Background

Potential tariffs on imports from Vietnam got mixed reviews in public comments on the Trump administration’s ongoing Section 301 investigations of timber and currency valuation in that country.

The Office of the U.S. Trade Representative has launched Section 301 investigations into Vietnam’s acts, policies, and practices related to (1) the importation and use of illegal timber and (2) currency valuation. These investigations could result in tariffs, quotas, or other restrictions on imports from Vietnam if consultations do not yield a successful resolution. Importers of wood products from Vietnam in particular could be affected by any such restrictions.

With respect to timber, a recent Congressional Research Service report states that Vietnam is one of the world’s largest exporters of timber and timber products and that the U.S. is Vietnam’s top market for such goods, with imports up 77 percent from 2016 to 2019. The report adds that Vietnam relies heavily on imports of timber harvested in other countries, particularly for the manufacturing and export of high-end products such as furniture. According to USTR, available evidence suggests that a significant portion of this imported timber has been harvested or traded in violation of Vietnam’s domestic laws, the laws of exporting countries, or international rules. The CRS report explains that Vietnamese officials may be improperly recording the origin of timber crossing the border from Cambodia, facilitating illegal timber imports, or allowing imports of CITES-listed species based on invalid permits.

With respect to currency, USTR has said that according to available analysis Vietnam’s currency has been undervalued for the past three years and the government has actively intervened in the exchange market. The CRS report notes that concerns about Vietnam’s currency practices were raised by the U.S. Treasury Department in May 2019 and January 2020 and that the Commerce Department found currency undervaluation in a recent countervailing duty investigation of car and truck tires from Vietnam. However, the report adds that using Section 301 to address currency practices is controversial and circumvents procedures laid out by Congress in the Omnibus Trade and Competitiveness Act of 1988 and the Trade Facilitation and Trade Enforcement Act of 2015.

Comments submitted to USTR about these issues indicate differing opinions on how the U.S. should respond. The Labor Advisory Committee on Trade Negotiations and Trade Policy asserted that “Vietnam’s currency manipulation is the result of deliberate government policies that have been in place for many years and are designed to gain a competitive advantage for its imports.” The Coalition for a Prosperous America agreed, stating that if Vietnam’s currency was freely traded it would appreciate due to the country’s growing export revenue. Instead, currency manipulation has aided an increasing volume of U.S. imports from Vietnam, which the two organizations said has led to price suppression, lost profitability, job losses, and a rapidly increasing U.S. trade deficit with Vietnam. In response, they called for the U.S. to impose additional tariffs on imports from Vietnam ranging from 8.4 percent to 15 percent.

On the other hand, two business groups said they oppose any such moves. The American Chamber of Commerce in Vietnam said imposing tariffs on imports from Vietnam “could create a more challenging environment” for U.S. businesses that operate in and trade with that country. Both AmCham and the U.S. Chamber of Commerce said this could damage the “healthy trade and investment relationship” the two countries have developed over the past 20+ years and hinder the efforts of U.S. companies to diversify their supply chains away from China. The two groups also said that while the motivation behind the Section 301 investigations seems to be the increasing U.S. trade deficit with Vietnam, that increase appears to be due in large part to the U.S.’ own policies, namely tariff increases on goods from China that have prompted manufacturers to shift production from China to Vietnam. Both groups added that the U.S. should instead work to address more pressing concerns with Vietnam, such as digital trade, pharmaceutical imports, intellectual property rights, and customs and tax procedures.

For additional information on the potential impact of these investigations, please contact Nicole Bivens Collinson or Kristen Smith.

Copyright © 2020 Sandler, Travis & Rosenberg, P.A.; WorldTrade Interactive, Inc. All rights reserved.

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