Co-Authored by Sharath Patil
USTR’s Tougher Stance on Vietnam
The Trump administration has begun to exercise a tougher stance against Vietnam. The United States Trade Representative (“USTR”) initiated two Section 301 investigations against the Southeast Asian country on October 2, 2020. The focus of the two investigations are Vietnam’s acts, policies, and practices related to (1) the valuation of its currency, and (2) Vietnam’s importation and use of illegal timber. The news of USTR’s launch of these dual investigations came days before the U.S. Census Bureau’s latest trade data release – which indicated that the U.S. trade deficit in goods with Vietnam is at record levels, registering at $42.7 billion in the 8 months of data available for 2020. This skyrocketing trade deficit is relevant to U.S. trade policy towards Vietnam because one of President Trump’s key economic pledges was to lower the U.S. trade deficit with trading partners. A well-documented pattern of transshipment of goods from China through Vietnam to avoid U.S. Section 301 duties towards China could also explain Vietnam being targeted.
What are Section 301 Investigations?
Section 301 investigations refer to cases launched by the USTR under the authority of Section 301 of the Trade Act of 1974. The statute provides the president of the United States with the authority to take “all appropriate and feasible action” to obtain the removal of any act, policy, or practice of a foreign government that violates a trade agreement or is unjustifiable and burdens U.S. commerce. Section 301 cases can be self-initiated by the USTR or be initiated as a result of a petition filed by industry. Once USTR launches a Section 301 investigation, the agency must seek to negotiate a settlement with the foreign country in which a problematic trade barrier is eliminated or the United States is otherwise compensated for the burden imposed on U.S. commerce.
The two investigations launched against Vietnam will join several other cases already on the USTR’s 301 docket:
- Technology Transfer, Intellectual Property, and Innovation in China
- Large civil aircraft
- France’s Digital Services Tax
- Digital Services Taxes in Austria, Brazil, the Czech Republic, the European Union,
India, Indonesia, Italy, Spain, Turkey, and the United Kingdom
USTR’s two new 301 investigations of Vietnam pertain to currency issues and timber concerns. We will discuss each of these disputes, in turn.
Currency disputes are a hallmark of trade geopolitics. The U.S. Treasury Department’s bi-annual report, Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States, monitors the exchange rate policies and currency activities of the United States’ largest trading partners. If certain statutory criteria are met, the Treasury Department labels a foreign country a currency manipulator. The Treasury report evaluates the U.S.’ largest trading partners against that statutory criteria. As a result of the analysis in these biannual currency reports, the Treasury Department designated China a currency manipulator in August 2019. That designation was withdrawn in January 2020 as part of U.S.-China trade negotiations.
In recent years, the currency reports have closely monitored the activities of Vietnam, as well. According to the USTR, the Vietnamese government tightly manages the value of the Vietnamese đồng through the State Bank of Vietnam (“SBV”). Based on Treasury’s currency reports and other available analysis, USTR found that the Vietnamese government had undervalued the đồng on a real effective basis by 7 percent in 2017 and 8.4 percent in 2018, which further undervaluation identified in 2019. Countries undervalue their currency for a trade advantage – it lowers the prices of their exports. The issue vexes the U.S. government’s efforts to have fair and balanced trade relationships. The Council of Foreign Relations’ currency manipulation tracker shows that Vietnam was the worst offender across three criteria identified by the Treasury Department. Vietnam’s devaluation of the đồng artificially increases demand for Vietnamese exports and inflates the already-high trade deficit the U.S. has with that country. Vietnam will now join China in being subject to 301 scrutiny on the basis of currency concerns.
The subject of USTR’s second investigation is Vietnam’s acts, policies, and practices related to the import and use of illegal timber. According to the USTR, Vietnam is one of the world’s largest exporters of wood products. In fact, in 2019, Vietnam exported more than $3.7 billion worth of wooden furniture to the United States. Vietnamese wood product manufacturers rely on imported timber as inputs to their finished products. USTR has found that Vietnam’s timber imports were illegally harvested on protected lands in Cambodia, Cameroon, and the Democratic Republic of the Congo in violation of those countries’ laws. Furthermore, USTR found that Cambodian exports of timber to Vietnam may have violated Cambodia’s log export ban. Vietnam’s timber import and use practices may involve Lacey Act violations, as well.
Record Trade Deficits
Year-to-date 2020 data shows that the United States’ goods trade deficit in Vietnam is higher in the first eight months of 2020 than the first eight months of any preceding year. The U.S. goods trade deficit with Vietnam so far this year is a whopping $42.7 billion after adjusting for inflation. This is 17.8 percent higher than the same period in 2019, and 402 percent higher than the same period ten years ago in 2020. A key Trump administration pledge has been to reduce the U.S. trade deficit. However, many mainstream economists believe that trade deficits are a poor metric for a country’s economic well-being and that U.S. trade policy should not be based on reducing trade deficits.
Reaction in Vietnam
USTR’s actions have triggered widespread concern among Vietnam’s business community. “Everybody is concerned, especially investors in Vietnam who moved their factories from China,” said Ernie Koh, director of Singapore furniture manufacturer Koda, which has manufacturing facilities in Vietnam. “This will definitely have an impact on our business, especially for those kitchen cabinet manufacturers who export to the US, but there is nothing to worry about for non-US exporters at this stage,” said Niu Qiang from the Chinese Chamber of Commerce in Ho Chi Minh City.
The USTR will convene virtual public hearings for both investigations. The timber investigation hearing will be held on December 28, 2020 at 9:30am ET, and the currency investigation hearing will be held on December 29, 2020 at 9:30am ET.
Diaz Trade Law can assist you with:
- Submitting a request to appear (the deadline for filing a request is December 10, 2020)
- Preparing a testimony or testifying on behalf of your organization about USTR’s Section 301 investigations
- Preparing and submitting post-hearing rebuttal comments by January 6, 2021 and January 7, 2021 for the timber and currency hearings respectively
Diaz Trade Law, P.A. has extensive expertise on Section 301 tariff matters. In September, we represented over 100 importers in drafting a complaint with the U.S. Court of International Trade to request refunds for List 3 and List 4 301 China tariffs paid. If you have questions about Section 301 tariffs or would like to participate in the Vietnam investigation hearing through testimony or post-rebuttal comments, reach out to us at email@example.com.
All trade data is sourced from the U.S. Census Bureau and adjusted for inflation to base month August 2020.