NON-MARKET ECONOMY
STATUS - ECONOMY
News: Why Vietnam wants US to change
its ‘non-market economy’ status
What's in the news?
●
Vietnam wants the United States to change its
designation as a "non-market economy" to a "market
economy."
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This change would help Vietnam reduce the high
tariffs placed on its goods imported into the US.
Non-Market Economy
Status:
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A nonmarket economy (NME) country operates without market principles of cost or
pricing structures, often resulting in sales that do not reflect the true
value of a product.
Criteria for Nonmarket
Economy Designation by the United States:
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Currency Convertibility: Assessment of whether
the country's currency is freely exchangeable in the international market.
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Wage Negotiation: Evaluation of whether wage rates are determined
through free bargaining between labour and management.
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Foreign Investment: Consideration of the degree
to which foreign investments and joint ventures are allowed.
●
Government Role: Analysis of whether the government owns or
controls the means of production.
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Resource Allocation: Review of whether the state
controls the allocation of resources and decisions regarding price and output.
Implications of Non-Market
Economy Status:
1. Anti-Dumping Duties:
●
Being labelled a non-market economy allows the U.S.
to impose anti-dumping duties on goods from these countries.
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These duties are calculated based on the price
differences between the export price and what the goods would cost in a
third-party market economy (e.g., Bangladesh).
●
This method often does not take into account the
actual production costs in the non-market economy, potentially inflating the
duties imposed.
Impact of Non-Market
Economy Status:
1. Trade Barriers:
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Leads to the implementation of strict regulations
and trade barriers.
2. Investment Climate:
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Can negatively affect the investment climate of the
designated country.
3. Diplomatic Strain:
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May strain political and diplomatic relations
between the NME country and the U.S.
4. Competitiveness:
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Undermines the competitiveness of the NME country's
exports by imposing higher costs on goods entering the U.S.
Vietnam's Current
Economic Classification:
●
Vietnam is classified by the U.S. as a non-market
economy, a designation it shares with 12 other countries, including Russia,
China, and former Soviet states.
●
This classification has been in place for over two
decades despite Vietnam becoming one of the top trading partners of the U.S.
and playing a strategic role in countering China's influence in the region.
Benefits of
Reclassification:
●
Achieving market economy status would help Vietnam
eliminate the punitive anti-dumping duties, making its exports more competitive
in the U.S. market.
Go back to basics:
Market Economy:
●
It is a system in which production decisions and
the prices of goods and services are guided primarily by the interactions of
consumers and businesses.
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That is, the law of supply and demand, not a
central government's policy, is allowed to determine what is available and at
what price.
●
A market economy gives entrepreneurs the freedom to
pursue profits by creating new products, and the freedom to fail if they
misread the market.