Kamala Harris should offer Vietnam ‘market economy’ status
The fall of Kabul has drawn comparisons to America’s chaotic withdrawal from Saigon, raising concerns about the timing of Vice President Kamala Harris’s visit to Vietnam. Her trip is intended to reassure Southeast Asian countries that the U.S. sees the region as more than just real estate in its rivalry with China. That’s a difficult task in 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 U.S. designates as a “non-market economy.” This means Washington doesn’t believe Vietnam’s economy works on “market principles of cost or pricing structures….” Rather, Washington says the visible hand of government orchestrates economic outcomes, not the invisible hand of the market. This isn’t just some slight. The upshot of being designated a non-market economy is that Vietnam’s exporters are highly exposed to U.S. trade remedies, particularly antidumping duties. Let me explain.
Imagine a U.S. company alleges that a foreign firm is selling below its cost. This is called dumping, the remedy for which is an antidumping duty, or tariff, to offset this discount. You’d think dumping would be welcome, given that it means cheaper imports. But the U.S., like other countries, retaliates for it. That’s because of fear of predation: A foreign firm might sell below cost to drive out its competitors, and then price like a monopolist.
If that foreign firm is from a “market economy,” like Canada, it’s allowed to defend itself with its own cost data. But if the foreign firm is from a non-market economy, like Vietnam, then it can’t, since these data are believed to be tainted by government intervention. Thus, like other countries, the U.S. can use a third country as a proxy for the firm’s cost structure. This choice of a proxy is politically charged because if its cost structure doesn’t really line up, the investigation’s outcome is likely to be a forgone conclusion.
The expectation had been that the U.S. would designate Vietnam as a market economy in 2019. The thinking had been that Vietnam would be able to transition from a “socialist-oriented market economy,” as it’s called in the country’s constitution, to a market one within 12 years of joining the World Trade Organization (WTO).
But in 2019, U.S. trade relations with Vietnam were on the rocks. President Trump viewed Vietnam as a major economic threat, saying in an interview that the country “is almost the single worst—that’s much smaller than China, much—but it’s almost the single worst abuser of everybody.” This was, and is, nonsense.
The U.S. certainly has complaints about market access in Vietnam. But if you simply count pages of the 2021 National Trade Estimate Report on Foreign Trade Barriers devoted to each U.S. trade partner, the United States trade representative spends only 10 on Vietnam. To put this in perspective, there are seven pages on Canada, 35 on China and 50 on the European Union (EU). Moreover, if you look closely at what these complaints are about, they mostly concern the kind of complex measures that confound U.S. trade relations with every country, like food safety standards.
Or consider WTO litigation as a metric. The U.S. has never sued Vietnam. No country has. For its part, Vietnam has filed four WTO cases against the U.S., three over antidumping duties on seafood, and one over food safety standards on pangasius. Vietnam’s only other WTO case was against Indonesia, also over antidumping duties. More telling, some two-thirds of Vietnam’s 34 appearances as a third party in WTO litigation concern trade remedies, and antidumping duties in particular. This speaks volumes to the weight of the issue.
Designating Vietnam as a market economy won’t end U.S. antidumping duties against the country, least of all on catfish. It will simply mean that Vietnamese producers can use their own cost data to defend themselves. This might not sound like a big deal, but it will mean everything to Vietnam.
From Vietnam’s perspective, this would be the most credible signal that the U.S. is finally interested in “normalizing” bilateral trade. Countries such as Australia, India, Japan and South Korea have already granted Vietnam market economy status. The message would also not be lost on China, the other non-market economy the U.S. was expected to reclassify in 2016 but didn’t. There are few, if any, gestures that would have this same political signal-to-noise ratio.
Moreover, the Biden administration doesn’t 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 this isn’t on Biden’s radar. The U.S. is also not in any apparent rush to rejoin the Trans-Pacific Partnership, much to Vietnam’s regret. Something could perhaps be done to deepen the 2007 U.S.-Vietnam Trade and Investment Framework. But in comparison to Vietnam’s free trade deals with Canada, the EU and Mexico, for example, this will come across as being trite.
The optics of visiting Vietnam this week are less than ideal. But Harris can deliver on the trip’s purpose by vowing to give the country market economy status.
Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service at Georgetown University. Follow him on Twitter @marclbusch.
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