Significance of Vietnam being a market economy

According to the Ministry of Industry and Trade, 72 countries recognize Vietnam as a market economy, including Canada, Australia, Japan, and South Korea. The U.K. did so recently with an official letter to the effect.

Speaking to VnExpress, a Trade Remedies Authority Department official said since its first anti-dumping investigation case against Vietnam in 2002 the U.S. had been considering the country a non-market economy.

In a meeting with the U.S. Secretary of Commerce Gina Raimondo in Washington last Tuesday, Prime Minister Pham Minh Chinh proposed the U.S. to soon recognize Vietnam’s market economy status. The need for recognition of Vietnam's market economy status was also in the joint statement between General Secretary Nguyen Phu Trong and President Joe Biden on upgrading the two countries' relations to a Comprehensive Strategic Partnership.

The EU also sees Vietnam as a non-market economy. In 2015, while free-trade agreement negotiations were underway, the EU Delegation representative told the press that the signing shouldn’t be equated to recognizing Vietnam as a market economy.

A non-market economy is one where the government has a monopoly, or near-monopoly, on trade and the state gets to set domestic prices. Traditional calculation principles are not applicable to exporters considered "non-market." Importers, meanwhile, can use other suitable principles. This creates major disadvantages for manufacturers and exporters based in non-market economies.

Each country will have its own regulations to determine a non-market economy.

According to U.S. regulations, there are six criteria to consider whether an economy is market or non-market: currency conversion level; salary and wage negotiation between employees and employers; level of foreign investment in economic activities; state and private ownership; level of government control over certain resources and prices; and other factors.

As for the E.U., five criteria exists: level of government influence in resource allocation and business decision-making, no state intervention that can change businesses’ normal operations; corporate, accounting and audit management; presence and enforcement of certain legal regimes, of respect for intellectual property rights, bankruptcy and competition, and judicial systems; and the financial sector.

Nguyen Thi Thu Trang, director of the Center for WTO and Integration, said that in the 2007 WTO accession documents, Vietnam had to accept that importers could regard it a non-market economy.

"Being considered a non-market economy has a big impact on Vietnamese businesses, especially in anti-dumping investigations," said a Trade Remedies Authority of Vietnam representative.

For example, when calculating the dumping margin, the U.S. uses the value of an additional country (one with a market economy) to work out production costs in Vietnam. It does this instead of using data provided by Vietnamese businesses. As a result, the dumping margin is high and does not reflect Vietnamese businesses’ actual state of production.

"There’s also the fact that many times manufacturers in the additional country are competitors of Vietnamese exporters, prompting them to present unfavorable data in these investigations," Trang added.

The U.S.’consideration of Vietnam as a non-market economy also allows it to apply nationwide tax rates, which are reserved for businesses that are uncooperative or are still influenced by the government. The U.S. calculates the nationwide tax rate based on available data, which can be bloated, that are maintained in all reviews.

The possibility of removing a tax imposition is limited, in turn.

At present, the U.S. is an important export market for Vietnam with a total turnover in 2022 of nearly $109.4 billion, accounting for 29.5%, according to data from the General Department of Customs.

The U.S. also initiated the most trade defense investigations with Vietnam, mainly anti-dumping investigations with 25 out of 56 cases as of August 2023.

The EU is the third most important foreign market for Vietnamese goods from 2020. Data from the Ministry of Industry and Trade shows that, since the European Union–Vietnam Free Trade Agreement took effect, Vietnam has exported $128 billion of goods. Customs data shows the value of Vietnamese goods to the EU in 2022 is $46.8 billion, accounting for 12.6% of total export turnover.

To earn the "market economy" recognition from two major importers, consequently, will help Vietnam’s manufacturing and export industries.

"If recognized, in anti-subsidy and anti-dumping lawsuits, Vietnamese businesses will not be subject to unfavorable calculations. From this, the scale and corresponding tax rate from the U.S. will be much lower than present as they are approved in a standardized and fairer manner," Trang said.

Since 2008, after officially joining the WTO, Vietnam and the U.S. have established a bilateral working group on market economy. To date, the Ministry of Industry and Trade said both sides have held 10 meetings to update the U.S. on Vietnam's market economy situation. Vietnamese senior leaders, during their U.S. working trips, also referenced this matter.

On Sept. 8, the Ministry of Industry and Trade officially submitted a request to the U.S. Department of Commerce to consider Vietnam's market economy status issue. "The time of submission has great meaning right when the countries’ relations reach new levels," the Trade Remedies Authority of Vietnam said.

According to regulations, from when Vietnam submitted the request, the U.S. Department of Commerce will decide whether to initiate a review within 45 days and reach a verdict within 270 days. In the joint statement between the countries, the U.S. said it would urgently consider the request to recognize.

Also, in a recent meeting with PM Chinh, Commerce Secretary Raimondo said she would expedite the U.S.’ approval of Vietnam's request.