Vietnam has ‘all the basics’ of a market economy: US-ASEAN business council

The U.S.-ASEAN Business Council (USABC) supports the designation of Vietnam as a market economy, in comment sent to the U.S. Department of Commerce.

Vietnam has put “all the basics” in place for being designated a market economy, the council (USABC) wrote.

The letter has been sent as the Department of Commerce (DOC) prepares to issue a final decision on its changed circumstances review (CCR) of Vietnam’s non-market economy (NME) status by July 26, or 270 days after the review was initiated.

The USABC notes that it has been working closely with U.S authorities to encourage the Government and National Assembly of Vietnam to adopt policies based on market-economy principles, which would level the playing field and ensure fair competition for American companies.

Most of its recommendations have centered around factors being considered by the DOC to make a decision on a nation’s designation as a market economy.

“The Vietnamese have adopted almost all of our recommendations, some faster than others, but all the basics of a market economy are now there in the country,” the USABC letter affirms.

Currency convertibility

The council says the State Bank of Vietnam (SBV) has adopted a “managed floating” exchange rate and since January 2016, the VND/USD rate has been adjusted on a daily basis.

“Vietnam’s currency rules determine that the VND is fully convertible for current account purposes. In the late 2000s, some of our companies had difficulty remitting funds out of Vietnam not because the rules made it so, but because there were not enough USD in the system.

“But that is no longer an issue today. For the past more than 10 years, none of our more than 130 member companies doing business with Vietnam have reported any problems with currency convertibility.”

Free bargaining of wages

The USABC rejects contentions to the contrary and stresses that wage rates in Vietnam are determined by free bargaining between employees and employers.

Vietnam’s Labor Code tends to favor employees, especially low-wage workers, the council says, noting that the government determines the minimum wage based on recommendations from the National Wage Council.

“All our member companies (American companies in Vietnam) offer to pay well above the minimum wage. Our companies have no complaints about the ability to freely negotiate labor contracts, which include wage and employee benefit package, with labor in Vietnam.”

Joint ventures and foreign investment

In 2014, Vietnam reduced the number of industries subject to restrictions (for foreigners) from 386 to 272. Today, only 25 industries remain off-limits to foreign investors.

“Most of the industries falling under strict regulations or are deemed highly politically sensitive by the government, are in fields such as investigation and security, journalism and explosives,” the USABC letter says.

In fact, in close consultation with industry, including the USABC, the government has been running a program to cut down on those restrictions, such as reducing or removing licensing requirements and increasing or removing foreign ownership limits (FOL), it clarifies.

Means of production: land and capital

While Vietnam does not allow private ownership of land as the U.S. does, it has a robust secondary real estate market for industrial and residential purposes that allows parties to transfer, lease, sublease and contribute as capital or mortgage land use rights and ownership of assets associated with the land.

“In the secondary market, parties are free to negotiate on transfer, leasing, or subleasing prices of land use rights or land-attached assets. The government does not interfere in those transactions,” the USABC says.

The Vietnamese government still stresses the “leading role” of the state economic sector, which comprises state-owned enterprises (SOEs), land, natural resources, tax revenue, government funds, social and health insurance system, financial services system, infrastructure system, etc.

However, the actual influence of this sector on the economy has declined steadily, giving rise to the prominence of non-state sectors, including the domestic private sector and the foreign invested enterprise (FIE) sector.

In 2021, the latter two sectors accounted for 70.06% of GDP compared to the SOE sector’s 21.18%.

“Instead of giving natural resources and other state assets to SOEs like in the past, the government has been taking back these means of production from inefficient SOEs to auction them off to other sectors that can make better use of the capital.

“At the same time, the government has also been squeezing the number industries that SOEs can operate in through an “equitization” process where the SOEs are required to divest from industries in which the private sector is more efficient.”

Price control

The Vietnamese government does not intervene in the business operations of an enterprise, including decisions on allocation of resources, price, and output.

In theory, it does regulate the prices for essential goods and services.

The Price Law of 2023 mandates “price stabilization” for nine essential goods (gasoline, diesel oil, LPG, baby formula milk, rice, animal fee, vaccines, crop protection agents, essential drugs for humans). Under the law, the government only intervenes when there is an abrupt and steep price hike due to emergency, natural disasters and disruption of supply chains.

In reality, government intervention rarely takes place and in the rare cases when it does, it is barely effective, the USABC letter says, giving two examples.

“At one point, there was a short supply in imported baby formula milk and increases in prices of this product and the government decided to apply a ‘ceiling price.’ But this failed disastrously as it worsened the short supply and further increased prices in the black market. The government eventually dropped the price cap.

“In the recent severe short supply of drugs for humans (2022-2023) due to issues in the drug approval process and government procurement process, the government did not apply any ceiling price,” the letter says.

The American Chamber of Commerce chapters in Vietnam (AmCham Vietnam) also support Vietnam being designated as a market economy in letters sent to the DOC.