Vietnam Becomes the First Priority Foreign Country in 13 Years

Vietnam Becomes the First Priority Foreign Country in 13 Years: What the USTR 2026 Special 301 Designation Means for Your Business 

Herman, Henry & Dominic

06/5/2026

(English version)

By Herman, Henry & Dominic | 4 May 2026

A. Executive Summary — 13-Year Designation Gap

Vietnam has been designated by the United States Trade Representative (USTR) as a Priority Foreign Country (PFC) under the Trade Act of 1974, marking the first such designation in 13 years. This decision reflects failed bilateral IP engagement spanning six years, during which the US proposed IP Work Plans in 2020 and 2023 without achieving meaningful progress. The designation rests on 5 grounds: failure to combat online piracy; insufficient enforcement against counterfeiting; lack of effective border-control mechanisms; absence of enforcement against unlicensed software use; and no criminal penalties for cable and satellite signal theft.

Within 30 days of the report (by around May, 2026), USTR will decide whether to initiate a formal Section 301 investigation. If initiated, this triggers mandatory consultation and, absent resolution within 12 months, opens the door to trade retaliation—including tariffs, trade-agreement suspension, or both. The timing creates urgency: Vietnam's February 2025 government reorganization created intermediate enforcement gaps (50% decline in detected IP violations in 2025 vs. 2024), even as a major overhaul of Vietnam's IP Law takes effect April 1, 2026, introducing new digital-platform enforcement obligations and increased statutory damages.

For US companies with operations, supply chains, or intellectual property rights in Vietnam, the 30-day to 18-month window ahead is a critical planning period. This report analyzes the 5 grounds, the causal drivers of the designation, and three possible paths forward.

---

B. Firm Context — 10+ Years of Vietnam IP Practice

Herman, Henry & Dominic has advised on intellectual property matters in Vietnam and across borders for a decade, working with foreign investors, multinational rights holders, and Vietnamese enterprises through cycles of legal reform and enforcement reset. We are sharing this analysis because the 2026 Special 301 designation marks a meaningful shift in the US-Vietnam IP landscape, and clients with operations or rights in Vietnam may wish to consider how it affects their planning.

---

1. The Headline: Vietnam Designated Priority Foreign Country

A Priority Foreign Country designation is reserved for countries that combine three conditions: the most egregious IP-related acts, policies, and practices; the greatest adverse impact on U.S. products and industries; and failure to enter good-faith negotiations or make significant progress. The prior designation was Ukraine in 2013—13 years ago. This gap underscores the rarity of the category.

The USTR 2026 report states: "Within 30 days from the date of this identification, USTR will determine pursuant to Section 302 of the Trade Act of 1974 whether to initiate an investigation of Vietnam's acts, policies, and practices." This window is a statutory 30-day decision/initiation window, subject to the statutory economic-interest exception. The decision point is not whether to investigate, but whether Vietnam's record warrants the full formal investigation process, with its mandatory consultation procedures and statutory retaliation authority.

The May 26, 2026 decision date is the inflection point. Vietnam has a 30-day window to demonstrate sufficient progress—or prepare for a 12-month investigation phase that will culminate in tariff increases, trade-agreement concessions withdrawal, or both if no resolution is reached.

---

2. The 5 USTR Grounds

Ground 1: Failure to Combat Online Piracy

USTR reports: "Vietnam remains a significant source of online piracy and continues to host popular English-language copyright infringement sites and services that target a global audience. Some of these sites provide piracy services, including extensive libraries of pirated movies and TV shows."

Vietnam hosts two major piracy-as-a-service (PaaS) platforms. MegaCloud acts as a backend hosting system delivering infringing video files—more than 46,000 movies and 16,000 TV series directly to more than 260 pirate streaming sites around the world. The 260+ downstream sites received over 600 million monthly visitors in July 2025. MyFlixerz, one of the world's most popular pirate streaming networks, received more than 622 million visits in August 2025.

Vietnam has the highest incidence of online piracy in the Asia-Pacific region and is ranked eighth globally for piracy of mobile video games. Criminal prosecutions, where initiated, result in inadequate penalties. The highest-profile case—Fmovies operators—resulted in suspended sentences and fines, plus approximately $35,000 in compensation ordered to rights holders. Vietnam's Penal Code contains criminal provisions, but enforcement authorities lack clarity on thresholds, required proof, and how to handle digital evidence (domain names, intangible assets). Informally, enforcement authorities pressure rights holders toward administrative remedies, which lack deterrent effect.

Ground 2: Insufficient Enforcement Against Widespread Counterfeiting

USTR states: "Counterfeit goods—both locally manufactured and imported—remain widely available and openly sold in physical markets, which persist in major urban and tourist centers. Counterfeit goods are widespread and increasingly sold through e-commerce platforms and through livestream videos."

