EB PDAS DONNELLY MEETS WITH HCMC TEXTILE

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 001246

SIPDIS

SENSITIVE BUT UNCLASSIFIED

STATE PASS USTR FOR EBRYAN, BWEISEL, DSPOONER
TREASURY FOR IA/Asia Office
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO
USDOC also for OTEXA

E.O. 12958: N/A
TAGS: ETRD ECON EINV KTEX VM WTO
SUBJECT: EB PDAS DONNELLY MEETS WITH HCMC TEXTILE
REPRESENTATIVES


1. (SBU) SUMMARY: During his September 29 visit to Ho
Chi Minh City, EB Bureau PDAS Donnelly met
representatives of Vietnam's textile and apparel
industry to discuss Vietnam's competitiveness following
expiration of the WTO Agreement on Textiles and
Clothing (ATC) and Vietnam's bid for WTO accession.
The textile reps noted that foreign garment buying
companies see Vietnam as a counterbalance to China, but
the uncertainty surrounding Vietnam's WTO accession
makes planning difficult. The reps urged the USG to
reevaluate quota categories to improve Vietnam's
competitiveness between the end of the ATC and
Vietnam's WTO accession. They observed that there are
numerous categories of garments under quota are not
produced in the U.S. The reps also asked to borrow a
small percentage of quota to address imbalances created
by lowering quota levels earlier this year. Donnelly
told the group the GVN needed to make some tough
decisions on WTO accession if it wants to accede in a
timeframe that benefits the textile industry. END
SUMMARY.


2. (SBU) Visiting EB PDAS Shaun Donnelly met
representatives of local textile businesses, foreign
companies, state-owned enterprises and textile
associations in a roundtable at the Consulate General.
The Chairman of the Vietnam Textile and Apparel
Association (VITAS),Mr. Le Quoc An, stated that
Vietnam has tried to produce more non-quota textile
items in a bid to compete in the coming quota-free
world; however, quota items still are in the highest
demand. Companies continue to receive large orders
from U.S. buyers even though Vietnam has already
shipped 97 percent of the allotted quota for this year.
Mr. An acknowledged that Vietnam's accession to the WTO
would not only provide benefits in the textile and
garment sectors, but also in the services and financial
sectors. He went on to explain that VITAS believes the
GVN should "hurry" to get into the WTO. "We need the
U.S. Government's and the U.S. business community's
assistance in this accession," he stated. In the
meantime, he requested assistance to borrow a small
percentage of quota to cover goods that were ordered
before quota levels were lowered earlier this year, but
that are now stuck in U.S. ports because they arrived
following the reduction in quota.


3. (SBU) Ms. Jocelyn Tran from MAST Industries, a
subsidiary of Limited Brands, stressed that Vietnamese
and U.S. businesses cannot afford to adopt a "wait and
see" attitude toward the outcome of Vietnam's bid for
WTO accession. Economic stability and flexibility are
important to buyers, and Vietnam has a good environment
for U.S. businesses. MAST is currently expanding
operations in China; however, China is not the only
place where the company wants to be located. Not every
country can make MAST products, so it will be either
Vietnam or China. However, if Vietnam does not have
adequate access to the US market, MAST would quickly
close up shop here. "We cannot leave in 2005 and come
back to Vietnam when they achieve WTO membership."


4. (SBU) To maintain stability between the expiration
of the ATC and Vietnam's WTO accession, the industry
needs immediate help, Ms. Tran said. There are 38
categories currently under quota, but not all of these
garment categories are produced in the U.S. If Vietnam
were granted quota-free categories for textiles and
apparel not produced in the U.S., Vietnam could remain
competitive in 2005 and encourage more buyers to
remain. Ms. Tran cited the sweater market as one
possible category to be released from quota. Vietnam's
market in this product is still small, and production
would not be in competition with U.S. producers.


5. (SBU) Mr. Geoffrey Paul from Li & Fung Trading,
Ltd., echoed these concerns. Mr. Paul's company works
closely with U.S. companies such as American Eagle
Outfitters, and he agreed with a request for a more
generous quota volume. This would enable Vietnam to be
competitive in 2005, and would allow U.S. businesses
greater flexibility, as Vietnam is the best alternative
to China.


6. (SBU) Donnelly observed that the best way to address
the textile industry's concerns was for Vietnam to
accede quickly to the WTO, but he stressed that Vietnam
cannot join the WTO only for gains in the textile and
apparel industry. There must be progress in all
sectors under the negotiated WTO package. While the
U.S. strongly supports Vietnam joining the WTO quickly,
some tough issues that are important to the U.S.
remain. How quickly the GVN makes decisions on these
more difficult issues will determine how quickly
Vietnam accedes to the WTO.


7. (SBU) COMMENT: The exchange between Donnelly and
the textile reps was frank but friendly, with the reps
not hesitating to point out that textile issues are not
only trade questions for Vietnam. As Ms. Tran
observed, the garment industry is a matter of economic
security employing 2 million people. The industry is
looking to overcome its short-term and long-term
obstacles. The reps may propose some creative ideas to
achieve increased access to the U.S. market; one rep
later wondered aloud to EconOff whether the U.S. would
be willing to raise quotas if the GVN agreed to allow
the U.S. early access to other markets (e.g. insurance)
under the BTA. END COMMENT.


8. (U) PDAS Donnelly has cleared this message.

WINNICK