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Cablegate: Vietnam: First Round of Bilateral Textile Talks

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 06 HANOI 000489

SIPDIS

SENSITIVE

STATE FOR EAP/BCLTV AND EB/TPP/ABT/BTT BOYNTON
STATE ALSO PASS USTR HUNTSMAN/SPOONER/MILLER/CLATANOFF
USDOC FOR 6500 AND 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: ETRD EINV KTEX VM LABOR
SUBJECT: Vietnam: First Round of Bilateral Textile Talks

SENSITIVE BUT UNCLASSIFIED PROTECT ACCORDINGLY

1. (SBU) Summary and Introduction: USTR Special Textile
Negotiator David Spooner led a 10 person USG delegation to
Hanoi to begin negotiation of a bilateral textile agreement.
The negotiations, originally scheduled to take place
February 19-21, were shortened by half because weather
conditions in Washington delayed the departure of most
members of the U.S. delegation by two days. After a brief
review of the three draft agreements tabled by the U.S. (a
textile agreement, visa arrangement, and a market access
agreement for U.S. textiles/apparel), the Vietnamese argued
against inclusion of a labor provision within the textile
agreement and against negotiation of a market access
agreement at this time. The GVN was not able to provide the
U.S. side with a counter proposal on quota categories and
levels prior to the delegation's departure. While the GVN
did agree to a second round of negotiations in Washington in
March or April, they were unable to agree to set a specific
date during the talks. On February 24, econoff met with MOT
officials from both the America's Desk and the Import-Export
Office to strongly reiterated the US delegation's request
for a GVN proposal for specific dates for the next round of
negotiations and for a counter offer on quota levels. On
February 28, MOT's Import-Export office proposed the week of
April 7-12 for the next round in Washington and informed
Embassy that they would not be able to provide a counter
offer on quotas at this time as they are currently
collecting comments from business community but would
provide it to the Embassy "as soon as they can." End
Summary and introduction.

U.S. Delegation Opening Remarks
-------------------------------

2. (SBU) In its opening remarks the U.S. delegation
encouraged the GVN to look at textile negotiations as a
normal part of the process of building a trade relationship
with the U.S. While the U.S. is in the process of
integrating quotas under the Agreement on Textiles and
Clothing (ATC), for now they still exist, even for WTO
member countries. The U.S. has textile agreements with
every major Asian supplier, some of who are WTO members.
The U.S.- Vietnam Bilateral Trade Agreement (BTA), which
came into effect in December 2001, has been successful in
integrating Vietnam into the world economy and boosting
Vietnam's textile and apparel exports to the U.S. by almost
1600 percent. Vietnam has become a top twenty supplier to
the U.S. in some categories and a top ten supplier
(capturing 5 percent or more of the market) in others. The
U.S. delegation congratulated Vietnam on it success, but
noted that it is that success that necessitated holding
textile negotiations now. Ultimately the need for
negotiations should not be a surprise to the GVN, the U.S.
delegation argued, as the issue was discussed many times
both during BTA negotiations and after the BTA came into
effect. The U.S. delegation highlighted the importance of
these talks to the USG, emphasized the U.S. had waited
almost a year after the BTA to request negotiations, and
reminded the GVN that it is in both sides' interest to
conclude the negotiations quickly.

GVN Opening Remarks
-------------------

3. (SBU) The GVN acknowledged the positive impact the BTA
has had on both indirect and direct trade between the U.S.
and Vietnam and noted that there are now 700 U.S. companies
doing business in Vietnam in a wide range of sectors. The
GVN reminded the U.S. side that Vietnam had extended MFN
treatment to U.S. imports two years before the BTA took
effect and was ahead of schedule in implementing some of its
BTA commitments on services. The best way to continue
encouraging bilateral trade is to continue Vietnam's quota
free period, the GVN argued. Vietnamese textile/apparel
exports to the U.S. were only significant in the last half
of 2002, the GVN argued, and even then volume was modest
(about 1.6 percent of U.S. textile and apparel imports).
Under the BTA, the U.S. and Vietnam agreed to eliminate
trade barriers consistent with WTO rules. Textile quotas
should be considered a type of trade barrier, the GVN
argued.

