US embassy cable - 03HOCHIMINHCITY556

UNCLAS SECTION 01 OF 03 HO CHI MINH CITY 000556 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EAP/BCLTV AND EB/TPP/ABT/BTT BOYNTON 
STATE ALSO PASS TO USTR BRYAN/SPOONER/MILLER/CLATANOFF 
USDOC FOR 6500AND 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: ECON, ETRD, KTEX, VM 
SUBJECT: VIETNAM: TEXTILE ALLOCATION BEGINS WITH CONFUSION 
 
REF:  A) HO CHI MINH CITY 0500    B) HANOI 1467 
 
Summary 
----------- 
1.  (SBU) The textile quota allocation process, which began on 
June 11, has drawn widespread complaints from buyers and producers 
and has already gone through at least one revision.  In Phase I of 
the allocation process - in which companies receive a share of 
quota based on past performance - many companies received much 
less quota than they expected, when compared with their 
calculations based on their interpretation of the criteria earlier 
publicized by the GVN.  In a meeting with a group of foreign 
industry representatives, officials from VITAS, the Vietnam 
Textile Apparel and Textile Association, acknowledged that the 
Ministry of Trade (MOT) had been holding back or under-allocating 
quota based on past performance.  At the meeting, industry reps 
stated they were prepared to bring their concerns to the U.S. 
Ambassador and to the Minister of Trade.  According to the foreign 
industry reps, MOT officials then agreed to once again update 
performance-based quota, this time using the criteria as 
originally stipulated in the government circular.  (Post Note: MOT 
has told Embassy Hanoi that they already apply these criteria). 
Transparency is - apparently - a work in progress.  Post will 
continue to monitor the business pulse in HCMC.  End Summary. 
 
Better Late and Incomplete -- Than Never 
--------------------------------------------- ----- 
2.  (SBU) On June 11, the GVN issued the first textile quota 
allocations in "Phase I" of the quota allocation process. 
According to foreign buyers and producers, as well as the Vietnam 
Textile and Apparel Association (VITAS), the lists were late and 
incomplete.  MOT released an updated list over the weekend, but 
companies still complained to Congen Econoff that the quota 
allocations were incomplete.  In this Phase I allocation, which 
was to distribute 80 percent of the performance-based quota to 
companies who had submitted timely documentation, several 
companies told ConGen Econoff that they had received far less than 
their preliminary calculations would have indicated.  Some 
companies, many of whom documented substantial past performance in 
the qualifying period, did not even appear on the list or were 
missing quota allocations in key categories.  Companies have once 
again begun making the pilgrimage to the Ministry of Trade in 
Hanoi to plead their cases.  Many of these firms say they have 
been assured by MOT officials that their quotas will be adjusted 
or that, because "the list is not finished," their firms will be 
added to the list.  Once again, textile firms are on pins and 
needles (sorry) as they try to sort out exactly what is going on 
and how to get a piece of the action. 
 
Apparently Transparent -- at First 
---------------------------------------- 
3.  (U) In the past few months, GVN officials have stressed 
repeatedly the goal of making the quota allocation process as fair 
and as transparent as possible.  Various ministries accepted input 
from buyers and producers as they developed the quota allocation 
system.  The Ministries of Trade, Industry, and Planning and 
Investment jointly issued a circular, which formally laid out the 
criteria for allocation (ref A).  MOT posted this decree along 
with other relevant regulations on the MOT website.  Export 
figures by category were also posted and updated every few days so 
that companies could see how much quota remained in each category. 
 
4.  (SBU) All of this transparency quickly became obscured, 
however, when the first quota allocations were announced on June 
11.  This was several days after the "end of May" deadline 
specified in the aforementioned circular.  Many companies who had 
complied with documentation requirements for quota allocation did 
not receive any quota at all.  Some companies received 
substantially less than the amounts they had anticipated.  In one 
case, for example, an American firm received 93 percent of what it 
expected in one category, but only about 40 percent in another. 
The general manager of one Hong Kong firm complained to ConGen 
Econoff that he had not slept for days because his firm was not 
even on the list.  His firm later appeared on the updated list, 
but received far less quota than anticipated and no quota at all 
in several key categories.  The export figures by category have 
not been updated since June 6 on the MOT website, adding to 
business anxiety in HCMC. 
 
5.  (SBU)  Producers and buyers are reluctant to ascribe any of 
this confusion to an attempt by GVN officials to unfairly allocate 
quota to preferred firms.  Producers note that no group in 
particular appears to have benefited from this initial allocation, 
although unless one knows the past performance of each individual 
company, one cannot be absolutely certain.  GVN officials have 
told Embassy Hanoi officers that they have been overwhelmed by 
this entire exercise and at the same time are trying to comply 
with requests to provide detailed export data to U.S. Customs (ref 
B). 
 