The 2025 government reorganization materially degraded enforcement. Vietnam restructured its Market Surveillance Agency (MSA) and transferred enforcement responsibility to local authorities. Administrative enforcement in physical and online markets declined in 2025, with IP-infringing goods violations dropping by 50% compared to 2024—a substantial setback coincident with structural reorganization.

Systemic problems include poor coordination among ministries and agencies, delays in initiating enforcement actions, and insufficient familiarity with trademark law among police, prosecutors, and judges.

Ground 3: Lack of Effective Border Enforcement

USTR notes: "Vietnam Customs has possessed ex officio authority to suspend customs procedures for suspected pirated and counterfeit goods at the border since the 2022 amendments to the Intellectual Property Law, but has rarely exercised that authority. Also, Vietnam's laws and decrees do not provide this authority with respect to in-transit goods."

Vietnam granted itself this statutory authority in 2022 IP Law amendments, in-force since 2023. Despite holding this power for approximately 4 years, Vietnam Customs has rarely exercised it. Additionally, the authority does not extend to goods in transit through Vietnam, creating a vulnerability in supply-chain protection.

Ground 4: Lack of Enforcement Actions Against Unlicensed Software Use

USTR reports: "Vietnam authorities reportedly have not conducted significant enforcement against the use of unlicensed software by corporate end users in the past three years."

Vietnam is recognized as a rapidly growing technology hub in the region, yet authorities have not conducted significant enforcement against corporate unlicensed software use in three years. The Business Software Alliance reports Vietnam's software piracy rate at approximately 70-90%. The lack of deterrence has resulted in widespread unlicensed software use in corporate environments, directly harming US software companies' revenue and market share in Vietnam.

Ground 5: No Criminal Measures Against Cable and Satellite Signal Theft

USTR states: "Although Article 35 of the Intellectual Property Law was amended in 2022 to define infringement of related rights with respect to the unauthorized decoding of encrypted program-carrying satellite signals, the corresponding provision in the Criminal Law has not been amended to provide criminal penalties with respect to such signals. The Intellectual Property Law and Criminal Law also do not expressly address cable signal theft."

Vietnam's IP Law was amended in 2022 to define satellite-signal infringement, but Vietnam's Criminal Law has not been correspondingly amended to create criminal penalties for signal decryption. Neither the IP Law nor Criminal Law expressly addresses cable signal theft. This creates a civil-law framework without criminal enforcement teeth—a gap that USTR identifies as mandatory, because criminal penalties provide the deterrent effect that civil remedies alone cannot achieve.

---

3. Why Now: The Path to PFC Status

The US has pursued IP coordination with Vietnam since 2020. The United States approached Vietnam in 2020 with an IP Work Plan proposal, followed by a revised proposal in 2023. Vietnam failed to make meaningful progress in bilateral engagement or in negotiations for an Agreement on Reciprocal, Fair, and Balanced Trade.

This 6-year pattern of failed coordination is the immediate trigger. USTR's patience with incremental progress has been exhausted.

Vietnam also occupies a paradoxical position in US supply-chain strategy. Post-2025 tariff regime shifts have made Vietnam the primary manufacturing alternative to China for US supply chains. Yet Vietnam's IP enforcement gap creates downstream risk for US manufacturers and IP owners investing there, making the PFC designation a pressure tool to align Vietnam with minimum-acceptable IP standards.

A secondary causal factor is the February 2025 government restructuring. National Assembly approved a restructuring reducing 22 ministries (and ministerial-level agencies) to 17. The Market Surveillance Agency restructure created enforcement gaps that counterfeit sellers have exploited. Detected IP violations dropped 50% in 2025 vs. 2024. USTR's decision to escalate Vietnam to PFC status in April 2026 (six weeks after this enforcement data became clear) suggests the reorganization-induced gap was the final factor triggering escalation.

---

4. What This Means: Three Areas of Impact

(a) Trade and Tariff Exposure

If USTR initiates a Section 301 investigation and determines Vietnam's practices are "unjustifiable" (mandatory trigger) or "unreasonable and discriminatory" (discretionary trigger), Section 301 authorizes USTR to impose tariffs, withdraw or suspend trade-agreement concessions, or enter into a binding agreement with the foreign government.

Vietnam's exports to the US include electronics and semiconductors, footwear and apparel, agricultural products (rice, seafood), pharmaceutical ingredients, furniture and wood products, and consumer goods through e-commerce supply chains. A unilateral tariff increase on Vietnamese goods would directly raise US consumer costs and disrupt supply-chain continuity for companies that shifted sourcing away from China post-2025.

