Vietnam Faces New Trade Protectionism Instruments

10:38:25 AM | 2/22/2021

The 2017-2020 period witnessed the resurgence of trade protection, with many new tools applied globally.

Since the financial crisis in 2008, the world added 4,000 new trade protections, including trade remedies, tax hikes, local barriers, subsidies for export fees, and discrimination.

In principle, to protect trade, countries can use a combination of tariff and non-tariff protection measures. Public discontent to unemployment resulting from globalization and trade liberation is believed to be the core of increasing protectionism, with new protectionist tools being applied commonly.

First of all, global trade rules allow members to impose export restrictions if they help mitigate their food shortages and environmental risks, whether such restrictions can hurt net food importers and even cause severe food shortages.

According to the WTO Report, the lack of global regulations on export restrictions has led to at least 30 new barriers, introduced by countries such as China, India, and Ukraine from October 2010 to April 2011, compared to 25 barriers in the previous 12-month period. These barriers include quotas and export tariffs. According to the WTO, the above import restriction measures are given for a variety of reasons, such as protecting the environment or ensuring the supply and prices of agricultural products in the domestic market. However, using such measures to solve these matters is dangerous. Governments may be involved to use export restrictions to change their advantage in merchandise price or to increase production in a way that is detrimental to other countries.

China, which now accounts for 97% of the world's rare earth supplies, justifies that environmental concerns and resource depletion have forced Beijing to limit exports despite facing legal challenges in the framework of the WTO.

The second protection instrument is cumbersome customs procedures. This results in increases in costs, loss of business opportunities and even discourages exporters or goods that need to be imported.

Besides, they utilize technical barriers, stricter standards and requirements on quality, hygiene, safety, labor, environment, origin and health-related products.

These standards facilitate international trade by helping foreign buyers assess product specifications and quality. But if they are too different from country to country, they may have to adjust their production processes. In addition, requirements for product testing in the importing country to ensure that the products comply with technical and safety regulations of that country expose exporters to more rigorous testing procedures or higher testing costs for this testing process.

The devaluation of local currencies makes exports cheaper and imports more expensive. This is an effective tool for protecting the goods of the country where the tool is used.

Direct export subsidies help reduce export prices and increase domestic competitiveness relative to imported goods.

Antidumping investigations, with purposefully higher import duties and allegations, may help producers in a certain country against trading partners accused of selling goods at a price lower than production cost.

According to the WTO report, 311 safeguard measures were initiated around the world from January 1, 1995 to December 31, 2015. Among 5,448 trade remedies in the world, antidumping accounted for 4,757 cases. The level of G20-issued trade restrictions was highest since the 2008 global financial crisis. G20's report on trade measures showed that G20 economies, accounting for 90% of global GDP, applied 145 new trade restriction measures from mid-October 2015 to mid-May 2016, or an average of 21 measures per month, much more than the 17 measures a month in the previous 7-month period, of which anti-dumping measures accounted for most. Previously, a month witnessed about 15 measures in place. 21 trade restriction measures a month are also considered highest in a month since 2011, when trade restriction measures hit record high.

Besides, import prohibitions or restrictions are applied. However, countries tend to adopt measures to boost exports, such as offering low-interest loans instead of restricting imports because the effective scope and influence of financial and monetary policies is also somewhat limited. For example, Brazil imposes a 3% export tax refund. China and India imposed import tax refunds on inputs used to make exports.

According to the WTO, out of more than 2,800 trade restriction measures recorded through trade policy reviews since October 2008, only 25% have been abolished. This represents a worrying increase in newly established trade restrictions, typically countries that signed G-20 commitments.

Recent WTO research showed that, in the past time, trade restrictions/protection measures applied by WTO members increased to a record. For example, in October 2018 to October 2019 alone, the trade value imposed by these measures totaled about US$747 billion, the biggest since October 2012, up about 27% over the same period in 2018 (at US$588 billion). This caused tensions in trade relations and rising instability in international trade.

German Chancellor Angela Merkel has now defended a fair split of trade interests, asserting that globalization is not only positive, but triggers more inequality among different groups and among peoples.

To protect its interests, the United States is applying 80% of 31,000 trade protection measures in the world. New trade protection measures have been developed, such as weak USD policy, monetary policy easing, QE expansion, super-low interest rates, improved quality standards, and intellectual property, credit downgrade of trade partners and xenophobia.

The report by the WTO Trade Policy Review Body showed that, during the review process, 102 new trade protection measures are being applied by WTO members, including tariff increases and quantitative restrictions, tightened customs procedures, and increased import and export duties on goods. These import restriction measures are largely applied to minerals and fuel oil (17.7%), mechanical equipment (13%), machinery and electrical parts (11.7%) and; precious metals (6%). The body added that the increase of trade protection policies and measures need to be properly analyzed by WTO members and the international community as well, because they are causing negative effects on the growth of trade, employment and purchasing power of countries.

Trade protectionism will continue in the coming time, deeply divisive in globalization and trade in each region and in each country. The success of presidential candidates in favor of trade protection, bringing jobs back for native people and national interests above all, is a profound lesson and a main platform for them to attract voters. This means concerns about a new trade war are slowly taking shape.

The Joint Statement of the G20 Summit on September 5, 2016 in the Chinese City of Hangzhou reiterated its opposition to trade and investment protectionism in any form; pledged to reduce or not adopt new trade protectionism and emphasized that ensuring mutual benefits for all parties is the primary means to prevent trade and investment protectionism.

In perspective, protectionism may be present for a while, but not for long because of the very consumer interests and the market economy law. In either case, the tariff and non-tariff protection instruments have a negative effect on Vietnam's export flows.

The new trade protectionism trend of countries will probably give Vietnamese exports (e.g. shipped to the United States) a price advantage in the near future. However, this advantage will possibly trigger counterfeiting of Vietnamese origin that may involve Vietnam into trade disputes and be subject to tariff measures on Vietnamese exports.

In Vietnam, according to the Ministry of Industry and Trade, by the end of 2018, Vietnam faced 144 trade defense cases initiated by 18 countries and territories, applied to Vietnam's exports. Among them, the United States started 27 cases, accounting for about 20%, the most among countries imposing trade remedies on Vietnamese goods. Turkey imposed the second most, with 20 cases (15%), followed by India (17 cases, 12%) and the EU (14 cases, 11%).

Anti-dumping lawsuits against pangasius and shrimp, defense tax on rolled steel and anti-erosion steel by the US, anti-subsidy on copper wire and stainless steel pipe by India; safeguard measures to steel by the EU troubled Vietnam in the international market.

In such a context, Vietnam needs to conduct comprehensive reforms, promote active international integration and ensure effective implementation of FTA commitments made by Vietnam. At the same time, the country also needs to diversify its markets, actively inform and support capable enterprises to overcome technical barriers from export partners. It also needs to build proper technical barriers to protect the market and national interests, and the domestic business community; increase the capacity to deal with trade defense lawsuits, and flexibly use safeguard, anti-dumping and anti-subsidy measures to protect legitimate interests of domestic producers and inform businesses for quick response.

Source: Vietnam Business Forum