On January 15, 2021, the Office of the United States Trade Representative (“USTR”) published a report detailing the findings of its investigation under Section 301 of the Trade Act of 1974 (“Section 301”) into Vietnam’s currency policies. The report concludes that “Vietnam’s acts, policies, and practices with respect to currency valuation, including excessive foreign exchange market interventions and other related actions, taken in their totality, are unreasonable and burden or restrict U.S. commerce.”  Although such findings permit USTR to adopt measures, such as tariffs, in response to Vietnam’s policies, USTR has declined to take such action at this time.

In mid-October, 2020, USTR initiated two Section 301 investigations on Vietnam’s acts, policies, and practices, the first related to the undervaluation of its currency and the second related to the import and use of timber that is illegally harvested or traded. USTR solicited public comment on these issues in November, 2020, and held hearings in December, 2020. USTR also held consultations with the Government of Vietnam in December, 2020.  As of the date of publication of this post, USTR has yet to release its findings on the second Section 301 probe related to illegally harvested or traded timber.

The Section 301 report cites a number of currency-related practices of Vietnam that it determines are “unreasonable” under the statute. These include: persistent undervaluation of the VND over a course of several years; Vietnam’s more recent, rapid, and significant purchases of foreign exchange; and the conditions surrounding Vietnam’s foreign exchange market interventions including current account and goods trade surpluses (including with the United States). According to USTR, “such acts, policies, and practices…artificially enhance a country’s exports, and restrict its consumption and imports, unfairly distort market-based competition and are inconsistent with U.S. and international norms.” USTR also took the position that its findings were “consistent with Treasury findings that during the period from July 2019 to June 2020 Vietnam engaged in currency manipulation.” The U.S. Department of the Treasury had designated Vietnam a currency manipulator pursuant to the Trade Facilitation and Trade Enforcement Act of 2015 in December, 2020.

The Section 301 report also provided various findings related to how Vietnam’s currency practices that contribute to currency undervaluation burden or restrict U.S. commerce. In particular, the report cited the effective lowering of the price of exported products from Vietnam to the United States and the suppression of Vietnamese input costs, including labor, which “undermine{s} the competitive position of firms in the United States that are competing with lower-priced Vietnamese imports.” The report also cited the effective raising of the price of U.S. exports to Vietnam, which “undermines the competitive position of U.S. firms in the Vietnamese domestic market.” Finally, the report cited that “excessive {foreign exchange} market intervention undertaken while a country has a significant current account surplus undermines U.S. export opportunities,” since, all else equal, and without market intervention, “the value of Vietnam’s currency would tend to appreciate in the context of a current account surplus.”

The next steps for this investigation are unclear. Unlike reports issued at comparable stages of other Section 301 investigations, this report did not suggest any retaliatory measures to be taken at this time. The Government of Vietnam, which has denied U.S. currency manipulation allegations, has been engaged in talks with USTR to resolve both the currency and timber allegations.  Additionally, USTR Robert Lighthizer expressed recently that he “hope{s} the United States and Vietnam can find a path for addressing our concerns.” Since no action was adopted by USTR following the issuance of the Section 301 report, it is all but certain that any potential responsive action – if any – against Vietnam will be deferred to the next administration. To date, neither President-elect Biden nor Katherine Tai, Biden’s pick for USTR, have expressed any views on the Vietnam currency issue.