Vietnam and “Nonmarket economy” in the U.S Anti dumping Law45309

As a member of the WTO is considered to be a non-market economy, Vietnam has met many difficulties in exporting goods to the US market by this legal barrier in the US Anti-dumping law..

Volper, T.E (2007) TRIPS Enforcement in China: A Case for Judicial Transparency

Brook J Int'l L., 33 (1): 309-346

WTO Panel (2009) Report on China - Measures Affecting the Protection and Enforcement of Intellectual Property Rights WT/DS362/R

Yu, P.K (2011) Shaping Chinese Criminal Enforcement Norms Through the TRIPS

Agreement Nebraska Law Review, 89 (4): 1046–131

Vietnam and “Non-market economy” in the U.S Anti-dumping Law

Lan Anh Le (1)*

(1) VASS Institute of American Studies, Hanoi, Vietnam

* Correspondence: lelananh84.vias@gmail.com

Abstract: "Non-market economy" is a concept given in GATT 1947 In the United States, the

Anti-dumping law (AD) also has been applied to those imported goods that come from non-market or

“transitional” economies As a member of the WTO is considered to be a non-market economy, Vietnam has met many difficulties in exporting goods to the US market by this legal barrier in the US Anti-dumping law The paper examines the evolution of non-market economy regulation in the US anti-dumping legislation, assess the impact of this regulation on Vietnamese exports The study results indicate that the prospect of Vietnam is recognized a market economy by the U S

Keywords: Non-market economy; U.S anti-dumping; Vietnam; regulations; policies

1 Introduction

"Non-market economy" is a concept given in GATT 1947 In the United States, the Anti-dumping law (AD) also has been applied to those imported goods that come from non-market or “transitional” economies As a member considered a non-non-market economy of the WTO, Vietnam has met many difficulties in exporting goods to the US market by this legal barrier, especially under US Anti-dumping law This makes the Vietnamese defendants face much more disadvantage than other countries considered market economies So, if Vietnam

is recognized as a market economy, it will be a great advantage for the development of Vietnam's export goods Currently, besides the great achievements of the Vietnam-US relationship in general, Vietnam's economy is also positively changing towards a socialist-oriented market economy and efforts fully meet the criteria that Vietnam has a market economy

This paper analyses the origins, emergence, and development of the idea of

“nonmarket economy” in US anti-dumping law This historical discussion focuses primarily

on United States relation with Central and Eastern Europe and the Soviet Union This paper concentrates principally on the development of legal ideas as well as implementation in practice specifically in the case of Vietnam

2 Results

2.1 The Origin of a “Non-market Economy” notion

The concept of Non-market Economy origins from an annotation in Article VI stipulating anti-dumping of GATT 1947 However, this concept is not clearly defined, instead, WTO members will define a non-market economy in their own way based on WTO The United States, the EU and some member states have their own rules on how to determine whether a market economy or non-market economy in order to determine dumping Since Vietnam previously pursued a centralized subsidized economy model, when negotiating to join the WTO, at the request of some members, especially the United States, Vietnam must accept the commitment that the country would transform into a non-market economy within 12 years (until the end of December 31, 2018)

There were reasons for the United States to put some countries, Vietnam among them, into the list of countries with non-market economies During the period of between World War I and World War II was marked by the explosion of dumping trade from a number of former Soviet Union countries However, it seems that few anti-dumping cases are brought to trial under the US 1921 Anti-Dumping Law during this period Because of the strong development of the US economy along with an average tariff, the anti-dumping policy was not an important component of US trade policy in the 1920s and 1930s, as well

as in the period immediately after World War II (Irwin 2005) The average tariff was high during the 1920s and early 1930s and some of trade agreements that the United States reached under the Reciprocal Trade Agreement Act of 1934, which helped domestic producers could invoke various trade laws to get protection from foreign competition without using anti-dumping laws For example, Section 337 of the 1930 Tariff Act authorized the Tariff Commission to investigate unfair competition practices involving imports when the impact or trend of such methods or behaviors is to destroy or cause significant injure to the domestic industry or to prevent the establishment of an industry, or to restrain or monopolise the trade and commerce of the United States Section 336 of the 1930 Tariff Act

