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What does being recognized as a market economy mean to Vietnam?

04:09 - 25/09/2023

Being considered a "market economy" by major importing countries such as the US and EU gives Vietnam an advantage in anti-dumping and subsidy investigations.

Up to now, according to the Ministry of Industry and Trade, 72 countries have recognized Vietnam as a market economy, including major economies such as Canada, Australia, Japan and South Korea. Most recently, the UK has issued an official letter recognizing Vietnam's market status.

Speaking to VnExpress, a representative of the Trade Remedy Department (Ministry of Industry and Trade), said that since the first anti-dumping investigation case with Vietnam in 2002, the US has considered Vietnam a non-market economy.

The proposal for the US to soon recognize Vietnam's market economy status was mentioned by Prime Minister Pham Minh Chinh when meeting US Secretary of Commerce Gina Raimondo on September 19 in Washington. The joint statement between General Secretary Nguyen Phu Trong and President Joe Biden on upgrading Vietnam-US relations to a Comprehensive Strategic Partnership earlier, also mentioned this issue.

Prime Minister Pham Minh Chinh received US Secretary of Commerce Gina Raimondo on September 19 in Washington. Photo: Nhat Bac

In addition to the US, the EU also maintains the view that Vietnam is a non-market economy. In 2015, while negotiating the FTA, the representative of the European Union delegation noted to the press that the signing did not mean recognizing Vietnam as a market economy.

Non-market economy refers to economies where the government has a monopoly or near-monopoly on trade and the state sets domestic prices. If an exporting country is considered non-marketable, the normal principles of price calculation will not be used. The importing country may use such other methods as it deems reasonable. This creates some major disadvantages for producers and exporters from economies that are considered non-market.

In fact, each country and economy will have its own regulations on criteria for determining non-market economy.

According to US regulations, there are 6 criteria to consider whether an economy has a market or not, including: The degree of convertibility of the currency; Negotiating wages and wages between employees and employers; The level of foreign investment in economic activities; Issues of state ownership, private ownership; The degree of government control over certain resources and prices; Other factors.

For the EU, there are 5 criteria to consider: the level of government influence in the allocation of resources and decisions of enterprises (Vietnam has achieved, according to the EU assessment in 2015); no state intervention that distorts the day-to-day operations of the enterprise; corporate governance, accounting and auditing; the existence and enforcement of certain legal regimes, respect for intellectual property rights, bankruptcy and competition as well as judicial systems; financial sector.

Nguyen Thi Thu Trang, director of the Center for WTO and Integration, said in the WTO accession document in 2007, due to the context of negotiations, Vietnam had to accept that it could be considered a non-market economy by the importing country.

"In anti-dumping investigations, being considered a non-market economy has a great impact on businesses," said a representative of the Trade Remedy Agency.

For example, when calculating the dumping margin, the US will use the value of a third country considered to have a market economy to calculate the production costs of enterprises in Vietnam instead of using data provided by these units. This causes the dumping margin to be pushed up very high and does not reflect the production situation of Vietnamese enterprises.

"Not to mention that when manufacturers in alternative countries are competitors of Vietnamese exporters, they can give detrimental figures in these surveys," Trang explained.

In addition, treating Vietnam as a non-market economy allows the U.S. to impose a nationwide tax rate, which is a tax rate for businesses that do not cooperate or fail to prove they are not under government control. The national tax rate, which is usually calculated by the United States based on available data, is often pushed up very high, maintained in all reviews, hindering the consideration of lifting the tariff.

Currently, the US is an important export market of Vietnam with a total turnover in 2022 of nearly 109.4 USD (accounting for 29.5% - according to the General Department of Customs). The US has also initiated the most trade remedy investigations with Vietnam, mainly anti-dumping investigations with 25 out of 56 cases as of August 8.

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 EVFTA came into effect, Vietnam has exported 128 billion USD of goods to this market. Customs data shows that in 2022, the value of Vietnamese goods to the EU is 46.8 billion USD, accounting for 12.6% of total export turnover.

Therefore, being recognized as a market economy by two major import markets is of great significance to Vietnam's manufacturing and export industries.

"If recognized, when facing anti-subsidy and anti-dumping lawsuits, Vietnamese enterprises will not suffer from the above adverse calculation. Thus, the corresponding tax margin and rate will be determined by the US side in a more standard and fairer way, so it can be significantly reduced compared to the present," Trang said.

In fact, since 2008, after officially joining the WTO, Vietnam and the US have established a bilateral working group on market economy. Up to now, information from the Ministry of Industry and Trade - the focal point of Vietnam - said that the two sides have held 10 meetings, updating the US on the market economy situation of Vietnam. Senior Vietnamese leaders, during their trips to the United States, also addressed the issue.

On September 8, Vietnam's Ministry of Industry and Trade officially submitted a dossier asking the US Department of Commerce to consider Vietnam's market economy. "The timing of submission is special in the context that the relationship between the two countries has been raised to a new level," the Trade Remedy Department assessed.

Under the rules, the U.S. Department of Commerce will decide whether to initiate a review within 45 days and issue a conclusion within 270 days of Vietnam's submission. In the two countries' joint statement, the United States said it would urgently consider the request for recognition of market status. In a meeting with Prime Minister Pham Minh Chinh, Trade Secretary Gina Raimondo said she would seek to push for the U.S. to approve Vietnam's request soon.