US embassy cable - 04HANOI888

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