US embassy cable - 01HOCHIMINHCITY1255

UNCLAS HO CHI MINH CITY 001255 
 
SIPDIS 
 
STATE PASS TO USTR FOR EBRYAN 
USDOC FOR 3132/OIO/EAP/KELLEHER 
USDOC FOR 1431/MAC/AP/HPPHO 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, KTEX, VM, BTA 
SUBJECT: TEXTILE ORDERS FOR VIETNAM: LOOKING TO THE BTA FOR INCREASED OPPORTUNITIES, NOT THE WORLD SECURITY SITUATION 
                       UNCLASSIFIED 
 
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1.  SUMMARY:  VIETNAM'S TEXTILE INDUSTRY ANTICIPATES A BOOST 
IN ORDERS FROM OVERSEAS BUYERS RELUCTANT TO DO BUSINESS IN 
COUNTRIES SUCH AS PAKISTAN AND INDONESIA, IN LIGHT OF THE 
CURRENT SECURITY SITUATION.  THIS IS ACCORDING TO BUSINESS 
PEOPLE IN HO CHI MINH CITY, THE CENTER OF VIETNAM'S TEXTILE 
INDUSTRY.  ALTHOUGH NO JUMP IN ORDERS HAS YET OCCURRED, 
INDUSTRY EXPERTS STATE THAT IF SECURITY CONCERNS REMAIN 
HEIGHTENED FOR SEVERAL MONTHS, BUYERS COULD SWITCH THEIR 
ORDERS TO VIETNAM (AND OTHER COUNTRIES PERCEIVED AS STABLE 
AND SAFE).  MOST AGREE, HOWEVER, THAT THE BILATERAL TRADE 
AGREEMENT (BTA) AND THE WORLD ECONOMIC SLOWDOWN, WHICH 
STARTED WELL IN ADVANCE OF SEPTEMBER 11, WILL HAVE A MUCH 
STRONGER EFFECT ON THE FUTURE OF THE TEXTILE INDUSTRY HERE. 
END SUMMARY. 
 
THE SHIFT TO VIETNAM MAY BE COMING - OR NOT 
------------------------------------------- 
2. ALTHOUGH BUSINESS IS SLUMPING IN RESPONSE TO THE ECONOMIC 
SLOWDOWN, A NUMBER OF BUSINESS PEOPLE IN VIETNAM'S TEXTILE 
INDUSTRY INDICATE THAT THEY ALREADY SEE ADDED INTEREST IN 
VIETNAM AS AN ALTERNATIVE SOURCE OF PRODUCTION FOR TEXTILES 
AND GARMENTS IN LIEU OF INDONESIA, PAKISTAN, OR OTHER MOSLEM 
COUNTRIES. ONE FACTORY OWNER HERE NOTED HE HAD BEEN 
CONTACTED BY A BUYER WHO WANTED TO DIVERSIFY PRODUCTION AWAY 
FROM THE MIDDLE EAST, FEARING A LABEL FROM THAT REGION WOULD 
HURT U.S. SALES.  OTHERS HAVE TOLD US THEY HAVE RECEIVED 
INITIAL INQUIRIES, BUT NO SIGNIFICANT NEW BUSINESS YET. 
 
3.  THE INDUSTRY REPS AND EXPERTS WE TALKED TO AGREE THAT IT 
IS TOO EARLY FOR A MAJOR SHIFT IN ORDER PATTERNS.  MORE 
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NOTICEABLE IS THE OVERALL DROP IN BUSINESS IN THE LAST FEW 
MONTHS.   MANY BLAME THIS DROP - WHICH BEGAN A DOWNHILL 
SLIDE WELL IN ADVANCE OF SEPTEMBER 11 -- ON WORLDWIDE 
ECONOMIC CONDITIONS.  AUTUMN SHOULD BE OUR PEAK PRODUCTION 
SEASON, ONE GARMENT MAKER STATED, BUT FEW PLANTS ARE WORKING 
AT FULL CAPACITY. 
 
