US embassy cable - 03HANOI489

UNCLAS SECTION 01 OF 06 HANOI 000489 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EAP/BCLTV AND EB/TPP/ABT/BTT BOYNTON 
STATE ALSO PASS USTR HUNTSMAN/SPOONER/MILLER/CLATANOFF 
USDOC FOR 6500 AND 4430/MAC/AP/OPB/VLC/HPPHO 
USDOC ALSO PASS OTEXA LEONARD/FOOTE/MARTELLO 
CUSTOMS FOR RICHARD CRICHTON 
LABOR FOR ANA VALDES 
 
E.O. 12958: N/A 
TAGS: ETRD, EINV, KTEX, VM, LABOR 
SUBJECT: Vietnam:  First Round of Bilateral Textile Talks 
 
SENSITIVE BUT UNCLASSIFIED PROTECT ACCORDINGLY 
 
1. (SBU) Summary and Introduction:  USTR Special Textile 
Negotiator David Spooner led a 10 person USG delegation to 
Hanoi to begin negotiation of a bilateral textile agreement. 
The negotiations, originally scheduled to take place 
February 19-21, were shortened by half because weather 
conditions in Washington delayed the departure of most 
members of the U.S. delegation by two days.  After a brief 
review of the three draft agreements tabled by the U.S. (a 
textile agreement, visa arrangement, and a market access 
agreement for U.S. textiles/apparel), the Vietnamese argued 
against inclusion of a labor provision within the textile 
agreement and against negotiation of a market access 
agreement at this time.  The GVN was not able to provide the 
U.S. side with a counter proposal on quota categories and 
levels prior to the delegation's departure.  While the GVN 
did agree to a second round of negotiations in Washington in 
March or April, they were unable to agree to set a specific 
date during the talks.  On February 24, econoff met with MOT 
officials from both the America's Desk and the Import-Export 
Office to strongly reiterated the US delegation's request 
for a GVN proposal for specific dates for the next round of 
negotiations and for a counter offer on quota levels.  On 
February 28, MOT's Import-Export office proposed the week of 
April 7-12 for the next round in Washington and informed 
Embassy that they would not be able to provide a counter 
offer on quotas at this time as they are currently 
collecting comments from business community but would 
provide it to the Embassy "as soon as they can."  End 
Summary and introduction. 
 
U.S. Delegation Opening Remarks 
------------------------------- 
 
2. (SBU) In its opening remarks the U.S. delegation 
encouraged the GVN to look at textile negotiations as a 
normal part of the process of building a trade relationship 
with the U.S. While the U.S. is in the process of 
integrating quotas under the Agreement on Textiles and 
Clothing (ATC), for now they still exist, even for WTO 
member countries.  The U.S. has textile agreements with 
every major Asian supplier, some of who are WTO members. 
The U.S.- Vietnam Bilateral Trade Agreement (BTA), which 
came into effect in December 2001, has been successful in 
integrating Vietnam into the world economy and boosting 
Vietnam's textile and apparel exports to the U.S. by almost 
1600 percent.  Vietnam has become a top twenty supplier to 
the U.S. in some categories and a top ten supplier 
(capturing 5 percent or more of the market) in others.  The 
U.S. delegation  congratulated Vietnam on it success, but 
noted that it is that success that necessitated holding 
textile negotiations now.  Ultimately the need for 
negotiations should not be a surprise to the GVN, the U.S. 
delegation argued, as the issue was discussed many times 
both during BTA negotiations and after the BTA came into 
effect. The U.S. delegation highlighted the importance of 
these talks to the USG, emphasized the U.S. had waited 
almost a year after the BTA to request negotiations, and 
reminded the GVN that it is in both sides' interest to 
conclude the negotiations quickly. 
 
GVN Opening Remarks 
------------------- 
 
3. (SBU) The GVN acknowledged the positive impact the BTA 
has had on both indirect and direct trade between the U.S. 
and Vietnam and noted that there are now 700 U.S. companies 
doing business in Vietnam in a wide range of sectors.  The 
GVN reminded the U.S. side that Vietnam had extended MFN 
treatment to U.S. imports two years before the BTA took 
effect and was ahead of schedule in implementing some of its 
BTA commitments on services. The best way to continue 
encouraging bilateral trade is to continue Vietnam's quota 
free period, the GVN argued.  Vietnamese textile/apparel 
exports to the U.S. were only significant in the last half 
of 2002, the GVN argued, and even then volume was modest 
(about 1.6 percent of U.S. textile and apparel imports). 
Under the BTA, the U.S. and Vietnam agreed to eliminate 
trade barriers consistent with WTO rules.  Textile quotas 
should be considered a type of trade barrier, the GVN 
argued. 
 