4. (SBU) The GVN highlighted its status as a developing
country and downplayed the size of its textile industry,
noting that it is not as well developed as China's or
Pakistan's industry and that, while the growth rate of
Vietnam's textile exports in 2002 was high, the absolute
value of textile exports to the U.S. is modest compared to
ASEAN countries and the rest of the world. For example,
Cambodian textile exports to the U.S. in 2002 were worth
more than USD one billion; Vietnam has not reached that
level yet, the GVN asserted. The GVN also argued that
Vietnam's textile exports are not damaging the U.S. domestic
industry or U.S. trade partners in the Western hemisphere.
Although in 2002 the U.S. textile industry declined
slightly, the GVN argued, Vietnam's exports were a shift
from other countries such as China (which already accounts
for about 20 percent of global textile exports).

5. (SBU) The GVN also argued that Vietnamese textile exports
have also benefited both the U.S. and its trade partners.
In 2002 Vietnam imported about USD 32 million worth of U.S.
cotton (almost a third of Vietnam's total cotton imports).
Additionally, U.S. trade partners like Taiwan and Korea have
invested in Vietnam's textile industry in Vietnam.

U.S. Tables Draft Agreements
----------------------------

6. (SBU) On the first day of talks, the U.S. delegation
tabled three draft agreements for the GVN to review: 1) a
textile and textile product agreement; 2) an agreement on
market access for textiles and textile products (accompanied
by a proposed tariff schedule for U.S. textile exports to
Vietnam); and 3) a visa arrangement for textiles and textile
products. The U.S. side tabled proposed quota categories
and levels (Annex B of the main textile agreement) during
the second day of talks.

Labor provision
-------------------

7. (SBU) Section 15 (A, B and C) of the draft textile
agreement discusses the protection of worker rights. The
U.S. delegation explained that this draft labor provision
broadly encompasses three labor-related negotiating
objectives contained in the Trade Act of 2002 including: 1)
promoting respect for worker rights and the rights of
children consistent with the core labor standards of the
ILO; 2) seeking provisions in trade agreements under which
parties will strive to ensure they do not weaken provisions
in domestic laws in order to encourage trade; and 3)
promoting ratification and full compliance with ILO
Convention 182 on the Worst Forms of Child Labor. Every
textile agreement the U.S. has entered into since passage of
the Trade Act has included a labor clause, as do U.S. trade
preference programs.

8. (SBU) The U.S. side went on to note that the draft labor
provision specifically reaffirms Vietnam's commitment to the
ILO declaration and highlights U.S.-Vietnam cooperation
under the 2000 USDOL-Ministry of Labor, Invalids and Social
Affairs (MOLISA) MOU on labor cooperation. The provision
does not create new mechanisms or monitoring systems,
require new factory visits or link quota levels to DOL
reporting on the labor situation in Vietnam. The provision
utilizes the mechanisms established in the MOU giving USDOL
and MOLISA an opportunity to meet and report on the steps
the GVN is taking. The U.S. delegation emphasized that the
labor provision is intended to be a positive reaffirmation
of Vietnam's commitment to labor rights and an opportunity
to demonstrate further cooperation on this important issue.

9. (SBU) The GVN delegation argued strongly for removal of
the labor provision from the textile agreement. The GVN
highlighted its cooperative efforts with both the ILO (which
opened a representative office in Hanoi on February 17) and
the USG, calling the DOL-MOLISA MOU on labor "the most
important agreement on labor cooperation between the U.S.
and Vietnam." The GVN argued that any additional bilateral
cooperation activities should be done in the context of the
MOU and thus there is no need for another agreement on
labor. Other countries that have signed trade agreements
containing a labor provision do not also have such an MOU,
the Vietnamese delegation added. The labor clause in the
Cambodian agreement is an exceptional case and Vietnam does
not want to be the "second exceptional case".

10. (SBU) The GVN repeatedly stated that it sees labor and
textiles as two very distinct issues and noted that the WTO
does not link the two issues. The delegation also pointed
out that while a textile agreement is a short-term issue,
labor rights will be addressed over the long run. In
addition, contracts between Vietnamese exporters and U.S.
importers already include provisions to ensure full
compliance with labor standards. The GVN also pointed out
that in the context of the anti-dumping case against
Vietnamese frozen fish fillets, they believe that the USDOC
noted that Vietnam had already taken steps on labor
consistent with international labor principles.

