On Friday October 2nd, 2020 the Office of the U.S. Trade Representative announced that it was initiating two Section 301 investigations regarding certain trade practices by Vietnam related to: 1) its import and use of timber illegally harvested or traded; and 2) policies that may be contributing to the undervaluation of Vietnam’s currency.
“Using illegal timber in wood products exported to the U.S. market harms the environment and is unfair to U.S. workers and businesses who follow the rules by using legally harvested timber. In addition, unfair currency practices can harm U.S. workers and businesses that compete with Vietnamese products that may be artificially lower-priced because of currency undervaluation.” USTR Robert Lighthizer said in a statement.
The investigation will be carried out under Section 301 of the 1974 Trade Act, the same legal authorization used by the Trump administration to prosecute its trade war against China.
Investigation into Import and Use of Illegal Timber
In a draft Federal Register notice, the USTR alleges that Vietnam’s furniture industry, with exports to the U.S. totaling $3.7 billion in 2019, relies heavily on illegally harvested timber from countries such as Cambodia, Cameroon, and the Democratic Republic of Congo.
In addition to some of the timber likely violating the Convention on International Trade in Endangered Species of Wild Fauna and Flora, the investigation also raises potential issues under the Lacey Act, which prohibits the importation of illegally harvested timber.
The USTR is requesting that interested parties submit written comments no later than November 12, 2020 via the Federal eRulemaking portal on docket number USTR-2020-0036.
Investigation into Currency Valuation
In a second draft Federal Register notice, the USTR alleges that Vietnam, through the State Bank of Vietnam, “tightly manages the value of its currency,” which analysis indicates has been undervalued over the past several years. Specifically, USTR alleges that its currency, the dong, was undervalued by roughly 7% in 2017 and by 8.4% in 2018... [and] was undervalued in 2019 as well.”
In 2019, the Treasury Department included Vietnam on a watch list for its currency practices, along with China, Germany, Ireland, Italy, Japan, Malaysia, Singapore and South Korea.
Treasury also found that “government action on the exchange rate” had resulted in the undervaluation of Vietnamese tires that were subject to an anti-subsidy investigation undertaken by the Commerce Department earlier this year.
The USTR is requesting that interested parties submit written comments no later than November 12, 2020 via the Federal eRulemaking portal on docket number USTR-2020-0037.
Why It Matters
Vietnam is a major U.S. supplier of machinery, apparel, footwear and other products. Through August 2020, the country ranked as the tenth-largest U.S. trade partner with a total trade value of $55.6 billion. Imports totaled $48.98 billion, while U.S. exports amounted to just $6.62 billion, a deficit of $42.36 billion.
The American Apparel & Footwear Association “expressed disappointment” with news of the USTR’s investigations, which could open the door to the imposition of punitive tariffs on U.S. imports from Vietnam. The group urged the administration to “refrain from sowing further supply chain disruption” during the COVID-19 pandemic.
“Vietnam is an important trading partner for the U.S. apparel, footwear and travel goods industry, and has become even more important as U.S. companies have implemented diversification strategies away from China,” said Steve Lamar, AAFA president and CEO.
“As brands did their best to restructure their sourcing models to protect American consumers and American global value chain workers from increased costs caused by the administration’s tariffs, and follow the administration’s edict to diversify from China, many turned to their trusted partners in Vietnam. Imposing new punitive tariffs on imports from Vietnam would cause extreme disruption, directly threatening those investments and increasing prices for hard-working American families at the register or costs on the supply chains that directly support millions of U.S. jobs,” he added.
Under Section 301, the USTR may take appropriate and feasible action to obtain the elimination of a specfic trade policy or practice that violates or is inconsistent with the provisions of any trade agreement or “unjustifiably burdens U.S. commerce.”
In past Section 301 investigations, the USTR has taken a wide range of actions following the conclusion of these investigations, e.g., taking no action, calling for negotiations on the contested policy or practice, and imposing retaliatory tariffs such as those currently imposed on most Chinese imports.
Need More Information?
Should you have any questions about this issue, or should you require assistance preparing comments for submission to the USTR, don’t hesitate to contact one of our helpful trade experts today.