What does being recognized as a market economy mean to Vietnam?

To date, according to the Ministry of Industry and Trade, 72 countries have recognized Vietnam as a market economy, including large economies such as Canada, Australia, Japan, and South Korea. Most recently, the UK has issued an official letter recognizing Vietnam's market status.

Talk to VnExpress, representative of the Trade Defense Department (Ministry of Industry and Trade), said that since the first anti-dumping investigation case with Vietnam in 2002, the US has considered Vietnam a non-market economy.

The proposal for the US to soon recognize Vietnam's market economy status was mentioned by Prime Minister Pham Minh Chinh when meeting US Secretary of Commerce Gina Raimondo on September 19 in Washington. The joint statement between General Secretary Nguyen Phu Trong and President Joe Biden on upgrading Vietnam-US relations to a Comprehensive Strategic Partnership previously also mentioned this issue.

In addition to the US, the EU also maintains the view that Vietnam is a non-market economy. In 2015, when the FTA was being negotiated, when responding to the press, the representative of the European Union delegation said that the signing did not mean recognizing Vietnam as a market economy.

Non-market economy refers to economies where the government has a monopoly or near monopoly on trade and the state sets domestic prices. If an exporting country is considered a non-market, normal price calculation principles will not be used. The importing country may use other methods that it considers reasonable. This creates some major disadvantages for manufacturers and exporters from economies considered non-market.

In fact, each country and economy will have its own regulations on criteria for determining a non-market economy.

According to US regulations, there are 6 criteria to consider whether an economy has a market or not, including: Currency conversion level; Negotiate salaries and wages between employees and employers; Level of foreign investment in economic activities; Issues of state ownership and private ownership; Extent of Government control over certain resources and prices; Other factors.

For the EU, there are 5 criteria to consider such as: the level of government influence in allocating resources and business decisions (Vietnam has done it, according to the EU's assessment in 2015); There is no state intervention that distorts the daily operations of businesses; corporate governance, accounting and auditing; the existence and enforcement of certain legal regimes, respecting intellectual property rights, bankruptcy and competition, and judicial systems; financial sector.

Ms. Nguyen Thi Thu Trang, Director of the Center for WTO and Integration, said that in the WTO accession documents in 2007, due to the negotiation context, Vietnam had to accept that it could be considered a non-market economy by other countries. import.

"Being considered a non-market economy has a big impact on Vietnamese businesses, especially in anti-dumping investigations," said a representative of the Trade Defense Agency.

For example, because it considers Vietnam a non-market, when calculating the dumping margin, the US will use the value of a third country considered to have a market economy to calculate the production costs of businesses. in Vietnam instead of using data provided by these units. This causes the dumping margin to be pushed up very high and does not reflect the actual production situation of Vietnamese enterprises.

"Not to mention that many times manufacturers in the replacement country are competitors of Vietnamese exporters, they can present unfavorable data in these investigations," Ms. Trang explained. more.

In addition, considering Vietnam a non-market economy allows the US to apply a nationwide tax rate - a tax rate for businesses that do not cooperate or cannot prove that they are not under the control of the Government. The national tax rate is often calculated by the US based on available data, so it is often pushed up very high and maintained during all reviews, hindering the consideration of lifting the tax imposition.

Currently, the US is an important export market of Vietnam with a total turnover in 2022 of nearly 109,4 USD (accounting for 29,5% - according to data from the General Department of Customs). The US also initiated the most trade defense investigations with Vietnam, mainly anti-dumping investigations with 25 out of 56 cases as of August 8.

The EU is the third most important foreign market for Vietnamese goods from 2020. Ministry of Industry and Trade data shows that since EVFTA took effect, Vietnam has exported 128 billion USD of goods to this market. Customs data shows that in 2022, the value of Vietnamese goods to the EU is 46,8 billion USD, accounting for 12,6% of total export turnover.

Therefore, being recognized as a market economy by two large import markets has great significance for Vietnam's manufacturing and export industries.

“If recognized, when facing anti-subsidy and anti-dumping lawsuits, Vietnamese businesses will not be subject to the above unfavorable calculation. Thus, the amplitude and corresponding tax rate will be determined by the US side in a more standard and fair manner, so it can be significantly reduced compared to the present," Ms. Trang said.

In fact, since 2008, after officially joining the WTO, Vietnam and the US have established a bilateral Working Group on market economy. To date, information from the Ministry of Industry and Trade - the focal point on the Vietnamese side - said that the two sides have held 10 meetings, updating the US on Vietnam's market economic situation. Vietnam's senior leaders, during working trips to the US, also mentioned this issue.

On September 8, Vietnam's Ministry of Industry and Trade officially submitted a request to the US Department of Commerce to consider Vietnam's market economy issue. "The time to submit the application is special in the context of the relationship between the two countries being raised to a new level," the Trade Remedies Department assessed.

According to regulations, the US Department of Commerce will decide whether to initiate a review or not within 45 days and reach a conclusion within 270 days from when Vietnam submitted the dossier. In the Joint Statement of the two countries, the US said it would urgently consider the request to recognize market regulations. In a recent meeting with Prime Minister Pham Minh, Trade Minister Gina Raimondo said she would find ways to promote the US's early approval of Vietnam's request.