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 UNCLASSIFIED PAGE 02 HO CHI 01255 080205Z ¶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 -------------- ¶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 UNCLASSIFIED PAGE 03 HO CHI 01255 080205Z 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 UNCLASSIFIED PAGE 04 HO CHI 01255 080205Z 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