~ Le Viêt Nam, aujourd'hui. ~
The Vietnam News

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Cloud hangs over Vietnam as WTO remains out of reach

BANGKOK - Vietnam, with low production costs and high standards of craftsmanship, has been seen as a promising, competitive force in the global garment industry, potentially capable of holding its own in the fierce battle for market share that lies ahead. But the recent announcement that Hanoi would fail to reach its goal of joining World Trade Organisation by January 2005 has cast a pall of gloom over the otherwise thriving garment industry.

While the US and the European Union will end quantitative restrictions on imported textiles from WTO member countries from January, Vietnam's access to the world's most important clothing markets will remain constrained as long as it stays on the sidelines of the world trading system. The higher costs imposed by the continuation of quotas - and the lack of a date for Vietnam's accession to the WTO - is already discouraging orders. This is sending tremors through an industry that employs up to 2m Vietnamese and is a driving force for the country's economic growth.

While garment manufacturers and buyers say they have faith in Vietnam's long-term prospects, they say it is crucial for Hanoi to complete its long-pending accession to the WTO as soon as possible. "Everybody is on the train, except Vietnam," said a Ho Chi Minh City-based representative of Li & Fung, a leading Hong Kong-based trading company, which represents US garment buyers. "The whole industry is concerned about how the Vietnam apparel and textile industry can survive the next year." Vietnam's garments exports have soared since December 2001, when Hanoi's Communist rulers signed a trade deal that finally established normal trading relations with their old enemy, the US. Clothing exports to the US, valued at $49m in 2001, surged to $2.5bn in 2003. The industry also exported garments worth about $600m (€486m, £324m) to the EU and $500m to Japan last year.

But the blistering pace of growth has slowed since Washington imposed import quotas on the country's textiles in April last year. Buyers are now fretting about high quota prices - and quota scarcity, after a recent rollback in levels. For some popular items, Vietnam is expected to hit its export limit for the year by August, a crunch likely to continue in the year ahead. Faced with such problems, Vietnam's garment industry leaders - including factory owners, buyers, traders and government officials - are gathering next week to discuss how to overcome the short-term challenges to the industry. Manufacturers and buyers are expected to press officials to cut the cost of buying export quotas - to ensure Vietnamese apparel remains competitive with that made elsewhere in Asia. Currently, cost of quota can add up to $1 on the price of a T-shirt from Vietnam.

"They have to eliminate the quota fee - make it non-existent - if they want to be in line with the rest of the region," says the Li & Fung representative. "You have to make it like you are a quota-free country." Even as it pursues its aim of WTO accession - apparently delayed by sensitivities surrounding the opening of Vietnam's service market - Hanoi is negotiating with the EU over improved access for its garment exports, which could help in the transitional period. Yet for all the likely short-term turbulence - and an expected shakeout among the country's more than 1,000 textile factories - many buyers remain confident of Vietnam's strong potential as a garment-manufacturing base.

While China is expected to emerge as the dominant force in the global "rag trade", after quotas end Vietnam's fundamentals - including its vast, well-educated and motivated workforce and political stability - are expected to make it an important alternative for buyers keen to maintain diverse sources of supply. The local garment industry has attracted significant investments over the last five years and Formosa, the Taiwanese company, is building a large textile mill in Vietnam.

While the garment industry will experience consolidation, much of the change is expected to take place gradually, giving Vietnam a last window to complete its WTO accession before it is sidelined. "Once quotas come off, you would expect that Vietnam will be very competitive in the apparel industry," said Chris Helzer, regional director of government affairs for Nike, which buys sportswear in Vietnam. "It's just that Vietnam is going to be a little bit behind some of its competitors in access to world markets."

By Amy Kazmin - The Financial Times - July 22, 2004.