According to the United States of America (USA), twelve countries in the world today do not have market economy status.[1] Historically, the status of non-market economy country has generally been granted to countries that were formerly part of the Union of Soviet Socialist Republics (USSR). Of the twelve, only China and Vietnam were not members of the USSR at the time.
The criteria for the US to recognize a country as a market economy are: whether its currency is convertible, wages are freely negotiated, foreign investment is allowed, the state controls production and some resources, and prices are freely set. The US also uses its own assessment and considers other issues such as human rights. If the US considers a country to meet these criteria, it can grant it market economy status.
Vietnam-US relations were upgraded to a Comprehensive Strategic Partnership in September 2023. Following this, one of Vietnam’s most desired changes was the designation of the country as a “market economy”. Two days before US President Joe Biden visited Vietnam in 2023, the Vietnamese Ministry of Trade and Industry applied to the US Department of Commerce to initiate a “Change of Status Review” to upgrade Vietnam’s non-market economy status. They have also engaged in lobbying activities.
Such a change in status would bring both symbolic and tangible trade benefits for Vietnam. This is because the country is constantly subjected to anti-dumping duties by the United States. These duties are imposed on products that are found to be sold in the American market at a lower price than the cost of production in Vietnam. The US argues that these duties prevent unfair competition in the market. Vietnam, for example, currently faces tariffs of about 26% on its exports of frozen farmed shrimp to the US, while Thailand, which has market economy status, faces tariffs of only 5%.[2]
Acceptance of market economy status would exempt Vietnam from excess tariffs and thus increase US imports of Vietnamese goods. In addition, Vietnam’s market economy status would increase foreign investment. This is because US investors will feel more comfortable investing in a country where the government is not tightly controlled.
On July 24, 2024, the US Department of Commerce postponed its decision on whether Vietnam would become a market economy due to technical problems. These dates also coincided with the death of Nguyen Phu Trong, the leader of the Communist Party of Vietnam. The decision date was therefore set for the first week of August. US Secretary of State Antony Blinken, who was on a tour of Asia at the time, also visited Vietnam and attended the funeral of the Communist Party leader.[3] On August 2, 2024, the request, which was reviewed again, was not approved by the US Department of Commerce.
Vietnam’s Arguments:
Vietnam offers many arguments in favor of the US recognizing it as a market economy. First of all, 72 countries around the world, including China, the United Kingdom, Canada and Japan, recognize Vietnam’s market economy status. According to Vietnam, doing business with these major partners shows that it is a market economy, and this status should be granted by the United States.[4]
Vietnam makes the following arguments that it deserves market economy status: First, it aims to increase the convertibility of its currency, the Dong, has stepped up efforts to achieve macroeconomic balance, and has increased the exchange rate band to 5%. The country also states that it has laws to protect labor rights and that wages are negotiated. Indeed, Vietnam attracts foreign direct investment (FDI), generating 20% of its GDP, 50% of its industrial production and 70% of its exports from the FDI sector. It also aims to increase the private sector’s contribution to GDP to 60-65% by reducing the role of state-sponsored enterprises. In 2023, Vietnam abolished price controls on most consumer goods through a price law and authorized limited intervention only in emergencies.[5]
United States of America’s Arguments:
In the US, groups such as steel producers, Gulf Coast shrimpers, honey producers, the American Manufacturing Association, legislators in the Senate and House of Representatives, the Southern Shrimp Association and the American Shrimp Processors Association do not want Vietnam to be granted market economy status. In addition, some trade and labor organizations believe that Vietnam’s recognition as a market economy would not benefit the United States. These groups are motivated by evidence of unfair competition. In addition, Human Rights Watch has questioned Vietnam’s argument that workers can freely unionize, noting that the government only allows state-controlled unions to exist. However, some retailers and other business groups support this position.[6]
American steelworkers allege that China is funneling steel products into the US through a third country. It is also alleged that many Chinese state-owned companies have large investments in Vietnam and are already shipping products to the US through Vietnam. Therefore, they argue, Vietnam’s transition to a market economy will be to the detriment of American workers and producers.[7]
According to the American Manufacturing Association, Vietnam continues to restrict money and capital accounts and influence the foreign exchange market. It also manipulates the value of its currency. Indeed, the US Treasury Department has placed Vietnam back on its currency manipulation watch list. In addition, workers in Vietnam lack basic rights such as the right to organize, bargain and strike, so salaries are allegedly not set through free bargaining. More allegedly, the country restricts joint ventures and investments by foreign firms, with the majority of permitted investments coming from China. This, it is claimed, increases China’s control. In general terms, the transition of Vietnam to market economy status would jeopardize US economic and national security interests.[8]
In China’s view, market economy status is a geopolitical tool used by the United States. Some Vietnamese experts have argued that the US refusal to recognize Vietnam’s market economy would bring Vietnam closer to China. Indeed, the new Secretary of the Vietnamese Communist Party, To Lam, has started to attach more importance to cooperation with China. One of the biggest fears of the US is Chinese firms doing business in Vietnam.
Conclusion:
Vietnam’s request for market economy status is an issue that could affect not only economic relations between the two countries, but also international dynamics. Even if the US were to grant Vietnam market economy status, there is no doubt that it would consider this as part of its trade war against China. The granting of market economy status to Vietnam by the US would mean tangible benefits for Vietnam in getting closer to the US and in trade. It seems that the US intends to hold the market economy status for Vietnam as a trump card.
[1] “Countries Currently Designated by Commerce as Non-Market Economy Countries”, US Deparment of Commerce, https://www.trade.gov/nme-countries-list, (Accessed: 15.11.2024).
[2] “Vietnam’s Quest for “Market Economy” Status”, the Vietnamese, https://www.thevietnamese.org/2024/07/vietnams-quest-for-market-economy-status/,(Accessed: 15.11.2024).
[3] “US delays sensitive Vietnam ‘market economy’ decision until August”, Reuters, https://www.reuters.com/world/us/us-commerce-dept-delays-sensitive-vietnam-decision-until-august-memorandum-2024-07-24/, (Accessed: 15.11.2024).
[4] “Why the US should recognise Vietnam’s market economy status”, RMIT University, https://www.rmit.edu.vn/news/all-news/2024/jul/why-the-us-should-recognise-vietnams-market-economy-status, (Accessed: 15.11.2024).
[5] Ibid.
[6] “Vietnam’s Quest for “Market Economy” Status”, the Vietnamese, https://www.thevietnamese.org/2024/07/vietnams-quest-for-market-economy-status/, (Accessed: 15.11.2024).
[7] “Vietnam is Not a Market Economy”, Alliance for American Manufacturing, https://www.americanmanufacturing.org/blog/vietnam-is-not-a-market-economy/, (Accessed: 15.11.2024).
[8] Ibid.
