Vietnam: Textile Consultations in Hanoi

UNCLAS SECTION 01 OF 04 HANOI 000888

SIPDIS

SENSITIVE

STATE FOR EAP/BCLTV AND EB/TPP/ABT/BTT
STATE ALSO PASS USTR SPOONER
USDOC ALSO PASS OTEXA LEONARD
USDOC FOR 6500 AND 4430/MAC/AP/OPB/VLC/HPPHO
CUSTOMS FOR JANET LABUDA
LABOR FOR ANA VALDES

E.O. 12958: N/A
TAGS: ETRD EINV KTEX VM
SUBJECT: Vietnam: Textile Consultations in Hanoi

SENSITIVE BUT UNCLASSIFIED PROTECT ACCORDINGLY

Ref: (A) STATE 30781 (B) 03 HANOI 2253


1. (SBU) Summary and Introduction: USTR Special Textile
Negotiator David Spooner and Department of Commerce Deputy
Assistant Secretary James Leonard led textile consultations
with the GVN March 17-18. The discussions focused on
whether Vietnam's textile quotas should be reduced, given a
U.S. Customs and Border Patrol (CBP) report indicating some
transshipment took place during the period prior to
negotiation of the bilateral textile agreement last year.
The GVN outlined steps it has taken since conclusion of the
textile agreement to prevent future transshipment, including
stripping quota from companies suspected of transshipping
textiles and concluding an agreement to implement an
electronic visa system (ELVIS). The GVN also provided boxes
of supplemental documentation for analysis by CBP before a
decision is made on reducing GVN quota levels. GVN
officials asked to renegotiate the textile agreement and
requested approval to borrow from next year's quota. The
U.S. delegation stated that the U.S. has no interest in
renegotiating the agreement, and urged the GVN to agree to
an extension of the agreement instead. Only after the GVN
agrees to an extension would Vietnam be able to borrow from
2005 quota. End Summary.

Opening Remarks
--------------


2. (SBU) In its opening remarks the U.S. delegation
acknowledged that the CBP team that visited Vietnam in
August 2003 (Ref B) had found significant production
capacity in Vietnam and expressed appreciation for the GVN's
"exemplary" cooperation with CBP authorities. The U.S. side
explained that paragraph 19B of the bilateral textile
agreement allows the U.S. to consult with the GVN on whether
Vietnam's quota should be adjusted based on the results of
the CBP's August investigation. These consultations can
last up to ninety days. The U.S. side emphasized that a
decision to reduce quota would not be done to penalize
Vietnam, but rather to ensure that Vietnam's quota reflects
true trade for the period March 2002 to February 2003 - the
period of trade upon which the negotiations where based.
The U.S. delegation explained that the USG would consider
carefully Vietnamese data and arguments regarding CBP's
findings before making any decision on quota levels. The
USG delegation emphasized the numbers in CBP's report are
modest and should be "manageable," and expressed hope that
this would be seen as a small issue that both sides could
easily put behind them.


3. (SBU) Vice Minister Luong Van Tu, opening for the GVN,
stated that Vietnam had a relatively short period of quota-
free access to the U.S. market. He noted that the CBP team
that visited Vietnam in August had reconfirmed Vietnam's
textile production capacity. The Vice Minister asked the
U.S. side to take into account the time constraints faced by
the Vietnamese enterprises during the CBP's visit and the
fact that many of them were not yet familiar with U.S.
Customs procedures. Even though some companies had
difficulty getting documents prepared in time, CBP had
praised their commitment and cooperation, the Vice Minister
added.


4. (SBU) Since the signing of the textile agreement, the GVN
has taken steps to help Vietnamese companies learn how to do
business in the U.S. and to prevent future circumvention,
such as hosting hundreds of workshops for Vietnamese
companies on how to do business with the U.S. He also noted
that the GVN had demonstrated its willingness to prevent
transshipment by agreeing to implement an electronic visa
system (ELVIS). Additionally, VM Tu highlighted Vietnam as
an alternative to China for sourcing textile and apparel
production. He said that many U.S. investors come to
Vietnam because they want to diversify their outsourcing
channels. Almost all the major U.S. distributors and
importers have a presence in Vietnam, he claimed. However,
he argued, current U.S. quota levels are only meeting about
sixty percent of Vietnamese production capacity.
Delegation meets with Minister of Trade
--------------


