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US sets 456% duty on Vietnam steel; Vietnam has difficulty entering EU's market with FTA

(ecf.org.cn)        Updated: 2019-07-25

The US Commerce Department said on July 2 it would impose duties of up to 456 percent on certain steel products produced in South Korea or Taiwan that are then shipped to Vietnam for minor processing and finally exported to the United States.

The agency said in a statement that it had found corrosion-resistant steel products and cold-rolled steel produced in Vietnam using substrates from South Korean and Taiwanese origin which had circumvented US anti-dumping and anti-subsidy duties.

However, the European Union signed a trade deal with Vietnam on June 30, underscoring the bloc's commitment to opening up its market and trading freely in the face of rising protectionism and trade tensions around the world.

How will the trade relationship between the US and Vietnam develop? Can Vietnam break into the EU's business market?

US has not relaxed its vigilance against Vietnam

Since 2016, the US has imposed punitive tariffs on corrosion-resistant steel products and cold-rolled steel produced in India, Italy, and South Korea.

Vietnam said it was committed to free and fair trade with the United States on June 28.

"The Ministry of Industry and Trade has warned local companies about possible moves by importing countries, including the United States, to apply stricter requirements in trade protection cases," Foreign Ministry spokeswoman Le Thi Thu Hang said at a routine news conference in Hanoi on July 4.

Vietnamese companies should consider business strategies that include switching to domestic materials, she said.

The ministry said Vietnam's raw materials may not meet export needs in the short term in terms of production, quality, cost and supply capacity.

The United States is Vietnam's largest export market. According to the United States Trade Representative, the total trade value of goods and services between the United States and Vietnam reached $58.2 billion in 2017, and the US trade deficit with Vietnam reached $37.3 billion.

But in terms of steel products, countries involved in the Association of Southeast Asian Nations (ASEAN) are Vietnam's largest export market, accounting for about 61 percent, followed by the United States and European countries, which account for 8.1 percent and 7.1 percent respectively.

In fact, the United States has been closely watching the development of Vietnamese light industry manufacturing and dumping from very early on. Last month, US President Donald Trump said Hanoi treated the United States "even worse" than China.

Vietnam has been touted as one of the largest beneficiaries of the ongoing trade war between the United States and China, but these comments have led some to believe that Vietnam may be the next target of US tariffs.

Foreign production capacity and capital continue to flow into Vietnam due to the need to evade US tariff barriers. If US clearly expresses its intention to impose tariffs and non-tariff penalties on Vietnam, foreign investment will be greatly reduced in Vietnam's manufacturing industry.

Free trade deal with EU may not benefit Vietnam's manufacturing industry

In the face of increased international competition and increased trade protection measures, Vietnam should seek to diversify the export market for its steel products. Specifically, it should look to the European market, according to an analyst of Vietnam's steel industry.

The European Union and Vietnam signed a free trade agreement (FTA) and an investment protection agreement (IPA) on June 30.

The FTA between the EU and Vietnam is the most ambitious free trade deal ever concluded with a developing country. It almost completely (99 percent) eliminates customs duties between the two blocks. Sixty-five percent of duties on EU exports to Vietnam will disappear as soon as the FTA enters goes into effect, while the remainder will be phased out gradually over a period of up to 10 years. As for Vietnamese exports to the EU, 71 percent of duties will disappear, the remainder being phased out over a period of up to seven years.

The business environment in Vietnam will continue to improve. Compared with the products of ASEAN countries in the EU market, the competitive advantage of Vietnamese goods will increase in the short and medium term.

On the other hand, industries such as aquatic products, textiles, shoes and luggage will usher in huge development opportunities, as nearly 90 percent of export tariffs will be removed. More importantly, domestic companies will have access to advanced equipment and technology from the EU to improve labor productivity and product quality.

At the same time, Vietnamese companies should meet the EU's technical, labor and environmental requirements, shape product brands, and strictly abide by EU trade and investment regulations.

It is said that the long-standing stalemate between the two sides before the signing of the FTA is rooted in the EU's desire to impose its own set of compulsory standards such as environmental protection, production environment and labor welfare onto Vietnam. If implemented, The Vietnamese manufacturing industry's biggest advantage, labor costs, would be greatly weakened.