USTR drops tariff threat against Vietnam while COVID-19 pummels Vietnamese supply chain
Monday Morning Wake Up Call
July 26, 2021
U.S. trade agency drops tariff threat against Vietnam over currency practices
(Reuters) - The U.S. Trade Representative's office on Friday said it had determined that no tariff action against Vietnam was warranted after its central bank agreed with the U.S. Treasury not to manipulate its currency for an export advantage.
In a statement, USTR said it found that the U.S. Treasury-State Bank of Vietnam agreement earlier this week "provides a satisfactory resolution of the matter subject to investigation and accordingly that no trade action is warranted at this time."
The State Bank of Vietnam on Monday pledged in an agreement with Treasury Secretary Janet Yellen to refrain from "competitive devaluation" of its dong currency and make its monetary and exchange rate policies more transparent. read more
The deal follows months of U.S. pressure on Vietnam over its currency practices and ballooning U.S. trade surplus. The Trump administration in its final weeks had declared Vietnam a currency manipulator and had threatened to impose punitive tariffs on imports from Vietnam over its currency practices.
The USTR determination, outlined in a federal register notice, only pertains to its Section 301 investigation into Vietnam's currency practices. It does not affect a separate Section 301 investigation into Vietnam's use of illegally harvested or traded timber that could lead to tariffs on furniture and other wood products imported from Vietnam.
"American workers and businesses are stronger when our partners value their currency fairly and compete on a level playing field," U.S. Trade Representative Katherine Tai said in a statement.
"Going forward, in coordination with Treasury, we will work together with Vietnam to ensure implementation, and we will continue to examine the currency practices of other major trading partners," Tai added.
Vietnam welcomed the USTR's decision to take no action, its foreign minister, Bui Thanh Son, said.
"Constructive efforts and goodwill help resolve outstanding issues and contribute to the building of a better and stronger partnership," Son said on Twitter on Saturday.
The Vietnamese dong closed at 23,005 to the dollar on Friday, compared with 23,191 on Oct. 2, 2020, the day that USTR launched its currency probe.
COVID-19 measures in Vietnam pummel an already bruised supply chain
Add another log to the fire that is choking global supply chains. Strict lockdown measures to suppress Vietnam’s worst outbreak of COVID infections since the pandemic began are severely curtailing factory production, especially for electronics, footwear, apparel and textiles, and ocean terminals lack sufficient equipment to export goods.
And the situation is likely to get worse, just as importers and exporters enter the traditional peak shipping season for the Halloween and Christmas holidays, logistics companies and analysts say.
The latest hot spot for rising infections is Ho Chi Minh City, where strict COVID quarantines have been in place since July 9. The number of positive cases topped 5,800 on Sunday, the highest level since the start of the pandemic.
Under new rules, manufacturing sites are allowed to stay open only if they have a plan to house and feed workers within the factory compound instead of having them commute back and forth to their homes. Vietnamese authorities also allow companies to transport workers to a collective place of residence, such as a hotel or dormitory. And employers must test workers for COVD-19 every seven days at their own expense.
The new restrictions forced many factories to close, while others that meet conditions for staying open have not been able to get registrations approved by authorities, according to an alert published Thursday by Everstream Analytics, which uses computational data analysis to help companies predict supply chain risks.
Restrictions against public gatherings have been extended until Aug. 1 and likely will also be extended beyond this week for manufacturers.
The number of COVID cases in Vietnam began to rise in May, with clusters of infections in the northeast region of the country outside of Hanoi leading to factory shutdowns for companies such as Samsung Electronics and Foxconn.
Major footwear manufacturers, including Chang Shin Vietnam Co. Ltd. and Pou Chen Corp., have suspended operations as part of the current lockdown, according to Everstream Analytics.
“Due to the short notice of the announcement, many companies have been unable to meet the requirements in order to continue operations,” the data science company said.
About half of the 310 companies located in a large industrial park east of Ho Chi Minh City that registered to implement health security plans are still waiting for a green light, the Dong Nai Electronic Newspaper reported.
As more companies apply for the program, a backlog of approvals is likely to cause further disruptions to manufacturing, Everstream Analytics predicted.
Several factories in the Saigon Hi-Tech Park were ordered to temporarily shut down July 13 after more than 750 COVID-19 cases were reported there, the Vietnamese newspaper VN Express reported. Affected factories included the Samsung Electronics HCMC CE Complex, which reduced its workforce from 7,000 to 3,000 and was developing plans to isolate employees at its complex. Other companies unable to house all employees on-site, including electronics manufacturer Intel, have reportedly rented hotels nearby and are using daily buses to bring employees in.
Some Nidec Vietnam subsidiaries are operating only one shift per day, with a 35% reduction in workforce, the newspaper said.
Everstream’s website listed more than a dozen manufacturers in the southeast region of the country that are closed, including Pou Chen Corp., the world’s largest maker of athletic and casual footwear and a contract manufacturer for global brands such as Nike (NYSE: NKE), Adidas and New Balance.