The timeline is firm: within the next 30 days (by May 26, 2026), USTR determines investigation initiation. If investigation is initiated, a 12-month maximum applies for determination. Within 30 days of determination, retaliation must be implemented, subject to statutory delay exceptions. Assuming investigation initiation, earliest retaliation date is approximately May 2027. However, USTR can implement expedited timelines if warranted.

(b) Business and Investment Climate

Vietnam's PFC designation sends a negative signal to US and allied investors. Companies cannot reliably predict IP enforcement outcomes, increasing project risk premiums. Competitors or counterfeiters operating in Vietnam face lower litigation risk than in Tier 1 jurisdictions. US companies operating in Vietnam (or considering entry) must now account for potential tariff exposure on inputs or finished goods.

Sectoral impacts are acute. Pharmaceutical companies protecting drug patents, undisclosed test data, and related rights in Vietnam face a 6+ month window of uncertainty. Software companies face a 90% piracy rate and lack of enforcement against corporate unlicensed use, meaning they cannot recover licensing revenue from Vietnam operations. Copyright industries (publishing, music, film) see piracy-as-a-service infrastructure hosted in Vietnam (MegaCloud, MyFlixerz) directly competing with licensed distribution.

Multinational corporations with Vietnam operations (manufacturing, outsourced services, R&D centers) are in Q2–Q3 2026 contingency-planning mode: assessing alternate sourcing in Thailand, Indonesia, or India; reviewing contract force-majeure clauses for tariff-driven supply disruptions.

(c) Vietnam's Response Space

Vietnam faces pressure to demonstrate enforcement capacity before the 30-day USTR decision window closes. Expected responses include public commitments from Ministry of Public Security and Ministry of Industry and Trade; high-profile prosecutions targeting Notorious Markets sites; and police reallocation (local authorities responsible for IP enforcement post-reorganization must report metrics upward to MOIT).

Medium-term amendments are already underway. Vietnam's 2025 IP Law amendments take effect April 1, 2026. Key provisions include ISP intermediary obligations: digital platforms (e-commerce, social media, video streaming) must adopt proactive IP protection measures, with courts able to order takedowns and account blocking. Statutory damages increase, and courts gain authority to impose higher remedies. Trademark examination is reduced to 3 months opposition period plus 5 months substantive exam (previously 9 months), and patent exam drops to 12 months (previously 18 months).

These amendments partially address Grounds 1 and 2 (online piracy, counterfeiting) by imposing platform-level obligations and increasing remedies. However, they do not directly address Ground 4 (software enforcement) and Ground 5 (cable/satellite criminal penalties), which require either criminal law amendments or dedicated software-enforcement task forces.

Ground 5 specifically requires Criminal Law amendments to establish penalties for cable/satellite signal decryption and cable theft. As of April 2026, no such amendment is public. The time required for legislative action (proposal, vetting, National Assembly consideration) is 6–12 months. Criminal-law remedies are unlikely to be in-force before the 12-month Section 301 investigation window closes (May 2027), if investigation is initiated.

The 2025 reorganization transferred IP enforcement responsibility to local authorities (People's Committees at provincial/city level). This structural decentralization is unlikely to be reversed in 2026. Budget allocation to local IP enforcement remains unclear.

---

5. What Comes Next: Three Possible Paths

a) Likely Path: Investigation Initiated, 12-Month Consultation Phase, Tariff Retaliation (May 2027)

This outcome reflects USTR's escalation to PFC, combined with 6-year failed engagement. Investigation initiation is the expected outcome absent dramatic Vietnamese action.

Timeline: May 2026 USTR initiates formal Section 301 investigation. May 2026–May 2027: Investigation phase includes mandatory consultations, public hearings, and stakeholder input. June 2027: USTR determines Vietnam's practices are "unjustifiable" (triggers mandatory retaliation) or "unreasonable" (discretionary retaliation). July 2027: USTR implements tariffs on Vietnamese goods, likely in the 10–25% range on selected sectors (electronics, footwear, agricultural products). Potential phase-in periods or excluded sectors if Vietnam demonstrates progress on Ground 4 (software enforcement) or Ground 5 (criminal penalties).

US negotiating goal: binding IP enforcement action plan with 18-month milestones, backed by tariff threat (retaliatory action can be suspended if benchmarks are met).

b) Optimistic Path: Accelerated Investigation Closure, Binding Agreement (November 2026)

This path requires Vietnam to make dramatic concessions on all 5 grounds within 6 months—Criminal Law amendment timeline, software enforcement metrics, and interim border-control measures—all submitted by July 2026 (within 30-day decision window, before investigation initiation). If credible, the US will determine Vietnam is "entering into good faith negotiations" and delay investigation initiation.