- the so-called flexible tariff provision - provides a procedure whereby import duties can be changed by presidential claims after an investigation and report by the Commission on the difference between the cost of production in the United States and its major foreign suppliers In addition, Section 22 of the Agricultural Adjustment Act authorises the president to restrict imports of a commodity that render ineffective or interfere materially

some cases of dumping, it has not caused a great impact on the US economy Moreover, in this period in terms of administrative management, the determination of imported goods is

33 An Act to amend section 22 of the Agricultural Adjustment Act

sold at a price lower than the normal value and whether it damages the domestic industry

or not belongs to the US Finance ministry's responsibility However, the determination of damage caused by dumping is entirely outside the scope of the Ministry of Finance's jurisdiction Indeed, although there were complaints about the dumping case filed but not handled by the Ministry of Finance, or handled incomplete

However, when trade exchanges began to increase between the Western and Eastern European countries following the Stalinist Soviet economic model in the 1950s and 1960s had influenced the US industry, and raised concerns that these activities could disrupt fair competition in trade Therefore, the United States had developed a regulation to address dumping allegations because it had found that traditional treatment methods were no longer appropriate to measure price discrimination Since then, the "non-market economy"

2.2 Treatment of a “Non-market Economy” under US anti-dumping law

The US anti-dumping (AD) law considers dumping to occur when a foreign manufacturer charges a price for its product is "less than its fair market value"35 For dumping from non-market economies, the Department of Commercial (DOC) uses a standard method to determine the fair value of products First, the DOC determines whether

a foreign manufacturer's goods have been sold in the United States by comparing the price

of US products with normal values that are the prices of goods in the domestic market If the product is not sold or offered for sale in the domestic market of the foreign company, DOC will determine the price at which the product is sold or offered for sale in other countries outside the United States If the DOC finds that the dumping has occurred, it will set the dumping margin by calculating the average amount that the market value of the product exceeds the product price sold in the United States under section 1673b(b)(1)(A) at

19 U.S Code

The standard method applied to non-market economies (NMEs) described above has problems because non-market economies do not allocate resources according to the traditional market concept of supply and the demand, thereby making decisions about fair value almost impossible (Tatelman 2007) In the 1960s, the US Department of Finance at that time was the body responsible for domestic trade defense laws, developed and began to use the so-called "surrogate country" approach to apply AD law to NME countries According

34 Defines "nonmarket economy country" to mean any country that the administering authority determines does not operate on market principles of cost or pricing structures

35 Selling at less than fair value, or dumping, is defined in section 771(34) of the Act (19 U.S.C §1677(34)) as

“the sale or likely sale of goods at less than fair value.” Dumping is defined as selling a product in the United States at a price which is lower than the price for which it is sold in the home market (the “normal value”), after adjustments for differences in the merchandise, quantities purchased, and circumstances of sale In the absence of sufficient home market sales, the price for which the product is sold in a surrogate “third

country” may be used Finally, in the absence of sufficient home market and third country sales,

“constructed value,” which uses a cost‐plus‐profit approach to arrive at normal value, may be used

to this approach, it was possible to compare prices and costs from third countries with similar conditions that were used instead of NME countries to determine fair market value This approach was adopted by the Congress in the Trade Act 1974 In principle, the selected third country must be an economy with similar economic conditions to the exporting country, that means have the same level of economic development as a non-market economy of the exporting country However, this “surrogate country” method sometimes was difficult to apply because it's not always possible to find the suitable country to replace Therefore, it was necessary to come up with another solution that could be more effective

The Department of Commerce had found out a way to solve concerns about the surrogate nation's approach by adopting a new methodology in 1975 This methodology was known as the “factors of production” approach Accordingly, in case of the absence of

an availably surrogate country, the DOC would base on the “surrogate country” taken from

a non-market economy that was considered to be at the period of having equivalent economic development to the country whose products were under investigation for dumping (Lantz 1995)

The U.S AD provisions continued to amend in 1988 to deal with non-market economies issue In the Omnibus Competition and Trade Act of 1988 (OTCA), Congress enacted many reforms to the anti-dumping laws, by giving a definition of a non-market economy, as well as a set of standards that the DOC was based on to determine whether a country has a non-market economy or not Under the OTCA, a non-market economy is a country that “does not operate on market principles of cost or pricing structures, so that sales of merchandise in such country do not reflect the fair value of the merchandise.”

