. Moreover, Vietnam has become a massive export platform for Chinese industries—including the steel industry—seeking to avoid antidumping and countervailing duties, as well as other duties imposed on Chinese imports.

If the Department had lost its ability to fully address distortions in the Vietnamese economy, there would have been a major incentive for Chinese industries to significantly ramp up their activities in Vietnam to get greater access to the US market.

Notably, the Vietnamese government had also pushed for market economy status by stating that it would strengthen ties between Vietnam and the United States as well as support US strategic policy in Southeast Asia. However, its actions during the proceeding contradicted its claims.

During the inquiry, the Vietnamese government deepened its relationship with China, including by entering into joint cooperation agreements in infrastructure, trade, security, and other areas. It also reinforced its commitment to one-party, Communist rule.

There is no appeal

Commerce based its determination on the reality of Vietnam’s economy today, which leaves little doubt that the country is not guided by market principles. The department’s adherence to the laws and factual evidence here correctly guided it to the determination that Vietnam remains an NME, which will support US manufacturing growth and development. Unlike other determinations under antidumping laws, determinations of market economy status are not appealable in the courts.

Editor’s note

This is an opinion column. This commentary represents the authors’ individual views and is not intended to represent the views of Wiley Rein LLP or its clients. The views in this do not necessarily reflect those of SMU either. We welcome you to share your thoughts as well at info@steelmarketupdate.com.