March 31, 2015 1:43PM

How Will the TPP Impact Vietnam’s “Nonmarket Economy” Designation?

When deciding whether to impose antidumping duties on imports from Vietnam, the United States uses what’s known as nonmarket economy (NME) methodology.  That is, instead of comparing a product’s U.S. price with the price for the same or similar product in Vietnam, U.S. authorities compare it with a fictitious price constructed using surrogate values from third countries.

The use of NME methodology is prohibited under the rules of the World Trade Organization.  But when Vietnam and China joined the WTO, they each agreed that the use of NME methodology would be permitted against them for an additional 15 years.  For China that’s until the end of 2016, and for Vietnam it’s until the end of 2018.

Vietnam, however, is also a negotiating party to the Trans-Pacific Partnership, a 12-member free trade agreement that may be concluded this year.  Last week, Vietnam’s Ambassador to the United States implied that Vietnam was seeking to have its NME status revoked as part of those negotiations.  As reported at Inside U.S. Trade ($):

"I think on the question of the market economy status, we can do it together. Vietnam has been doing it with other countries and I think about three dozen or something countries have recognized that," said Pham Quang Vinh, Vietnam's ambassador in Washington. Vinh added that he hopes "when we reach a conclusion of the TPP, then everything [with regard to this issue will] be resolved."

It certainly makes sense that Vietnam would hope to negotiate the end of NME treatment.  As the Ambassador explained, they’ve already secured market economy status in other countries.  The TPP is a natural vehicle for getting a similar commitment from the United States .  But there’s no guarantee they’re going to get it:

But his counterpart, U.S. Ambassador to Vietnam Ted Osius, seem to tamp down those expectations. Speaking at the same event, Osius indicated that while TPP might put Hanoi on strong footing to make the economic reforms necessary to become a market economy, a change in its status would be likely be further down the road. Both officials spoke at March 24 event at the Center for Strategic and International Studies (CSIS).

Osius said that the U.S. Commerce Department process to determine a country's market economy status is non-political, and that Vietnam still needs to fulfill certain requirements, such as having a convertible currency.

The U.S. official’s characterization is telling.  The U.S. government has consistently argued that NME status is a factual question.  That is, if Vietnam or China meets the criteria under U.S. law for market economy treatment, their NME status will be revoked accordingly. 

This characterization is misleading and troubling for a number of reasons.  First, NME status is very much a political decision.  There are factors for evaluating nonmarket economy status under U.S. law, but those factors are not especially relevant to the problem a genuinely nonmarket economy poses for the use of regular antidumping methodology.  “Currency convertibility” is an excellent example.  Moreover, the factors ask regulators to evaluate “the extent of” certain interventionist policies without giving guidance on how extensive they must be.  And a determination of whether a country “meets” the factors is explicitly not reviewable by any court. 

Second, the important question is not about Vietnam’s economy but about when the U.S. will end this abusive antidumping practice.  As I explained in a policy analysis paper last year, the NME designation is merely an excuse for lawless protectionism.  Whatever factors the U.S. government wants to come up with, the fact remains that Vietnam and China both are sufficiently market-oriented that authorities can use domestic prices to determine whether goods are being sold in the United States at “dumped” prices.

Finally, it’s particularly repugnant for the United States to impose NME treatment on imports from a country it has a free trade agreement with.  The TPP should eliminate barriers to trade between the United States and Vietnam and further integrate their markets, so that increased competition can effectively drive economic growth.  Singling out Vietnam for discriminatory antidumping treatment is entirely incompatible with that goal.

Vietnam is right to demand an end to abusive NME treatment by the United States.  If U.S. negotiators are serious about making the TPP an “ambitious, 21st Century agreement,” they should welcome that demand without objection.