US considers upgrading Vietnam’s economy status

The joint leaders’ statement announcing the comprehensive strategic partnership upgrade has reaffirmed the importance of trade and investment collaboration and highlighted innovation-driven economic growth as a foundation of the bilateral relationship. On the heels of this momentous occasion, US businesses should have much to be excited about in the Vietnam market.

Previously, US firms were slow to take advantage of the growing opportunities that Vietnam presented. However, they are now increasingly looking towards this market as a key component to their growth strategy in Asia. There are five reasons explaining why US companies should consider exporting to Vietnam:

- The fastest growing middle and affluent classes in the region, providing the right demographics for growth and receptivity to US products and services.

- Over the past few years, Vietnam has been active in signing bilateral trade agreements with countries throughout the world.

- Strong GDP growth expected to continue for the medium term.

- Large population of almost 100 million consumers, half of which are under the age of thirty.

- Political stability.

The US-Vietnamese commercial relationship has grown dramatically since the US lifted its trade embargo against Vietnam in 1994 and the two countries renewed diplomatic relations in 1995. The US is now the largest export market, and the major source of foreign direct investment of Vietnam, helping fuel Vietnam’s remarkable economic growth.

The US has also benefitted from stronger trade ties. Over the past five years, Vietnam’s export revenue to the United States surged 230 per cent, while its import value grew by more than 175 per cent. This country of almost 100 million consumers, with an overwhelmingly positive view towards the US, exhibits the demographics needed for continuous growth over the next 20 years, a rising star among Asia’s bustling economies. Source: International Trade Administration under US Department of Commerce

Adam Sitkoff, Executive director American Chamber of Commerce in Hanoi

This month marks 30-years since US President Clinton lifted the 19-year old trade embargo on Vietnam. This year is also the American Chamber of Commerce’s (AmCham) 30th birthday in Vietnam. During that time, we have witnessed firsthand the transformation of Vietnam’s economy and the remarkable changes that have occurred. The US and Vietnam are now good friends and recently upgraded to comprehensive strategic partners - something once thought unimaginable.

Vietnam has become one of America’s fastest growing trading partners and we expect this positive trend to continue. AmCham regularly works with our partners in the Vietnamese government on challenges to foreign investment, including corruption, a weak legal system, a shortage of skilled vocational labour, obstacles to investment in key infrastructure, and the government’s slow decision-making process. We believe continuous improvement and dialogue – rather than unfair tariffs – can benefit both countries.

While there may be some disagreement over whether Vietnam has adequately addressed each of the statutory criteria commerce uses to evaluate a country’s market economy status, it is certain that Vietnam’s economy is very different to the other 11 countries on the non-market economy list. We believe that sufficient progress has been made and that graduating Vietnam to market economy status serves the interests of both of our great countries.

Nguyen Hoai Nam, Deputy general secretary Vietnam Association of Seafood Exporters and Producers

If the United States recognises Vietnam as having a market economy, future anti-dumping lawsuits initiated by the US will be subject to market economy rules, meaning that the US will no longer use a third country as a replacement value. Then hopefully there will be more advantages for Vietnamese exports to the US.

In 2023, Vietnam’s shrimp exports to the US are estimated to hit $682.5 million, down 15.4 per cent on-year, while exports of tuna and tra fish hit $326.6 million and $271 million, down 32.9 and 49.6 per cent on-year, respectively.

Also last year, the US remained the biggest importer of Vietnam’s aquatic products, with a total value of $1.56 billion, down 27.2 per cent on-year.

Nguyen Lan Phuong, Partner, Baker McKenzie

A US designation of Vietnam as a market economy will have important implications for Vietnamese goods exported to the US. Under the current standard, with Vietnam designated a non-market economy,, there is a risk that Vietnamese goods may be subject to inflated import duties imposed via trade remedies in World Trade Organization (WTO) agreements.

This is because when imposing WTO trade remedies, the US can disregard domestic prices in non-market economies. This is disadvantageous for exporters of Vietnamese goods as it means that economic realities in Vietnam will not factor into the trade remedy price assessment. A designation of Vietnam as a market economy will improve predictability for exporters since WTO trade remedies in the US will take actual economic realities of producers and exporters in Vietnam into account.

There are important political implications as well, since the market economy designation will be a significant acknowledgement that Vietnam’s economy functions according to certain free market principles.

This designation would be a sharp reorientation when compared with 2020 when the US Trade Representative initiated an investigation into alleged Vietnamese currency undervaluation. A market economy designation is an encouraging development in trade relations.

Luan Nguyen, Vietnam country president, Cargill

Vietnam has played an important role in Cargill’s operations since we entered the country in 1995. Here, we strive to make positive contributions in animal nutrition and community development.

Cargill has long advocated for the recognition of Vietnam as a market economy, especially given its implications for key industries like aquaculture. Vietnam’s classification as a non-market economy has resulted in significant anti-dumping taxes on species such as pangasius and shrimp, adversely affecting their competitiveness in vital markets like the US.

Recognition as a market economy would alleviate these burdens, facilitating access to the US market. This regulatory shift would not only reduce trade barriers but also strengthen bilateral relations between the US and Vietnam, which have flourished over the years, and were elevated to a comprehensive strategic partnership last year.

Market economy recognition would stimulate production and services in industries where Vietnam holds export strength, including agricultural products. This, in turn, fosters greater economic collaboration between the nations.