Context
Vietnam is putting its case forward for the USA to change its “non-market economy” status to market economy status in the review process.
US Considers Vietnam Market Economy Upgrade
- The US Commerce Department is reviewing Vietnam’s status which is set to end by late July.
- The change in status to the market economy will help Vietnam get rid of the anti-dumping duties, making its products more competitive in the US market.
- Vietnam has been on Washington’s list of non-market economies for more than two decades now.
What is a Non-Market Economy?
The Non-Market economy list includes 12 countries, the are Republic of Armenia; Republic of Azerbaijan; Republic of Belarus ; People’s Republic of China; Georgia; Kyrgyz Republic; Republic of Moldova; Russian Federation; Republic of Tajikistan; Turkmenistan; Republic of Uzbekistan ; Socialist Republic of Vietnam.
- Objective: The Non-Market Economy label allows the US to impose “anti-dumping” and countervailing duties on goods imported from the designated countries.
- Process: The US determines the duties by relying on a third-market economy country, The US will assess the value of a product to be imported from a non-market economy based on what it is worth in the other country and extrapolate the supposed production cost to a Vietnamese company without considering the company’s own data and cost.
- Example: U.S. anti-dumping duties on Vietnamese frozen farmed shrimp are currently 25.76%, while similar duties on shrimp from Thailand, a market economy, are only 5.34%.
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Market Economies:
- It is a system in which production decisions and the prices of goods and services are guided primarily by the interactions of consumers and businesses i.e. the law of supply and demand, and not by a central government’s policy.
- The theoretical basis: It was developed by classical economists such as Adam Smith, David Ricardo, and Jean-Baptiste Say.
- Modern Market economies: These are often mixed economies whereby the markets may still engage in some government interventions, such as price-fixing, licensing, quotas, and industrial subsidies, but majority decisions are market based.
- Example: India; USA; UK etc
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- Factors considered by the USA to designate a country as a non-market economy
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- If the country’s currency is convertible.
- If the wage rates are determined by free bargaining between labour and management
- If joint ventures or other foreign investments are allowed.
- State control: If the means of production are owned by the state and the state controls the allocation of resources and price and output decisions.
- Other factors like human rights are also considered.
Anti-Dumping Duties:
- These duties apply to imported goods that are sold in the importing country at prices substantially lower than in their home country, in effect dumping and inflicting harm to industries in the importing country.
- These are extra import duties imposed on goods in addition to the normal duties that apply.
- Anti-dumping duties essentially compensate for the difference between the imported good’s export price and their normal value.
Countervailing Duty:
- It applies to goods that have benefited from government subsidies in their country of origin. This results in substantially lower than normal prices.
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