4. (SBU) The GVN highlighted its status as a developing 
country and downplayed the size of its textile industry, 
noting that it is not as well developed as China's or 
Pakistan's industry and that, while the growth rate of 
Vietnam's textile exports in 2002 was high, the absolute 
value of textile exports to the U.S. is modest compared to 
ASEAN countries and the rest of the world.  For example, 
Cambodian textile exports to the U.S. in 2002 were worth 
more than USD one billion; Vietnam has not reached that 
level yet, the GVN asserted.  The GVN also argued that 
Vietnam's textile exports are not damaging the U.S. domestic 
industry or U.S. trade partners in the Western hemisphere. 
Although in 2002 the U.S. textile industry declined 
slightly, the GVN argued, Vietnam's exports were a shift 
from other countries such as China (which already accounts 
for about 20 percent of global textile exports). 
 
5. (SBU) The GVN also argued that Vietnamese textile exports 
have also benefited both the U.S. and its trade partners. 
In 2002 Vietnam imported about USD 32 million worth of U.S. 
cotton (almost a third of Vietnam's total cotton imports). 
Additionally, U.S. trade partners like Taiwan and Korea have 
invested in Vietnam's textile industry in Vietnam. 
 
U.S. Tables Draft Agreements 
---------------------------- 
 
6. (SBU) On the first day of talks, the U.S. delegation 
tabled three draft agreements for the GVN to review:  1) a 
textile and textile product agreement; 2) an agreement on 
market access for textiles and textile products (accompanied 
by a proposed tariff schedule for U.S. textile exports to 
Vietnam); and 3) a visa arrangement for textiles and textile 
products.   The U.S. side tabled proposed quota categories 
and levels (Annex B of the main textile agreement) during 
the second day of talks. 
 
Labor provision 
------------------- 
 
7. (SBU) Section 15 (A, B and C) of the draft textile 
agreement discusses the protection of worker rights.  The 
U.S. delegation explained that this draft labor provision 
broadly encompasses three labor-related negotiating 
objectives contained in the Trade Act of 2002 including:  1) 
promoting respect for worker rights and the rights of 
children consistent with the core labor standards of the 
ILO; 2) seeking provisions in trade agreements under which 
parties will strive to ensure they do not weaken provisions 
in domestic laws in order to encourage trade; and 3) 
promoting ratification and full compliance with ILO 
Convention 182 on the Worst Forms of Child Labor.  Every 
textile agreement the U.S. has entered into since passage of 
the Trade Act has included a labor clause, as do U.S. trade 
preference programs. 
 
8. (SBU) The U.S. side went on to note that the draft labor 
provision specifically reaffirms Vietnam's commitment to the 
ILO declaration and highlights U.S.-Vietnam cooperation 
under the 2000 USDOL-Ministry of Labor, Invalids and Social 
Affairs (MOLISA) MOU on labor cooperation.  The provision 
does not create new mechanisms or monitoring systems, 
require new factory visits or link quota levels to DOL 
reporting on the labor situation in Vietnam.  The provision 
utilizes the mechanisms established in the MOU giving USDOL 
and MOLISA an opportunity to meet and report on the steps 
the GVN is taking.  The U.S. delegation emphasized that the 
labor provision is intended to be a positive reaffirmation 
of Vietnam's commitment to labor rights and an opportunity 
to demonstrate further cooperation on this important issue. 
 
9. (SBU) The GVN delegation argued strongly for removal of 
the labor provision from the textile agreement.  The GVN 
highlighted its cooperative efforts with both the ILO (which 
opened a representative office in Hanoi on February 17) and 
the USG, calling the DOL-MOLISA MOU on labor "the most 
important agreement on labor cooperation between the U.S. 
and Vietnam."  The GVN argued that any additional bilateral 
cooperation activities should be done in the context of the 
MOU and thus there is no need for another agreement on 
labor.  Other countries that have signed trade agreements 
containing a labor provision do not also have such an MOU, 
the Vietnamese delegation added.  The labor clause in the 
Cambodian agreement is an exceptional case and Vietnam does 
not want to be the "second exceptional case". 
 
10. (SBU) The GVN repeatedly stated that it sees labor and 
textiles as two very distinct issues and noted that the WTO 
does not link the two issues.  The delegation also pointed 
out that while a textile agreement is a short-term issue, 
labor rights will be addressed over the long run. In 
addition, contracts between Vietnamese exporters and U.S. 
importers already include provisions to ensure full 
compliance with labor standards.  The GVN also pointed out 
that in the context of the anti-dumping case against 
Vietnamese frozen fish fillets, they believe that the USDOC 
noted that Vietnam had already taken steps on labor 
consistent with international labor principles. 
 
