Why is it in the News?

Vietnam has been pushing the President Joe Biden administration to quickly change its “non-market economy” classification to “market economy”, in a bid to avoid high taxes imposed by the US on the goods imported from the Southeastern country.

Why does Vietnam Want to Get the ‘Market Economy’ Status?

• Vietnam has argued that in recent years it has implemented enough economic reforms that get its name off the non-market economies list.
• The country does meet a number of criteria for the status to be changed.
  • For instance, Vietnam allows foreign investment, wages are determined by free negotiations between workers and management, and most of the means of production are not owned by the state.
• The change in status will also help Vietnam get rid of the anti-dumping duties, making its products more competitive in the US market.
• Vietnam’s Center for WTO and International Trade has said that the method of calculating anti-dumping duties is flawed as it causes “the dumping margin to be pushed up very high” and does not actually reflect the situation of Vietnamese companies.

About Non-market Economy Status:

• Non-market economy status refers to a designation applied to countries by international trade authorities, particularly the World Trade Organization (WTO), based on their economic structure and policies.
• In a non-market economy, the allocation of resources, production decisions, and pricing mechanisms are predominantly influenced by the government rather than by market forces.
  • This can include state ownership of key industries, government intervention in setting prices, and restrictions on foreign investment and trade.
• For trade purposes, countries classified as non-market economies may face different treatment in anti-dumping investigations and trade disputes.
  • This designation can affect how trade regulations and tariffs are applied to goods originating from these countries.
• The US designates a country as a non-market economy based on several factors which are:
  • If the country’s currency is convertible
  • If wage rates are determined by free bargaining between labour and management
  • If joint ventures or other foreign investments are allowed whether the means of production are owned by the state; and
  • If the state controls the allocation of resources and price and output decisions.
  • Other factors like human rights are also considered.
• The non-market economy label allows the US to impose “anti-dumping” duties on goods imported from designated countries.

Market Economies:

• Market economies operate based on the interactions between consumers and businesses, guided primarily by the law of supply and demand, rather than by central government policies.
• Theoretical Foundation: Developed by classical economists like Adam Smith, David Ricardo, and Jean-Baptiste Say, market economies emphasize the role of free markets in allocating resources efficiently.
• Modern Market Economies: Often referred to as mixed economies, modern market economies may still involve some government interventions, such as price-fixing, licensing, quotas, and industrial subsidies, but the majority of decisions are market-driven.
  • Examples include countries like India, the USA, and the UK, where market forces play a significant role in shaping economic activities.

What is Anti-dumping Duty?

• An anti-dumping duty is a protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value.
• In order to protect their respective economy, many countries impose duties on products they believe are being dumped in their national market; this is done with the rationale that these products have the potential to undercut local businesses and the local economy.
• While the intention of anti-dumping duties is to save domestic jobs, these tariffs can also lead to higher prices for domestic consumers.
• In the long term, anti-dumping duties can reduce the international competition of domestic companies producing similar goods.
• The World Trade Organization (WTO)–an international organization that deals with the rules of trade between nations–also operates a set of international trade rules, including the international regulation of anti-dumping measures.?

Why is it in the News?

India has launched an anti-dumping investigation into the import of solar glass from China and Vietnam following a complaint from domestic players.

What is Anti-Dumping Duty?

• Anti-dumping duty is a tariff levied on imports from foreign countries when their prices are lower than the fair market value of similar goods in the domestic market.
• It's implemented by governments to counteract the practice of "dumping," where foreign goods are sold at unfairly low prices in the domestic market, posing a threat to local businesses.
• The primary objective of anti-dumping duty is to safeguard domestic industries from unfair competition and restore fair trade practices.
• This measure is permitted by the World Trade Organization (WTO) to address instances where dumping causes genuine harm to domestic industries.
• To impose anti-dumping duties, governments must provide evidence of dumping, quantify its extent in terms of costs, and demonstrate the resulting injury or threat to domestic markets.
• While aimed at protecting local industries, anti-dumping duties can sometimes lead to increased prices for consumers within the country.

About Countervailing Duty (CVD):

• Countervailing duty (CVD) is a type of tariff imposed by a government to offset the adverse effects of import subsidies on domestic producers.
• It serves as an import tax applied by the importing country on subsidised products from abroad.
• CVD is imposed to address situations where foreign governments provide subsidies to their producers, lowering the cost of their goods and potentially disrupting fair competition.
• To prevent the influx of subsidised products into their markets, importing countries levy CVD, effectively neutralising the price advantage enjoyed by these imports.
• The imposition of CVD is permitted by the World Trade Organization (WTO) to help maintain fair trade practices among its member countries.

Difference Between Anti-dumping Duty and Countervailing Duty:

• Anti-dumping duty is enacted to safeguard domestic markets from the harmful effects of low-priced foreign goods, while CVD targets products benefiting from government subsidies, resulting in artificially low prices.
• The amount of Anti-dumping duty is determined by the margin of dumping, whereas CVD is calculated based on the subsidy value granted to foreign goods.