Thayer USTR Investigates Vietnam For Currency Manipulation and Illegal Export of Timber
Uploaded by
Carlyle Alan ThayerThayer USTR Investigates Vietnam For Currency Manipulation and Illegal Export of Timber
Uploaded by
Carlyle Alan ThayerThayer Consultancy Background Brief:
ABN # 65 648 097 123
USTR Investigates Vietnam for
Currency Manipulation and
Illegal Export of Timber
Carlyle A. Thayer
November 2, 2020
We are currently focused on investigations by the United States Trade Representative
(USTR) into Vietnam's timber exports and alleged currency manipulation. We request
your assessment of the following five issues:
Q1. After the investigation, the USTR could impose sanctions on Vietnam. This would
be hugely damaging to Vietnam's economy (particularly the timber sector). Why do
you think the U.S. is carrying out this investigation now? Is it a deliberate political
move?
ANSWER: In August 2019, the USTR put Vietnam on its Watch List for currency
manipulation for three reasons: its trade surplus with the U.S., large current account
surplus, and a perception that its central bank was actively buying foreign currency
to artificially lower the value of the đồng to unfairly lower the cost of its goods sold
overseas.
At the same time, the Department of Treasury claimed Vietnam had manipulated its
currency in a case brought by the Department of Commerce against Vietnamese tyre
manufacturers. Treasury found that Vietnam’s currency, the đồng, was undervalued
about 4.7% against the dollar in part due to government intervention in 2019.
On 2nd October the USTR announced it was opening two investigations into Vietnam
– one for currency manipulation and the other for the import and use of illegally
harvested and traded timber – under Section 301 of the 1974 Trade Act. The timing of
this decision was likely the result of an internal bureaucratic process driven by the U.S.
Trade Representative (USTR) Robert Lighthizer.
The USTR statement of 2nd October said that the investigations were launched at the
direction of President Trump, no doubt after the USTR provided a brief to The White
House.
In response, on the same day Le Minh Hung, Governor of the Central Bank, stated that
Vietnam “has not intended and will not intend to use monetary policies in general and
exchange rates in particular to create unfair competitive advantage in international
trade.”
Vietnam’s case is part of much bigger Trump Administration policy to look into
countries that have a trade surplus with the United States or who use means that the
U.S. deems unfair to gain a commercial advantage.
2
Q2. What do you think lies ahead for the investigation, especially with the election
coming up? What stance do you think Joe Biden would take on it if he wins?
ANSWER: The U.S. Treasury’s semi-annual report to Congress on international
currency manipulation is currently overdue and obviously won’t be issued until after
the 3rd November election. If Trump is re-elected and the Treasury report concludes
that Vietnam manipulated its current, the USTR will recommend the imposition of
tariffs.
The U.S. State Department issued a fact sheet on U.S.-Vietnam relations on 29 October
just as Secretary Pompeo was heading to Hanoi. It stated, “We are committed to
achieving fair and reciprocal trade with Vietnam, as well as an open investment
climate, by reducing barriers to trade and advancing market-orientated reforms…”
Vietnam will vigorously dispute the charge of currency manipulation. On 26 October,
Prime Minister Nguyen Xuan Phuc told Adam Boehler, head of the U.S. International
Development Finance Corporation, “If the đồng is devalued, it would seriously hurt
the economy. Vietnam is not using exchange rate policy to create a competitive
advantage in international trade.” Phuc asked Boehler to convey to President Trump
and the USTR that the U.S. should “have a more objective assessment of reality in
Vietnam” with respect to the trade surplus.”
If Bidens wins there is nothing he can do until he is inaugurated on 20 January 2021.
This particular issue will not be a high priority for the Biden Administration. Lighthizer
will be replaced as the US Trade Representative but this will take time.
Q3. Meanwhile, Vietnam recently agreed to a deal with the World Bank that will see
the country receive $50 million if Vietnam makes good on multiple pledges to protect
its natural forests - the first Asian country to make such a controversial deal. How
exactly, if at all, does this gel with the USTR investigation?
ANSWER: These are two separate issues. The USTR is investigating Vietnam’s import
and use of illegally harvested and traded timber. This refers to timber that was illegally
harvested from protected areas mainly from Cambodia but also Laos.
Vietnam suffers from a domestic shortage of good quality timber mainly due to its
domestic ban on logging in natural forests. In recent years that has been a growing
demand from the wood processing industry which, in 2018, required 2 million cubic
metres annually. Timber imports have grown exponentially including “high risk” illegal
imports from Cambodia.
The agreement between the World Bank’s Forest Carbon Partnership Facility and
Vietnam’s Ministry of Agriculture and Rural Development is aimed at reducing carbon
emissions arising from deforestation and forest degradation in six northern provinces
over an area of 5.1 million hectares of which 3.1 million ha. are forested. It also aims
to assist in forest conservation, regeneration and sustainable land management.
Q4. What impact do you think the USTR investigation could have on Vietnam's
expanding timber/furniture industry?
ANSWER: Vietnam’s wood and timber exports have increased markedly over the last
two years, reaching $11 billion in value in 2019 and $9 billion in the first nine months
3
of this year. The United States is Vietnam’s largest export market, valued at $3.6 billion
in 2018 and $4.19 billion in the first nine months of 2020.
In 2019, Vietnam ranked twelfth on the list of wood and timber suppliers. Given
current growth rates Vietnam is expected to leap to seventh position. If tariffs were
imposed Vietnam would lose market share that would be taken up by its competitors
and it is likely the wood processing industry comprised of an estimated 5,000
enterprises would contract.
Q5. What was the result of discussions between Secretary of State Mike Pompeo and
Foreign Minister Pham Binh Minh on trade issues?
ANSWER: When Secretary of State Pompeo met his counterpart, Pham Binh Minh
“welcomed the two sides’ implementation of the Action Plan towards a harmonious
and sustainable trade balance,” according to the Vietnam News Agency (VNA). VNA
reported that Pompeo “highly valued the measures the Vietnamese Government has
carried out to reach the harmonious and sustainable trade balance… [and] affirmed
his support for both sides to continue dialogue and consultation in order to develop
trade ties in a stable manner.”
When Pompeo met with Vietnam’s Prime Minister, Phuc welcomed “the two sides’
decision to continue the effective implementation of the Action Plan towards a
harmonious and sustainable trade balance.” In other words, Vietnam is trying to
forestall USTR punitive action by focusing on the future rather than look back at the
recent past.
Suggested citation: Carlyle A. Thayer, “USTR Investigates Vietnam for Currency
Manipulation and Illegal Export of Timber,” Thayer Consultancy Background Brief,
November 2, 2020. All background briefs are posted on Scribd.com (search for
Thayer). To remove yourself from the mailing list type, UNSUBSCRIBE in the Subject
heading and hit the Reply key.
Thayer Consultancy provides political analysis of current regional security issues and
other research support to selected clients. Thayer Consultancy was officially
registered as a small business in Australia in 2002.