Market access 
----------------- 
 
11. (SBU) The U.S. also provided the GVN the draft text of 
an agreement relating to market access for textiles and 
textile products (and an annex containing proposed tariff 
rates). The U.S. delegation emphasized that such agreements 
are very important to the U.S. domestic textile industry and 
have become a standard feature in U.S. textile agreements. 
The USG believes it is imperative to include this as part of 
the textile negotiations with Vietnam because the BTA does 
not include commitments on market access for U.S. textiles, 
although the U.S. has granted Vietnam MFN rates. 
 
12. (SBU) The U.S. delegation explained that many concepts 
in the draft market access agreement are the same as those 
used in WTO accession negotiations.  The U.S. proposed this 
agreement for several reasons:  1) to establish tariff 
bindings for Vietnamese imports of textiles and related 
products from the U.S.; 2) to obtain a commitment from the 
GVN that if it offers rates lower than its bound rates to 
another trade partner, it will also offer these lower rates 
to the U.S.; and 3) to discipline Vietnam's use of non- 
tariff measures that would impede access of U.S. textiles to 
Vietnam's market.  The U.S. delegation pointed out that the 
proposed tariff rates are drawn from tariff rates Vietnam 
has offered other trade partners. 
 
13. (SBU) The GVN strongly opposed negotiating a market 
access agreement alongside textile negotiations, repeatedly 
suggested such negotiations should be done in the context of 
Vietnam's WTO accession negotiations and yet affirmed its 
willingness to negotiate market access "anywhere and 
anytime." If the main objective of a textile agreement is to 
protect the U.S. domestic textile industry, then why 
negotiate market access in this context, the GVN asked.  The 
U.S. hasn't done this with other countries.  The textile 
agreements the U.S. has negotiated with 7 or 8 non WTO- 
member countries (most of which have a higher level of 
economic development) do not include market access 
commitments, the GVN complained.  In addition, the National 
Assembly establishes Vietnam's tariff schedule and the 
legislature must approve any changes to it. 
 
14. (SBU) Noting reports that the GVN has just concluded 
negotiations with the EU to revise the two sides' textile 
agreement, the U.S. delegation asked the GVN to confirm if 
the revised agreement contained tariff bindings and if the 
GVN would provide the USG with a copy of the agreement.  The 
GVN responded that it had taken 5 to 6 rounds of 
negotiations to reach agreement with the EU, stated the 
agreement had not yet been submitted to either government, 
and noted there was not yet an official text.  The GVN 
acknowledged that the amended agreement did contain some 
tariff reductions, but noted that these had been given in 
exchange for Vietnam receiving GSP benefits from the EU. 
The U.S. has not offered GSP to Vietnam, the GVN added. 
 
Quota levels 
-------------- 
 
15. (SBU) The U.S. delegation submitted a draft Annex B 
containing proposed quota levels for 41 textile and apparel 
categories as well as suggested growth rates.  The U.S. side 
explained that the quota levels proposed for 2003 were based 
upon the latest trade statistics available - the twelve- 
month period ending in November 2002 - plus a 5 or 10 
percent increase depending on the category.  The U.S. 
delegation emphasized that this proposal was an opening 
offer and invited the GVN to make a counter offer.  The GVN 
responded that they need time to examine the U.S. proposal 
and noted only that the GVN would prefer to use trade 
statistics from the last six months of 2002, as that was 
more indicative of the growth in the sector due to the BTA. 
 
Visa Arrangement 
---------------- 
 
16. (SBU) The draft Visa Arrangement agreement tabled by the 
U.S. delegation would establish a visa system to be used by 
the GVN to track and manage its quota.  The U.S. side noted 
that visa arrangements and customs cooperation are common 
elements in U.S. textile agreements.  The GVN delegation 
asked for more time to review the visa arrangement proposal 
and note the ongoing cooperation between Vietnamese and U.S. 
Customs.  The GVN suggested arrangements dealing with 
customs procedures should be handled in the context of a 
bilateral agreement on customs cooperation. 
 