5. (SBU) Minister of Trade Truong Dinh Tuyen also met
separately with Spooner, Leonard and Ambassador. Tuyen
highlighted Vietnam's excess production capacity and the
good cooperation between the two governments on preventing
circumvention. Tuyen reconfirmed the GVN's seriousness and
goodwill with respect to combating circumvention, noting
that transshipment does not benefit the GVN. The GVN has
invested the capital, time and effort into launching an
ELVIS even though the cost is high and Vietnam will need to
use the system for a relatively short time. (Note: Tuyen
noted that Vietnam plans to accede to the WTO in 2005 or

2006. End note.) The Minister claimed that since
implementation of the textile agreement, many factories have
had to close (because of a lack of quota). He added that he
regularly meets with U.S. buyers looking for additional
quota, but he has none left to give them. Quota levels
allocated to Vietnam for 2004 are about twenty to thirty
percent lower than what Vietnam actually needs, Tuyen said,
and then he requested that the USG not reduce quota levels
any further. Finally, Tuyen assured the U.S. side that the
GVN had taken quota away from companies that could not
provide full documentation on their shipments. The small
discrepancies identified by U.S. Customs were out of GVN
control, he concluded. Tuyen also requested that the USG
support a GVN request to renegotiate the textile agreement
to "foster bilateral trade."


6. (SBU) Spooner praised GVN cooperation with U.S. Customs,
noted that it is "admirable and wise" for the GVN to sign up
for ELVIS, and explained that Paragraph 19B allowed the U.S.
to request consultations on Vietnam's quota levels. Spooner
also emphasized that the U.S. established quotas for all
countries, including Vietnam, based on current trade, not
capacity. He suggested the two sides "come to an
arrangement" soon on the status of the textile agreement so
that Vietnam can borrow from next year's quota.

GVN Responds to Customs Report
--------------


7. (SBU) In response to the USG offer to review additional
information (ref A),the GVN delegation turned over several
boxes of documents to the U.S. delegation. According to the
GVN, these documents provide additional information on
several of the companies identified as problematic in the
Customs report. The documents also respond to the USG
request for additional information on six other companies
(not mentioned in the CBP report). These documents have
been pouched to CBP in Washington for review and analysis.
The U.S. delegation stated that it would await CBP's
analysis of the documents before making any final decisions
on reduction of Vietnam's quota.


8. (SBU) The following is the GVN summary of the information
contained in the documents provided to the U.S. side.

-- Refused Admission (1 enterprise)

Coopimex is the one company that refused CBP's request to
inspect its factory during the visit in August. According
to the GVN, Coopimex is a small typical cooperative
enterprise that deals mainly in very small orders. The
total value of its exports for all of 2002 and the first two
months of 2003 was less than USD 700,000. Coopimex told the
GVN that they had refused CBP's request for admission to its
offices because the Vice Director was away at a trade fair
on the day of the request. Coopimex is a trading company,
not a manufacturer, and so was unable to provide
documentation for each stage of production. Coopimex
provided additional documentation, although it covers only
the first phase of production. After the CBP visit, GVN
retracted quota from this company and removed its goods from
the port. The GVN noted that Coopimex deals in such small
orders, it is unlikely that it was involved in
transshipment.
-- Closed Enterprises (5 companies)
According to the GVN, it is not surprising that several of
the companies CBP had wanted to visit were closed. In
Vietnam here is a continual flux in the market with
companies opening and closing their doors on an ongoing
basis, the GVN delegation noted. The five companies in this
category are all small; most of their export shipments are
worth less than USD 4000. Additionally, these companies
tend to outsource production to households and small
cooperatives. According to the GVN it is unlikely these
companies were involved in transshipment because their
shipments are too small.

-- Not Produced

During the August visit, the CBP found more than thirty
certificates of origin (C/O) they believed to be false.
According to the GVN, it is highly likely that goods shipped
under false C/Os were not produced in Vietnam, and it would
be unfair to penalize Vietnam for these shipments. However,
the GVN delegation noted, it is also possible that not all
thirty of the C/Os were actually false. In the period prior
to signing the textile agreement, many companies were new to
the U.S. market and did not understand U.S. trade practices.
Some of these companies may have tried to avoid the cost
charged by the Vietnam Chamber of Commerce and Industry
(VCCI) for issuing a C/O and simply issued their own. They
did not understand the negative consequences that would
result from doing this. According to the GVN, while some of
the companies in this column may have been involved in
transshipment, it is unlikely all of them were.