We feel your pain... 
------------------------ 
6.  (U) Interest in the U.S. textile and garment market is 
enormous in Ho Chi Minh City, which is the center of the country's 
textile and apparel industry.  With less than one week's notice, 
an American Chamber of Commerce seminar on U.S. Customs 
documentation requirements for textile imports drew more than 250 
participants.  At the meeting, the Secretary General of VITAS Mr. 
Tran Duc Thinh acknowledged the frustrations of the entire 
industry as the quota allocation process had begun.  He urged 
companies to register their complaints and promised that VITAS 
would call a meeting in a few days to review the situation with 
its members.  He stated that the MOT was working hard to get 
things right, but this was the first time MOT had to allocate 
textile quota for the U.S. market. (Note: For several years the 
GVN has been allocating a much smaller textile quota for the EU 
market.) 
 
You bet you will! 
--------------------- 
7.  (SBU) According to one major American buyer in Ho Chi Minh 
City, however, the ground may be shifting.  On June 16, this 
buyer, along with representatives of several foreign business 
groups in Ho Chi Minh City, met with Mr. Le Quoc An, the Chairman 
of Vinatex and of VITAS, and Mr. Le Van Dao, the incoming 
Secretary General of VITAS and former Deputy Director of the MOT 
 
SIPDIS 
Import-Export Department.  Foreign business groups have been 
lobbying the GVN collectively on textile and quota allocation 
issues. These businesses produce or purchase hundreds of millions 
of dollars of garments here every year.  According to the American 
buyer, An and Dao told her that the MOT had been using a 
"different formula", not one based closely on the criteria in the 
GVN circular outlining the process.   According to An and Dao, 
using the current "formula" resulted in smaller quotas, by about 
10% - 30%.  This allowed the MOT to withhold more quota for later 
allocation. 
 
8.  (SBU) These foreign business representatives were highly 
critical of this reported approach and informed An and Dao that 
they were meeting separately later this week with U.S. Ambassador 
Burghardt and with the Minister of Trade.  They wanted to give 
them a good report, they said, but as the situation stood now, 
this would not be possible.  According to the leader of this 
textile group, An and Dao reacted by telephoning the new Deputy 
Director of Import-Export at MOT (the key person in charge of 
handling quota allocation for the U.S. market.)  According to the 
business reps, An and Dao urged him in the strongest terms ("fix 
this or your job in jeopardy") to release new quota figures based 
on the "correct formula."   According to ConGen contact, An and 
Dao told the foreign reps that yet another "revised" quota 
allocation list should be released in a couple of days, this time 
using the criteria "as set out" in the GVN circular. 
 
Comment 
------------ 
9.  (SBU)   ConGen contact has been a good source of inside 
information in the past.  However, neither An or Dao directly work 
or speak for MOT, and every source in this cable has a horse in 
this race.   Embassy contacted MOT officials who were in charge of 
drafting the circular, creating and applying the criteria, and 
allocating quota.  They stated they were unaware of any 
conversation as reported by the American industry rep, and noted 
that there is no specific formula advocated in the circular. 
Rather, these officials said they set up a formula based on their 
own criteria and, as previously reported, scheduled the allocation 
in two phases.  The first phase was smaller than originally 
announced and this has led to problems and unease among industry 
reps. The second phase, which will now be larger than planned, 
will happen later this month.  Depending which side of the fence 
one sits on, this may also be the "revised" allocation that 
industry reps are waiting for. 
 
10. (SBU)  That said, there is clearly unhappiness among the 
foreign business community regarding the allocation of quota.  For 
them, these recent quota allocations appear to concentrate power 
for quota decisions in just a few hands.  Without any MOT 
explanatory formula or calculations for allocating past 
performance quota, the foreign business community has serious 
concerns about the apparent disconnect between their expected 
quota allocations (based on their own calculations) and what in 
fact MOT has allocated to them.  If MOT can improve its 
performance by responding to industry's concerns - ensuring that 
the second phase more closely follows industry's recommendations 
regarding the application of criteria and "formula" - it would be 
excellent news for Vietnam.  Garment and textile producers would 
get the performance-based quota they were promised, thus 
strengthening the competitiveness of the industry here.  And, it 
would be another step on the road to transparency.  Because the 
GVN had issued a circular outlining quota criteria, buyers and 
producers were able to lobby the MOT directly for its proper 
implementation.  Of course, whether or not MOT will tweak its 
method of allocation in Phase II, as well as increase 
transparency, remains to be seen. 
 
YAMAUCHI