Concluding Remarks and Next Steps 
--------------------------------- 
 
17. (SBU) In concluding the negotiations, the GVN noted 
repeatedly that the drafts tabled by the U.S. were 
"complicated," and the GVN needed time for its specialists 
to discuss all of the documents in detail, including the 
quota categories and limits set forth in the draft annex B. 
The U.S. delegation responded forcefully that before the 
negotiations adjourn, the two sides needed to agree on dates 
for the next round of negotiations and the GVN needed to 
provide the U.S. with a counter offer on quota levels. 
Without these two things, the U.S. would face tremendous 
pressure to impose quotas unilaterally on Vietnam.  The GVN 
referred to the Minister of Trade's proposal that the next 
round take place between March 20 and April 20 (reported 
septel) but said the exact date would have to be determined 
after consideration of both side's schedules. 
 
18. (SBU) On February 24, econoff met with MOT officials 
from both the America's Desk and the Import-Export Office to 
strongly reiterated the US delegation's request for a GVN 
proposal for specific dates for the next round of 
negotiations and for a counter offer on quota levels. 
Econoff emphasized that the GVN needed to provide this 
information by the end of the week of February 24-28.  On 
February 28, MOT's Import-Export office proposed the week of 
April 7-12 for the next round in Washington.  MOT also 
informed econoff that they would not be able to provide a 
counter offer on quotas at this time as they are currently 
collecting comments from business community and would 
provide it to the Embassy "as soon as they can." 
 
19. (U) The following were the members of the U.S. textile 
delegation: 
 
David Spooner 
USTR Special Textile Negotiator and Head of Delegation 
 
Caroyl Miller 
USTR Deputy Textile Negotiator 
 
Katharine Mueller 
USTR Assistant General Counsel 
 
William Clatanoff 
Assistant USTR Representative for Labor 
 
James Leonard 
USDOC, Deputy Assistance Secretary, OTEXA 
Donald Foote 
USDOC, Director, Agreements Division, OTEXA 
 
Philip Martello 
USDOC, Director, Trade Data Division, OTEXA 
 
Richard Crichton 
U.S. Customs, International Trade Manager 
 
Robert Boynton 
State, Senior Textile Negotiation 
 
Ana Valdes 
USDOL, International Economist 
 
Jessica Adkins 
Economic Officer, U.S. Embassy Hanoi 
 
20. (U) The following were the members of the GVN textile 
delegation: 
 
Le Van Dao 
Ministry of Trade (MOT), Deputy Director, Import-Export 
Dept, Head of Delegation 
 
Nguyen Hong Duong 
MOT, Deputy Director, Europe and Americas 
 
Nguyen Van Binh 
MOT, Deputy Director, Europe and Americas 
 
Le Van Thang 
MOT, Deputy Director, Export-Import Dept 
 
Luong Hoang Thai 
MOT, Head of WTO Division, Multilateral Trade Policy Dept 
 
Phan Thi Dieu Ha 
MOT, Head of Textile Division, Export-Import Dept. 
 
Duong Phuong Thao 
MOT, Expert, Europe and Americas 
 
Nguyen Duc Nhat 
MOT, Interpreter, Europe and Americas 
 
Nguyen Thi My Hanh 
MOT, Expert, Export-Import Dept 
 
Do Thu Huong 
MOT, Expert, Export-Import Dept 
 
Do Thuy Lan 
MOT, Expert, Export-Import Dept 
 
Cao Quoc Hung 
Ministry of Industry (MOI), Deputy Director, International 
Cooperation Dept 
 
Nguyen Hoang Phuong 
MOI, Principal Expert, International Cooperation Dept 
 
Nguyen Thi Man 
Ministry of Planning and Investment (MPI), Deputy Director, 
Commerce and Services Dept 
 
Nguyen Thuy Huong 
MPI, Expert, Investment Project Monitoring Dept 
 
Nguyen Tat Thanh 
Ministry of Foreign Affairs (MOFA), Deputy Director, 
Multilateral Economic Cooperation Dept 
 
Nguyen Huong Tra 
MOFA, Expert, Multilateral Economic Cooperation Dept 
 
Pham Phuong Anh 
MOFA, Expert, Americas Dept 
 
Nguyen Thu Do 
Office of the Government, Deputy Director, International 
Cooperation Dept 
 
Tuong Cong Sinh 
Customs, Manager, International Cooperation Dept 
 
Le Xuan Hue 
Customs, Expert, International Cooperation Dept 
 
Ha Huy Tuan 
Ministry of Finance (MOF), Deputy Director, International 
Cooperation Dept 
 
Bui Thanh Hai 
MOF, Expert, International Cooperation Dept 
 
Nguyen Manh Cuong 
MOLISA, Deputy Director, International Relations Dept 
 
21. (U) USTR Spooner cleared this cable. 
BURGHARDT