On July 19, 2021, the United States and Vietnam announced an agreement on currency practices. The announcement was made following a high-level meeting between U.S. Treasury Secretary Yellen and Vietnamese State Bank Governor Hong and in the context of rising U.S. concern over Vietnam’s foreign exchange market interventions. The agreement aims to address the currency concerns by focusing on the three primary criteria used by the Treasury Department in determining if trading partners are manipulating their exchange rates to gain an unfair competitive advantage.

Concerns, as outlined by the Treasury Department’s April 16, 2021, report to Congress:

1. Persistent, one-sided intervention in the foreign exchange market occurs when net purchases of foreign currency are conducted repeatedly, in at least 6 out of 12 months, and these net purchases total at least 2% of an economy’s gross domestic product (GDP) over a 12-month period.
2. A material current account surplus is one that is at least 2% of GDP over a 12-month period.
3. A significant bilateral trade surplus with the United States is one that is at least $20 billion over a 12-month period.

Notably, Vietnam met all three criteria in the Treasury Department’s December 16, 2020, and April 16, 2021, semiannual reports to Congress.

As a result of continued U.S. pressure, including: (1) an additional Section 301 investigation launched by the U.S. Trade Representative in October of 2020; (2) a February 4, 2020, final rule allowing the Department of Commerce to consider currency undervaluation as a countervailable subsidy; and (3) the Treasury Department’s enhanced engagement process, Vietnam has agreed to address U.S. concerns.

Remedies Vietnam has agreed to, as outlined by the July 19, 2021, joint statement:

1. Vietnam confirms that it is bound under the Articles of Agreement of the IMF to avoid manipulating its exchange rate in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage and will refrain from any competitive devaluation of the Vietnamese dong.
2. The SBV is also making ongoing efforts to further modernize and make more transparent its monetary policy and exchange rate framework.
3. In support of these efforts, the SBV will continue to improve exchange rate flexibility over time, allowing the Vietnamese dong to move in line with the stage of development of the financial and foreign exchange markets and with economic fundamentals, while maintaining macroeconomic and financial market stability.

Reactions and Context

Treasury Department

Secretary Yellen stated the she “believed the State Bank of Vietnam’s attention to these issues over time not only will address Treasury’s concerns, but also will support the further development of Vietnam’s financial markets and enhance its macroeconomic and financial resilience.”

U.S. Trade Representative

USTR Tai stated that “In light of Treasury and the SBV having reached agreement to address the concerns regarding Vietnam’s currency policies, USTR, in coordination with Treasury, will monitor Vietnam’s implementation of its commitments and work with Vietnam to ensure that it addresses the acts, policies and practices related to the valuation of its currency that were found actionable in the Section 301 investigation.”

Commerce Department

While neither the Commerce Department nor Secretary Raimondo has issued a formal statement on the currency agreement, the development could have a material impact on Vietnamese companies subject to the Department’s Currency Rule in Countervailing Duty Investigations. The rule, which allows the Department to consider currency undervaluation as a countervailable subsidy in (CVD) investigations was first used on May 24, 2021, in an affirmative final determination in the CVD investigation of passenger vehicle and light truck tires (PVLT). Notably, the affirmative final determination took into consideration an August 2020 decision by Commerce to accept evidence related to currency undervaluation under regulations from a valuation assessment conducted by the Treasury Department.

The full Joint Statement can be found here.

USTR Tai’s statement can be found here.

For more information on the Vietnam and currency issues please reach out to our team and see previous posts below.

Vietnam Archives | International Trade Law (cmtradelaw.com)