Why Vietnam wants US to change its ‘non-market economy’ status

Subject: Economy

Sec: External Sector

Tag: non-market economy

Context:

Vietnam has been pushing the President Joe Biden administration to quickly change its “non-market economy” classification to “market economy”, in a bid to avoid high taxes imposed by the US on the goods imported from the Southeastern country.

More on news:

Vietnam has emerged as one of the top trading partners of the US and helped thwart China’s expanding influence in the region.
Vietnam has continued to be on Washington’s list of non-market economies for more than two decades.

What are ‘non-market economies’?

The US designates a country as a non-market economy based on several factors.
These are:
- if the country’s currency is convertible;
- if wage rates are determined by free bargaining between labor and management;
- if joint ventures or other foreign investment are allowed;
- whether the means of production are owned by the state; and
- if the state controls the allocation of resources and price and output decisions.
- Other factors like human rights are also considered.
The non-market economy label allows the US to impose “anti-dumping” duties on goods imported from designated countries.
In international trade, dumping is when a country’s export prices are considered to be intentionally set below domestic prices, thereby inflicting harm to industries in the importing country.
The US assesses the value of a product to be imported from a non-market economy like Vietnam based on what it is worth in Bangladesh and then assumes that this is the supposed production cost to a Vietnamese company.
The company’s own data about the costs are not considered.

Why does Vietnam want to get the ‘market economy’ status?

The change in status will also help Vietnam get rid of the anti-dumping duties, making its products more competitive in the US market.

What is Anti Dumping Duty?

Anti-dumping duties are imposed when it is conclusively proved that a particular item is being exported at a price lower than what is prevailing in the domestic market of the exporter and is leading to disruption in the domestic market, injuring the local producers
An anti-dumping duty is a protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value.
Dumping is a process where a company exports a product at a price lower than the price it normally charges in its own home market.
The imposition of anti-dumping duty is permissible under the World Trade Organization (WTO) regime
Anti-dumping duties essentially compensate for the difference between the imported good’s export price and their normal value.
The level of anti-dumping duties is determined by relying on a third country, for instance, Bangladesh, which is a market economy.

Places in news:

Vietnam:

It has a long land border of 4,550 km, bordering China to the North, Laos and Cambodia to the West, and the Eastern Sea (South China Sea) of Pacific Ocean to the East.
It shares maritime borders with Thailand through the Gulf of Thailand, and the Philippines, Indonesia, and Malaysia through the South China Sea.