Cablegate: Apparel Import Monitoring Leads to Shifting Targets In

VZCZCXRO8071
PP RUEHDT RUEHPB
DE RUEHHM #0995/01 2691040
ZNR UUUUU ZZH
P R 261040Z SEP 07
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC PRIORITY 3162
INFO RUCPDOC/USDOC WASHDC 0041
RUEHHI/AMEMBASSY HANOI 2205
RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE
RUEHHM/AMCONSUL HO CHI MINH CITY 3371

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000995

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EAP/MLS
STATE PASS TO USTR DBISBEE
COMMERCE FOR 4431/MAC/AP/OPB/HPPO
EEB/TPP/BTA/ANA

E.O. 12958: N/A
TAGS: ECON EIND ETRD BEXP KTEX VM
SUBJECT: APPAREL IMPORT MONITORING LEADS TO SHIFTING TARGETS IN
VIETNAM

REF: HANOI 772

HO CHI MIN 00000995 001.2 OF 002

1. (SBU) SUMMARY. Domestic and foreign invested garment
manufacturers lined up to share tales of market "re-balancing"
with USDOC Assistant Secretary for Import Administration David
Spooner. Garment exports remain far and away the largest
component of our bilateral trade and producers say the overall
volume of exports from Vietnam to the United States looks set to
grow by 40 percent this year to over 4 billion USD. However,
production is in the process of shifting from domestically-owned
firms to foreign-invested firms that can quickly move orders to
factories in unaffected countries in the event of an antidumping
order against Vietnam. To minimize the chances of an order,
Vietnam Textile and Apparel Association (VITAS) increasingly
cooperates with the Government of Vietnam (GVN) to maintain
export growth at modest levels, and (at the urging of U.S.
retailers) producers have increasingly sourced production inputs
such as fiber, thread and fabric from market economies. End
Summary.

The Most Popular Man in HCMC
----------------------------
2. (SBU) Textile and apparel industry leaders turned out in
droves during Assistant Secretary Spooner's September 24-25 fact
finding tour to Ho Chi Minh City (HCMC) in order to inform the
Import Administration's review of Vietnam's apparel export data
for the six months ending September 11. Over one hundred
industry players turned up at the VITAS-organized forum to
comment on the effects of the Vietnam apparel export monitoring
program and ask questions about the process. During an American
Chamber of Commerce (AmCham) roundtable with foreign invested
enterprises (FIE) and a Consulate-sponsored domestic producers'
roundtable, insiders offered their insights in an attempt to
obviate any potential finding of price discrimination. Factory
visits to Viet Tien and Thanh Cong provided additional insights
into industry economics.

3. (SBU) Careful not to hint at possible outcomes, Assistant
Secretary Spooner told audiences they likely could expect an

SIPDIS
announcement late in October or early November. He walked
listeners through the motivation and methodology of the
monitoring process and noted that the USG is sensitive to
perceptions of the program and concerned about negative
responses. Spooner promised that the USG would continue consult
with the GVN and industry.

The Rebalancing Act
-------------------
4. (SBU) Industry experts said that exports from Vietnam to the
United States look set to hit $4 billion in USD in 2007, an
increase of 40 percent if trends continue. However, uncertainty
obscures the decision making process for buyers hoping to source
additional product from Vietnam -- 'however small the chance,
how could I explain to my shareholders why I would risk an
anti-dumping order in Vietnam?' one U.S. retailer asked
Assistant Secretary Spooner. Buyers are mitigating this risk by
ordering from multinational companies with production facilities
in Vietnam as well as in countries unaffected by a potential
order. Locally-owned industry is losing out -- Vietnam's second
largest domestic apparel production company reported a 30
percent drop in U.S. orders from the first nine months of 2006
to 2007.

4. (SBU) Large companies have been able to rebalance their
export portfolio, concentrating on markets in the European Union
and Japan. Multinational buyers in particular have been adept
at changing the mix of their international production, shifting
Vietnam's production to retailers in Europe. The largest
domestic garment producer noted that its exports to the United
States dropped from 36 percent (of the company's total exports)
in 2005 to 34 percent in 2006 then 33 percent the first seven
months of 2007. In contrast, exports to the EU have risen from
13 percent in 2005 to 18 percent in 2006, then to 22 percent in
the first seven months of 2007.

Deferring Decisions
-------------------
5. (SBU) Some major companies cited uncertainty created by the
monitoring program as a reason for putting off their strategic
decisions, including whether to source and invest in Vietnam.
One AmCham member said some of its major vendors had considered
investing in production facilities in Vietnam prior to the
monitoring program, but these plans are now on hold. Domestic
industry echoed these stories with at least one company noting
that its increased investment (in anticipation of additional

HO CHI MIN 00000995 002.2 OF 002

market access to the United States) has proven to be a
liability. Despite a widely acknowledged rapid increase in
disposable income, companies aren't turning to the domestic
market. One representative explained that Vietnam competes with
China on quality rather than price, so existing production is
not well-positioned to gain domestic market share in Vietnam.

Government and Industry Responding Together
-------------------------------------------
6. (SBU) In order to counter perceptions that the monitoring
program makes Vietnam an unreliable source, Vietnamese industry
and trade officials have worked together to take action.
Earlier in September, the Ministry of Industry and Trade (MoIT)
announced it will act to prevent illegal transshipment and to
regulate textile and garment export growth "in accordance with
international regulations." MoIT ordered a halt to temporary
import and re-export, transshipment and sales of finished
textile and garment products through Vietnam to the United
States. The GVN also announced it would improve coordination
among the General Department of Customs, Vietnam Chamber of
Commerce and Industry, VITAS and MoIT in order to monitor
exports (for comparison with U.S. data) and strengthen the
control of Certificate of Origin issuance.

Comment:
--------
7. (SBU) Assistant Secretary Spooner was warmly received by a
broad range of industry players eager to make their case. Aside
from reports that U.S. buyers have been actively encouraging
factories in Vietnam to source from market economies, nothing in
industry comments, explanations or pleas was new (reftel). It
is clear that the perceived threat of the monitoring program has
already led to significant changes for the industry in Vietnam.
Familiar complaints about the availability of land, shortage of
skilled and unskilled labor and inflation place the apparel
industry firmly in the category of Vietnamese sectors already
being reshaped by Vietnam's accession to the WTO. Because poor
infrastructure and high transportation costs limit factory
relocation from the HCMC region, upward price pressures are
likely to continue to drive up the cost of production in
Vietnam. End Comment.

10. This cable was cleared by Assistant Secretary Spooner and
coordinated with Embassy Hanoi.
FAIRFAX

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