VIETNAM: TEXTILE ALLOCATION BEGINS WITH CONFUSION

UNCLAS SECTION 01 OF 03 HO CHI MINH CITY 000556

SIPDIS

SENSITIVE

STATE FOR EAP/BCLTV AND EB/TPP/ABT/BTT BOYNTON
STATE ALSO PASS TO USTR BRYAN/SPOONER/MILLER/CLATANOFF
USDOC FOR 6500AND 4430/MAC/AP/OPB/VLC/HPPHO
USDOC ALSO PASS OTEXA LEONARD/FOOTE/MARTELLO
CUSTOMS FOR RICHARD CRICHTON
LABOR FOR ANA VALDES


E. O. 12958: N/A
TAGS: ECON ETRD KTEX VM
SUBJECT: VIETNAM: TEXTILE ALLOCATION BEGINS WITH CONFUSION

REF: A) HO CHI MINH CITY 0500 B) HANOI 1467

Summary
--------------

1. (SBU) The textile quota allocation process, which began on
June 11, has drawn widespread complaints from buyers and producers
and has already gone through at least one revision. In Phase I of
the allocation process - in which companies receive a share of
quota based on past performance - many companies received much
less quota than they expected, when compared with their
calculations based on their interpretation of the criteria earlier
publicized by the GVN. In a meeting with a group of foreign
industry representatives, officials from VITAS, the Vietnam
Textile Apparel and Textile Association, acknowledged that the
Ministry of Trade (MOT) had been holding back or under-allocating
quota based on past performance. At the meeting, industry reps
stated they were prepared to bring their concerns to the U.S.
Ambassador and to the Minister of Trade. According to the foreign
industry reps, MOT officials then agreed to once again update
performance-based quota, this time using the criteria as
originally stipulated in the government circular. (Post Note: MOT
has told Embassy Hanoi that they already apply these criteria).
Transparency is - apparently - a work in progress. Post will
continue to monitor the business pulse in HCMC. End Summary.

Better Late and Incomplete -- Than Never
-------------- --------------

2. (SBU) On June 11, the GVN issued the first textile quota
allocations in "Phase I" of the quota allocation process.
According to foreign buyers and producers, as well as the Vietnam
Textile and Apparel Association (VITAS),the lists were late and
incomplete. MOT released an updated list over the weekend, but
companies still complained to Congen Econoff that the quota
allocations were incomplete. In this Phase I allocation, which
was to distribute 80 percent of the performance-based quota to
companies who had submitted timely documentation, several
companies told ConGen Econoff that they had received far less than
their preliminary calculations would have indicated. Some
companies, many of whom documented substantial past performance in
the qualifying period, did not even appear on the list or were
missing quota allocations in key categories. Companies have once
again begun making the pilgrimage to the Ministry of Trade in
Hanoi to plead their cases. Many of these firms say they have
been assured by MOT officials that their quotas will be adjusted
or that, because "the list is not finished," their firms will be
added to the list. Once again, textile firms are on pins and
needles (sorry) as they try to sort out exactly what is going on
and how to get a piece of the action.

Apparently Transparent -- at First
--------------

3. (U) In the past few months, GVN officials have stressed
repeatedly the goal of making the quota allocation process as fair
and as transparent as possible. Various ministries accepted input
from buyers and producers as they developed the quota allocation
system. The Ministries of Trade, Industry, and Planning and
Investment jointly issued a circular, which formally laid out the
criteria for allocation (ref A). MOT posted this decree along
with other relevant regulations on the MOT website. Export
figures by category were also posted and updated every few days so
that companies could see how much quota remained in each category.


4. (SBU) All of this transparency quickly became obscured,
however, when the first quota allocations were announced on June

11. This was several days after the "end of May" deadline
specified in the aforementioned circular. Many companies who had
complied with documentation requirements for quota allocation did
not receive any quota at all. Some companies received
substantially less than the amounts they had anticipated. In one
case, for example, an American firm received 93 percent of what it
expected in one category, but only about 40 percent in another.
The general manager of one Hong Kong firm complained to ConGen
Econoff that he had not slept for days because his firm was not
even on the list. His firm later appeared on the updated list,
but received far less quota than anticipated and no quota at all
in several key categories. The export figures by category have
not been updated since June 6 on the MOT website, adding to
business anxiety in HCMC.