Under section 1677 (18)(B) at 19 U.S Code, the DOC must consider when making decisions regarding the state of a non-market economy basing on the following factors:

(i) the extent to which the currency of the foreign country is convertible into the currency of other countries;

(ii) the extent to which wage rates in the foreign country are determined by free bargaining between labor and management;

(iii) the extent to which joint ventures or other investments by firms of other foreign countries are permitted in the foreign country;

(iv) the extent of government ownership or control of the means of production; (v) the extent of government control over the allocation of resources and over the price and output decisions of enterprises; and

(vi) such other factors as the administering authority considers appropriate For the first criterion, in terms of the convertibility of the local currency, the factors

to be assessed include: the ability to convert current and capital accounts, exchange rates, foreign exchange policy trends

For the second criterion, wages must be determined based on a market price, where workers and employers are free to agree on terms and conditions of employment contract When investigating this criterion, the US Department of Commerce will take into account factors of the right of workers to join a union, the independence of union, the ability to develop a self-payment regime of the union, etc

Regarding the third criterion, regarding the degree of freedom of foreign investment activities, several factors can be considered such as: the openness of the investment environment, the non-discrimination between domestic and foreign investors, regulations

on profit remittance

For the fourth criterion, the degree of ownership or control by the Government of the means of production, this is a very important criterion for the United States to determine

a market economy Factors related to this criterion include: capitalization issue of state-owned enterprises, the proportion of economic sectors in the economy, the role and extent

of the State's intervention in economic activities The fourth criterion is also related to the government's participation in the economy, which is the level of government’s control over the allocation of resources and the determination of prices and output of enterprises This criterion is associated with the following factors: price liberalization, the reform of banking sector, the freedom of individuals and businesses to participate in business activities

Besides, the US Department of Commerce may also investigate a number of other issues such as compliance with the provisions of the Antitrust Law, Anti-Dumping Law, and etc

Moreover, the DOC has an authority to determine when a foreign country is a non-market economy According to the Act, the determination of a non-non-market economy status may be made with respect to any foreign country at any time, and remains effective until

In addition, the Trade Agreements Act of 1979 also transferred administrative authority from the Department of the Treasury to the DOC to determine which approach would be used when determining fair market value According to DOC the market value should be determined according to value the elements in the following order of priority: (1) the home market prices of such or similar merchandise in a surrogate country; (2) the export price of such or similar merchandise shipped from a surrogate; (3) when actual or accurate prices are not available, the constructed value of such or similar merchandise in a surrogate country; and (4) the value in a surrogate country of the factors of production used in the non-market economy for such or similar merchandise (Lantz 1995)

Actually, the US anti-dumping laws treat MEs and NMEs very differently (Horne 2001) In specific anti-dumping cases applicable to an exporter from an NME, the DOC will decide dumping by comparing prices in two markets The DOC compares the import price with the price of similar goods in the market of the export country If this comparison is not

36 19 U.S.C § 1677(18)(C) (2000)

possible because of having no trade in the same goods in the domestic market of the exporter, the DOC will compare the price of imported goods with the value of construction

or price of similar goods sold in third countries If the price of goods imported into the US

is lower than the comparable price, dumping occurs, and if the International trade of Commercial (ITC) finds a risk of damaging the US domestic industry, anti-dumping measures will be applied to offset differences and protect US manufacturers However, if a country is considered an NME, the US law considers that the prices and production costs of such goods are unreliable Depending on the adequacy of the available information, the DOC may determine the normal value of the product to be investigated based on the price

of a similar goods in the imported country, or the DOC may determine the value of products DOC can replace the price of an ME with the same level of development for NME This is often called the "alternative methodology” (Rana 2008) The use of different methods for MEs and NMEs are widely criticized for a number of reasons

