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