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As the patchwork of multilateral free trade agreements governing international trade grew, so did the use of non-tariff barriers such as anti-dumping and countervailing duties. Here’s what foreign companies in Vietnam need to know and why regular supply chain audits are becoming increasingly important.
Vietnam has signed a total of 15 free trade agreements and is expected to sign two more in the next year or so. These trade agreements have significantly reduced tariffs for businesses importing goods and services to Vietnam and for businesses exporting Vietnam to the rest of the world.
Yet despite the prosperity that free trade brings, foreign firms take advantage of the improved terms of trade to dump surplus goods into foreign markets, often with negative consequences.
In addition, governments are often willing to provide subsidies to protect domestic industries affected by tariff cuts. This may give these industries an unfair advantage in export markets.
It is this reality that has led to the introduction of anti-dumping duties (ADD) and countervailing duties (CDUs). Both types of non-tariff barriers have become an important part of international trade and continue to grow in importance.
Understanding how these arrangements work in the context of Vietnam is critical as supply chains diversify to include this rapidly growing Southeast Asian country. It is also useful for creating regional cross-border supply chains.
In Viet Nam, ADD and CVD are handled by the Vietnam Trade Defense Administration, which is under the Ministry of Industry and Trade.
There are currently 25 ADDs and one CVD applicable to goods exported to Vietnam. With the exception of two ADDs that apply to some yarn products and some sorbitol-based products in India, these directives are aimed at exports from Asian countries.
It is worth noting that these measures do not only apply to countries accused of dumping, but also to third countries allegedly used to circumvent Vietnam’s trade remedies.
For example, Thailand is currently implementing ADD and CVD for sugar products (see Decision #1578/QD-BCT).
Last August, the Ministry of Industry and Trade (MoIT) expanded this scope (see Decision No. 1514/QD-BCT) to cover sugar imports from Cambodia, Indonesia, Laos, Malaysia and Myanmar. The Ministry of Industry and Trade found that Thai producers used five countries as third parties to circumvent trade measures against Thai sugar.
This practice of applying ADD and CVD to third countries is not unique to Vietnam. On the contrary, Vietnam itself, as a third country, has been repeatedly subjected to ADD and CVD for circumventing trade protection measures in other jurisdictions.
The ongoing so-called “trade war” between the US and China is driving business to Vietnam, but that doesn’t necessarily mean building factories and plants.
Chinese manufacturers are increasingly looking to Vietnam as an entry point into overseas markets and a way to circumvent trade restrictions on Chinese imports.
Solar panels made in China, for example, are subject to anti-dumping duties in the US after they are believed to have been sold below cost. These tariffs were introduced in 2012, after which Chinese manufacturers moved production to Taiwan. Subsequently, US tariffs were expanded to include Taiwan.
Now the situation has escalated further, affecting several companies in various Southeast Asian countries – last year a US Department of Commerce investigation found that four companies in Malaysia, Thailand, Cambodia and Vietnam exported most of the solar panels to the United States. Made in USA. in China.
The study found that these four Southeast Asian countries were used to bypass the solar-powered ADD and CVD mentioned above. But this is only a preliminary hearing, and companies still have time to appeal. However, if the results continue, imports from these countries could face up to $5 billion in ATR/STA levies.
The use of ADD and CVD has increased significantly in recent years with the spread of free trade agreements.
A total of 483 anti-dumping measures were implemented between 2001 and 2010. In the next decade, from 2011 to 2020, this number increased to 1323 entries. Most of these measures were initiated by the United States, with China being the most popular target, according to the World Trade Organization.
It is also worth noting a sharp increase in 2021. Only 106 new measures were adopted in 2020, compared to 285 the following year.
Compensatory measures have been significantly increased. From 2001 to 2010, only 41 countervailing duties were in effect. However, from 2011 to 2020, that number rose to 151. Cardiovascular disease also rose significantly in 2021, with 38 measures taken, up from 21 a year earlier. Despite the overall upward trend, the number of new cases of ADD and CVD in 2020 decreased compared to 2019. This may be due to slowdowns in production and exports due to the outbreak. Similarly, the surge in 2021 could be due to the economic recovery. It may also be that economic conditions are volatile and businesses may feel the need to take drastic measures, such as selling off excess inventory, to stay afloat. However, it is difficult to draw any firm conclusions. There may be more action on ADD and CVD now than ever before. All this suggests that through ADDs and CVDs, nation states have the opportunity to protect domestic firms, even as free trade agreements open up markets and create opportunities for supply chain diversification. With that in mind, it’s worth noting that supply chains in Southeast Asia are increasingly intertwined with the sometimes opaque origins of components and materials. Foreign companies need to conduct due diligence on the companies they work with throughout the supply chain to avoid costly ADD/CVD measures. Companies considering diversifying their supply chains, especially outside of China, should be aware of this new paradigm. Ensuring compliance for local partners, a clear understanding of a partner’s corporate affiliation, and an understanding of the origin of raw materials and key feedstocks is essential to avoid being on the wrong side of an anti-dumping investigation. Foreign companies should also consider that the ADD/CVD mechanism may be an option if their operations in Vietnam are affected by unfair trade practices. However, ADD and CVD are just one of many potential complications to consider when building cross-border supply chains. Vietnam Briefing is published by Asia Briefing, a subsidiary of Dezan Shira & Associates. We produce materials for foreign investors throughout Eurasia, including ASEAN, China, India, Indonesia, Russia and the Silk Road.
Post time: Jul-06-2023