By David Brunstrom and Phuong Nguyen
WASHINGTON/HANOI (Reuters) – The U.S. Commerce Department said on Friday it will continue to classify Vietnam as a non-market economy, a disappointing decision for Hanoi, which the United States has been courting as part of its efforts to counter China.
Vietnam has long sought an upgrade, which would have reduced punitive anti-dumping duties on non-market economies with significant government influence. There are only 12 other economies that Washington classifies as non-market, including China, Russia, North Korea and Azerbaijan.
The change was opposed by U.S. steelmakers, shrimp producers, Gulf honey farmers and the members of Congress who represent them, but retailers and some other business groups supported the change.
The U.S. Department of Commerce today announced its decision to continue designating Vietnam as a non-market economy country for purposes of calculating U.S. anti-dumping duties on imports from Vietnam, following a year-long review.
“This discovery means that the methodology used to calculate US anti-dumping duties on imports from Vietnam remains the same,” she said.
The Vietnamese Ministry of Industry and Trade said Vietnam’s development was to be an objective and fair move.
“Vietnam regrets that despite many positive improvements in the Vietnamese economy recently, the US Department of Commerce has not yet recognized Vietnam as a market economy country,” it said in a statement.
Vietnam has long argued that it should be freed from the “non-market” label because of recent economic reforms, saying that retaining the title is bad for increasingly close bilateral ties that Washington sees as a counterweight to China.
Opponents of the upgrade have countered that Hanoi’s political commitments have not been matched by concrete action and that it operates as a planned economy ruled by the ruling Communist Party. They say Vietnam is increasingly being used as a manufacturing hub by Chinese companies to circumvent U.S. restrictions on imports from China.
The decision was made despite Vietnam’s “impressive reforms and economic growth,” a 284-page Commerce Ministry memo explaining the decision said.
A blow to close relations
Washington has been working hard to strengthen ties with Vietnam in the face of growing strategic competition with China, and the question of whether Vietnam should be upgraded has been awkward in light of the upcoming US elections in November and each side’s claims that they stand up for workers’ rights.
Some analysts said before the announcement that failure to modernize Vietnam could have a negative impact on U.S.-Vietnam relations.
“Vietnamese leaders saw this decision as an important benchmark in improving their relations with the United States and achieving normalization between the two countries,” said Edmund Maleski, professor of political economy and director of the Duke Center for International Development.
Murray Hiebert, a senior fellow in the Southeast Asia Program at the Washington-based Center for Strategic and International Studies, called the decision “ridiculous.”
“Vietnam’s market is free like many other markets not on the list of unlicensed countries,” he said, adding that the decision seemed “inconsistent” with US President Joe Biden’s visit to Hanoi last year, when the two sides elevated relations to a comprehensive strategic partnership.
US Treasury Secretary Janet Yellen has also promoted Vietnam as a “friendship support” destination to shift US supply chains away from China.
Even if the Biden administration had taken the politically risky step of developing Vietnam, it would have been seen as a Pyrrhic victory since any future Trump administration would almost certainly reverse it, said Hosuk Lee-Makiyama, director of the Brussels-based European Centre for International Political Economy.
The decision reflects “broad” evidence from industry groups “that Vietnam’s economy has not transformed to the point where it should be treated as a market economy,” said Nazik Nikkhtar, a former Trump administration Commerce Department official who is now at the law firm Wiley Rein.
“Ignoring distortions in trading partners’ economies is unfair and harmful to American interests,” she said.