Which industries will benefit if Vietnam is recognized as a market economy?

In recent years, Vietnam has shifted in and off of the US Treasury's monitoring list for currency manipulation, appearing each time the US issues its periodic report on "Macroeconomic and Foreign Exchange Policies of Major Trading Partners."

In November 2023, the US Department of the Treasury added Vietnam on its currency manipulation monitoring list. According to the State Bank of Vietnam, this conclusion demonstrates that the United States continues to view Vietnam as not engaged in currency manipulation while offering good feedback on the country's monetary and exchange rate policies.

According to the Trade Facilitation and Trade Enforcement Act (TFTAE), recognizing a nation as engaged in "currency manipulation" can result in increased "sanctions" such as tariffs and trade obstacles. However, these measures will not be applied until at least one year of discussions have been completed.

Despite the fact that it does not engage in currency manipulation, Vietnam is nonetheless classified as a non-market economy by the US Department of Commerce. This status implies that third-country prices are used to assess production costs in anti-dumping (AD) and countervailing duty (CVD) investigations against Vietnamese exports, creating major trade impediments and lowering Vietnamese firms' competitiveness.

On May 8, 2024, the US Department of Commerce convened a meeting with Vietnamese government representatives and other interested parties to discuss the acceptance of Vietnam's market economy status.

Experts think that if the United States recognizes Vietnam as a market economy, it will be simpler to resolve trade disputes, as non-market economies are more likely to face anti-dumping taxes on their exports.

According to SSI Research, Vietnam has long sought to achieve the six requirements for market economy certification, efforts that were consolidated when the two nations strengthened their comprehensive strategic cooperation in 2023.

The formal decision is scheduled to be made by the United States on July 26, with comments and responses to the US Department of Commerce staying mostly neutral thus far. The American Chamber of Commerce (AmCham), the Retail Industry Leaders Association (RILA), the American Association of Exporters and Importers (AAEI), the National Association of State Departments of Agriculture (NASDA), and the American Apparel & Footwear Association (AAFA) have all expressed their support. However, opponents include the Alliance for American Manufacturing (AAM) and the United Steelworkers (USW). The recognition procedure may potentially face legal hurdles in the United States, as the Department of Commerce rejected China's request in 2016.

"The greatest benefit of being recognized as a market economy is that Vietnamese exporters can use their own production costs in U.S. anti-dumping investigations, creating a level playing field with exports from other countries by ensuring that trade defense tariffs reflect Vietnam's actual production practices.

Additionally, Vietnamese exports may benefit from import tariff reductions if the U.S. grants Generalized System of Preferences (GSP) status to Vietnam. Currently, 72 countries have recognized Vietnam's market economy status, including Canada, Australia, Japan, South Korea, and the UK, and U.S. recognition would pave the way for similar acknowledgment from the European Union (EU). The period leading up to July 26 is crucial, requiring strong advocacy and efforts from the Vietnamese government to navigate the stringent U.S. legal framework," SSI Research analysts explained.

SSI Research analysts also feel the potential impact on listed firms and associated industries is considerable, since Vietnam has grown to become a major worldwide exporter, accounting for 82% of GDP in 2023, surpassing several regional countries. The United States has emerged as one of Vietnam's most significant trading partners, particularly in essential exports such as mobile phones, computers, electronics, textiles, footwear, seafood, and wood products.

In 2023, the U.S. was Vietnam's top export market, with an export turnover of $97 billion, contributing 27% to Vietnam's total export turnover. Exports of textiles, footwear, wood products, and seafood to the U.S. represented 43%, 35%, 54%, and 17% correspondingly to the overall export turnover of each industry in 2023.

"Overall, we believe this will not have an immediate short-term impact on relevant industries and listed businesses (PTB may profit by avoiding anti-dumping taxes on specific items). In the long term, as mentioned earlier, the greatest benefit of market economy recognition is that Vietnamese manufacturers can use their own production costs in U.S. anti-dumping investigations, thereby reducing the risk of future anti-dumping duties and helping Vietnamese goods compete more fairly in this market", said SSI Research.

Specific industries and listed firms with high export proportions to the United States, as well as possible consequences of Vietnam's recognition as a market economy, are mentioned below:

Tires (Rubber) - DRC: Vietnam's designation as a market economy may have no impact on DRC because its TBR tires are currently exempt from AD/CVD duties. If future anti-dumping claims occur, recognition might benefit the DRC by allowing it to utilize its own cost data rather than third-country data. PCR tires from Vietnam presently incur duties of 22.27% AD and 6.46% CVD. DRC debuted PCR tires in Q2/2023, focusing on Brazil rather than the United States. If the DRC enters the United States. Recognizing the PCR tire industry may assist prevent AD/CVD levies. DRC's export fraction to the United States is 15%.

Textiles (TNG, MSH, TCM, STK): This group suffers AD tariffs ranging from 0% to 2.58%; U.S. export percentage is 8%-46%. According to SSI Research, textile exporters (such as TNG, MSH, and TCM) are not subject to AD/CVD taxes. Polyester yarn suffers a 2.58% tax, however STK only exports 8% to the United States (compared to 70% domestic income). As a result, indigenous textile producers are projected to benefit minimally from recognition.

Steel - HPG, HSG, and NKG: These enterprises export steel to the United States with a 0% AD tariff; the export share ranges from 10 to 20%. Recognition is unlikely to have a substantial short-term impact because the United States does not already apply AD duties on Vietnamese steel. However, recognition might assist Vietnamese enterprises avoid future AD levies by allowing them to utilize their own rates rather than market prices from other countries such as Indonesia. The improvement will have no impact on the United States' current 25% import duty.

Seafood - VHC, FMC, ANV: This group faces 0%-2.84% AD tariffs; U.S. export proportion is 5%-30%. (The U.S. is a key market for some seafood companies). SSI Research notes that based on POR 19, the AD tariff for catfish exporters VHC and ANV is 0 USD/kg, while IDI's is 0.18 USD/kg (down from 2.39 USD/kg). Thus, catfish exporters will not be significantly affected by recognition. However, the U.S. is investigating shrimp exporters for possible subsidy violations, with final results expected on August 5, 2024. Recognition could support shrimp exporters in using their own prices in investigations. "Vietnamese shrimp prices are higher than competitors and preliminary CVD tariffs are lower than competitors (Vietnam 2.84% vs. competitors 4.36%-7.55%)." Additionally, the EU Commission's IUU certification could positively or negatively impact seafood companies' reputations.

Wood and Wood Products – PTB: no AD tariffs. The United States is a major market, accounting for 60-65% of exports. Some Vietnamese wood products, including plywood, wooden cabinets, wooden dressers, and wooden bedroom furniture, are subject to AD and safeguard investigations, just like Chinese products. PTB's wooden bedroom furniture sales to the United States average between 80 and 100 billion VND per year, accounting for 1.78% of total income.

Stone - VCS, PTB: Like wood goods, stone exports to the United States are not subject to AD duties. The export fraction ranges from 60 to 65%. The US Department of Commerce has warned of possible AD investigations and duties on quartz stone. Current AD tariffs on Chinese quartz stone goods range between 265.81% and 336.69%. PTB anticipates that quartz stone exports will drive growth in 2024, with the goal of growing its client base in the United States. However, increased competitiveness creates hazards. VCS is also focusing on quartz stone in 2024, with plans to expand distribution in North America and build a "approved workshop" model to boost quartz stone brand value.