US embassy cable - 05HANOI1

UNCLAS SECTION 01 OF 02 HANOI 000001 
 
SIPDIS 
 
SENSITIVE 
 
STATE PASS USTR FOR DSPOONER/CMILLER/EBRYAN 
STATE FOR EAP/BCLTV AND EB/TPP/ABT/BTT 
USDOC FOR OTEXA 
BANGKOK FOR CUSTOMS ATTACHE 
USDOC ALSO FOR 4431/MAC/AP/OPB/VLC/HPPHO 
TREASURY FOR OASIA 
 
E.O. 12958: N/A 
TAGS: KTEX, ECON, VM 
SUBJECT: Vietnam:  Textile Corruption and Allocation Update 
 
REF:  (A) Hanoi 2620  (B) Hanoi 2752  C) HCMC 1246 
 
1. (U) This is a Hanoi - Ho Chi Minh City joint reporting 
cable. 
 
2. (SBU) Summary: Since September, six Ministry of Trade 
officials, including a former Vice Minister, have been 
arrested for participation in a scheme to extract bribes in 
exchange for U.S. textile quota.  After a short delay, the 
GVN began allocating 2005 quota in October in what one buyer 
termed "the most transparent allocation to date" in Vietnam. 
Despite problems with corruption and the fact that 
Vietnamese textile/apparel exports to the United States will 
remain under quota in 2005, U.S. buyers appear committed to 
sourcing textiles and apparel in Vietnam in the short run. 
End Summary. 
 
3. (SBU) Since September, a total of sixteen people have 
been arrested in association with the quota textile 
corruption scandal (see reftels), including Mai Van Dau, a 
former Vice Minister of Trade, his son and four other MOT 
officials.  Vice Minister Dau was arrested on November 18 on 
charges of "abuse of power."  (Note:  The Vice Minister has 
not worked on textile quotas since his son's arrest on 
September 30.  End Note.)  The GVN's investigation into the 
case is ongoing and trial dates have not been set.  Under 
Vietnamese criminal law, officials charged with "serious 
offenses" can be held for up to three months, with the 
possibility of up to seven additional months of detainment 
before trial. 
 
4. (SBU) The corruption case initially delayed the 
allocation of the first tranche of textile/apparel quota for 
2005.  Allocation was supposed to take place in early 
September, but the GVN postponed allocation until mid 
October.  The GVN plans to allocate the final tranche by the 
end of January.  For 2005 quota, the GVN increased the 
amount of quota allocated based on the "past performance" of 
factories from 75 percent to 80 percent.  U.S. buyers had 
lobbied unsuccessfully for allocation based entirely on past 
performance.  MOT maintains it needs to reserve some quota 
for development purposes.  The remaining 20 percent of quota 
is allocated to: factories that use local materials (three 
percent), exporters of non-quota textiles to the United 
States (three percent), remote enterprises (one percent), 
enterprises invested in weaving and dying mills (four 
percent), and enterprises with contracts with large U.S. 
companies (seven percent).  (Note:  This final category is 
for factories which supply U.S. buyers that purchase more 
than USD 20 million in textiles/apparel from Vietnam 
annually.  End Note.) 
 
5. (SBU) For U.S. textile/apparel buyers, the corruption 
scandal has both positively and negatively impacted their 
operations in Vietnam.  Sine September, MOT has made efforts 
to increase the transparency of the quota allocation 
process.  MOT began putting a great deal of information 
related to allocation directly onto its website, allowing 
the industry to get a clear picture of each factory's 
capacity, the amount of quota requested and the amount of 
quota allocated.  MOT also set up a question and answer page 
on its website to provide answers to questions from the 
industry.  One U.S. buyer resident in HCMC told Ambassador 
December 11 that allocation of 2005 quota has been the "most 
transparent allocation to date" in Vietnam. 
 
6. (U) In October, MOT issued two notices on textile quota 
allocation.  The first provided information on the remaining 
2004 quota and how MOT would carry out supplemental 
allocations.  The second notice detailed the procedures for 
allocation of 2005 quota, listed the companies that would be 
allocated quota in the first tranche, and instructed 
companies to deliver quota-related documents to MOT by 
courier rather than in person.  The second notice also 
identified local companies that were suspected of 
transshipping textiles/apparel or had been close based on 
the August 2004 visit of a U.S. Customs Textile Production 
Verification Team (TVPT) visit to Vietnam. 
 
7. (SBU) On the other hand, the corruption scandal has also 
created difficulties for U.S. buyers.  In an effort to 
minimize opportunities for corruption, the Minister of Trade 
issued strict new regulations governing contact between 
businesses and MOT officials.  This has limited 
opportunities for U.S. industry representatives to meet with 
MOT officials in the last several months.  (Note:  since 
conclusion of the bilateral textile agreement in early 2003, 
representatives of the Amcham Textile Subcommittee have met 
regularly with MOT officials to discuss issues related to 
textile allocation.  These meetings often resulted n 
positive modifications to the allocation process.  End 
Note.) Additionally, MOT now prohibits the transfer of quota 
(both 2004 and 2005) between factories, decreasing the 
allocation system's flexibility and making it more difficult 
for buyers to source goods.  According to the HCMC Amcham 
Textile Subcommittee, lack of transferability of quota has 
contributed to low fill rates in several key categories. 
 
8. (SBU) The allocation problems and the fact that Vietnam 
will remain subject to textile quotas for export to the U.S. 
market in 2005 has apparently not impacted U.S. buyers 
commitment to Vietnam as yet.  U.S. companies continue to 
view sourcing in Vietnam as a strong alternative or balance 
to sourcing in China.  One buyer (whose company exported 
about USD 150 million worth of garments and apparel in 2004) 
told the Ambassador that her company sources more than 
twenty percent of its production in Vietnam and plans to 
expand its business in 2005.  She noted that costs of 
production of textiles/apparel in Vietnam rival China and 
Vietnamese workers generally produce a higher quality 
product.  She also said that uncertainties about the use of 
safeguards against China in 2005 are creating an added 
incentive for U.S. buyers to stick with Vietnam, at least in 
the short run.  Another U.S. buyer (whose company exported 
about USD 50 million in textiles/apparel from Vietnam in 
2004) told Econoff his company is in Vietnam "for the long 
haul" even if Vietnam's target of accession to the WTO in 
2005 slips. 
 
BOARDMAN.