There’s Growing Bipartisan Opposition to Granting Vietnam Market Economy Trade Status

By Elizabeth Brotherton-Bunch
Jan 29 2024 |
Hai Phong Port in Northern Vietnam. Getty Images

Considering that Vietnam fails all of the criteria for actually being a market economy, it seems like granting it that status would be an unforced error.

Members of Congress from both parties are calling upon the Biden administration to avoid granting Vietnam market economy status, arguing that doing so would undermine U.S. trade enforcement efforts, including by effectively giving China’s government a boost in its quest to send its products through Vietnam to dodge U.S. tariffs.

The Commerce Department is currently reviewing Vietnam’s non-market economy status at the behest of Vietnam’s government, which claims to have made the necessary economic reforms to be given market economy status. That new status would fundamentally alter the U.S.-Vietnam trade relationship, including by eroding tools used to counter illegally dumped goods and, in turn, creating new options to circumvent key laws like the Uyghur Forced Labor Prevention Act (UFLPA), which bans all products made in whole or part in the Xinjiang region of China.

Indeed, China is one of the main reasons for concern when it comes to granting Vietnam market economy status. There’s an abundance of evidence that China is using the country to dodge U.S. tariffs and trade enforcement efforts by sending its goods to Vietnam, conducting final assembly work and relabeling products as “Made in Vietnam.”

But even if that wasn’t happening, Vietnam shouldn’t be granted market economy status because it doesn’t meet any of the statutory criteria for actually being a market economy, Senators and Members of the House of Representatives argue.

A group of eight Democratic senators is the latest to express opposition to the potential designation, noting that there is “abundant evidence suggesting that Vietnam does not meet the legal requirements established by Congress to receive market economy status.” In the letter, which was led by Massachusetts Sen. Elizabeth Warren, the group notes that they are “especially concerned by reports that Commerce pledged to the government of Vietnam that your agency’s review will result in a favorable determination, to the detriment of U.S. industries and workers.”

The senators write:

“Granting Vietnam market economy status before it addresses its clear nonmarket behavior and the severe deficiencies in its labor law will worsen ongoing trade distortions, erode the U.S. manufacturing base, threaten American workers and industries, and reinforce Vietnam’s role as a conduit for goods produced in China with forced labor. We urge you and your agency to thoroughly consider the economic and labor conditions in Vietnam as you conduct your review of Vietnam’s market economy status, and believe the evidence points to one conclusion: Vietnam does not meet the requirements to receive market economy status under U.S. trade law.”

A similar letter, spearheaded by Rep. Rosa DeLauro (D-Conn.), was sent to the Commerce Department from 25 members of the House of Representatives. Meanwhile, a group of Republican senators delivered their own message to Commerce back in December, writing:

“Our industries—from steel to catfish—compete with Vietnamese exporters and rely on Commerce to enforce and uphold U.S. trade laws. In just the last twenty years, over 30 different American industries across at least 35 states have filed petitions against imported goods from Vietnam alleging dumping or circumvention. Anti-dumping and countervailing duty concerns have only gotten worse, with more than half of these lawsuits being filed within the past five years. Granting Vietnam market economy status would allow Vietnamese producers to mask price discrimination in the American market and further tip the scales in their favor.”

In all of the letters, Members express concern that the process for granting Vietnam non-market economy status has become politicized and is not following the normal order. Given how badly Vietnam fails the six-part test established by Congress for actually being a market economy, it’s fairly easy to see why the Members are coming to that conclusion.

Let’s break it down.

Criteria No. 1: The extent to which the currency of the foreign country is convertible into the currency of other countries. Vietnam’s banking system continues to operate under government oversight and does not operate independently. Meanwhile, Vietnam remains on the Treasury Department’s monitoring list for currency manipulation.

Criteria No. 2: The extent to which wage rates in the foreign country are determined by free bargaining between labor and management. In 2022, the State Department found that Vietnam employs “significant restrictions on workers’ freedom of association” and noted the country’s “use of compulsory child labor.” That same report noted that while Vietnam’s constitution bans forced labor, it does not “explicitly include debt bondage” and while labor trafficking is technically banned, the government “does not effectively enforce the law.” Indeed, there are reports “indicating forced labor in the informal apparel industry,” the State Department notes.

Criteria No. 3: The extent to which joint ventures or other investments by firms of other foreign countries are permitted in the foreign country. Vietnam’s economy is state-controlled, making it challenging for foreign investors to do business there. The State Department also reported that “widespread corruption” remains, along with “the entrenched position of state-owned enterprises (SOEs) in certain sectors, regulatory uncertainty in key sectors, a weak and opaque legal regime, poor enforcement of intellectual property rights, a shortage of skilled labor, restrictive labor practices, and slow government decision-making processes.”

Criteria No. 4: The extent of government ownership or control of the means of production. Vietnam remains a communist country with a central, state-run economy. While there have been some reforms in recent years, it is nowhere near enough to meet the criteria to be a non-market economy, as state-owned enterprises “play an essential role in the economic development of Viet Nam. They account for a large share of the economy and dominate in key business areas and receive preferential treatment from the government.” 

Criteria No. 5: The extent of government control over the allocation of resources and over the price and output decisions of enterprises. Vietnam’s government continues to promote its own state-owned enterprises over other entities, and that includes using price controls, especially in key industries like “petrol, steel, concrete, transport, livestock feed, food and medical equipment.”

Criteria No. 6: Such other factors as the administering authority considers appropriate. As the Democratic senators note in their letter, this one is a catch-all, and it is the criteria under which the Commerce Department should examine how China is using Vietnam to avoid U.S. trade enforcement efforts and import duties:

“Vietnam’s manufacturing sector relies heavily on inputs from China, making it vulnerable to forced labor risks in supply chains. Moreover, Commerce itself has raised the alarm about China’s use of Vietnam to circumvent U.S. antidumping duties on Chinese-made products. Vietnam currently has 25 antidumping orders against it, with four more investigations pending; these active and pending orders range across industries, from tires, mattresses, and paper shopping bags to wind towers. Granting Vietnam market economy status would impact the outcome of all pending antidumping investigations and could prevent Commerce from protecting domestic workers and producers from market distorting practices.”

The Commerce Department has 270 days to complete the review from the time it was initiated in October, which means that process is set to wrap up this summer. Although there may be some within the Biden administration who want to grant Vietnam market economy status to improve relations, it is abundantly clear when you actually dive into the criteria that Vietnam simply is not a market economy. Members of Congress are right to raise alarm bells, and the Commerce Department must ultimately determine that Vietnam should remain a non-market economy.