Vietnam and the NonMarket Economy Issue

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Vietnam and the Non-Market Economy Issue

• By
• Dr. Adam McCarty

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Today

• A fishy story (background)
• What is the issue? (unfair?)
• Where did it come from (the definition)?
• Does it matter?
• What should Vietnam do?
• When will Vietnam succeed?
• Does it really matter?

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A fishy story
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A fishy story

• June 28, 2002 Catfish Farmers of America
  petition for anti-dumping investigation.
• July 18, 2002 investigation by US Department of
  Commerce (DoC) begins.
• August 14, 2002 Vietnam non-market economy
  (NME) inquiry begins.
• November 8, 2002 US DoC concludes that Vietnam
  is a NME.

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What is the issue?

• Vietnam is, by any reasonable standards, clearly
  a market economy!
• The issue is therefore the definition.

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So what is a market economy?
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A market economy is

• A market is where supply and demand for a
  particular good or service is principally
  directed by price movements.
• In competitive markets, consumers are sovereign
  (leading).
• A market economy is where most resource
  allocation decisions are decided through
  competitive markets.

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According to the US DoC

• A NME is one where prices are not, as a general
  rule, meaningful measures of value because they
  do not sufficiently reflect demand conditions or
  the relative scarcity of resources used in
  productionThe problem is the price generation
  process in NMEs.

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The US DoC follow six criteria

• Currency convertibility
• Free bargaining of wage rates
• Scope for foreign investment
• Extent of Government ownership/control
• Privatisation land use rights
• Extent of Government influence on firms
• Price liberalisation bank reform scope of
  private businesses
• Other factors

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Where did the US DoC definition come from?

• Legitimate measurement concerns in the 1980s
  (prices under central planning) GATT concern.
• Slipping to apply to transitional economies in
  1990s
• Now twisted into a narrow definition of highly
  distorted market economies
• Now a non-tariff barrier (NTB) to trade, and an
  abuse of WTO principles.

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GATT, 1986

• It is recognized that, in the case of imports
  from a country which has complete or
  substantially complete monopoly of its trade and
  where all domestic prices are fixed by the State,
  special difficulties may exist in determining
  price comparabilityand a strict comparison
  with domestic prices in such a country may not
  always be appropriate

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The 2003 US DoC definition

• Has nothing in common with the centrally planned
  economies the GATT was worried about.
• Has nothing to do with the existence or scope of
  markets in an economy.
• Looks only at some distortions in some markets.

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The US is not the only one

• NME concept embraced by
• Brazil Egypt EC India Israel South Korea
  Malaysia Mexico Peru Poland Singapore South
  Africa Thailand Turkey United States.
• Similar definitions to US DoC, or follow others,
  or none specified.

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Does it matter?

• YES, because
• Easier for US interests to win anti-dumping cases
  and leads to higher duties.
• Which will mean more anti-dumping accusations
  than otherwise.
• Could be tied to WTO accession (like China 15
  years), causing second class WTO member.

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So what should Vietnam do?

• Attack the definition.
• Given definition, attack methodology.
• Given all, make policy reforms
• Negotiate smallest time period for WTO accession.
• Retain industry-specific defences concerning NM
  economy status.

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So what should Associations do?

• Research the non-market economy policies and
  definitions (US, EU, others)
• Prepare basic research for industry-specific
  defences for market economy status
• Research surrogate countries to prepare arguments
  for choosing one country.

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Will Vietnam and Associations succeed?

• Probably not, BUT must try!
• Petition US DoC to review again in 2005.
• Focus on stimulating debate about the issue in
  all possible forums gt strategic approach.
• Work through other countries, gain support,
  mobilise NMEs, complain through WTO.

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American or Vietnamese?