U.S. GARMENT INDUSTRY LEAVING VIETNAM

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 001392

SIPDIS

USDOC
SENSITIVE
SIPDIS

STATE FOR EAP/MLS AND EB/TPP/BTA/ANA
STATE PASS USTR DAVID BISBEE
USDOC FOR OTEXA
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO
TREASURY FOR OASIA
GENEVA FOR USTR

E.O. 12958: N/A
TAGS: ETRD ECON KTEX WTRO VM
SUBJECT: U.S. GARMENT INDUSTRY LEAVING VIETNAM

REF: HO CHI MINH 1150

HO CHI MIN 00001392 001.2 OF 002



1. (U) Sensitive But Unclassified. Not for Internet
distribution.


2. (SBU) Summary: U.S. garment retailers, the largest
indirect employers in Vietnam?s apparel industry, are
cutting Vietnam orders as a result of the USG special
textile monitoring mechanisms. Well over one hundred
thousand workers could be affected over the next year.


3. (SBU) Apparel industry representatives including U.S.
buyers continue to criticize the September 28 USTR/USDOC
commitment to Senators Dole and Graham to monitor apparel
imports from Vietnam and consider self-initiating anti-
dumping investigations of Vietnamese garment exports.
Producers and buyers claim that the commitment?s reference
to ?critical circumstances? would allow preliminary dumping
duties to be applied retroactively. Major U.S. purchasers
including Nike, Victoria?s Secret, GAP, and the Limited
report that they are moving orders out of Vietnam to avoid
this contingent liability. End Summary.

RESPONSES TO USTR/DOC COMMITMENT TO DOLE AND GRAHAM
-------------- --------------


3. (SBU) The Apparel Committee of the American Chamber of
Commerce, the Vietnam Textile and Apparel Association
(VITAS),and the Association of Garment, Textile,
Embroidery and Knitting of HCMC (AGTEK) are holding a
variety of workshops and meetings in December to improve
understanding of the USTR/USDOC commitment and of U.S.
anti-dumping procedures. Continuing with the criticism
they made two months ago (reftel),industry
representatives, both American and Vietnamese, charge the
commitment is a violation of the U.S.-Vietnam WTO bilateral
market access agreement signed in May which contained an
agreed mechanism to enforce the elimination of prohibited
subsidies.


4. (SBU) The possibility of self-initiated investigations
and retroactive duties is causing key U.S. importers to cut
their Vietnam orders for 2007. The head of the Vietnam
branch of MAST Industries, a subsidiary of the Limited that
produces apparel for stores like The Limited, Victoria?s
Secret and Lane Bryant, told EconOff that MAST is phasing

SIPDIS
out its production in Vietnam. MAST plans to reduce orders
in Vietnam by USD 100 million in the first quarter of 2007
and then continue to reduce orders so that by the end of
the year all MAST purchases in Vietnam ? with a value of as
much as USD 350 million ? will be shifted to other
countries in Asia, including China, Indonesia, Sri Lanka,
Cambodia and the Philippines. According to MAST, as many
as 150,000 garment workers, mostly in Korean and Taiwanese
owned plants, could be affected. Nike Vietnam, which
indirectly employs 62,000 garment workers through Nike
contractors, told EconOff that Nike apparel procurement in
Vietnam will be cut by at least 17 percent. Gap Inc.
reports it will reduce placements in Vietnam by an
unspecified amount. U.S. retailers indirectly employ a
significant segment of Vietnam?s approximately 2 million
apparel workers; some of these jobs could be in jeopardy if
U.S. garment retailers pull their business out of the
country.

SENSITIVE CATEGORIES AND CRITICAL CIRCUMSTANCES
-------------- --


5. (SBU) In addition to viewing the USG letter as a
violation of the US-Vietnam WTO agreement, industry
representatives are worried about the list of ?sensitive?
categories outlined in the letter and about the willingness
of the USG to make allowances for critical circumstances,
which would allow for the retroactive application of
dumping duties. They say the list (i.e., trousers, shirts,
underwear, swimwear and sweaters) is vague and broad, and
could potentially affect 500 different products in these
categories. The head of VITAS and Vinatex, Vietnam?s
largest state-owned apparel producer, said this would mean

HO CHI MIN 00001392 002.2 OF 002


monitoring 50 to 60 percent of Vietnamese apparel exports
to the United States. They charge that possible
application of critical circumstances adds a layer of
uncertainty to the costs of doing business in Vietnam
compared with its competitors.

VIETNAMESE PRODUCERS PREPARING FOR POTENTIAL INVESTIGATIONS
-------------- --------------


6. (SBU) Vietnamese producers, meanwhile, are discussing
ways to self-police their manufacturing so as to keep
apparel exports to the United States from expanding too
rapidly after quotas are lifted. The head of the
Association of Garment, Textile, Embroidery and Knitting of
HCMC (AGTEK) told EconOff that representatives of Vietnam?s
largest producers have met with representatives of the
Ministry of Trade (MOT) to discuss ways to head off an
anti-dumping investigation by limiting exports to the
United States. Vietnamese producers are also looking to
take advantage of WTO membership to diversify into markets
? in South America, for example ? that were previously
closed as a result of high tariffs. In addition, industry
leaders are starting to educate themselves about U.S. anti-
dumping procedures so as to be able to mount an effective
response to a potential anti-dumping case.

COMMENT
--------------


7. (SBU) The complaints by U.S. retailers and Vietnamese
apparel producers have not changed since the September
USTR/USDOC commitment to Senators Dole and Graham.
However, U.S. companies now have begun to act. Importers
and retailers have made business decisions that they will
not shoulder the contingent liability of retroactive duties
and are moving orders to other Asian countries where the
cost of risk is lower.


8. (SBU) We have provided industry representatives a copy
of the December 4 Federal Register notice so that they can
take their concerns about the monitoring system directly to
the Department of Commerce.
WINNICK