Vietnam can breathe a sigh of relief as the U.S. Trade Representative (USTR) is not imposing tariffs or taking any other specific action at this time with respect to its Section 301 investigation of unfair currency valuation by Vietnam. The USTR issued a report that finds “Vietnam’s acts, policies, and practices including excessive foreign exchange market interventions and other related actions, taken in their totality, are unreasonable and burden or restrict U.S. commerce.” However, the USTR decided to defer to the incoming Biden administration on further action. Obviously, with a new year, and a new administration fused together from the start, and the enormous challenges the Biden administration faces with a still out of control pandemic, and an economy that may take years to mend, ($1.9T relief package up for ongoing debate) and trying to get confirmations with an impeachment trial lending a hand to Republican Senators wanting to side step the issues at hand, one could look at trade as among those administration tasks not making the top 10 for a while, but Vietnamese exporters need to stay frosty.

Looking back in the not-so-distant past, the U.S. Treasury Department in December labeled Vietnam a “currency manipulator” due to its growing trade surplus with the United States, its large global current account surplus and heavy foreign exchange market intervention to hold down the value of its dong currency. Does this mean that Vietnam is out of the woods? For now, but the new administration has cause to stay on the alert for product coming out of Vietnam bound for the U.S.

Honestly, Vietnam should feel pretty good about its future heading into the 2021 year of international trade. As countries around the world launch Covid-19 vaccination programs, and focus an abundance of government resources on beating the pandemic, Vietnam is emerging from the darker days as one of the global economy’s strongest survivors.

Per Trade Data Monitor: The gross domestic product of the Asian nation of 96 million people rose 2.9% last year, making it one of the only economies in the world, along with China, to record positive growth in 2020. It’s also been a nice boost for international investors, who’ve shifted their focus to Vietnam, and more specifically for those who have actually relocated their manufacturing to the country, (mostly from China to avoid the Section 301 tariffs). I wrote an article on this a little while back: Good-Bye China, Hello Vietnam – Braumiller Law Group

U.S. imports from Vietnam have increased to $64.8 billion in the first 10 months of 2020, up from $12.3 billion back in 2010. The U.S. trade deficit has increased to $56.6 billion in 2020, which by the way was only $9.4 billion a decade ago, in 2010. That’s impressive growth, given the lack of infrastructure when compared to China.

In the even bigger picture with Vietnam and the U.S., with the coast being cleared of tariffs, at least more focus can be put on exporting to the U.S. who has now become their leading trade partner. Per U.S. Census data, Vietnam’s total trade with the United States was $8.69 billion in November 2020, a change of 36.12 percent from the same month one year ago. The change in exports was -7.87 percent and the change in imports was 29.79 percent. Over the past decade U.S. imports from Vietnam grew from just under $15 billion to $77 billion at the close of 2020, which makes Vietnam the #10 ranked trade partner with the U.S.

The top U.S. imports from Vietnam are electric machinery and equipment, apparel and footwear, furniture, industrial machinery, fruits and nuts, leather goods, fish and iron and steel. Electric machinery and equipment is currently the top export from Vietnam to the U.S. and is also Vietnam’s No. 1 export worldwide.

All fanfare and accolades for the new world trade stature of Vietnam aside, there are still some issues that might eventually lead the USTR back to another review. Of note, and what is causing Customs to look closer at exports from Vietnam is the very movement of many factories from China to Vietnam over the past couple years. Many have come with Chinese investors, as well as an imported Chinese workforce. This scenario, coupled with potential raw material sourcing problems for the manufacturing of more sophisticated product within Vietnam, one could run into country- of- origin determination issues as many components are still coming from China. U.S. importers, who have suppliers that have shifted production to Vietnam, should be inquiring about the manufacturing process and understanding where the components are sourced to avoid any country of origin issues when importing into the U.S., as moving one’s manufacturing from China to Vietnam does not necessarily constitute a new country of origin. There must be what is called “substantial transformation” in order to qualify Vietnam as the country of origin.

So, it begs the question, “What would a good due diligence program incorporate in order to avoid these particular pitfalls with U.S. Customs.”?

We, Braumiller Law Group, like to sample and review, long before the product reaches its final port. It behooves one to take a close look at the various elements involved in the manufacturing process in order to know, for example, the country of origin or the HTS Classification before anything is shipped. Misclassifications at time of entry can also lead to follow-up questions by U.S. Customs once discovered and cause hardships via unwanted penalties. I would also suggest that third party supply chain audits be done on a regular basis in order to ensure compliance.

Based on the recent rhetoric from the Biden Administration, the trade landscape regarding the new USTR and our Asian partners will not be changing much in the near future, which translates to things continuing to be tough on China, and now Vietnam.