The American Chamber of Commerce, in a webinar, said Nike has responded to the disruption by turning to airfreight to expedite exports from Vietnam because of the production slowdown and shipping delays at the country’s ports, Nikkei Asia reported.
Data from Panjiva, a trade intelligence business within S&P Global Market Intelligence, shows that Vietnam accounts for 49% of all U.S. ocean imports by Nike. CEO Matt Friend said on Nike’s June 24 earnings call with analysts that the company has a lot of inventory stuck offshore and is experiencing longer lead times for purchase orders, adding, “We expect supply chain delays and higher logistics costs to persist through much of fiscal 2022.”
AP Moller-Maersk, the giant container vessel operator, said in an advisory to customers over the weekend that productivity is deteriorating at the port of Vung Tau with the spike in COVID cases.
Container availability was already a major issue in Vietnam prior to the outbreak, which is exacerbating difficulties locating boxes, as well as loading and unloading them in a timely manner, Jim Monkmeyer, president of transportation for DHL Supply Chain in Columbus, Ohio, said in an email exchange.
“And now, ships are anchored offshore waiting for available berths, or are simply bypassing Vietnam due to reduced staffing in the port. These manufacturing shutdowns and port congestion have caused companies to move shipments via air to avoid complete stockouts,” he said.
Trucks moving in and out of locked down areas need to strictly follow government health rules and drivers need to show negative test results within the past three to seven days, depending on whether they get a fast test or a PCR test that is read in a lab, SEKO Logistics said in a customer notice Tuesday.
An official at one carrier, who is not authorized to speak publicly, said multiple checkpoints placed within and around the provinces have extended the lead time for truckers to reach their destinations. The slowdown in trucking is impacting the number of import containers standing in the terminals and also the receipt of raw materials by the factories. The yard build up is also impacting the containers trying to gate in for exports on top of the trucking challenges.
Industry managers say there is a compounding effect. Increased delays at European and US ports are impacting the returning vessels to Asia ports. The late arrival of vessels into Asia significantly adds to berth wait times in Asia, including the port of Vung Tau.
“The situation is likely to worsen in the coming weeks as the flow of cargo through Vietnamese ports increases” and warehouse space could become scarce if backlogs at ocean terminals increase, Everstream Analytics said. Moreover, if lockdowns are extended, workers may become exhausted and not be able, or willing, to spend additional weeks under existing conditions.
Vietnam is shaping up to be a possible replay of the logjam experienced in China at the Port of Yantian when terminals operated on a sharply truncated schedule to keep workers socially distanced, causing vessels to queue up for days outside the port waiting for dock space. That forced carriers to reroute vessels to other ports in the region, creating havoc in those locations and further constipating the entire shipping ecosystem already overwhelmed by a torrent of demand for cross-border trade.
Vietnam is a smaller manufacturing center than China, with smaller ports, so the ripple effects are likely to be less impactful. Still, some vessel strings to the U.S. call on Yantian as well as ports in south Vietnam, which could further slow transit times.
Meanwhile, Malaysia is in the midst of a national lockdown that is severely reducing manufacturing output. In the state of Selangor and the capital of Kuala Lumpur, local officials in July halted manufacturing except for production of food and daily essentials, leading to a backlog of orders that could take months to clear. Impacted sectors include electronics, semiconductors and medical equipment.
According to news site The Diplomat, the government’s decision to allow 18 manufacturing sectors to operate at about 60% of workforce capacity created favorable conditions for virus outbreaks at factories and workers’ dormitories. Workplace clusters have emerged as a key source of COVID-19 infection in Malaysia, with the bulk of the clusters identified linked to the industrial sector.
Now, many of those companies have reportedly shut down operations temporarily due to local COVID-19 outbreaks, labor shortages, or other operational challenges, Everstream reported. Malaysia’s largest styrene monomer producer, Idemitsu Kasan Company Ltd., closed its plant in Pasir Gudang on June 1, while semiconductor company Infineon Technologies and electronic components makers Taiyo Yuden and Seiko Epson all shuttered operations in Malaysia to prevent further COVID-19 transmission among their workforces.
Even factories that have continued to operate without restrictions under the new total lockdown on June 1 have experienced reduced productivity. The new measures were expected to reduce semiconductor output by between 15% to 40%, according to the Malaysia Semiconductor Industry Association, likely exacerbating global supply issues.
Everstream Analytics said it is also likely that companies outside Selangor and Kuala Lumpur will experience disruption because sub-tier suppliers located in these areas are being affected by the outbreak. An unidentified company located in Penang that produces capacitors for automotive, telecommunications, and medical device makers has reportedly declared force majeure as many of its suppliers located in Selangor and Kuala Lumpur were forced to shut down.
It forecast that a partial normalization of business will happen in September, but a full reopening of the economy is unlikely before the end of the year because of health-system challenges.
To Read More: https://www.freightwaves.com/news/covid-19-measures-in-vietnam-pummel-an-already-bruised-supply-chain
Do You Need Customs Brokerage Help? You can contact us at firstname.lastname@example.org