U.S. keeps Vietnam as non-market economy, despite efforts to woo Hanoi

By David Brunnstrom and Phuong Nguyen

WASHINGTON/HANOI (Reuters) -The U.S. Commerce Department announced on Friday it will continue to classify Vietnam as a non-market economy country, a decision disappointing to Hanoi, which the U.S. has been wooing in its efforts to push back against China.

Vietnam has long sought an upgrade, which would have reduced the punitive anti-dumping duties levied on non-market economies marked by heavy state influence. Only 12 other economies are labeled as non-market by Washington, including China, Russia, North Korea and Azerbaijan.

A change in status has been opposed by U.S. steelmakers, Gulf Coast shrimpers and honey farmers and members of the U.S. Congress representing them, but backed by retailers and some other business groups.

"Today, the U.S. Department of Commerce announced its determination that Vietnam will continue to be classified as a non-market economy country for purposes of calculating U.S. antidumping duties on imports from Vietnam," the department said in a statement after a year-long review.

"This finding means that the methodology used in calculating U.S. antidumping duties on imports from Vietnam remains the same," it said.

Vietnam's Ministry of Industry and Trade said upgrading Vietnam would have been an objective and fair move.

"Vietnam regrets that despite several positive improvements in the Vietnamese economy recently, the U.S. Department of Commerce still has not recognized Vietnam as a market economy country," it said in a statement.

Vietnam has long argued it should be freed of the non-market label because of recent economic reforms, and it has said that retaining the moniker is bad for increasingly close two-way ties that Washington sees as a counterbalance to China.

Opponents of an upgrade have countered that Hanoi's policy commitments have not been matched by concrete actions and it operates as a planned economy governed by the ruling Communist Party. They say Vietnam is increasingly being used as a manufacturing hub by Chinese firms to circumvent U.S. curbs on imports from China.

A 284-page Commerce memo explaining the decision said it was taken despite Vietnam’s "impressive reforms and economic growth."

BLOW TO CLOSER TIES

Washington has worked hard to foster closer ties with Vietnam in the face of growing strategic competition with China and the issue of whether to upgrade Vietnam has been awkward given the approaching U.S. election in November and claims by each side that they stand for worker rights.

Some analysts said before the announcement a failure to upgrade Vietnam could be negative for U.S.-Vietnam relations.

"Vietnamese leaders have seen this decision as an important benchmark in their improving relationship with the U.S. and the achievement of normalization between the two countries," said Edmund Malesky, a professor of political economy and director of the Duke Center for International Development.

Murray Hiebert, a senior associate of the Southeast Asia Program at Washington's Center for Strategic and International Studies, called the decision "ridiculous."

"Vietnam's market is as free as many others not on the NME list," he said, adding that the decision seemed "out of whack" with U.S. President Joe Biden's visit to Hanoi last year, when the two sides elevated ties to a comprehensive strategic partnership.

U.S. Treasury Secretary Janet Yellen has also promoted Vietnam as a "friend-shoring" destination to shift U.S. supply chains away from China.

Hosuk Lee-Makiyama, director of the Brussels-based European Centre for International Political Economy, said that even if the Biden administration were to have taken the politically risky step of upgrading Vietnam, it would have been a pyrrhic victory given that any future Trump administration was certain to reverse it.

Nazak Nikakhtar, a former Commerce Department official in the Trump administration now with the Wiley Rein law firm, said the decision reflected "ample" evidence from industry groups "that Vietnam’s economy has not transformed to the extent that would warrant treatment as a market economy."

"Ignoring distortions in the economies of trading partners is unfair and prejudicial against American interests," she said.

(Reporting by David Brunnstrom, Doina Chiacu and David Lawder in Washington and Phuong Nguyen and Francesco Guarascio in Hanoi; Editing by Chizu Nomiyama and Andrea Ricci)