STK’s assessment of impacts from USTR investigation on Vietnam’s currency manipulation

Recently, some analysts asked us whether the USTR investigation on Vietnam’s acts, policies and practices related to currency valuation has any potential impacts on STK’s future prospects or not. Therefore, we would like to share with you STK’s opinion on this matter.

Export to US market just account for approx. 2% of STK’s total revenue. Therefore, direct impact of any possible imposition of additional tariff (if any) on STK’s sales is very low. In addition, we are of the opinion that the likelihood that the US government will impose additional tariff on imported merchandise from Vietnam is very low. Therefore, the indirect impact of this investigation on STK’s business is very low too. Our assessment is based on the following analysis:

Events:

• 2nd October 2020: the USTR initiated a section 301 investigation regarding Vietnam’s acts, policies and practices related to currency valuation.
• 16th December 2020: the U.S. Treasury Department designated Vietnam and Switzerland  as currency manipulators:

What is  the meaning of an investigation under Section 301:

Section 301 of the U.S. Trade Act of 1974 (last edition March 23, 2018[1 authorizes the USA President to take all appropriate action, including tariff-based and non-tariff-based retaliation, to obtain the removal of any act, policy, or practice of a foreign government that violates an international trade agreement or is unjustified, unreasonable, or discriminatory, and that burdens or restricts U.S. commerce. 

US precedent investigations under Section 301

• Ukraine: on 20th December 2001 US imposed prohibitive tariff on Ukrain’s metal, footwear and other imports because USTR concluded that the country has failed to inact legislation to enforce copyright in relation to music CDs and their export.
• China:
  
  • On 18th August 2017 the USTR initiated investigation on the acts, policies and practices of the Government of China related to technology transfer, intellectual property and innovation
  • 10th Oct 2017: public hearing
  • May 2018 – proposed imposition of additional tariff of 25% on USD34 billion tranche of imported merchandise (List 1) which took effect on 19 Jul 2018. This list include machinery, electronic and high tech equipment
  • July 2018: proposed imposition of additional tariff of 25% on USD16 billion tranche of imported merchandise (List 2) which took effect on 23 Aug 2018
  • August 2018:  proposed imposition of additional tariff of 10% on USD200 billion tranche of imported merchandise (List 3) which took effect on 21 Sep 2018. On 9th May 2019, the additional tariff on this list increased from 10% to 25%
  • June 2019:  proposed imposition of additional tariff of 15% on USD120 billion tranche of imported merchandise (List 4A) which took effect on 1st Sep 2019 and USD165 billion tranche (List 4B) which was initially scheduled to take effect on 15th Dec 2019 but then cancelled as result of phase 1 trade agreement. Products in List 4A include apparels while 4B include cell phones, laptop computers, video game consoles, certain toys, computer monitors, and certain items of footwear and clothing.

 Consequences of USTR investigation to Vietnam:

• • • The likelihood that US government to impose additional tariff on imported merchandise from Vietnam is low for the follow reasons:
      
      • Relationship between Vietnam and the US is quite good;
      • Vietnam’s government already made some move to work with the US government to solve this problem (on 17th Dec 2020, State Bank of Vietnam announced that it will work with relevant authorities of the US to ensure a fair and harmonious commerce relations; on 18th Dec 2020, in the draft resolution No. 01 of Vietnamese government, Prime Minister Nguyen Xuan Phuc has instructed relevant authorities of Vietnam to cooperate with its US counterparts to maintain the bilateral cooperation’s strong momentum; on 22nd Dec 2020, Prime Minister made a call to President Donald Trump to discuss about this investigation)
    • The likelihood that US government to include currency manipulation factors into calculation of circumvention tariff in future anti-circumvention investigations against Vietnam is high.