US embassy cable - 04YEREVAN1936

UNCLAS SECTION 01 OF 02 YEREVAN 001936 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EB/CBA, EUR/CACEN, EUR/ACE 
USTR FOR KATRIN KUHLMAN 
DHS FOR JANET LABUDA 
 
E.O. 12958: N/A 
TAGS: ECON, EAID, ETRD, AM 
SUBJECT:  ARMENIA CONCERNED OVER US CUSTOMS ACTIONS 
 
Refs: A) Labuda/Gudie email 8/30/2004 
 
      B) Labuda/Gudie telecon 8/30/2004 
      C) Letter from U.S. Customs to Hilltop Industries re: 
        detention number 0216754 
 
Sensitive but unclassified. Please protect accordingly. 
 
1. (U) This is an action request.  See paragraph 8. 
 
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SUMMARY 
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2. (SBU) Six containers of clothing shipped from Armenia are 
being held by U.S. Customs (ref A).  The containers hold 
clothing purportedly produced by two of Armenia's largest 
textile plants.  U.S. Customs suspects that the garments may 
have been produced outside of Armenia and that their origin 
has been falsified to avoid quota limits.  The American 
importer refuses to ship any more products from these 
plants, DavGar and Hed Hayas, or give any more orders to the 
plant until the dispute is resolved.  Factory owners and 
workers are getting nervous about their jobs and have called 
on the Government of Armenia to intervene; on August 24, 
Deputy Minister of Foreign Affairs Ruben Shugarian appealed 
to the Embassy to intervene for the release of the 
containers.  Deputy Minister of Trade Tigran Davtyan told us 
that he intends to raise this issue with USTR 
representatives during the upcoming Trade and Investment 
Panel in Washington.  During Emboff's visit to the 
factories, managers told us they were considering bussing 
employees to Yerevan to protest at the Embassy.  End 
Summary. 
 
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THESE ARE REAL FACTORIES 
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3. (SBU) While we cannot confirm with complete certainty 
that the goods held by U.S. Customs were produced in 
Armenia, it is clear that these factories do make clothing 
from imported rolls of fabric and do export the lion's share 
of that product to a single American client, Prestige 
Apparel.  We visited both factories and have seen the entire 
production process -- from rolled fabric to finished product 
-- involving hundreds of workers, machines, and thousand of 
items of clothing.  Our contact with the factories predates 
this matter:  USAID administers a technical assistance 
project, through Development Alternative International 
(DAI), that assists one of the plants in marketing and 
business development and, among other things, helps them 
meet international standards of records so as to avoid 
export problems. 
 
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STOCK IS BUILDING UP, FACTORIES MAY CUT WORKERS 
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4. (SBU) On a recent visit we saw a storeroom where two 
containers of product were being stored because the American 
importer refuses to export the product until his other 
shipments clear.  The manager of Hed Hayas told us that they 
only had fabric to run the factory for another two weeks 
before he would cut forty percent of his staff.  Dav Gar did 
not talk to us about cutting staff but noted that currently 
100 percent of his production was for Prestige Apparel. 
 
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ARMENIAN COUNTRY OF ORIGIN CERTIFICATES NOT HONORED 
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5. (SBU) Deputy Minister of Trade Tigran Davtyan points out 
that the Chamber of Commerce and Industry of the Republic of 
Armenia has the government-sponsored monopoly on issuing 
country of origin certificates for goods made in Armenia. 
He told us that he is disturbed that these were not honored 
although no one has made any effort to verify the validity 
of the certificate with the Chamber of Commerce or the 
procedures for its issuance with the Ministry of Trade. 
 
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FIX THIS OR TELL THEM WHY WE HAVE A REAL CASE 
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6. (SBU) While the Ministry of Trade has admitted to us that 
they cannot personally vouch for the shipments that are 
actually being held, it is clear that they believe that the 
clothes did originate from these two well-known factories in 
Armenia.  Dav Gar and Hed Hayas have operated since Soviet 
times and together employ more than 2,000 workers, which in 
Armenia is enough to make them well known.  The ministry 
told us that the last time U.S. Customs held a shipment on 
suspicion of transshipment in March and April of 2004, it 
was another well-known Armenian firm, and U.S. Customs 
ultimately released the shipment and did not pursue the 
case.  The Ministry is concerned that holding the shipment 
another week will endanger the onward sales contracts and 
will discourage American importers from using Armenian 
textile factories.  We have agreed with the Ministry of 
Trade that we will work together to implement a system 
where, in the future, U.S. Customs can check the validity of 
Certificates of Origin issued in Armenia and can trust that 
the certificates were issued pursuant to appropriate rules 
of origin subject to sufficient oversight and control (ref. 
B). 
 
7. (SBU) On August 12, U.S. Customs sent a letter to the 
importer requesting more "production records" from Hed 
Hayas, and attached the U.S. code specifying which records 
U.S. law requires for import (ref. C).  Factory managers and 
the Deputy Ministry of Trade have commented to us that they 
have already sent sufficient production records to U.S. 
Customs, and the broad request for "production records 
sufficient to establish the country of origin" is vague and 
subjective. 
 
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ACTION REQUEST 
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8. (U) This detention has already become a bilateral issue 
and has the potential to become a more serious irritant. 
Post requests that appropriate agencies review this case to 
determine whether the continued detention is appropriate. 
Following that review, we request instruction on substance 
for a credible response to the GOAM.  This response should 
explain why the U.S. believes these factories do not produce 
the product, mix the product with transshipped clothes, or 
are being used as a front for other transshipped clothes. 
Please also advise on how to proceed in order to create a 
channel of communication whereby Certificates of Origin 
issued in Armenian can be verified and trusted by the U.S. 
Customs Service. 
EVANS