(Bloomberg) -- The Biden administration rejected Vietnam’s request to be classified officially as a “market economy,” a setback for the country’s efforts to boost exports to its most important market.
The trade-dependent Southeast Asian economy has pressed the administration to revise the status since the upgrade in diplomatic ties during a visit by President Joe Biden to Vietnam in September last year.
The “non-market” economy label mainly works against Vietnam when the US applies anti-dumping complaints. A change would have been a signal of closer ties at a time when the US is seeking to bolster relationships in the region as a counterweight to China.
“Despite Vietnam’s substantive reforms made over the past 20 years, the extensive government involvement in Vietnam’s economy distorts Vietnamese prices and costs and ultimately render them unusable for the purpose of calculating US anti-dumping duties,” the US Commerce Department’s International Trade Administration said in a statement.
Vietnam filed the request to the Commerce Department last September and has appealed directly to US officials, including Treasury Secretary Janet Yellen, citing economic reforms made in recent years.
The Commerce Department’s decision “means that Vietnamese companies exporting goods to the US market will continue to be discriminated in US anti-dumping and anti-subsidy investigations,” Vietnam’s Ministry of Industry and Trade said in a statement. “If the US Department of Commerce reviewed records and practices in Vietnam objectively and fairly, it would be able to acknowledge the fact that Vietnam is already a market economy as recognized by 72 other economies.”
Vietnam, which has signed numerous free trade agreements, is making greater access to the US market a priority. Its total trade — exports and imports — is equivalent to about twice the size of its economy.
Vietnam is benefiting from shifting supply chains amid US-China tensions. It has emerged as a manufacturing powerhouse with multinational companies including Apple Inc.’s suppliers and Samsung Electronics Co. setting up factories in the country.
Vietnam’s non-market designation outcome is not punitive and maintains the status quo with respect to anti-dumping cases, the US Embassy in Hanoi said in a statement. It affects only about 1% of Vietnamese exports to the US, it said. “We look forward to continued engagement on the steps Vietnam can take in its transition to a market economy, and subsequently to market economy country status, under U.S. law,” the embassy said.
Changing Vietnam’s market status has drawn bipartisan Congressional push-back, with critics arguing Vietnam’s control over prices and production and subsidized enterprises threaten America’s manufacturing base.
The US in 2022 removed Vietnam from its monitoring list for currency manipulation, curbing the risk of higher tariffs. The country pledged last year not to use its foreign exchange policy to boost trade.
(Updates the story with Vietnam ministry statement in the sixth paragraph, and US embassy statement in the ninth paragraph.)
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