Firstly, in fact, it is not fair to distinguish between market and non-market economies for the purposes of anti-dumping regulations: the difference among the methods used to calculate possibly dumping margins preventing NME exporters from exporting goods to the US market because of high dumping tariffs

Secondly, the regulations regarding the NMEs are ambiguous, they cause arbitrary

in implementation of the anti-dumping authorities The determination of MEs or NMEs largely depends on the interpretation of the DOC

Thirdly, the determination of an alternative country is complex and almost never accurate because MEs and NMEs concepts are fundamentally different Although the concept of an alternative country seems reasonable, in fact, the alternative countries and the export countries often do not compare each other thoroughly Therefore, it is impossible to determine an accurate replacement price for anti-dumping investigations

Fourthly, the “alternative nation” approach is completely unpredictable For a producer, the calculating price method is unpredictable: there is no level for NME producers

to calculate export prices to avoid dumping Moreover, producers of similar goods in the alternative country often compete with producers and exporters in the export country Therefore, producers and exporters in the alternative country are often dissatisfied with providing relevant data for antidumping investigations, or they may provide unfavorable information for NME exporters

2.3 Vietnam’s Status as a Nonmarket Economy

Vietnam joined the World Trade Organization (WTO) in 2007 and accepted a 12-year term for non-market economy status from the date of accession and the NME provision would expire on December 31, 2018 Accordingly, Vietnam agreed to allow other WTO members to continue to use an alternative (surrogate country) methodology for assessing prices and costs on products subject to antidumping (AD) measures Vietnam was considered to be a NME because other WTO members argued that distortions in the Vietnam economy caused by government intervention would make it impractical in many

cases to use Vietnam prices and costs for determining dumping margins From 2007 to 2018, Vietnam has been recognized by 69 other countries in the world as a market economy country However, two largest and most important partners, the US and the EU, have not yet approved it They argue that the WTO language did not automatically obligate them to extend market economy status (MES) to Vietnam The reason that they give is Vietnam has not yet fully met the conditions of a market economy

If the United States recognizes Vietnam as a market economy, this will help Vietnam avoid the disadvantages of facing anti-dumping and anti-subsidy lawsuits In many cases, Vietnam's exports are subject to very high anti-dumping duties from investigating bodies

of countries using the costs and figures of the replacement country, especially in cases of anti-dumping of the US government At the same time, regulations on non-market economies also increase the risk of double taxation for Vietnamese exporters

2.4 Impacts of “Non-market Economy” on Vietnam exports

Starting with the anti-dumping lawsuit of Vietnamese seafood exports to the US market was initiated in 2002 for Vietnamese tra and basa (pangasius) fish, and 2003 for shrimp, so far they are still the subjects being sued by the US In 2017, the DOC decided to extend antidumping duties on frozen shrimp imports from Vietnam for another five years Moreover, on March 9, 2018, the DOC applied anti-dumping tax 25.39% for Vietnamese shrimp in the administrative review of the anti-dumping duty order on Vietnamese shrimp for the period of review (POR) 2016-2017 It was a rather high tax rate that Vietnamese shrimp exported to the US suffered This tax was part of the reason that the import turnover into the US market has decreased significantly in recent years Consequently, Vietnamese shrimp exported to the US has dropped sharply from the No.1 in 2016, to the 4th position among the top export markets of Vietnamese shrimp In addition to the exported seafood,

on April 4, 2018, in the FACT SHEET: Commerce Finds Dumping of Imports of Tool Chests and

Cabinets from China and Vietnam, the DOC announced the final determinations in the

anti-dumping duty investigations of imports of tool chests and cabinets from China and Vietnam In the Vietnam investigation, because of several adverse facts available, All producers/exporters in Vietnam that are not eligible for a separate rate, including the Clearwater Metal Single Entity, received the dumping margins at 327.17% (China was at 244.29%)

