Section 301 Investigation on Vietnamese Currency Manipulation Seen Unlikely to Lead to Tariffs

Barnes and Thornburg lawyer David Spooner, a former assistant secretary of commerce for import administration, said during an Oct. 14 webinar that he believes this investigation -- along with one that targets illegal timber used in wooden furniture produced in Vietnam -- is linked to a Commerce Department countervailing duty investigation on Vietnamese tires. That complaint, brought by the United Steelworkers, said artificially low currency was subsidizing tire exports. If it goes forward, it would be the first time Commerce has used currency manipulation as a reason for countervailing duties under its new rules. The agency postponed a decision until Oct. 30 (see 2008110026).

“A country’s exchange rate policy is something that’s macroeconomic ... [not] specific to sectors,” Spooner said, which means it “would be illegal to countervail under U.S. and international law; that analysis hasn’t changed. That lack of specificity hasn’t changed.”

He said the postponement from August until October signals that Commerce is struggling with that problem. He said it probably also is getting pressure from the Treasury Department not to prosecute the case because Treasury wants to manage currency issues.

Spooner said the Federal Register notice on the Section 301 investigation on currency seemed to be “sort of slapped together.” It “contained no meat,” he said. He pointed out that while the Office of the U.S. Trade Representative cited research saying the Vietnamese dong was undervalued by 7% in 2017 and 8.4% in 2018, it obscured the 2019 rate by using a ratio of dong per dollar instead of writing the percentage. That 2019 figure is an undervaluation of 4.7% -- “it actually appreciated in the last year, significantly,” he said.

Moreover, Vietnam does not have the most undervalued currency -- Malaysia, Mexico, Singapore, Thailand, Sweden and Turkey all have currencies similarly or more undervalued than the dong, he said. Aside from the Treasury pushback, the case has legal weaknesses, Spooner said. Even if President Donald Trump is reelected, Spooner doesn't expect sanctions against Vietnam for currency manipulation, pointing to these factors and that pressure from the union is less salient after the election.

If Democratic nominee Joe Biden wins election, Spooner said, “the odds are fairly low” that the USTR will find currency manipulation hurt U.S. commerce. “But I could be wrong. I don’t mean to be dismissive of the danger,” he said. Of U.S. imports of Vietnamese goods, electrical machinery, which includes phones, is 32% by value; clothing and shoes are 31% by value, and furniture is 11%.

“Even if there's an affirmative finding by USTR, there may be an effort to avoid apparel,” he said, so he advises that companies wait at least until after the election to review whether to shift sourcing outside of Vietnam.

“I wouldn’t run for the exits yet. Just keep an eye on it,” he said. He said he expects the investigation to take the full year allowed by law, and the announcement to come in October 2021. He recommended companies consider submitting comments that Vietnam's apparel exports are not hurting U.S. industry.

If Biden wins, Spooner doesn't think the China Section 301 tariffs would be lifted quickly. He also doesn't think the new administration would use 301 aggressively to stop digital services taxes or currency manipulation. The logging investigation has a stronger policy and legal foundation, and environmental interests would be more robust in a Democratic administration, Spooner said. While tariffs on Vietnamese furniture might not be the best approach, “I think most people can agree that illegal timber harvesting in Southeast Asia is a problem.”