Market access
-----------------

11. (SBU) The U.S. also provided the GVN the draft text of
an agreement relating to market access for textiles and
textile products (and an annex containing proposed tariff
rates). The U.S. delegation emphasized that such agreements
are very important to the U.S. domestic textile industry and
have become a standard feature in U.S. textile agreements.
The USG believes it is imperative to include this as part of
the textile negotiations with Vietnam because the BTA does
not include commitments on market access for U.S. textiles,
although the U.S. has granted Vietnam MFN rates.

12. (SBU) The U.S. delegation explained that many concepts
in the draft market access agreement are the same as those
used in WTO accession negotiations. The U.S. proposed this
agreement for several reasons: 1) to establish tariff
bindings for Vietnamese imports of textiles and related
products from the U.S.; 2) to obtain a commitment from the
GVN that if it offers rates lower than its bound rates to
another trade partner, it will also offer these lower rates
to the U.S.; and 3) to discipline Vietnam's use of non-
tariff measures that would impede access of U.S. textiles to
Vietnam's market. The U.S. delegation pointed out that the
proposed tariff rates are drawn from tariff rates Vietnam
has offered other trade partners.

13. (SBU) The GVN strongly opposed negotiating a market
access agreement alongside textile negotiations, repeatedly
suggested such negotiations should be done in the context of
Vietnam's WTO accession negotiations and yet affirmed its
willingness to negotiate market access "anywhere and
anytime." If the main objective of a textile agreement is to
protect the U.S. domestic textile industry, then why
negotiate market access in this context, the GVN asked. The
U.S. hasn't done this with other countries. The textile
agreements the U.S. has negotiated with 7 or 8 non WTO-
member countries (most of which have a higher level of
economic development) do not include market access
commitments, the GVN complained. In addition, the National
Assembly establishes Vietnam's tariff schedule and the
legislature must approve any changes to it.

14. (SBU) Noting reports that the GVN has just concluded
negotiations with the EU to revise the two sides' textile
agreement, the U.S. delegation asked the GVN to confirm if
the revised agreement contained tariff bindings and if the
GVN would provide the USG with a copy of the agreement. The
GVN responded that it had taken 5 to 6 rounds of
negotiations to reach agreement with the EU, stated the
agreement had not yet been submitted to either government,
and noted there was not yet an official text. The GVN
acknowledged that the amended agreement did contain some
tariff reductions, but noted that these had been given in
exchange for Vietnam receiving GSP benefits from the EU.
The U.S. has not offered GSP to Vietnam, the GVN added.

Quota levels
--------------

15. (SBU) The U.S. delegation submitted a draft Annex B
containing proposed quota levels for 41 textile and apparel
categories as well as suggested growth rates. The U.S. side
explained that the quota levels proposed for 2003 were based
upon the latest trade statistics available - the twelve-
month period ending in November 2002 - plus a 5 or 10
percent increase depending on the category. The U.S.
delegation emphasized that this proposal was an opening
offer and invited the GVN to make a counter offer. The GVN
responded that they need time to examine the U.S. proposal
and noted only that the GVN would prefer to use trade
statistics from the last six months of 2002, as that was
more indicative of the growth in the sector due to the BTA.

Visa Arrangement
----------------

16. (SBU) The draft Visa Arrangement agreement tabled by the
U.S. delegation would establish a visa system to be used by
the GVN to track and manage its quota. The U.S. side noted
that visa arrangements and customs cooperation are common
elements in U.S. textile agreements. The GVN delegation
asked for more time to review the visa arrangement proposal
and note the ongoing cooperation between Vietnamese and U.S.
Customs. The GVN suggested arrangements dealing with
customs procedures should be handled in the context of a
bilateral agreement on customs cooperation.