In March 2018, the DOC issued the final decision on the 13th administrative review

of anti-dumping duty on frozen tra and basa fillets imported from Vietnam between August

1, 2015 and January 31 July 2016, in which the US decision tax rate was 1.6 times higher than the rate that the United States made in the preliminary decision in September 2017 and was 4.9 times higher than the private tax rate During the 12th administrative review period From May 14-25, 2018, the US Food Safety Inspection Agency began conducting a practical inspection of Vietnam's catfish control program (Nguyen 2018) In the first 9 months of 2017, Vietnam's tra and basa fish exports to the US decreased by 9.9% compared to the first 9 months of 2016 and continued to decrease in the last months of the year (Luu&Vu 2018)

With the US imposing high anti-dumping duties on these products, the export of catfish from Vietnamese enterprises to the US market is becoming more and more difficult

These are just some of the US anti-dumping cases against Vietnamese exports Recently with the new tax reform policy of President D Trump's Government, Vietnam is also at risk of being indirectly affected when the US focuses on taxing Chinese goods, while many Vietnam's export products have raw materials originating from China The position

of Vietnam at the end of the production chain, in charge of processing and finishing the final product Vietnam must import raw materials from Chinese manufacturing factories, processing the last labor intensive steps before exporting to the world's largest consumer market, the US Therefore, when the US and China confront trade, it will have a certain influence on outsourced economies with intermediate positions such as Vietnam At the end

of 2017, the US continued to announce that they would apply dumping and anti-subsidy duties on galvanized steel and cold rolled steel products from imported corrosion-resistant steel and cold-rolled steel made in Vietnam using Chinese materials Accordingly, The U.S will apply anti-dumping and anti-subsidy duties of 199.76% and 256.44% respectively from imported corrosion-resistant steel and cold-rolled steel made in Vietnam using Chinese materials In addition, Commerce instructed Customs and Border Protection (CBP) to continue collecting AD and CVD cash deposits on imports of CORE produced in Vietnam using Chinese-origin substrate at 199.43% and 39.05%, respectively The AD and CVD cash deposits on imports of cold-rolled steel produced in Vietnam using Chinese materials are 199.76% and 256.44%, respectively (Reuter 2018)

In order to minimize the negative impacts of the new US trade protection policy, Vietnam needs to be more proactive in responding to US protectionist policies in the face of growing trade protectionism The current increase with measures such as standards right from raw materials to production stage; It is necessary to be more proactive in grasping changes in current US trade policies to find the best solution to avoid litigation from the US businesses

2.5 How Can Vietnam Achieve MES Under U.S Law?

Currently, the US Department of Commerce labels 11 countries as NMEs: Belarus, Georgia, the Kyrgyz Republic, China, the Republic of Armenia, the Republic of Azerbaijan, the Republic of Moldova, the Republic of Tajikistan, the Republic of Uzbekistan, Vietnam, and Turkmenistan In the past, some countries designated as NMEs were then converted to market economies (MEs), such as Poland (1993), Russia (2002), and Ukraine (2006) In order

to an NME to have its designation changed to MES, the government of that country must make a formal request for review, or back a claim by a respondent in a U.S AD investigation that the country has a ME Commerce could declare that certain industries are operating under market conditions while continuing to apply the NME methodology to other sectors

China is an example of claiming the nonmarket economy status on WTO China’s

2001 Protocol of Accession contains language (Section 15(a)(ii)) that effectively requires WTO members to end their use of NME methodologies to calculate AD margins on imports

from China after 15 years (December 11, 2016), but it had not happened On December 12,

2016, China initiated a WTO dispute settlement case against the United States and the European Union for not affording China MES status Commerce last conducted a review of China’s status in October 2017 Commerce concluded that China was still a NME because

“the state’s role in the economy and its relationship with markets and the private sector results in fundamental distortions in the Chinese economy.” (Morrison 2019) Commerce determined that it still could not rely on Chinese prices and costs for the purposes of its anti-dumping analysis (Washington 2018)

