Fighting the Last War

On December 21, 2009, the Government of Australia officially recognized (PDF) Vietnam as a "market economy" for purposes of administering the Australian antidumping law. In doing so, Australia joined India, the ASEAN nations, New Zealand, and several others - 23 in all - that have graduated Vietnam from non-market economy (NME) status to market economy status in national trade remedies (antidumping and countervailing duty - AD/CVD) investigations.

I'll spare you and not get into the weeds here on the difference between market economy and NME status for countries whose imports are being investigated under national trade remedies laws.  (Cato's Dan Ikenson lays it all out here, if you're interested.)  But here's the basic gist: AD/CVD tariffs imposed on imports from an NME country will (almost always) be higher than tariffs on the very same imports if that country were designated a market economy.  Even simpler: inflated tariffs for the very same imports - just by changing the "market economy" designation.

NME designation is a vestige of the Soviet era as a way for market economies to value costs of imports from old school, command-and-control-style economies (think Romania), and only a few countries remain "NMEs," including most notably China and Vietnam (who agreed to the treatment in their WTO accession protocols).  But whether to "graduate" a country from an NME to a "market economy" is completely within the discretion of the investigating country.

As noted above, 23 countries have exercised this discretion and have now chosen to designate Vietnam a "market economy."  Thus, they've noticed a significant change in Vietnam's economy that warrants the change, and/or they simply want to remove a significant potential market barrier to Vietnamese imports.  And they're using the leeway afforded to them under their national laws and WTO rules to make that happen.

One country, however, appears to be moving in the opposite direction with Vietnam - the United States (shocking, I know).  In September 2009, the US Department of Commerce determined to apply the US Countervailing Duty (CVD) Law to Vietnam in an investigation of Vietnamese plastic bag imports.  In so doing, DOC (i) reaffirmed that Vietnam was an NME and that DOC could apply US CVD law to NME imports; and (ii) utilized the controversial CVD/NME calculation methodology - overruled (in part) by the US Court of International Trade only a couple weeks later and challenged last year at the WTO - that it used for Chinese imports.  DOC's final decision in the Vietnam CVD case is due in mid-March, and the chances of there being a significant change with respect to the "new" US approach to Vietnam appear slim.

So while 23 countries have recently chosen to treat Vietnam as a market economy and thus lower barriers to Vietnamese imports in their markets, the United States is doing much the opposite by developing new tools to impede trade with Vietnam.  Those 23 countries will reap the benefits of increased trade and investment, while the United States will - once again - be left fighting the last war.

The trade volumes here are nothing to get too worked up about (only about $16 billion in 2008), but the broader lesson here is both troubling and quickly becoming the norm: those betting that the United States will soon regain the mantle of the world's free trade leader need to cut their losses.  Now.

(Final note: I'd be remiss to ignore the fact that, while the Obama administration initiated the first CVD case against Vietnam, the Bush administration really started the CVD/NME ball rolling with a landmark case against Chinese coated paper in 2006-07 - one that I litigated (and won!).  It was there that DOC reversed a 20-year old policy of not applying the US CVD law to NMEs.)