Vietnam : Textile Machinery Manufacturers Under Crisis

More than three months after the United States dragged an unwilling Vietnam into a bilateral textile agreement, some manufacturers in the South-east Asian nation are facing financial ruin. The pact was initiated in late April and came into force less than a week later on May 1, resulting in the imposition of quotas on exports from Vietnam to the US market, much to the dismay of Vietnam-based manufacturers.

Although aware of Washington''s intentions, many had not anticipated an agreement being concluded so soon. They were undone by strong lobbying from the US textile industry, anxious to protect its domestic manufacturing base. Under the terms of the deal, the total value of Vietnamese textile and clothing exports to the US was capped at around US$1.7 billion a year. ''As a result, almost all factories had orders in hand without adequate quota to ship them,'' said the director of a foreign manufacturing company that supplies leading US retailers such as Gap, Nike and K-Mart. This, he said, caused the delayed dispatch of orders, with some customers demanding their goods be air freighted and others cancelling their orders, leaving factories with ''substantial monetary losses''.

Yi Dong Hwan, chairman of the Korean Garment Manufacturers Association in Hanoi, which represents more than 100 South Korean companies, predicts some will have to close shop in the next few months because of quota shortages. ''The industry is suffering,'' he said. Without the agreement, US-bound Vietnamese textile shipments, which include everything from underwear and hosiery to sweaters and trousers, were expected to have surpassed the US$1.7 billion ceiling this year. In 2002 they soared a massive 1,800 per cent to US$952 million from US$49 million in 2001, prompting a flood of complaints from the small garment manufacturing industry in the US over cheap imports. Low labour costs give Vietnamese textile companies a huge advantage over their US counterparts.

Ironically, the negotiated quota figure was heavily criticised by the US textile industry as being overly generous - not a view shared by their counterparts in Vietnam. ''Lots of manufacturers here don''t have enough quota in hand to exercise orders for this year,'' said Nguyen Son, deputy director of the export promotion department at the state-run Vietnam National Textile and Garment Corporation (Vinatex), the country''s largest clothing manufacturer.

''We expect our export quotas to the US for this year to be fully utilised by September at the latest,'' he added. Vietnam was a reluctant partner in the negotiations, and had repeatedly voiced concerns over the impact the imposition of quotas would have on the local industry, which supports around two million jobs. Hanoi received support in its tussle from 35 large US retail and manufacturing giants, including Gap, JC Penney and K-Mart, for whom Vietnam is an important source of clothing and a counterbalance to the massive Chinese industry.