Leibowitz: Vietnam remains a “non-market economy” - what now?

But what are the implications for Vietnam and for other countries with the same status?

Background

Vietnam is the least likely candidate for NME status among those countries that still have it. Other than China and Vietnam, all NME countries designated by the Commerce Department are 10 of the 15 former Soviet Republics of the USSR: Russia, Moldova, Kyrgyzstan, Uzbekistan, Tajikistan, Turkmenistan, Belarus, Armenia, Azerbaijan, and Georgia.

Russia, of course, is subject to numerous sanctions. It was deemed a market economy in 2002. But its status reverted to NME in 2022. Kazakhstan, Ukraine, and the Baltic States have been designated market-economy countries. The Baltic States are members of NATO. And it is well-known that Ukraine would like to be.

NME status changes the analysis of “dumping.” Most cases measure the extent (or “margin”) of dumping by comparing selling prices in the market of production with those to the United States. NME status removes that measure of comparison. Instead, the “factors of production” of the product under investigation are analyzed based on the costs of similar factors in market-economy countries. Commerce is to choose the market economy based on its development in comparison with the NME. The comparable country need not be identical to the NME. And it need not be similar with respect to the specific product under analysis.

Suffice it to say that Commerce has broad discretion to apply costs and factors of production.

It is also not debatable that Commerce’s goal is normally to find dumping margins of mammoth proportions, which will effectively stop imports. Dumping margins in NME cases are normally significantly higher than in market-economy countries.

Vietnam seeks to remove its NME status to avoid antidumping and subsidy cases that will likely lead to a cessation of trade.

The skinny

Vietnam is by and large a partner of the US and the West. Trade between the US and Vietnam has exploded in the last 20 years. Trade statistics show that bilateral trade first passed $1 billion in 2000. In 2023, bilateral trade was $123 billion ($114 billion in US imports and $9 billion in US exports).

Geopolitically, Vietnam is more of a competitor with China than with the US. It borders China, and there was a brief border war between the two countries in the late 1970s. Vietnam and the US have cooperated on issues such as nuclear non-proliferation and counterterrorism in recent years.

The effort by Vietnam to remove its NME status, while perhaps premature, is based on its increasing cooperation with the US in many areas and its desire to maintain or improve its position as the tenth most important US trading partner. It is the only country in a position of cooperation rather than competition with the US that has NME status.

The Commerce Department certainly has the authority to designate Vietnam an NME. The six-part statutory test Commerce must apply (all of which allow Commerce a large degree of discretion) could apply to almost any country. For example, the second factor is the “extent to which wage rates in the foreign country are determined by free bargaining between labor and management.” The Commerce analysis of this factor noted “notable progress in labor market reforms.”

Latest wrinkles

But in the last analysis, Commerce found remaining “deficiencies” – including the continuation of a single authorized labor union in the country and difficulty in initiating strikes. That sort of “one hand, other hand” analysis could support any conclusion that Commerce wanted. Obviously, the agency wanted to maintain NME status for Vietnam.

The Office of Enforcement and Compliance of Commerce prepared this analysis in connection with a specific antidumping order on honey from Vietnam. But the public comments on the analysis included input from many industries that are concerned about imports from Vietnam. U.S. Steel filed 188 pages of comments urging Commerce to keep Vietnam an NME. These comments were submitted the week after the announcement of the US Steel-Nippon Steel agreement for selling control of U.S. Steel. Filings were made by other domestic industries with an interest in controlling, if not stopping, Vietnamese imports from penetrating the US market.

Why it matters

Clearly, this job is easier (but not impossible) if Vietnam remains an NME. The fact that Vietnamese imports have increased 100-fold in the last 20 years clearly shows that NME status is not an insurmountable obstacle. But it does mean that new industries are interested in bringing or sustaining trade remedy cases so that imports from Vietnam are a less imposing threat.

Politicians are hopping on board too. Many members of Congress raised concerns about changing Vietnam’s NME status.

The antidumping and countervailing duty laws of this country are capable of sharply decreasing imports even without the extra punch of NME analysis. Countries around the world complain about the unfairness and arbitrary results of market economies and NMEs alike. Not without reason.

But NME status has a ring to it. Going back to Nazi Germany and Imperial Japan, trade remedy petitioners have played on the notion that trading partners are not interested in economic gain but geopolitical gain.

Commerce has good reason to listen to these fears. And Congress has given Commerce nearly unbridled authority to declare any country an NME.

Editor’s note: This is an opinion column. The views in this article are those of an experienced trade attorney on issues of relevance to the current steel market. They do not necessarily reflect those of SMU. We welcome you to share your thoughts as well at info@steelmarketupdate.com.