Concluding Remarks and Next Steps
---------------------------------

17. (SBU) In concluding the negotiations, the GVN noted
repeatedly that the drafts tabled by the U.S. were
"complicated," and the GVN needed time for its specialists
to discuss all of the documents in detail, including the
quota categories and limits set forth in the draft annex B.
The U.S. delegation responded forcefully that before the
negotiations adjourn, the two sides needed to agree on dates
for the next round of negotiations and the GVN needed to
provide the U.S. with a counter offer on quota levels.
Without these two things, the U.S. would face tremendous
pressure to impose quotas unilaterally on Vietnam. The GVN
referred to the Minister of Trade's proposal that the next
round take place between March 20 and April 20 (reported
septel) but said the exact date would have to be determined
after consideration of both side's schedules.

18. (SBU) On February 24, econoff met with MOT officials
from both the America's Desk and the Import-Export Office to
strongly reiterated the US delegation's request for a GVN
proposal for specific dates for the next round of
negotiations and for a counter offer on quota levels.
Econoff emphasized that the GVN needed to provide this
information by the end of the week of February 24-28. On
February 28, MOT's Import-Export office proposed the week of
April 7-12 for the next round in Washington. MOT also
informed econoff that they would not be able to provide a
counter offer on quotas at this time as they are currently
collecting comments from business community and would
provide it to the Embassy "as soon as they can."

19. (U) The following were the members of the U.S. textile
delegation:

David Spooner
USTR Special Textile Negotiator and Head of Delegation

Caroyl Miller
USTR Deputy Textile Negotiator

Katharine Mueller
USTR Assistant General Counsel

William Clatanoff
Assistant USTR Representative for Labor

James Leonard
USDOC, Deputy Assistance Secretary, OTEXA
Donald Foote
USDOC, Director, Agreements Division, OTEXA

Philip Martello
USDOC, Director, Trade Data Division, OTEXA

Richard Crichton
U.S. Customs, International Trade Manager

Robert Boynton
State, Senior Textile Negotiation

Ana Valdes
USDOL, International Economist

Jessica Adkins
Economic Officer, U.S. Embassy Hanoi

20. (U) The following were the members of the GVN textile
delegation:

Le Van Dao
Ministry of Trade (MOT), Deputy Director, Import-Export
Dept, Head of Delegation

Nguyen Hong Duong
MOT, Deputy Director, Europe and Americas

Nguyen Van Binh
MOT, Deputy Director, Europe and Americas

Le Van Thang
MOT, Deputy Director, Export-Import Dept

Luong Hoang Thai
MOT, Head of WTO Division, Multilateral Trade Policy Dept

Phan Thi Dieu Ha
MOT, Head of Textile Division, Export-Import Dept.

Duong Phuong Thao
MOT, Expert, Europe and Americas

Nguyen Duc Nhat
MOT, Interpreter, Europe and Americas

Nguyen Thi My Hanh
MOT, Expert, Export-Import Dept

Do Thu Huong
MOT, Expert, Export-Import Dept

Do Thuy Lan
MOT, Expert, Export-Import Dept

Cao Quoc Hung
Ministry of Industry (MOI), Deputy Director, International
Cooperation Dept

Nguyen Hoang Phuong
MOI, Principal Expert, International Cooperation Dept

Nguyen Thi Man
Ministry of Planning and Investment (MPI), Deputy Director,
Commerce and Services Dept

Nguyen Thuy Huong
MPI, Expert, Investment Project Monitoring Dept

Nguyen Tat Thanh
Ministry of Foreign Affairs (MOFA), Deputy Director,
Multilateral Economic Cooperation Dept

Nguyen Huong Tra
MOFA, Expert, Multilateral Economic Cooperation Dept

Pham Phuong Anh
MOFA, Expert, Americas Dept

Nguyen Thu Do
Office of the Government, Deputy Director, International
Cooperation Dept

Tuong Cong Sinh
Customs, Manager, International Cooperation Dept

Le Xuan Hue
Customs, Expert, International Cooperation Dept

Ha Huy Tuan
Ministry of Finance (MOF), Deputy Director, International
Cooperation Dept

Bui Thanh Hai
MOF, Expert, International Cooperation Dept

Nguyen Manh Cuong
MOLISA, Deputy Director, International Relations Dept

21. (U) USTR Spooner cleared this cable.
BURGHARDT

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