VIETNAM: TEXTILE QUOTAS AND TRANSSHIPMENT

UNCLAS HANOI 003273 SIPDIS FOR UNDERSECRETARY LARSON FROM THE AMBASSADOR STATE PASS USTR SPOONER STATE ALSO PASS USTR BRYAN STATE FOR EB/TPP/ABT/BTT COMMERCE FOR OTEXA DAS JIM LEONARD BANGKOK FOR CUSTOMS ATTACHE E.O. 12958: N/A TAGS: ETRD PREL KTEX VM SUBJECT: VIETNAM: TEXTILE QUOTAS AND TRANSSHIPMENT SENSITIVE BUT UNCLASSIFIED PROTECT ACCORDINGLY ¶1. (SBU) I understand that the Committee for the Implementation of Textile Agreements (CITA) may soon consider requesting textile consultations with the GVN to discuss the findings of a U.S. Customs Textile Production Verification Team (TPVT) that visited Vietnam for three weeks last August. In their out briefing with me, as well as in their final report, the TPVT team indicated they had found clear evidence of some textile transshipment. However, at the same time, the team confirmed that Vietnam's textile and garment industry clearly has sufficient production capacity to produce at or above the quota levels established in the bilateral textile agreement. ¶2. (SBU) I believe that bilateral consultations with the GVN on transshipment issues could prove extremely useful. As Vietnamese officials themselves have acknowledged, the GVN's technical capacity to prevent transshipment is limited. In his meeting earlier this month with DOC U/S Bodman, which I attended, Deputy Prime Minister Vu Khoan spoke of the need for a bilateral dialogue on transshipment issues. I strongly support any effort to increase bilateral cooperation efforts to prevent future occurrences. ¶3. (SBU) I am concerned, however, that these consultations may be used as an opportunity to re-open or re-negotiate the quota levels established in the textile agreement. I strongly oppose a reduction in Vietnam's quota levels for several reasons: -- The level of transshipment is relatively low. U.S. Customs has estimated that it is around two percent of total quota. -- The majority of this "transshipment" occurs outside the control of the Vietnamese authorities. The vast majority of these goods never enter Vietnam. They are not in fact "transshipped." They have "made in Vietnam" labels put on them by Chinese in China. A reduction in quota would be seen as "punishment" for something that was largely outside the control of the Vietnamese. -- The GVN is taking steps to address transshipment problems - providing electronic information to U.S. customs on textile visas and pursing implementation of an electronic visa system (ELVIS). -- The quota levels in the agreement were established in good faith. A reduction in quota levels should only take place in the face of substantial transshipment problems - particularly as it is clear that Vietnam has more than enough capacity to legitimately meet quota levels. -- A reduction in quota now would be, in the words of U.S. buyers and manufacturers, "disruptive" to their business and quota allocation in general in Vietnam. BURGHARDT