China… Vietnam…What’s Next?

By Jennifer Horvath, Partner, BLG 

Many people are aware of the Section 301 investigation into the unfair trade practices of the People’s Republic of China (PRC). However, a similar investigation has recently been initiated by the United States Trade Representative (USTR) into actions by Vietnam. More specifically, on October 8, 2020, the USTR released two separate Federal Register (FR) notices requesting comment in connection with the Section 301 investigation against Vietnam. The first FR notice was specifically aimed at Vietnam’s undervaluation of its currency, the dong (FR 85 63637). The USTR indicated that evidence showed that the “dong was undervalued on a real effective basis by approximately 7 percent in 2017 and by approximately 8.4 percent in 2018 . .  [and] was undervalued in 2019 as well.” This undervaluation causes Vietnam’s currency to be traded at a rate that is too low in comparison to other currencies. This type of issue is often combatted by adding additional tariffs to imported goods to automatically make up the undervaluation difference. The second FR notice focused on Vietnam’s import and use of illegal timber (FR 85 63639). The USTR noted that “[e]vidence indicates that much of the timber imported by Vietnam was harvested against the laws of the source country.” A virtual hearing will occur on December 28th and December 29th to discuss comments received from these two FR notices, and whether further action against Vietnam is warranted.

Along with the USTR’s Section 301 investigations, the U.S. Department of Commerce (DOC) has recently initiated multiple circumvention inquiries for items finished in Vietnam. A circumvention inquiry can be self-initiated if DOC “determines from available information that an inquiry is warranted to then determine whether a product is included within the scope of an antidumping or countervailing duty order . . .” See 19 C.F.R. § 351.225. In general, a circumvention inquiry may be appropriate if a product is assembled in a third-country from parts from a different country, and the assembled product would have otherwise been within the score of the order of the different country (i.e. parts from China are sent to Vietnam where the product is assembled). To date, China has more than 200 circumvention inquiries pending with the DOC.

For instance, in May of 2020, the DOC initiated a circumvention inquiry into stainless steel sheets/strips. The products were sent from China to Vietnam where they were completed and then exported to the U.S. Essentially, the inquiry by the DOC targets whether imports of stainless steel sheets/strips are circumventing the existing countervailing duty (CVD) and antidumping duty (ADD) duty orders on these same items when imported into the U.S. from China (i.e. are the shipments being sent to Vietnam from China to avoid the CVD/ADD duties from China once they are imported into the U.S.). Similarly, in June of 2020, the DOC initiated a circumvention inquiry on hardwood plywood completed in Vietnam. Similar to the stainless-steel sheets/strips, the plywood components originated in China. If DOC ultimately determines that the ADD/CVD duty orders apply to the stainless-steel sheets/strips and plywood, it will require importers to begin paying the additional CVD/ADD duties (as well as pay duties on unliquidated entries since the DOC initiated the inquires).  One example of an anti-circumvention order already in place is for  stainless sheet/strip completed in Vietnam using certain non-subject stainless flat-rolled inputs of Chinese-origin that is subsequently exported from Vietnam to the United States. See FR 85 29401.

Companies who import goods from Vietnam should be aware of the increased scrutiny by the USTR and DOC. It seems likely that these agencies will continue to closely review any import streams between China, Vietnam, and the U.S. For these types of shipments, it is advisable for businesses to conduct a proper country of origin (COO) analysis to ensure that any applicable ADD/CVD duties are paid at the time of import in the U.S., and the proper COO is declared to Customs. While the China trade war has been the primary focus under the current administration, the USTR and DOC have now turned much of their attention toward Vietnam. In retrospect, this was a foreseeable side effect of the China tariffs as many importers were forced to shift production to other low-cost countries.

Although the current focus of the USTR and DOC is on Vietnam, which country will be next? Malaysia? Taiwan? Indonesia? Companies who intend to shift production from China to a different third country should be aware of the actions taken by the USTR and DOC against Vietnam and first review the potential for trade remedies in those countries related to the anticipated import stream. It seems inevitable that similar actions will be taken against other countries as more importers continue shifting production outside of China. While it may seem that the USTR and DOC are targeting Vietnam, one would expect a similar approach by these agencies towards other countries moving forward. To this point, if a business is exporting goods from China and then “completing” them in a different country prior to export to the U.S, it should anticipate increased regulatory control and preemptively exercise a heightened level of reasonable care for these transactions, which involves performing a country of origin analysis and reviewing any anti-circumvention orders in existence potentially applicable to the product.

For any additional inquiries, or if you would like to discuss Vietnam’s Section 301 investigations or anti-circumvention inquiries in more detail, please contact Jennifer Horvath at Jennifer@braumillerlaw.com.