High Time for the United States to Graduate Vietnam from Its Nonmarket Economy Status

Vietnam’s leaders might be forgiven for being befuddled about why their country can have a comprehensive strategic partnership and rank as one of the United States’ top trading partners but still be categorized as a nonmarket economy. Vietnam has held that status for over two decades and is categorized in a grouping of 12 nations that includes Russia, China, and countries formerly linked to the Soviet Union. This is the case even though Hanoi has emerged as one of Washington’s closest partners in Southeast Asia and serves as a bulwark against Chinese expansion in the disputed South China Sea.

Vietnamese officials have increasingly mounted calls on the United States to “graduate” their country from this less-than-friendly economic category. “Can you imagine, with what we’ve done, what we’re trying for, and look at the relationship between our two countries, is it acceptable that Vietnam is among the 12 countries . . . the worst countries in the world?” Ambassador Nguyen Quoc Dzung asked at a conference at CSIS in January. “So I think if the [Department of Commerce] turned that down, I think it would be very bad for the two countries.”

Last September, President Joe Biden visited Hanoi and agreed with Vietnam’s leaders to upgrade ties to a comprehensive strategic partnership, which included both security and economic initiatives. Vietnam formally applied to have its nonmarket economy status lifted just days before Biden landed. A month later the U.S. Department of Commerce agreed to launch a review about removing Vietnam from the list of countries that face the most rigorous criteria when charged in antidumping cases. According to U.S. regulations, the department has 270 days, or until late July, to complete the survey about Vietnam’s status.

Countries designated as not having market economy status have their prices compared to those in a third country, say, Bangladesh where costs are often higher than in Vietnam to determine the level of antidumping duties which Washington will apply to the country’s products. 

Washington granted Vietnam normal trade relations status in 2001 and the following year designated the country as a nonmarket economy during an investigation of possible dumping of catfish as exports to the United States soared. To determine if a country should be graduated to market economy status, the Department of Commerce considers six different criteria: one, is whether its currency is convertible. (Last year, the U.S. Department of the Treasury put Vietnam on a currency manipulation “watch list” that included free-market stalwarts like Singapore and Taiwan.) Two, are wages determined by free negotiations between workers and management (mostly so in Vietnam). Three, are joint ventures and foreign investment allowed (definitely, yes). Four, are the means of production controlled by the government (mostly not); and five, are resources and prices controlled by the government (mostly not). A sixth criterion allows the department’s reviewers to consider other “appropriate” issues. This category can be quite arbitrary and include human rights concerns. 

Over the past two decades Washington has imposed antidumping duties against Vietnamese products a number of times, including on paper plates and shopping bags, honey, shrimp, gas-pressured washers, and wire garment hangers

Getting unanimous support from companies and Congress for graduating Vietnam to market economy status may not be easy. After the Department of Commerce launched its review, some U.S. trade organizations such as the National Retail Federation strongly supported granting Vietnam market economy status. It cited the country’s openness to foreign investment, currency convertibility, and free bargaining to set wages.

Others, including the American Shrimp Processors Association, submitted comments calling on the administration not to lift the nonmarket designation. It argued that Vietnam “does not operate on market principles” and claimed that removing the designation would “hurt domestic” shrimp producers. Other industries such as U.S. producers of honey, catfish, steel, and kitchen cabinets also opposed the move.

Members of Congress also weighed in against the change. Two dozen House of Representatives members and a group of senators charged that Vietnam did not meet the criteria because of “deficiencies” in the country’s labor laws, the important economic role that state-owned enterprises still play and possible harmful impact lifting the designation would have on U.S. workers and companies. Some members said that the country first needed to improve its domestic labor standards and stop allowing China to transship goods from China to Vietnam.

To be sure, Vietnam’s economy is not without challenges, but it has come a long way since the heyday of socialist central planning. Hanoi’s Communist Party mounted economic reforms in the late 1980s by opening the country to foreign direct investment, sharply curtailing the role of subsidies to state-owned enterprises, and abandoning collective agriculture and price controls.

Today Vietnam is a major magnet for foreign investment as companies seek to decouple from China and find alternative manufacturing hubs. U.S. companies such as Apple and Intel have set up major factories and research centers, and the country is among the top 10 trading partners with the United States. When Biden visited Hanoi last year, he committed a U.S. to boost semiconductor production and promote digital infrastructure. Vietnam is a partner in the U.S.-promoted negotiations to establish a 14-nation Indo-Pacific Economic Framework intended to promote regional economic ties. The country is part of the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership in which it agreed to give more-independent labor unions a greater role in its economy until former President Donald Trump pulled out of the agreement when he assumed office.

Scores of global economies, including Japan, Australia, the United Kingdom, and Canada, have granted Vietnam market economy status. For Washington to maintain nonmarket economy designation against Vietnam seems arbitrary, vindictive, and counterproductive against a country with which the United States has deep economic ties and increasingly strong security cooperation. The next logical step in U.S.-Vietnam relations would be for the Department of Commerce to graduate Vietnam to a market economy in July.

Murray Hiebert is a senior associate of the Southeast Asia Program at the Center for Strategic and International Studies in Washington, D.C.

Murray Hiebert
Senior Associate (Non-resident), Southeast Asia Program