Thayer Consultancy Background Brief

ABN # 65 648 097 123

Vietnam-U.S. Trade Relations:
Free Market v Protectionism
June 16, 2018

We are writing an analysis of U.S.-Vietnam trade relations. In less than two weeks,
Vietnam will send a delegation to Washington, led by Vice Prime Minister Vuong Dinh
Hue. Hue will also be addressing the U.S. Chamber of Commerce. It seems that both
nations are hostages to trade imbalances and disagreement on what constitutes
"market economy status."
We would appreciate your analysis on the importance and significance of this Vietnam
mission to the United States. The U.S. Department of Commerce's draconian tariffs on
fish (shrimp) and steel seems to be at the epicenter of this trade mission.
ANSWER:
There are four major trade issues affecting relations between Vietnam and the United
States: (1) dispute over the export of Vietnamese catfish and shrimp (2) Vietnam’s
designation as a non-market economy, (3) Vietnam’s growing trade surplus and (4)
the Trump Administration’s imposition of tariffs on the export of steel and aluminum
from Vietnam.1
What follows is a brief chronology of key events:
In 2001, the United States and Vietnam signed a Bilateral Trade Agreement.
In 2002, the Catfish Farmers of America successfully lobbied Congress to pass
legislation prohibiting Vietnam from using the label catfish on its export of frozen fish
(basa, swai and tra). The following year the United States imposed anti-dumping
duties of up to 63 percent on Vietnamese frozen fish.
In early 2005, the International Trade Administration (ITA) under the U.S. Department
of Commerce, imposed anti-dumping duties on Vietnam (and five other countries) on
shrimp imports.
Since January 2007, when Vietnam joined the World Trade Organization (WTO), it has
initiated four trade disputes with the United States. Two complaints were against U.S.
anti-dumping actions against Vietnamese shrimp imports.

1 For a concise overview consult, Harish Mehta, “What ails US-Vietnam trade relationship,” Business

Times, March 29, 2018. See: https://www.businesstimes.com.sg/opinion/what-ails-us-vietnam-

trade-relationship.
 2

On June 21, 2007, Vietnam and the United States signed the Trade and Investment
Agreement (TIFA); this agreement included provision for a Trade and Investment
Council as the designated mechanism for the discussion of trade issues.
In June 2008, the U.S. and Vietnam commenced negotiations over a bilateral
investment treaty that are still on-going. Also that month, on June 18, the U.S.
Congress passed the Food, Conservation, and Energy Act of 2008 (or Farm Bill) that
included a provision transferring responsibility for inspecting catfish products from
the Food and Drug Administration (FDA) to the U.S. Department of Agriculture (USDA).
The USDA imposes more stringent criteria in its inspection process. Vietnam protested
that these new regulations were a non-tariff barrier that harmed the livelihood of
Vietnamese catfish farmers.
In 2016, Vietnam had a trade surplus of $32 billion placing it sixth on the list of
countries with a trade surplus with the U.S. (after China Japan, Germany, Mexico and
Ireland) while the U.S. had a $1 billion surplus in services to Vietnam.
By 2016, Vietnam was the third largest supplier of fish for the United States. In March
2016, Vietnam reported to the WTO that U.S. catfish regulations were a violation of
WTO rules.
In July 2016, Vietnam and the United States reached agreement on a framework for
the settlement of U.S. court litigation issues and the resolution of outstanding duty
claims resulting from administrative reviews of the U.S. anti-dumping duty order on
Vietnamese warm water shrimp. Under the terms of this agreement, Vietnam’s Minh
Phu Group, that exported frozen warm water shrimp to the United States, would no
longer be subject to anti-dumping duties. Additionally, ongoing domestic litigation
would be resolved and duty deposits would be refunded to the Minh Phu Group.
From March 27-28, 2017 a meeting of the bilateral Trade and Investment Council was
held in Hanoi. According to a statement issued by the U.S. Trade Representative:
The United States urged Vietnam to promptly address bilateral issues, including related
to agriculture and food safety, intellectual property, digital trade, financial services,
customs, industrial goods, transparency and good governance, and illegal wildlife
tracking. Vietnam also updated the U.S. team on its plans to implement labor reforms.
The two sides agreed to continue their dialogue on these issues and to launch working
groups focused on resolving bilateral issues, starting with groups on agricultural and food
safety issues, industrial goods, intellectual property matters, and digital trade.
They reviewed Vietnam's implementation of the WTO trade facilitation agreement, as
well as Vietnam's participation in the WTO Information Technology Agreement expansion.
In addition, the U.S. and Vietnamese teams discussed how they could work together to
advance their common interests in building U.S.-ASEAN ties (emphasis added).
In May 2017, when the Trade and Investment Council met in Washington, Vietnam
requested the U.S. Trade Representative Robert Lighthizer to change Vietnam’s
designation as a non-market economy2 to a market economy and lift USDA inspection
regulations on Vietnamese catfish.