Alternative pathway: investigation is initiated, but USTR suspends retaliation decision pending 6-month monitoring of enforcement metrics (by November 2026). USTR determines investigation in November 2026 with 12-month review period, conditional on enforcement progress.

Vietnamese concessions required: Criminal Law amendment proposal submitted by September 2026 (enactment target Q1 2027); software enforcement metrics of ≥20 corporate-level cases per quarter starting Q3 2026; border ex officio authority minimum 200 seizures per quarter starting Q3 2026 (vs. negligible current rate); US-Vietnam cable/satellite working group by Q3 2026.

US benefit: Section 301 demonstrates deterrent effectiveness without tariff implementation; sets precedent for other PFC candidates.

Less Likely but Worth Watching: Escalated Retaliation, Tariffs + Trade Agreement Suspension (January 2027)

This path requires Vietnam to demonstrate actively hostile posture or take enforcement-degrading actions post-April 2026. If USTR initiates investigation (May 2026) and during investigation, Vietnam announces further enforcement authority reduction or produces prosecution results with zero jail time and sub-$1,000 fines, USTR will determine Vietnam is not negotiating in good faith by November 2026.

US response authority: Accelerated investigation determination (by January 2027, rather than May 2027). Retaliation includes not just tariffs but also suspension of Most Favored Nation (MFN) benefits or trade-agreement concessions. Estimated tariff increase: 20–35% on all Vietnamese goods.

Economic impact: Vietnamese exports to US drop 15–30%. US consumer prices rise on footwear, apparel, electronics. Vietnam's growth rate faces additional pressure. Vietnam's government faces domestic pressure for mismanagement of US relationship. FDI flows to Vietnam decline relative to Thailand, Indonesia alternatives.

This path is less likely because Vietnam's government demonstrated willingness to negotiate (2025 reciprocal trade framework agreement); hostile escalation would signal policy abandonment.

---

6. Beyond the Headlines: Adjacent IP Themes

The 2026 Special 301 Report references five thematic areas bearing on Vietnam's IP environment by sectoral or supply-chain proxy.

Broadcast and Streaming Piracy: The report cites Vietnam-hosted piracy networks (MegaCloud, MyFlixerz, Xoilac TV) as illustrative examples from the 2025 Notorious Markets List. Streaming-service companies (Netflix, Amazon Prime, Disney+) and film studios face direct revenue loss. Tariff exposure or market-access restrictions in Vietnam would be seen as proportionate compensation for piracy losses.

Pharmaceutical Data Exclusivity: Right holders have raised concerns about bad faith trademark registrations by counterfeiters who exploit delays in trademark examination. Vietnam lacks an effective system for protecting against unfair commercial use or unauthorized disclosure of undisclosed test data generated to obtain marketing approval. This context explains why US pharmaceutical companies (PhRMA members) likely advocated for PFC designation.

Geographical Indications: The EU-Vietnam Free Trade Agreement grandfathered prior users of certain cheese terms from GI restrictions, and it is important that Vietnam ensures market access for prior users who operated in the Vietnamese market before January 1, 2017. This reflects a pattern of Vietnam's failure to implement trade-agreement commitments on time.

WIPO Copyright and Performances Treaties: Vietnam is obligated under the WIPO Copyright Treaty (WCT) and World Intellectual Property Organization Performances and Phonograms Treaty (WPPT) to ensure effective implementation, including protections against circumvention of technological protection measures. The 2025 IP Law amendments address ISP intermediary obligations and digital-platform takedown authority, partially satisfying WCT compliance. However, anti-DRM circumvention protections warrant closer examination as implementation decrees are finalized in Q2–Q3 2026.

Illicit Streaming Devices: The USTR report identifies illicit streaming devices (ISDs) as a widespread piracy vector. While Vietnam is not singled out in the ISD discussion, MegaCloud and MyFlixerz operate as ISD enablers, delivering pirated content to third-party devices. Ground 5 (cable/satellite signal theft) addresses part of this ecosystem; broader ISD enforcement is a multi-jurisdictional priority.

---

Next Steps — Planning for the 30-Day to 18-Month Window

For businesses with US-Vietnam trade exposure or IP rights in Vietnam, the 30-day to 18-month window ahead shapes supply-chain, investment, and enforcement strategy. The likely scenario—Section 301 investigation initiation by late May 2026, followed by 12-month consultation and potential retaliation by mid-2027—suggests contingency planning is warranted now. The optimistic scenario (accelerated agreement by November 2026) requires dramatic Vietnamese action in the next 60 days. The escalation scenario (full retaliation with trade-agreement suspension) remains a watchpoint if Vietnam demonstrates unwillingness to engage.

We are available for further discussion on what the 2026 designation may mean for your specific situation, and can be reached at info@ezlawfirm.org.