US rejects Vietnam's request for 'market economy' classification

2024-08-02

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Washington rejected Vietnam's request to be designated as a market economy, the U.S. Commerce Department said Friday.

The United States has classified Vietnam as a "non-market economy" since 2002, due to Hanoi's state intervention in economic affairs such as trade, pricing and currency. There are 12 other countries the United States classifies as a "non-market economy" including China, Russia and North Korea.

Vietnam sought to be upgraded from this classification due to recent economic reforms and policy commitments, and appealed to U.S. officials directly, including U.S. Treasury Secretary Janet Yellen.

The U.S. Department of Commerce said its decision to maintain Hanoi's market classification was based on a thorough evaluation of comments from U.S. domestic industries and the Vietnamese government.

"Despite Vietnam's substantive reforms made over the past 20 years, the extensive government involvement in Vietnam's economy distorts Vietnamese prices and costs and ultimately render them unusable for the purpose of calculating U.S. antidumping duties," the department said in a statement.

Hanoi's request for reclassification was made in September last year amid strengthening relations between the U.S. and Vietnam.

The request was made the same month President Joe Biden visited Vietnam for talks, during which Washington and Hanoi upgraded their ties to a "comprehensive strategic partnership," the highest level of diplomatic ties granted by Vietnam.

Vietnam has also signed many free trade agreements with the United States indicating a greater focus on access to the U.S. market, and Washington removed Hanoi from its monitoring list for currency manipulation.

Vietnam's Ministry of Industry and Trade said upgrading Vietnam would have been a fair move.

"Vietnam regrets that despite several positive improvements in the Vietnamese economy recently, the U.S. Department of Commerce still has not recognized Vietnam as a market economy country," it said in a statement.

Opponents of Vietnam's reclassification say Hanoi is a growing threat to Washington's manufacturing base, as more Chinese firms are setting up shop in Vietnam to avoid U.S. taxes on Chinese imports.

Vietnam has increasingly emerged as an important part of the global supply chain as many Western companies have sought to move their operations away from China in attempts to avoid geopolitical disruptions.

The decision on whether to upgrade Hanoi's status comes at a delicate time before U.S. elections in November, as both parties look to take a stand for workers' rights.

In July, Republican Senator Tom Cotton wrote a letter co-signed by six other Republican senators urging Commerce Secretary Gina Raimondo to not approve Vietnam's request citing, "controlled currency, lack of labor rights, and extensive state intervention" in the country.

"There is no doubt that the country's non-market economic practices already violate fair competition and lawful trade," the senators wrote.

Also in opposition to a reclassification were a group of Democrats, including senators Elizabeth Warren and Bernie Sanders, who noted more than two dozen antidumping orders against Vietnam by the U.S., and pending dumping investigations.

Some information for this report was provided by Reuters.

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