By  on November 28, 2006

WASHINGTON — With Vietnam's trade status in limbo, American manufacturers are rethinking their sourcing plans in that country.

Many are uncertain about placing orders in Vietnam because of political wrangling over regulating and curbing apparel and textile imports from the Southeast Asian nation.

Apparel executives and Republican congressional leaders were caught off guard on Nov. 13 when a vote to grant Vietnam permanent normal trade relations didn't receive the required two-thirds majority under rules that limit debate and are often used when an affirmative vote is anticipated. Strong opposition from textile state lawmakers and shifting sentiments in the GOP toward trade after midterm election losses led to the bill's failure in the House.

Another vote could come in next month's lame-duck session of Congress.

Still, importers are most concerned about committing to Vietnam as a place to manufacture because of a pledge the Bush administration made to textile-state senators to monitor Vietnamese imports and possibly undertake antidumping cases.

U.S. Trade Representative Susan Schwab and Commerce Department Secretary Carlos Gutierrez committed to the program to get key textile-state lawmakers, Sens. Lindsey Graham (R., S.C.) and Elizabeth Dole (R., N.C.), to lift their holds on legislation granting the permanent normal trade relations status to Vietnam, which would allow U.S. companies to fully benefit from Vietnam's new membership in the World Trade Organization. The Senate has yet to take up the legislation.

Importers have also been concerned that quotas could remain in place on Vietnam even after it joins the WTO, which is expected in January, but that doesn't appear to be the case. Schwab has indicated that quotas will be lifted on apparel imports the day Vietnam accedes to the WTO, regardless of the outcome of the trade relations vote.

All this has left apparel manufacturers anxious.

"There's not enough clarity yet," said Ted Sattler, executive vice president of foreign operations at Phillips-Van Heusen Corp. "I believe there will be enough clarity. We have not pulled orders back and we'll reserve judgment."

Information is what the importers most need to plan their businesses.

"It really can't be any later than the end of December, middle of January," Sattler said. "If the methodology is not clear and if it's not acceptable from a risk-reward standpoint, we would have to consider scaling back [orders]."The antidumping laws haven't generally been a factor in apparel importing because such cases are expensive to bring and difficult to prove. Under the administration's proposal, the Commerce Department would take on the burden of monitoring imports and self-initiating antidumping cases against Vietnam if imports surge and prices are considered below market value.

"Those of us in the industries have been raising holy hell and saying, ‘What does this mean to my business?'" said a sourcing executive at another top apparel producer who did not want to be identified. "They keep saying things to calm us down. The pat on the head [USTR and Commerce officials] keep giving us is, ‘Look, these are tough cases to bring.' That sounds great, but we're still talking politics. What happens next time they put a hold on a bill you want?"

That said, the executive recently gave the go-ahead to place more orders in Vietnam.

"Did I toss the dice? Yes, but it seems to me they've done an awful lot of backpedaling," said the executive.

Two other senators, Gordon Smith (R., Ore.) and Dianne Feinstein (D., Calif.) have asked the administration to respond to concerns before they vote on permanent normal trade relations. That response might offer importers some clarity on how the antidumping program will work.

"In recent years, Vietnam has been a trusted and reliable sourcing country," said Helga Ying, director of worldwide government affairs and public policy at Levi Strauss & Co. "However, if the administration's recent action stands, it could impact the role Vietnam plays in our overall sourcing from the Asia region."

Another vendor, who wanted to remain anonymous, decided to cut off orders from Vietnam next year to avoid the uncertainty altogether.

Others are still viewing overanalysis as paralysis.

"Everything is in such flux right now and it changes almost on a day-to-day basis," said Joe McConnell, senior vice president of operations at Biflex, an innerwear and sleepwear producer. "You have to make decisions as to what you know and work with that information. You can't speculate on the ‘what ifs' — you'll never be able to make a decision."Biflex sources about 10 percent of its goods from Vietnam and McConnell said antidumping duties, if they were imposed, could hurt profit margins some, but wouldn't have a significant impact on business.

The Fiber Price Sheet
Fiber
Price on 11/27/06*
Price on 10/30/06 
Price on 11/28/05
Cotton
51.36 cents
52.35 cents
55.81 cents
Wool
$2.90
$2.70
$2.17 cents
Polyester staple
85 cents
85 cents
79 cents
Polyester filament
82 cents
82 cents
76 cents
October Synthetic PPI
114.6
115.1
112.9
Crude Oil-
$59.24
$60.75
$58.71
  *The current cotton price is the October average on fiber being delivered to Southeastern region mills, according to Agricultural Marketing Services/USDA. The wool price is based on the average price for the week ended Nov. 24 of 11 different thicknesses of fiber, ranging from 15 microns to 30 microns, according to The Woolmark Co. Information on polyester pricing is provided by the consulting firm DeWitt & Co. The synthetic-fiber producer index, or PPI, is compiled by the Bureau of Labor Statistics and reflects the overall change in all synthetic-fiber prices. It is not a price in dollars but a measurement of how prices have changed since 1982, which had a PPI of 100. Oil prices reflect last week’s closing price on the New York Mercantile Exchange of future contracts for light, sweet crude oil to be delivered next month.

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