The US Department of Commerce conducted this review of Vietnam’s status as a non market economy (NME) country in response to a request by the Government of Vietnam on September 8, 2023, within the context of a changed circumstances review (CCR) of the U.S. antidumping (AD) order on raw honey from Vietnam. As the GOVN submitted sufficient justification for a reevaluation of Vietnam’s NME status, US Commerce determined that good cause existed to initiate its review on October 30, 2023. Since 2022, Vietnam exports to the USA has been decreasing (see graphics); a Market Economy recognition would attract favorable nations taxation tarifs on imports by the USA thus boosting Vietnam exports volumes.

In response to Vietnam’s request to reconsider its 2002 classification as a non-market economy (NME) under U.S. antidumping (AD) law, the U.S. Department of Commerce has reaffirmed Vietnam’s NME status in a 2024 review. This conclusion follows a comprehensive analysis of Vietnam’s economy, focusing on key structural issues that continue to hinder its full transition to a market economy. Despite significant reforms since the 1986 launch of “Doi Moi,” Vietnam’s persistent government intervention in economic decision-making still distorts pricing and resource allocation. This review considers six statutory factors, highlighting ongoing challenges despite Vietnam’s impressive growth.

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Background and Economic Reforms in Vietnam

Vietnam embarked on the Doi Moi reforms in 1986 to transition from a centrally planned economy to one more aligned with market principles. These efforts have been largely successful in fostering rapid economic growth. According to the International Monetary Fund (IMF), Vietnam’s per capita GDP growth since 1990 ranks second only to China, and its poverty reduction has been remarkable, lifting 40 million people out of poverty between 1993 and 2014.

Despite joining the World Trade Organization (WTO) in 2007 and further integrating into the global economy, the U.S. Department of Commerce first classified Vietnam as an NME in 2002. That classification meant U.S. antidumping duties applied to Vietnamese goods are based on pricing comparisons with other countries, due to concerns that Vietnamese prices do not accurately reflect market conditions. Vietnam’s government requested a review of this status in 2023, citing ongoing reforms, but Commerce’s review concluded that significant challenges remain.

Key Factors in Commerce’s Analysis of Vietnam economy

1. Currency Convertibility: the Ministry of Finance allocates the rights

Since 2002, Vietnam has made progress toward currency convertibility, including assuming IMF Article VIII obligations, which promote the convertibility of goods and services. The Vietnamese dong’s trading band has been expanded, and the government has reduced its intervention in the foreign exchange market. However, the State Bank of Vietnam remains under government control, and the dong was listed as a manipulated currency by the U.S. Treasury until 2022. While Vietnam has made strides, restrictions on convertibility remain, keeping the country from full currency liberalization.

2. Wage Determination: MOLISA Vietnam Ministry of Labour Invalids and Social Affairs

Vietnam has passed new labor laws, most notably the Vietnam Labor Code of 2019, which allows the formation of unions and collective bargaining. However, the state-controlled Vietnam General Confederation of Labor (VGCL) remains the only legal union, limiting workers’ ability to freely organize or strike. This lack of independent labor representation continues to prevent truly free bargaining between labor and management, a key characteristic of a market economy.

3. Foreign Direct Investment (FDI) Environment: the MPI ministry of plan various ‘sensitive’ sectors

Vietnam has become one of Southeast Asia’s most open economies to foreign investment, a major achievement of its reform efforts. Foreign direct investment (FDI) has risen steadily, driven by Vietnam’s economic openness. However, significant barriers remain, such as restrictions on FDI in certain sectors, lack of regulatory transparency, and weak intellectual property protections. While FDI is crucial to Vietnam’s growth, these challenges prevent Vietnam from fully capitalizing on foreign investment opportunities.

4. State Ownership of Production: favorable attribution of land and capital to the happy few

Under the Doi Moi reforms, Vietnam’s state-owned enterprises (SOEs) have seen a reduction in their role in the economy, with their contribution to GDP falling from 40% in 2002 to a range between 20.6% and 30.2%. However, Commerce notes that official data likely underestimates the influence of SOEs. Many SOEs continue to receive favorable treatment, such as access to capital, leaving the private sector at a disadvantage. Additionally, the state retains control over land use, with all land being government-owned, limiting private ownership and control. As a result, SOEs still play an outsized role in key sectors of the economy, distorting market forces.

5. Government Control Over Resource Allocation: dual-pricing and randomness in license attribution

Despite improvements in reducing government control over the economy, Vietnam’s state sector still receives preferential treatment, especially in accessing capital. The government has reduced price controls over commodities since 2002, but considerable state planning remains. This means that while the private sector has grown, especially foreign firms, the government continues to influence major economic decisions. State-directed lending and planning prevent the market from fully allocating resources based on supply and demand principles.

6. Legal and Institutional Challenges: for 3 castes the State owned, locals and foreign companies

Legal reforms in Vietnam, such as the Anti-Corruption Law of 2018, have aimed to improve governance and transparency. However, the Communist Party of Vietnam’s pervasive influence over the judiciary weakens law enforcement and transparency. Corruption remains a significant issue, and the inconsistent application of laws continues to deter foreign investment and undermine the rule of law. These legal shortcomings further complicate Vietnam’s path toward becoming a fully functional market economy.

Vietnam Public Involvement and Data Sources

The Department of Commerce’s review involved input from various stakeholders, including public comments and a public hearing held in May 2024. Commerce also used data from credible international sources, such as the World Bank, IMF, and the Organization for Economic Cooperation and Development (OECD). This comprehensive approach ensured that the analysis was both thorough and transparent, using a blend of legal (de jure) and practical (de facto) insights into Vietnam’s economic conditions.

Conclusion: Vietnam’s Ongoing NME Status

Commerce’s determination to retain Vietnam’s NME status stems from a collective analysis of the six statutory factors, revealing persistent government intervention and control in critical areas. While Vietnam has made significant progress since 1986, its economic system continues to fall short of full market economy status. Key areas such as currency convertibility, labor freedom, foreign investment, and government control over resources still show substantial government influence, distorting market conditions and making accurate pricing difficult.

As such, Commerce concluded that Vietnam remains a non-market economy for the purposes of U.S. AD law. This status will continue to affect U.S. trade policies with Vietnam, particularly in how antidumping duties are calculated on Vietnamese imports, until further market-oriented reforms are implemented. Vietnam’s journey toward full market economy status is far from complete, and deeper structural reforms are necessary to fully integrate Vietnam into the global market system.

Implications for Vietnam and the U.S. beyond 2024

The decision to maintain Vietnam’s NME status holds significant implications for trade relations between the two countries. For U.S. companies, it means that anti dumping measures on Vietnamese goods will remain stringent. For Vietnam, the decision highlights the need for continued reforms, particularly in reducing state influence over the economy and improving legal frameworks. The U.S. will likely maintain a cautious approach toward Vietnam’s economic status, despite the country’s rapid growth and increasing importance in global trade networks.

Ultimately, while Vietnam has made great strides in reforming its economy, the path to achieving full market economy recognition by the U.S. remains challenging, requiring more substantial changes to how the government interacts with and controls its economic institutions.