2 Under U.S. law a non-market economy is defined as follows: “any foreign country that the
administering authority determines does not operate on market principles of cost or pricing
 3

Under U.S. law Vietnam will remain a non-market economy for twelve years – until
2019 – under the terms of the U.S.-Vietnam WTO accession agreement or until the
United States determines Vietnam has met its criteria as a market economy.
Vietnam’s trade surplus with the United States featured in two meetings between
President Donald Trump and Vietnamese leaders in 2017. The first meeting took place
at the White House on May 31 between President Trump and Prime Minister Nguyen
Xuan Phuc, the second meeting was held in Hanoi on November 12 between President
Trump and President Tran Dai Quang. At the May meeting Trump and Phuc welcomed
the announcement of $8 billion in new commercial deals. During Trump’s November
visit Vietnam announced $12 billion in new commercial agreements.
At the May 2017 meeting, Trump and Phuc “pledged to continue to work together
constructively to seek resolution of other priority issues of each country, including
(inter alia)… white offal, distiller’s dried grains, siluriformes,3 shrimp, mangos, and
other issues.”
President Trump “noted Vietnam’s interest in achieving a market economy status, and
the two sides pledged to continue to consult in a cooperative and comprehensive
manner via the bilateral working group.”
Seven months later presidents Trump and Quang
pledged to deepen and expand the bilateral trade and investment relationship between
the United States and Vietnam through formal mechanisms, including the Trade and
Investment Framework Agreement (TIFA). They welcomed the return of market access
for United States distillers dried grains into the Vietnamese market and new access for
Vietnamese star apples into the United States market. The leaders committed to seek
resolution of remaining agricultural trade issues, including those regarding siluriformes,
shrimp, and mangoes, and to promote free and fair trade and investment in priority
areas, including electronic payment services, automobiles, and intellectual property
rights enforcement.
In September 2017, four U.S. steel producers filed a petition alleging that immediately
after the imposition of U.S. tariffs on Chinese steel, Chinese producers began diverting
hot-rolled steel to Vietnam. In 2015, Vietnam’s exports of cold-rolled steel shot up
from $11 million to $295 million. However, Vietnamese steel exports to the United
States only accounted for 1.66 percent of the total with Vietnam ranking twelfth on
the list of steel exporters to the United States. U.S. steel imports and figures for the
period 2012-17 reveal that Vietnam exported 2.48 million tons of steel to the U.S. and
imported 2.52 million tons from the United States.
Three months later, in December 2017, the Department of Commerce imposed steep
import duties on corrosion-resistant (238%) and cold-rolled steel (531%) products
from Vietnam. The Department of Commerce concluded that ninety percent of the

structures, so that sales of merchandise in such country do not reflect the fair value of the
merchandise.”
3 Siluriformes (subclass Actinopterygii, superorder Ostariophysi), an order of bony fish that
includes all the catfish. This very large order comprises some 2000 species of marine and
freshwater fish, belonging to about thirty-one families. The order was known formerly as
Nematognathi.
 4