-- Believed Transshipped

Five of the eleven companies in this column provided
additional documentation, including customs declarations for
exports and imports; certificates of origin, cutting records
and other documents. (Note. One of these companies is a
subcontractor that does not export so the GVN actually only
provided documentation on four companies. End note.)

-- Insufficient Documents

Ref A requested additional information on six companies that
did not provide sufficient documentation to verify
production during CBP's August trip. The GVN collected
customs declarations of exports and imports; certificates of
origin, cutting memos, cutting and sewing records and other
documents from these six companies.

Renegotiate or Extend
--------------


9. (SBU) During the consultations, the GVN requested the
U.S. agree to renegotiate the bilateral textile agreement,
which will expire at the end of 2004. The GVN also asked
for authority to borrow from next year's quota, even before
finalizing the status of the agreement. The U.S. side
responded that the USG is unwilling to renegotiate and
encouraged the GVN to agree quickly to extend the agreement
instead. The U.S. delegation reminded the Vietnamese side
that this was an election year and that if a renegotiation
were to take place, there would be significant pressure in
the U.S. to reduce quota levels. The U.S. side also noted
that a decision on the status of the agreement has to be
made before the GVN can borrow from next year's quota.

Text of Memo of Consultations
--------------


10. (SBU) At the end of the negotiations, the two sides
signed a Memorandum of Consultations. Text follows:

Memorandum of Consultations on Agreement Relating to Trade
in Cotton, Wool, Man-Made Fiber, Non-Cotton Vegetable Fiber
and Silk Blend Textiles and Textile Products Between the
Governments of the United States of America and the
Socialist Republic of Vietnam (Herein after called The
Agreement)
Pursuant to the provision 19(B) of the U.S.-Vietnam Textile
Agreement, from March 17 to 18, 2004 in Hanoi, consultations
between Vietnam and the U.S. took place at the Ministry of
Trade of Vietnam.

Vietnamese delegates:

1. Vice Minister of Trade, Luong Van Tu

2. Mr. Nguyen Thanh Bien, Chief of Administration

3. Mr. Le Van Thang, Deputy Director General of Export-
Import Department

4. Mr. Nguyen Van Binh, Deputy General Director of
Department of Americas

5. Mr. Nguyen Thu Do, Government Office

6. Mr. Nguyen Hoang Phuong, Ministry of Industry

7. Mr. Phan Sinh, General Department of Customs

U.S. delegates:

1. Mr. James Leonard, Deputy Assistant Secretary of
Commerce, Chairman of CITA

2. Mr. David Spooner, Negotiator of Textiles, USTR

3. Mr. Samuel R. Watson, Economic Counselor, U.S. Embassy

4. Ms. Jessica Levine Adkins, U.S. Embassy

5. Ms. Nguyen Thi Bich Ha, U.S. Embassy

6. Mr. Michael F. Cavanaugh, U.S. Consulate General in Ho
Chi Minh City

The two sides discussed inspection results of the U.S.
Customs verification team performed in August 2003 and noted
that (i) Ministry of Trade, General Department of Customs
and enterprises of Vietnam cooperated well with the
inspection team of U.S. Customs and (ii) the production
capacity of textile and apparel of Vietnam is recognized to
be substantial and is of potential to accelerate bilateral
trade between Vietnam and the U.S.,(iii) the discrepancy in
trade, according to the Customs report, is small.

Vietnam has presented supplementary information for the
cases noted in the U.S. Customs report. The Vietnam and
U.S. representatives noted the high level of cooperation on
both sides.

The U.S. highly appreciates efforts of the Vietnamese in the
rapid and serious implementation of provisions of the
Agreement right after the conclusion, including the
establishment of the electronic visa (ELVIS) and imposition
of strict measures on enterprises in question.

Vietnam has expressed its wish to effectuate the use of
carryforward for 2004 and the U.S. agreed to promptly inform
Vietnam of necessary procedures. The consultation took
place in a straightforward, serious and friendly atmosphere.

The memorandum is done in Hanoi March 18, 2004 in English
and Vietnamese. The two versions are equally legitimate.

Representative of the Ministry of Trade of Vietnam
(signed)
Le Van Thang

Representative of the U.S. Department of Commerce
(signed)
James C. Leonard III

Representative of USTR
(signed)
David M. Spooner
End Text.


11. (U) This cable was cleared by USTR Textile Negotiator
Spooner and DOC DAS Leonard.
PORTER