5. (SBU) Producers and buyers are reluctant to ascribe any of
this confusion to an attempt by GVN officials to unfairly allocate
quota to preferred firms. Producers note that no group in
particular appears to have benefited from this initial allocation,
although unless one knows the past performance of each individual
company, one cannot be absolutely certain. GVN officials have
told Embassy Hanoi officers that they have been overwhelmed by
this entire exercise and at the same time are trying to comply
with requests to provide detailed export data to U.S. Customs (ref
B).

We feel your pain...
--------------

6. (U) Interest in the U.S. textile and garment market is
enormous in Ho Chi Minh City, which is the center of the country's
textile and apparel industry. With less than one week's notice,
an American Chamber of Commerce seminar on U.S. Customs
documentation requirements for textile imports drew more than 250
participants. At the meeting, the Secretary General of VITAS Mr.
Tran Duc Thinh acknowledged the frustrations of the entire
industry as the quota allocation process had begun. He urged
companies to register their complaints and promised that VITAS
would call a meeting in a few days to review the situation with
its members. He stated that the MOT was working hard to get
things right, but this was the first time MOT had to allocate
textile quota for the U.S. market. (Note: For several years the
GVN has been allocating a much smaller textile quota for the EU
market.)

You bet you will!
--------------

7. (SBU) According to one major American buyer in Ho Chi Minh
City, however, the ground may be shifting. On June 16, this
buyer, along with representatives of several foreign business
groups in Ho Chi Minh City, met with Mr. Le Quoc An, the Chairman
of Vinatex and of VITAS, and Mr. Le Van Dao, the incoming
Secretary General of VITAS and former Deputy Director of the MOT

SIPDIS
Import-Export Department. Foreign business groups have been
lobbying the GVN collectively on textile and quota allocation
issues. These businesses produce or purchase hundreds of millions
of dollars of garments here every year. According to the American
buyer, An and Dao told her that the MOT had been using a
"different formula", not one based closely on the criteria in the
GVN circular outlining the process. According to An and Dao,
using the current "formula" resulted in smaller quotas, by about
10% - 30%. This allowed the MOT to withhold more quota for later
allocation.


8. (SBU) These foreign business representatives were highly
critical of this reported approach and informed An and Dao that
they were meeting separately later this week with U.S. Ambassador
Burghardt and with the Minister of Trade. They wanted to give
them a good report, they said, but as the situation stood now,
this would not be possible. According to the leader of this
textile group, An and Dao reacted by telephoning the new Deputy
Director of Import-Export at MOT (the key person in charge of
handling quota allocation for the U.S. market.) According to the
business reps, An and Dao urged him in the strongest terms ("fix
this or your job in jeopardy") to release new quota figures based
on the "correct formula." According to ConGen contact, An and
Dao told the foreign reps that yet another "revised" quota
allocation list should be released in a couple of days, this time
using the criteria "as set out" in the GVN circular.

Comment
--------------

9. (SBU) ConGen contact has been a good source of inside
information in the past. However, neither An or Dao directly work
or speak for MOT, and every source in this cable has a horse in
this race. Embassy contacted MOT officials who were in charge of
drafting the circular, creating and applying the criteria, and
allocating quota. They stated they were unaware of any
conversation as reported by the American industry rep, and noted
that there is no specific formula advocated in the circular.
Rather, these officials said they set up a formula based on their
own criteria and, as previously reported, scheduled the allocation
in two phases. The first phase was smaller than originally
announced and this has led to problems and unease among industry
reps. The second phase, which will now be larger than planned,
will happen later this month. Depending which side of the fence
one sits on, this may also be the "revised" allocation that
industry reps are waiting for.


10. (SBU) That said, there is clearly unhappiness among the
foreign business community regarding the allocation of quota. For
them, these recent quota allocations appear to concentrate power
for quota decisions in just a few hands. Without any MOT
explanatory formula or calculations for allocating past
performance quota, the foreign business community has serious
concerns about the apparent disconnect between their expected
quota allocations (based on their own calculations) and what in
fact MOT has allocated to them. If MOT can improve its
performance by responding to industry's concerns - ensuring that
the second phase more closely follows industry's recommendations
regarding the application of criteria and "formula" - it would be
excellent news for Vietnam. Garment and textile producers would
get the performance-based quota they were promised, thus
strengthening the competitiveness of the industry here. And, it
would be another step on the road to transparency. Because the
GVN had issued a circular outlining quota criteria, buyers and
producers were able to lobby the MOT directly for its proper
implementation. Of course, whether or not MOT will tweak its
method of allocation in Phase II, as well as increase
transparency, remains to be seen.

YAMAUCHI