Non-Market Economies (NME)

Context

Recently Vietnam has urged the United States administration to promptly reclassify its status from “non-market economy” to “market economy”.

country’s Concept of Non-Market Economies (NME)

• In US, a Non-Market Economy (NME) refers to any foreign country that the country Department of Commerce determines does not comply with market-based cost or pricing structures. Consequently, sales of products in such countries won’t accurately replicate their honest price.
• Countries in this list are Armenia, Azerbaijan, Belarus, China, Georgia, Kyrgyz Republic, Moldova, Russia, Tajikistan, Turkmenistan, Uzbekistan and Vietnam.

Criteria

• • The United States designates a country as non-market economic system based on several elements namely:
    • If the country’s foreign money is convertible.
    • If wage rates are determined by free bargaining among labour and control.
    • If joint ventures or other foreign funding are allowed
    • Whether the approach of production is owned by the country.
    • If the nation controls the allocation of assets and cost and output choices.
    • Other elements like human rights.

• • Anti-Dumping Duty on Non-market Economy:

• • • • The designation of a ‘non-market economy’ permits the country to levy Anti-dumping obligations on merchandise imported from unique countries.
      • Dumping in worldwide alternate takes place when a country intentionally sets its export expenses lower than its domestic charges, inflicting damage to industries in the uploading country.
      • Anti-dumping duties are tariffs imposed by a country’s authorities on imported goods that are bought at unfairly low costs, commonly under their market price or the cost of production.
      • These duties are supposed to guard domestic industries from the harmful effects of dumping, which could consist of undercutting expenses, harming domestic producers, and distorting opposition.

• • Determining the Level of Anti-Dumping Duty:

• • • The US determines anti-dumping duties for non-market economies like Vietnam by comparing the product’s value to a third country, along with Bangladesh, that is considered a market economy, and that price is then assumed to be the manufacturing value for the company within the non-market economic system.
    • This technique is used because non-market economies won’t have transparent pricing mechanisms, leading to reliance on surrogate countries for assessment.

• • NME and World Trade Organisation (WTO):

• • • The WTO does not explicitly understand or recommend the NME popularity. However, it lets participants use alternative methods to calculate regular costs in antidumping investigations.
    • The WTO Antidumping Agreement provides flexibility for individuals to choose the ideal method for NMEs. It does not prescribe a particular approach.

What is market Economy?

• It is a system wherein manufacturing selections and the costs of goods and offerings are guided mainly by the interactions of clients and organizations, i.e. the regulation of supply and call for is allowed to determine what is to be had and at what rate.
• A market economy gives entrepreneurs the liberty to pursue income by developing new merchandise, and the freedom to fail in the event that they misinterpret the market.

What are Vietnam’s Arguments Regarding its Non-Market Economy (NME) Status?

• • Vietnam’s Arguments:

• • • Currency Convertibility: Vietnam’s currency is convertible into other currencies transparently based on market ideas.
    • Wage Determination: Wage rates result from loose bargaining between labour and management.
    • Foreign Investment: Foreign investment is permitted, and Vietnam has become an attractive destination for it.
    • Means of Production: The government does not own or control the means of production substantially.
    • Resource Allocation: The government does not have tremendous manage over aid allocation of cost/output choices.
    • Market Principles: Vietnam’s economy operates on market principles, including legal frameworks, corporate governance, and varied foreign relations.
    • Flaws in Calculations: Vietnam’s Center for WTO and International Trade has said that the approach used to calculate anti-dumping obligations is flawed as it consequences in artificially excessive dumping margins, which do not appropriately reflect the actual practices of Vietnamese businesses.

• • US Apprehensions:

• • • The US Commerce Department is currently reviewing Vietnam’s reputation.
    • The US steelmakers and the American Shrimp Processors Association have asked the US administration not to change Vietnam’s status to a market economy.
    • They stated Vietnam’s regulations on land possession, susceptible labour legal guidelines, and lower shrimp duties that might harm their participants as reasons for his or her request.
    • The trade in Vietnam could benefit Chinese nation corporations invested in Vietnam by allowing them to pass US tariffs more without issues.

Source: The Hindu

UPSC Mains Practice Question

Q.‘What introduces friction into the ties between India and the United States is that Washington is still unable to find for India a position in its global strategy, which would satisfy India’s National self-esteem and ambitions’. Explain with suitable examples. (2019)

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