USTR Launches Section 301 Probes of Vietnam’s Currency and Timber Practices

WilmerHale
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The Office of the US Trade Representative (USTR) announced on October 2 the initiation of two separate investigations under Section 301 of the Trade Act of 1974 into Vietnam’s practices related to currency valuation and the alleged importation and use of illegal timber. This is the fourth time the Trump Administration has invoked Section 301 to address foreign trade practices. The earlier investigations targeted China’s practices related to technology transfer, intellectual property and innovation; the French digital services tax (DST); and DSTs adopted or under consideration in ten other jurisdictions. The China investigation resulted in tariffs on over $360 billion of Chinese imports, and the French DST investigation resulted in threatened tariffs on approximately $325 million of French imports. The new investigations could likewise lead to tariffs on Vietnamese imports or a range of other penalties.

Consistent with its normal practice, USTR is offering the public an opportunity to provide written comments on any issue covered by the investigations. USTR has established a November 12, 2020, deadline for the submission of such comments in both investigations.

Background

With respect to currency, USTR’s Federal Register notice states that Vietnam’s currency (the dong) has been undervalued over the past three years and that the State Bank of Vietnam (SBV) has contributed to the undervaluation by actively intervening in the exchange market. USTR asserts that, in 2019, the SBV undertook net purchases of foreign exchange totaling approximately $22 billion, which had the effect of undervaluing the dong’s exchange rate with the US dollar during that year. Specifically, USTR contends that Vietnam’s 2019 average nominal bilateral exchange rate against the dollar over the year—23,224 dong per dollar—was undervalued by 1,090 dong per dollar as a result of the SBV’s actions.

Notably, in January 2020, the Treasury Department examined Vietnam’s currency practices. As a result of its investigation, Treasury placed Vietnam on its “Monitoring List,” but it did not find that Vietnam was manipulating its currency in an effort to gain an unfair competitive advantage in international trade. Subsequently, the Commerce Department asked Treasury as part of a countervailing duty investigation of Vietnamese tire imports to assess whether the dong was undervalued. Treasury determined in August 2020 that the dong was undervalued in 2019 by about 4.7% against the dollar due in part to government intervention.

With respect to timber, USTR’s Federal Register notice states that a significant portion of imported timber used in the production of wooden furniture exported to the United States is illegally harvested or exported. USTR further asserts that much of the timber is harvested and exported in violation of the laws of the source country (Cambodia in particular), and that some of the timber may be from species listed under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES).

Possible Drivers of the Investigations

In announcing the investigations, US Trade Representative Robert Lighthizer said, “President Trump is firmly committed to combatting unfair trade practices that harm America’s workers, businesses, farmers and ranchers. Using illegal timber in wood products exported to the US market harms the environment and is unfair to US workers and businesses who follow the rules by using legally harvested timber. In addition, unfair currency practices can harm US workers and businesses that compete with Vietnamese products that may be artificially lower-priced because of currency undervaluation.”

These statements suggest that the bilateral trade deficit with Vietnam is a major driver of the investigations, as Vietnam has the fourth-largest trade deficit with the United States, and the overall US trade deficit is on pace to exceed $600 billion this year. While Ambassador Lighthizer has publicly attributed the surging deficit to the stronger performance of the US economy as compared to other big economies during the COVID-19 crisis, the Administration has expressed concern over the past year that US trading partners have been manipulating their currencies and taking other actions that have impaired the competitiveness of US exports.

President Trump himself has publicly criticized Vietnam’s trade policies, dating to last summer. In an interview with Fox News in June 2019 the President said that “Vietnam takes advantage of us even worse than China” and that “it’s almost the single worst abuser of everybody.” The President and his advisers have expressed concern, for example, that companies have responded to the Section 301 China tariffs by relocating to Vietnam rather than moving supply chains back to the United States.

Principal Issues in the Currency Investigation

The Federal Register notice in the currency investigation states that USTR will focus on whether Vietnam’s interventions in exchange markets—and other related actions that contribute to the undervaluation of Vietnam’s currency—are unreasonable or discriminatory and burden or restrict US commerce. In conducting its investigation, USTR will consult with the Treasury Department as to matters of currency valuation and Vietnam’s exchange rate policy.

The Federal Register notice invites public comments on the following issues in particular:

  • Whether Vietnam’s currency is undervalued, and the level of the undervaluation.
  • Vietnam’s acts, policies or practices that contribute to undervaluation of its currency.
  • The extent to which Vietnam’s acts, policies or practices contribute to the undervaluation.
  • Whether Vietnam’s acts, policies and practices are unreasonable or discriminatory.
  • The nature and level of burden or restriction on US commerce caused by the undervaluation of Vietnam’s currency.
  • The determinations required under section 304 of the Trade Act, including what action, if any, should be taken.

Principal Issues in the Timber Investigation

The Federal Register notice in the timber investigation indicates that USTR will focus on the following issues:

  • Whether Vietnamese imports of illegal timber are inconsistent with Vietnam’s domestic laws, the laws of exporting countries or international rules. The investigation will also assess whether Vietnam is enforcing its own laws concerning the import and processing of timber and permit or certificate requirements for species listed under CITES.
  • Whether Vietnam is tacitly supporting the import and use of illegal timber and allowing the importation of CITES-listed species based on invalid CITES permits. USTR will also investigate reports of provincial-level officials accepting payments in return for facilitating illegal timber imports.
  • Other acts, policies and practices of Vietnam relating to the import and use of illegal timber.

The Federal Register notice invites public comments on the following issues in particular:

  • The extent to which illegal timber is imported into Vietnam.
  • The extent to which Vietnamese producers, including producers of wooden furniture, use illegal timber.
  • The extent to which products of Vietnam made from illegal timber, including wooden furniture, are imported into the United States.
  • Vietnam’s acts, policies or practices relating to the import and use of illegal timber.
  • The nature and level of the burden or restriction on US commerce caused by Vietnam’s import and use of illegal timber.
  • The determinations required under section 304 of the Trade Act, including what action, if any, should be taken.

Timetable

As the investigations proceed, USTR will gather and analyze evidence to make its determinations within a 12-to-18-month period, as required by statute. Interested individuals, companies and trade associations should take note of the opportunity to offer written comments in relation to the investigation (USTR will offer procedures to ensure the protection of business confidential information in written submissions). In both investigations, USTR has established a November 12, 2020, deadline for written comments. In light of uncertainties arising from COVID-19 restrictions, USTR has no current plans to hold public hearings in these investigations.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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