4.  ALL STATED, HOWEVER, THAT A SUSTAINED ARMED CONFLICT IN 
AFGHANISTAN (OR ELSEWHERE, FOR THAT MATTER) WILL CAUSE 
BUYERS TO SHIFT THEIR GARMENT ORDERS FROM COUNTRIES WHERE 
THEY FEAR TO TRAVEL OR WHERE THEY BELIEVE THERE IS NO 
GUARANTEE ORDERS WILL BE FILLED, BECAUSE OF INSTABILITY. 
FOR EXAMPLE, LE QUOC AN, THE CHAIRMAN OF VINATEX, A STATE 
OWNED TEXTILE CONGLOMERATE, STATED AT A LOCAL SEMINAR ON THE 
TEXTILE INDUSTRY THAT VIETNAM COULD AND SHOULD SELL ITS 
STABILITY AND SECURITY. 
 
5.  OF COURSE THE BIGGER IMPACT ON VIETNAM IS THE 
RATIFICATION OF THE BTA, WHICH ALLOWS TEXTILE AND GARMENT 
MAKERS TO EXPORT TO THE U.S. WITH LOWER TARIFFS AND --UNTIL 
A TEXTILE AGREEMENT IS IN FORCE --  WITHOUT QUOTAS.  VIETNAM 
CURRENTLY HAS LESS THAN ONE PERCENT OF U.S. TEXTILE AND 
GARMENT IMPORT MARKET, AND LOCAL FIRMS HAVE BEEN GEARING UP 
TO CAPITALIZE ON THIS NEW OPPORTUNITY.  STATE-OWNED VINATEX, 
A CONGLOMERATE OF GARMENT FACTORIES WHICH CONTROLS ABOUT 28% 
OF VIETNAM'S CURRENT TEXTILE EXPORTS, HAS ALREADY OPENED 
OFFICES IN NEW YORK AND HONG KONG TO INTRODUCE ITSELF TO THE 
U.S. MARKET. 
 
6.  ONE BUSINESSMAN NOTED THAT A SHIFT AWAY FROM INDONESIA 
OR PAKISTAN DOES NOT AUTOMATICALLY MEAN VIETNAM WILL GET THE 
                       UNCLASSIFIED 
 
PAGE 04        HO CHI  01255  080205Z 
BUSINESS.  THERE ARE OTHER MORE ESTABLISHED PRODUCERS WHO 
ARE WELL-POSITIONED TO MAKE GAINS. THIS BUSINESSMAN CLAIMED 
ONE CITY IN CHINA'S GUANGDONG PROVINCE EXPORTS MORE TEXTILES 
THAN ALL OF VIETNAM.  IT MAY BE EASIER FOR BUYERS TO SHIFT 
THEIR ORDERS TO FACTORIES WHERE THEY ALREADY HAVE 
ESTABLISHED RELATIONSHIPS ON THE GROUND.  ALL THEY WOULD 
HAVE TO DO IS INCREASE CAPACITY. 
 
7.  COMMENT:  VIETNAM'S TEXTILE COMPANIES ARE SALIVATING AT 
THE OPPORTUNITY OF UNFETTERED ACCESS TO THE U.S. MARKET NOW 
THAT THE BTA IS ABOUT TO GO INTO EFFECT.  SOME HAVE ALREADY 
BEEN EXPORTING TO THE U.S. AND OTHERS ARE GEARING UP FOR THE 
NEW POSSIBILITIES.  IF THEY CAN SELL VIETNAM AS A STABLE, 
SECURE PLACE TO DO BUSINESS, IT SHOULD HELP THEM GET INTO 
THE MARKET.  THEIR STAYING POWER, HOWEVER, WILL BE 
DETERMINED BY WHETHER THEY CAN OFFER COMPETITIVE PRICING AND 
QUALITY - AN OPEN QUESTION. 
 
YAMAUCHI 
 
                       UNCLASSIFIED