value of these exports originated as hot-rolled steel from China. The Department of
Commerce argued these steel products evaded U.S. anti-dumping and anti-subsidy
orders with as much as ninety percent of the steel products’ value.
On January 12, 2018, Vietnam requested bilateral consultations with the WTO’s
Dispute Settlement Body relating to the U.S. Department of Agriculture (USDA) anti-
dumping duties and cash deposit requirements on “certain frozen fish fillets” (catfish)
from Vietnam.
Vietnam’s request for consultations is the first step in the WTO litigation process.
Vietnam argues that the U.S. violated WTO rules by the manner in which it imposed
punitive tariffs on Vietnam by claiming that catfish were dumped and sold at an unfair
cheap price on the U.S. market. Under WTO rules, the United States has sixty days to
settle the complaint; failing that Vietnam could request adjudication by a WTO dispute
panel. As of this writing, Vietnam has not requested a formal review.
On February 16, 2018, the Department of Commerce recommended to President
Trump that the U.S. impose tariffs of at least 53 percent and quotas on steel and
aluminum imports from Vietnam and other countries (including China, Russia, Japan,
India). The quota on steel products was set at 63 percent of a country’s 2017 exports
to the United States. The Department of Commerce recommendation was made
under Article 232 of the Trade Expansion Act of 1962 that the import of these products
in such quantities was a threat to national security. President Trump imposed 25
percent tariffs on Vietnamese steel and ten percent on aluminum.
On March 8, 2018, the International Trade Administration released the preliminary
results of its review of anti-dumping order on frozen warm water shrimp from
Vietnam. The ITA tentatively set the rate at 25.39%. This rate was applied to the Sao
Ta Seafoods Joint Stock Company (FIMEX VN) as the mandatory respondent. The final
determination of the anti-dumping rate is scheduled for September 2018.
Also, on March 8, President Trump imposed a 25 percent tariff on steel and 10 percent
tariff on aluminum imports from Vietnam (and other countries) under Section 232 of
the Trade Expansion Act of 1962 citing national security concerns.
On May 21, 2018, the Department of Commerce raised tariffs on the import of
corrosion-resistant and cold-rolled steel from Vietnam on the grounds they violated
anti-dumping and anti-subsidy orders. According to the Department of Commerce,
U.S. Customs will collect anti-dumping duties of 199.76 percent and countervailing
duties of 256.44 percent on imports of cold-rolled steel products from Vietnam using
Chinese-origin substrate. U.S. Customs will also collect anti-dumping duties of 199.43
percent and anti-subsidy duties of 39.05 percent on corrosion-resistant steel from
Vietnam using Chinese-origin substrate. These duties are additional to the 25 percent
tariff imposed previously by the U.S. on national security grounds.
Vietnam sought an exemption from this ruling. The Department of Commerce
responded that the exemption could be granted if Vietnamese enterprises can prove
that their products do not use steel exported from China.
Conclusion
 5

The forthcoming Vietnamese trade mission to Washington led by Vice Prime Minister
Hue comes at a sensitive time when the Trump Administration is embroiled in trade
disputes with China, the European Union, Canada and Mexico. Vietnam can weather
continued tariffs on the export of steel to the United States because its market share
is so small. This stands in contrast to the disputes over catfish and shrimp; Vietnam
built up and then lost market share with the imposition of anti-dumping tariffs on its
export of seafood products. The catfish issue is about the classification of Vietnamese
catfish and food safety issues. Both the Food and Agriculture Organization and the
Government Accounting Office have concluded that Vietnamese catfish do not pose
health problems.
Vietnam’s market has changed considerably since 2007 when its status as a non-
market economy was included in the U.S.-Vietnam WTO accession agreement.
Vietnam has already been recognized as a free market by ASEAN, Australia, India,
Japan and New Zealand. Vietnam’s status as a free market will likely be facilitated by
positive outcomes of bilateral working groups responsible for agricultural and food
safety issues, industrial goods, intellectual property matters, and digital trade.
Vietnam has mitigated U.S. concerns over its trade surplus by undertaking to purchase
up to $20 billion in American goods and services over the coming years.
The forthcoming U.S.-Vietnam talks concerning trade issues are important to Vietnam
as it strives to reach a GDP growth rate of 7 percent in 2018. The World Bank estimates
Vietnam will reach 6.8 percent. If Vietnam is given market economy status this will
lower existing tariffs on Vietnamese goods exported to the United States.
While China is Vietnam largest trading partner, the United States is Vietnam’s largest
export market. It is vital for Vietnam to obtain as much relief as it can from U.S. anti-
dumping and anti-subsidy tariffs particularly for catfish and shrimp. Vietnamese
arguments for tariff relief could fall on deaf ears given the rise is protectionist
sentiment in the United States. This could result in Vietnam taking its case to the WT0
for dispute settlement.

Suggested citation: Carlyle A. Thayer, “Vietnam-U.S. Trade Relations: Free Market v

Protectionism,” Thayer Consultancy Background Brief, June 16, 2018. All background
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Thayer Consultancy provides political analysis of current regional security issues and
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