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Wall Street
Journal
COMMENTARY
The Textile Offensive
By EMILY PARKER
January 3,
2005; Page A9
HO
CHI
MINH
CITY -- For a journalist,
there's nothing quite like having someone throw back his head and laugh at the
absurdity of a question you've just asked. But that's exactly what Le Quoc An,
chairman of the Vietnam Textile and Apparel Association, did when I asked him if
anyone in
Vietnam supported textile
quotas.
As the world
scrambles to prepare for the new quota-free era that began on Jan. 1,
Vietnam finds itself at a
unique disadvantage. The end of the Multifiber Agreement will open garment trade
among members of the World Trade Organization. But that will effectively raise
the relative costs of goods made in
Vietnam, since its nonmember
status means that the country will still be bound by the costly quota system.
Despite this, there is a quiet confidence here that the Vietnamese garment
industry can hold its own by sharpening its competitive advantages.
This confidence
may seem remarkable considering that the end of the quota system has spurred
fears that smaller garment-producing countries like
Bangladesh and
Cambodia will be crushed by
textile giant
China.
Vietnam has an additional
obstacle: "Now
China has no more quotas so
they can reduce [costs], so they can be very competitive," explains Mr. An. When
companies aren't allocated enough quotas to utilize their full capacity, they
find themselves having to bargain with other companies for their quotas, a
trading process that adds extra cost.
The garment
industry employs about two million Vietnamese workers, representing almost 25%
of the industrial labor force in
Vietnam. It also accounts
for $4.5 billion in exports, of which $2.5 billion go to the
U.S., according to the
American Chamber of Commerce. Yet despite the prominence of this industry, many
Vietnamese are not panicking about
China trouncing them in
2005. One reason is that
Vietnam is not trying to
compete head-on with
China, but is trying to land
the position of a viable No. 2 option. Foreign businesses understand that all of
their needs cannot be satisfied by
China alone. So instead of
trying to compete with China's enormous low-cost labor force, Vietnamese
producers -- with their emphasis on quality and timely delivery -- have won the
loyalty of international retailers.
As one buyer who
represents major
U.S. retailers explained: "China
can produce all categories, from low-end to high-end, but performance is not
consistent. . . . We have a commitment to stay in
Vietnam. We don't believe in
putting all eggs in one basket."
Realizing how much
quotas crimp
Vietnam's potential, many
Vietnamese are looking forward to the WTO accession, which will be realized in
the next couple of years, they hope. But in the meantime, both the Vietnamese
government -- as well as individual companies -- face the challenge of working
within the confines of the quota system. Indeed, some private Vietnamese
companies are less worried about the threat from
China than about obstacles
within
Vietnam itself -- namely the
lack of clarity in Vietnamese laws, and unfair advantages for government-owned
companies in the Communist country.
Some private
companies, for example, claim that obtaining quota allocation can be difficult.
"Private companies don't get much quota, but still [have] many customers," said
one director of a private Vietnamese import-export company, as she proudly
showed me around her clean and spacious factory outside
Ho Chi Minh City. Why? "Because I
always try to make what a customer wants -- high quality and delivery on time."
While it is
encouraging to see that some companies still manage to compete despite these
obstacles, the onus cannot fall on business alone. As long as
Vietnam isn't a WTO member,
the government will need to concentrate on making the quota-allocation process
efficient, transparent and fair. The American Chamber of Commerce is suggesting
that the government allocate quotas on the basis of performance, as opposed to
arbitrary, non-market factors such as the use of "local fabric." Issuing quotas
on the basis of performance will help eliminate opportunities for corruption,
and will also help ensure maximum utilization of the quotas.
Another weakness
that needs to be addressed is
Vietnam's shortage of raw
material: Around 80% of cotton needs are reportedly met by imports. To address
this problem, some interesting ideas are already on the table. Mr. An, for
example, suggests ways that
Vietnam and the
U.S. could form a mutually
beneficial relationship. For while the
U.S. textile industry may
not be the most competitive in low-cost labor, it has advantages in raw
material, technique and management.
He explains, "We
want to attract more
U.S. textile manufacturers . .
. that can supply us fabric produced in the
U.S., or they can bring
facilities to
Vietnam to make fabric in
Vietnam and re-export clothing
to the
U.S. market. That is a
win-win procedure." While some will cast off this suggestion as simplistic or
unrealistic to implement, it nonetheless shows an appreciation of the
fundamental laws of comparative advantage -- exactly the kind of thinking that
will keep
Vietnam moving forward.
This type of
thinking would be valuable for
U.S. textile lobbyists as
well, who would do better to recognize that restraining Vietnamese imports is
not the way to bring business back home. After Saturday, when textile and
apparel quotas were eliminated for all members of the WTO, the
U.S. will have quota
arrangements with only
Vietnam and
Belarus, according to the
U.S Association of Importers of Textiles and Apparel. Decisions by the European
Union and
Canada to drop their textile
and apparel quotas on
Vietnam have prompted calls by
U.S. importers for
America to do the same.
Vietnam's textile industry
will face many challenges in 2005. But the silver lining is that
Vietnam is responding to
these challenges not by lobbying for protection, but rather by trying to
capitalize on the advantages that set the small country apart.
Ms. Parker is an
editorial page writer at The Asian Wall Street Journal.
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