TEXTILE ORDERS FOR VIETNAM: LOOKING TO THE BTA FOR INCREASED OPPORTUNITIES, NOT THE WORLD SECURITY SITUATION

UNCLAS HO CHI MINH CITY 001255

SIPDIS

STATE PASS TO USTR FOR EBRYAN
USDOC FOR 3132/OIO/EAP/KELLEHER
USDOC FOR 1431/MAC/AP/HPPHO

E.O. 12958: N/A
TAGS: ECON ETRD KTEX VM BTA
SUBJECT: TEXTILE ORDERS FOR VIETNAM: LOOKING TO THE BTA FOR INCREASED OPPORTUNITIES, NOT THE WORLD SECURITY SITUATION
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1. SUMMARY: VIETNAM'S TEXTILE INDUSTRY ANTICIPATES A BOOST
IN ORDERS FROM OVERSEAS BUYERS RELUCTANT TO DO BUSINESS IN
COUNTRIES SUCH AS PAKISTAN AND INDONESIA, IN LIGHT OF THE
CURRENT SECURITY SITUATION. THIS IS ACCORDING TO BUSINESS
PEOPLE IN HO CHI MINH CITY, THE CENTER OF VIETNAM'S TEXTILE
INDUSTRY. ALTHOUGH NO JUMP IN ORDERS HAS YET OCCURRED,
INDUSTRY EXPERTS STATE THAT IF SECURITY CONCERNS REMAIN
HEIGHTENED FOR SEVERAL MONTHS, BUYERS COULD SWITCH THEIR
ORDERS TO VIETNAM (AND OTHER COUNTRIES PERCEIVED AS STABLE
AND SAFE). MOST AGREE, HOWEVER, THAT THE BILATERAL TRADE
AGREEMENT (BTA) AND THE WORLD ECONOMIC SLOWDOWN, WHICH
STARTED WELL IN ADVANCE OF SEPTEMBER 11, WILL HAVE A MUCH
STRONGER EFFECT ON THE FUTURE OF THE TEXTILE INDUSTRY HERE.
END SUMMARY.

THE SHIFT TO VIETNAM MAY BE COMING - OR NOT
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2. ALTHOUGH BUSINESS IS SLUMPING IN RESPONSE TO THE ECONOMIC
SLOWDOWN, A NUMBER OF BUSINESS PEOPLE IN VIETNAM'S TEXTILE
INDUSTRY INDICATE THAT THEY ALREADY SEE ADDED INTEREST IN
VIETNAM AS AN ALTERNATIVE SOURCE OF PRODUCTION FOR TEXTILES
AND GARMENTS IN LIEU OF INDONESIA, PAKISTAN, OR OTHER MOSLEM
COUNTRIES. ONE FACTORY OWNER HERE NOTED HE HAD BEEN
CONTACTED BY A BUYER WHO WANTED TO DIVERSIFY PRODUCTION AWAY
FROM THE MIDDLE EAST, FEARING A LABEL FROM THAT REGION WOULD
HURT U.S. SALES. OTHERS HAVE TOLD US THEY HAVE RECEIVED
INITIAL INQUIRIES, BUT NO SIGNIFICANT NEW BUSINESS YET.


3. THE INDUSTRY REPS AND EXPERTS WE TALKED TO AGREE THAT IT
IS TOO EARLY FOR A MAJOR SHIFT IN ORDER PATTERNS. MORE
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NOTICEABLE IS THE OVERALL DROP IN BUSINESS IN THE LAST FEW
MONTHS. MANY BLAME THIS DROP - WHICH BEGAN A DOWNHILL
SLIDE WELL IN ADVANCE OF SEPTEMBER 11 -- ON WORLDWIDE
ECONOMIC CONDITIONS. AUTUMN SHOULD BE OUR PEAK PRODUCTION
SEASON, ONE GARMENT MAKER STATED, BUT FEW PLANTS ARE WORKING
AT FULL CAPACITY.


4. ALL STATED, HOWEVER, THAT A SUSTAINED ARMED CONFLICT IN
AFGHANISTAN (OR ELSEWHERE, FOR THAT MATTER) WILL CAUSE
BUYERS TO SHIFT THEIR GARMENT ORDERS FROM COUNTRIES WHERE
THEY FEAR TO TRAVEL OR WHERE THEY BELIEVE THERE IS NO
GUARANTEE ORDERS WILL BE FILLED, BECAUSE OF INSTABILITY.
FOR EXAMPLE, LE QUOC AN, THE CHAIRMAN OF VINATEX, A STATE
OWNED TEXTILE CONGLOMERATE, STATED AT A LOCAL SEMINAR ON THE
TEXTILE INDUSTRY THAT VIETNAM COULD AND SHOULD SELL ITS
STABILITY AND SECURITY.


5. OF COURSE THE BIGGER IMPACT ON VIETNAM IS THE
RATIFICATION OF THE BTA, WHICH ALLOWS TEXTILE AND GARMENT
MAKERS TO EXPORT TO THE U.S. WITH LOWER TARIFFS AND --UNTIL
A TEXTILE AGREEMENT IS IN FORCE -- WITHOUT QUOTAS. VIETNAM
CURRENTLY HAS LESS THAN ONE PERCENT OF U.S. TEXTILE AND
GARMENT IMPORT MARKET, AND LOCAL FIRMS HAVE BEEN GEARING UP
TO CAPITALIZE ON THIS NEW OPPORTUNITY. STATE-OWNED VINATEX,
A CONGLOMERATE OF GARMENT FACTORIES WHICH CONTROLS ABOUT 28%
OF VIETNAM'S CURRENT TEXTILE EXPORTS, HAS ALREADY OPENED
OFFICES IN NEW YORK AND HONG KONG TO INTRODUCE ITSELF TO THE
U.S. MARKET.


6. ONE BUSINESSMAN NOTED THAT A SHIFT AWAY FROM INDONESIA
OR PAKISTAN DOES NOT AUTOMATICALLY MEAN VIETNAM WILL GET THE
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BUSINESS. THERE ARE OTHER MORE ESTABLISHED PRODUCERS WHO
ARE WELL-POSITIONED TO MAKE GAINS. THIS BUSINESSMAN CLAIMED
ONE CITY IN CHINA'S GUANGDONG PROVINCE EXPORTS MORE TEXTILES
THAN ALL OF VIETNAM. IT MAY BE EASIER FOR BUYERS TO SHIFT
THEIR ORDERS TO FACTORIES WHERE THEY ALREADY HAVE
ESTABLISHED RELATIONSHIPS ON THE GROUND. ALL THEY WOULD
HAVE TO DO IS INCREASE CAPACITY.


7. COMMENT: VIETNAM'S TEXTILE COMPANIES ARE SALIVATING AT
THE OPPORTUNITY OF UNFETTERED ACCESS TO THE U.S. MARKET NOW
THAT THE BTA IS ABOUT TO GO INTO EFFECT. SOME HAVE ALREADY
BEEN EXPORTING TO THE U.S. AND OTHERS ARE GEARING UP FOR THE
NEW POSSIBILITIES. IF THEY CAN SELL VIETNAM AS A STABLE,
SECURE PLACE TO DO BUSINESS, IT SHOULD HELP THEM GET INTO
THE MARKET. THEIR STAYING POWER, HOWEVER, WILL BE
DETERMINED BY WHETHER THEY CAN OFFER COMPETITIVE PRICING AND
QUALITY - AN OPEN QUESTION.

YAMAUCHI

UNCLASSIFIED