As the same as China, Vietnam is increasing efforts to be recognized as a market economy by the United States Under WTO commitments, Vietnam would only be considered a non-market economy in anti-dumping investigations until December 31, 2018

If the countries followed their promises, after 2018, Vietnam would be treated as all other exporting countries in investigations, and the calculations for Vietnam's exports will be based on WTO standards If it implemented, it could create a change in the results of the investigations, the calculated results would be done equally to other market economies However, the deadline of a 12-year term for non-market economy status is expired, Vietnam has still not been considered a market economy by the United States According to the US, although the Vietnamese government does not regulate commodity prices, it still maintains some formal and informal controls on the economy From the above issues it can be concluded that the dead line of a 12-year term for non-market economy status is expired does not mean that Vietnam will be automatically considered a market economy by all WTO members

In order to meet the US criteria, Vietnam may have to yield concessions in some areas, which helps Vietnam avoid negative impacts on exporting enterprises and the damage caused by anti-dumping and anti-subsidy lawsuits by the US In the context that the United States is putting pressure on the issue of goods trade deficit with Vietnam and the negotiations to achieve a bilateral investment agreement between the two countries continue to be delayed, the US proposal recognizing Vietnam as a market economy seems

to be very difficult

3 Conclusions

Due to NMEs, many Vietnamese enterprises have been disadvantaged in anti-dumping investigations because all data on prices and production costs in Vietnam are subject to investigation by the US authorities The United States still refuses to consider Vietnam as a market economy Vietnam Government needs to strengthen its active support role for Vietnamese exporters to prevent and respond effectively to anti-dumping measures

of trading partners especially the United States

At the same time, industry organizations and associations participating in dumping lawsuits should be more actively involved in anti-dumping cases The willingness and initiative of trade associations play important roles in preventing and minimizing the negative impacts of anti-dumping cases In addition to these, industry associations should

set up their representative offices abroad to focus on key markets and proactively deal with lawsuits as soon as possible

Besides, Vietnamese enterprises need to focus on improving their competitiveness, proactively applying quality management systems according to international standards, branding and product promotion, training and improve the quality of human resources, etc

to promptly deal with disputes that may arise in international trade

References

2000 US Code Title 19 – Customs Duties: Chapter 4 – Tariff Act of 1930: Subtitle IV – Countervailing and Antidumping Duties: Part IV – General Provisions:

https://law.justia.com/codes/us/2000/title19/chap4/subtitleiv/partiv/sec1677/

(accessed on 22nd August 2019).19 U.S.Code § 1677 (2000)

An Act To amend section 22 of the Agricultural Adjustment Act

An Act to amend section 22 of the Agricultural Adjustment Act

André J Washington (2018) Not So Fast, China: Non-Market Economy Status is Not

Necessary for the “Surrogate Country ” Method Chicago Journal of International Law Volume

19 (No 1): page 265

Congressional Research Service (2019) China’s Status as a Nonmarket Economy

- The Omnibus Trade and Competition Act of 1988 (OTCA) Available online:

2019)

Douglas A Irwin (2005) The Rise of US Anti-dumping Activity in Historical

Perspective The World Economy, Publisher: Wiley Blackwell, Vol 28(5): page 654

FACT SHEET: Commerce Finds Dumping of Imports of Tool Chests and Cabinets

H.R.4848 - The Omnibus Trade and Competition Act of 1988 (OTCA)

Available online: https://www.congress.gov/bill/100th-congress/house-bill/4848, (accessed on 20th August 2019)

Horne, C (2001) The politics behind the Application of Antidumping Laws to

Nonmarket Economies: Distrust and Informal Constraints Comparative Research, University

of Washington

https://definitions.uslegal.com/n/nonmarket-economy-country/ (accessed on

21st August 2019)

https://www.loc.gov/law/help/statutes-at-large/76th-congress/session-3/c76s3ch13.pdf (accessed on 18th July 2019)