US rejects Vietnam’s bid for ‘market economy’ status in blow to trade ties

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The US has rejected Vietnam’s bid to be designated as a “market economic system”, thwarting Hanoi’s diplomatic push to deepen commerce ties with its most vital export market because it grows in clout as a producing different to China.

The improve from Vietnam’s present designation as a “non-market economic system” would have additional boosted exports and diminished punitive tariffs on merchandise akin to shrimp from the south-east Asian nation.

The US has labelled Vietnam a “non-market economic system” since 2002 resulting from state interventions in commerce, pricing and forex, a standing that ranks the nation alongside China, Russia and North Korea. The EU additionally designates Vietnam as a non-market economic system.

However as Vietnam has emerged as a vital hyperlink within the international manufacturing provide chain for western corporations searching for to diversify their operations away from China, it has elevated its efforts to be upgraded.

In a September 2023 request filed to the US commerce division, Vietnam requested Washington to rethink its standing, citing “financial reforms made lately”.

The US commerce division stated on Friday that the choice to retain Vietnam’s non-market economic system standing had been made after a radical analysis of feedback from US home industries and the Vietnamese authorities.

“Regardless of Vietnam’s substantive reforms revamped the previous 20 years, the intensive authorities involvement in Vietnam’s economic system distorts Vietnamese costs and prices,” the division stated in a press release.

Vietnam has emerged as one of many largest beneficiaries of escalating commerce tensions between the US and China, with corporations shifting manufacturing services to the south-east Asian nation in an effort to keep away from geopolitical disruption.

Vietnam has additionally strengthened its relationship with the US, a realignment that it has sought to leverage to pursue market economic system standing. Its request to the commerce division got here simply days earlier than a go to by President Joe Biden, throughout which the 2 international locations upgraded their ties to a “complete strategic partnership”, the best stage of diplomatic ties accorded by Hanoi.

Senior Vietnamese officers, together with the prime minister, have additionally made the request. Nguyen Quoc Dzung, Vietnam’s ambassador to the US, stated earlier this 12 months that if Washington didn’t grant the nation market economic system standing, “it could be very, very dangerous for the 2 international locations”.

Vietnam’s push, nevertheless, bumped into opposition from some US senators, steelmakers and different producers, in addition to producers of shrimp and honey over what they name unfair commerce practices and intensive authorities intervention.

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In July, Republican senator Tom Cotton urged commerce secretary Gina Raimondo to not grant Vietnam’s request, citing its “managed forex, lack of labour rights, and intensive state intervention”. Six different Republican senators co-signed the letter.

“There is no such thing as a doubt that the nation’s non-market financial practices already violate honest competitors and lawful commerce,” the senators wrote.

Earlier this 12 months, one other group of senators together with Democrats Elizabeth Warren and Bernie Sanders additionally opposed the market economic system standing, citing greater than two dozen anti-dumping orders in opposition to Vietnam by the US and pending dumping investigations.

Thuy Anh Nguyen, of Vietnam-focused asset supervisor Dragon Capital, stated the failure would disappoint Hanoi, and was shocking given Washington’s “intense courtship of Vietnam lately, the high-level visits and the accompanying rhetoric”.

An improve would have boosted Vietnamese exports to the US, which might have benefited from decrease costs of these items, she stated.

“The US has made no secret of its need to domesticate Vietnam as a strategic counterbalance to China’s affect within the area, and we don’t consider that Vietnam not being upgraded to ‘market economic system’ standing will have an effect on this.”