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Cablegate: Vietnam: Gvn Plans Redesign of Textile Allocation

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

UNCLAS SECTION 01 OF 02 HANOI 001967

SIPDIS

STATE FOR EAP/BCLTV AND EB/TPP/ABT/BTT
STATE ALSO PASS USTR SPOONER/MILLER
USDOC FOR OTEXA

E.O. 12958: N/A
TAGS: ETRD KTEX VM
SUBJECT: Vietnam: GVN PLANS REDESIGN OF TEXTILE ALLOCATION
SYSTEM

REF: HCMC 500

1. SUMMARY: An inter-ministerial GVN committee has begun a
comprehensive verification of the capacity of all factories
allocated quota to export to the U.S. in 2003. MOT has
already revoked quota from factories that were found to have
over-reported their production capacity in their
applications for quota allocation. MOT plans to revise the
allocation system for 2004, basing allocation on production
capacity rather than past performance. This plan has raised
concerns with at least one U.S. buyer. Vinatex, Vietnam's
state-owned textile conglomerate may be the biggest
beneficiary of this change. Demonstrating an unprecedented
willingness to make the allocation system transparent, the
Ministry of Trade has been publishing all information
related to quota allocation on its website. End Summary.

2. As reported reftel, The Ministry of Trade's (MOT) quota
allocation system for Vietnam's 2003 exports of textiles and
garments to the U.S. was established May 27, just over one
month after the bilateral textile agreement was initialed in
Washington on April 25. (Note: The agreement was
officially signed July 17 in Hanoi. End note.) MOT based
most of its allocation on past performance as well as on
factories' reports of their production capacity. Smaller
amounts of quota were allocated for new investment, firms
operating in remote areas, and firms that use locally-
produced materials.

3. In early July 2003, after the majority of the textile
quota for export to the U.S. had been allocated, an inter-
agency committee comprised of representatives from the
Ministries of Trade, Planning and Investment (MPI), and
Industry (MOI) was formed to review the outcome of the quota
allocation. The committee assembled inspection teams
comprised of representatives from the three ministries as
well as officials from the local trade and customs
departments. The teams were tasked with undertaking three
rounds of inspection visits to all of the factories that had
been allocated quota for 2003, including 550 enterprises
allocated "past performance quota" and 250 enterprises
allocated "new investment" quota.

4. During the first round of inspections, which took place
July 9 to July 16, over 100 enterprises, mainly those that
had been allocated "new investment" quota, were inspected.
51 enterprises were found to have presented misleading
information to MOT in their application for quota. Of
these, the 43 enterprises that were found to have over-
reported their production capacities had their extra quota
plus twenty percent revoked. The remaining eight enterprises
were either trading companies with no production capacity,
or factories not yet operating. These companies' entire
quota was revoked. The total quantity of quota revoked
during the first round of investigation was 178,210 doz.,
mainly from categories 347/348 and 338/339. This is equal
to about 0.8 percent of Vietnam's total quota in these
categories for export to the U.S. in 2003.

5. The second round of inspections began July 23 and will be
finished on August 4. The third round will start begin after
the visit of a U.S. Customs Textile Verification Production
Team August 2 - 22.

New Mechanism for 2004
----------------------

6. MOT has begun working on a revised quota allocation
mechanism for 2004, which is to be announced mid August.
According to MOT officials, there will be significant
changes to the system used for 2003. MOT is considering
basing the new quota allocation system on factories'
production capacity rather than past performance in 2004.
The draft allocation system will be sent first to MPI and
MOI for review. The final draft will then be sent to the
textile industry for comment before it becomes effective.

7. A U.S. buyer told econoff July 30 that the AmCham textile
subcommittee is already planning to submit suggestions to
MOT on the design of next year's allocation system. The
buyer is opposed to a system based on production capacity,
noting that factories can easily stockpile machines in order
to garner additional quota. The best mechanism for fairly
allocating quota next year, the buyer advised, would be for
MOT to use export performance for May to December 2003 (the
period when Vietnam was under quota this year) and
extrapolate the figures to get a full year's allocation.

8. It is possible that MOT's new proposed approach could
favor Vinatex, Vietnam's enormous textile and apparel
conglomerate. Vinatex officials have told HCMC Econoff that
they plan to invest in major expansion and plan to increase
their share of Vietnam's apparel exports to the US from the
current 25 percent share to 40 percent in the future. This
could be a good first step.

9. COMMENT: The GVN has received overall positive comments
from the industry for a relatively fair and transparent
quota allocation process this year. The GVN clearly
internalized the mission's and the industry's repeated calls
for a fair and transparent allocation system. MOT has been
responsive both to USG and industry suggestions regarding
the quota allocation system and has even published all
decisions and information regarding quota allocation on
MOT's website. It will be interesting to see how well the
concerns of foreign buyers and producers will be considered
in the ongoing discussion of quota allocation for 2004.
They have been major supporters of distributing quota based
on past performance.
BELLARD

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