How do dumping and tariffs increase the prices of goods imported into Vietnam?
Currently, the pricing of imported goods in the Vietnamese market is increasingly accepted by consumers, as many believe that price goes hand in hand with quality. However, it is highly unlikely for the prices of imported goods to be lower than those of domestically manufactured products. The reality of price competition remains a serious issue not only for the domestic economy but also for the global economy, as it is intricately linked to the commercial chain known as 'import-export'.
Index
1. Underlying causes
In practice, we rarely purchase goods directly from the manufacturer; instead, we usually go through distribution agents. Because of this, price discrepancies occur.
The standard business model is illustrated as follows:
The selling price of each agent may differ, depending on the discount rate that the agents negotiate with the manufacturer.
Illustrative example: A small bookstore A (in the UK) negotiates with a book publisher (headquartered in the UK) for an 8% discount off the cover price. Accordingly, the product price will be reduced by 8% compared to the cover price. However, bookstore B (in the UK) negotiates a 10% discount off the cover price, so bookstore B's selling price will be 2% lower than bookstore A's selling price.
Price competition in the domestic market will not adversely affect that country's economy; rather, it will vigorously promote economic development. However, the same is not true for the import-export sector. If Bookstore V is a store in Vietnam, directly importing books from the UK Publisher and negotiating a 15% discount off the cover price, the selling price of these products in the Vietnamese market will be significantly cheaper than in the exporting country's market. This leads to price competition against both domestic and international markets, posing a major economic challenge for exporting countries.
Therefore, countries strong in exports need to introduce measures to prevent this phenomenon in order to ensure the economic stability of the exporting country.
2. Dumping in the General Agreement on Tariffs and Trade 1994 (GATT)
Dumping is an unfair competition practice defined in Article VI of the General Agreement on Tariffs and Trade 1994 (GATT).
A product is introduced into the commerce of another country at less than its normal value if the export price of the product from one country to another is:
- Less than the comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country, or
- In the absence of such domestic price, is less than either:
- the highest comparable price for the like product for export to any third country in the ordinary course of trade, or
- the cost of production of the product in the country of origin plus a reasonable addition for selling cost and profit.
Illustrative example: A steel product with HS code 79.xxxx is produced by Company A in Singapore and normally sold for yyy VND. However, Company B in Vietnam imports this product for yy VND (where yy<yyy). This act is considered dumping under GATT, causing harm to the steel production and business market in Singapore.
Illustrative model:
Accordingly, the acceptable selling prices of imported products in the Vietnamese market are as follows:
- Higher than or equal to the normal selling price of the like product in the exporting country.
- Higher than or equal to the highest price of the like product exported by the producing country to a third country.
- Higher than the product's price in the exporting country after adding reasonable costs and profits.
This fundamentally makes the price of products imported into Vietnam higher than the normal price sold in the producing country's market.
3. Impacts on domestic goods when imports surge
The rapid increase in imported goods, especially from markets with large scales and high technology, has created multiple impacts on the domestic market:
Positive impacts
- Diversifying choices for consumers.
- Increasing opportunities to access high-tech, good-quality products.
- Facilitating trade between countries, allowing them to enjoy more incentives and support each other economically.
Negative impacts
- Risk of price disadvantage: Many imported products are cheaper thanks to large-scale production and high-tech assembly lines.
- Affecting similar products manufactured in the domestic market.
- Imported goods being dumped, putting pressure on both domestic importing and exporting enterprises regarding competitive selling prices.
- Overwhelming competitive pressure, especially for new or small and medium-sized enterprises.
Therefore, like many other countries, Vietnam is forced to apply trade defense measures such as imposing anti-dumping, anti-subsidy, and safeguard taxes to protect domestic industries from serious injury.
4. Types of taxes borne by imported goods under Vietnamese law
According to relevant specialized legal regulations, goods imported into Vietnam are subject to various types of taxes, depending on the item, which are basically determined as follows:
| Type of tax | Applicable goods | Legal basis |
|---|---|---|
| Import tax | Goods imported across the borders and border gates of Vietnam | Clause 1, Article 2 of the Law on Export and Import Duties 2016 |
| Value Added Tax (VAT) | Goods imported across the borders and border gates of Vietnam, except for some types of goods exempt from this tax | Articles 4 and 5 of the Law on Value Added Tax 2008 |
| Special Consumption Tax | Certain types of imported goods as prescribed by law | Articles 2 and 3 of the Law on Special Consumption Tax 2008 |
| Anti-dumping, anti-subsidy, and safeguard taxes | Imported goods causing material injury to the domestic manufacturing industry. | Articles 12, 13, 14, 15 of the Law on Export and Import Duties 2016 |
5. Basis for applying anti-dumping, anti-subsidy, and safeguard taxes
It is not an uncommon exception that goods are produced in countries possessing high-tech production lines, cutting initial capital costs, and optimizing profits, making the product's normal price cheaper than similar products produced in other countries. GATT protects and helps stabilize the exporting country's economy, while the domestic markets of countries importing these products, particularly Vietnam, fall into a “threatened” state. Hence, anti-dumping, anti-subsidy, and safeguard taxes were established.
Anti-dumping, anti-subsidy, and safeguard taxes are methods of applying tax rates when it is perceived that the importation of goods will cause injury to like goods produced in the exporting country's market or goods produced in Vietnam.
Under the provisions of Articles 12, 13, and 14 of the Law on Export and Import Duties 2016, anti-dumping, anti-subsidy, and safeguard taxes are applied when there is a conclusion that imported goods have the following characteristics:
| Type of tax | Characteristics | Legal basis |
|---|---|---|
| Anti-dumping tax | Imported goods are dumped (as regulated by GATT) in the Vietnamese market; The dumping of goods causes or threatens to cause material injury to the domestic manufacturing industry or materially retards the establishment of the domestic manufacturing industry. | Clause 1, Article 12 of the Law on Export and Import Duties 2016 |
| Anti-subsidy tax | Imported goods are subsidized as prescribed by law; The import of subsidized goods causes or threatens to cause material injury to the domestic manufacturing industry or materially retards the establishment of the domestic manufacturing industry. | Clause 1, Article 13 of the Law on Export and Import Duties 2016 |
| Safeguard tax | The volume, quantity, or value of imported goods increases suddenly compared to goods produced in Vietnam; The sudden increase in the volume, quantity, or value of imported goods causes or threatens to cause serious injury to the domestic industry producing like goods in Vietnam. | Clause 1, Article 14 of the Law on Export and Import Duties 2016 |
Facing a wave of surging cheap imports from countries with high-tech production lines, applying trade defense tariff tools, alongside enhancing the competitiveness of domestic enterprises, is the key to protecting the domestic market. Therefore, even though Vietnamese merchants try to import goods at reasonable prices, the prices remain higher due to the imposition of anti-dumping, anti-subsidy, and safeguard taxes to protect domestic manufacturing industries. Consequently, goods imported into the Vietnamese market can be more expensive than domestically produced goods.
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