Order Code RL31470
Report for Congress
Received through the CRS Web
The Vietnam-U.S. Textile Agreement Debate:
Trade Patterns, Interests, and Labor Rights
June 21, 2002
Nicole J. Sayres
Analyst in Asian Affairs
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

---

The Vietnam-U.S. Textile Agreement Debate:
Trade Patterns, Interests, and Labor Rights
Summary
In December 2001, the United States granted Vietnam most-favored-nation
status, a key condition of the U.S.-Vietnam Bilateral Trade Agreement (BTA) that
was approved by Congress and signed by President Bush earlier in the year. By
receiving most-favored-nation status, which significantly reduced U.S. tariffs on
most imports from Vietnam, Vietnam is expected to record a dramatic increase in its
textile and apparel exports to the United States. This has prompted a debate over
whether a textile agreement, which would place U.S. quotas on Vietnamese textile
and apparel imports, should also be negotiated. Some members of the U.S. textile
industry argue that a textile agreement is needed to protect the domestic industry
from the potential surge of imports. Other U.S. interest groups oppose such
restrictions, arguing that they are protectionist and would raise costs for U.S.
consumers. Some opponents of a textile agreement assert that the level of Vietnam’s
textile and apparel exports to the U.S. are not sufficient to merit the application of
quotas.
In addition, some Members of Congress insist that any bilateral textile
agreement contain provisions linking Vietnam’s quota levels to its progress in the
area of labor rights, possibly similar to the provisions under the 1999 U.S. textile
agreement with Cambodia. That agreement, which allows Cambodia to receive
“bonus” quotas if it shows “substantial compliance” in enforcing its labor laws, has
been controversial both in the United States and Cambodia. Labor rights supporters
point to improvements in Cambodia’s labor system as evidence of the success of the
model. However, others have questioned the effectiveness of the incentive and the
applicability of the model to Vietnam. Some observers contend that trade policy and
labor issues should not be linked and, therefore, there should be no labor provision.
In February 2002, the U.S. Trade Representative Special Negotiator on Textiles
visited Vietnam to initiate talks regarding the development of a textile agreement.
However, formal negotiations have not yet begun, and the time frame for such
negotiations has not been set. The Vietnamese government is reportedly reluctant to
enter into a textile agreement, arguing that quotas should not be discussed until the
pattern of textile trade is established. The United States potentially has significant
leverage on the issue because it could unilaterally impose quotas on the non-WTO
country at any time.
This report examines the status of U.S.-Vietnam trade in textiles and apparel,
the arguments that have been raised for and against a textile agreement, and the
debate surrounding a possible labor provision. This report will be updated
periodically. For further information on U.S.-Vietnam relations and the BTA, see the
following CRS products: CRS Issue Brief IB98033, The Vietnam-U.S. Normalization
Process, by Mark Manyin; CRS Report RL30416, the Vietnam-U.S. Bilateral Trade
Agreement, by Mark Manyin; and CRS Report RS20717, Vietnam Trade Agreement:
Approval and Implementing Procedure, by Vladimir N. Pregelj. Further information
on textile and apparel issues is available in CRS Report RS20436, Textile and
Apparel Trade Issues, by Bernard A. Gelb.

---

Contents
Background on the Normalization of U.S.-Vietnam Trade Relations . . . . . . . . . . 1
Congressional Interest in a U.S.-Vietnam Textile Agreement . . . . . . . . . . . . . . . . 2
International Textile and Apparel Trade Regime . . . . . . . . . . . . . . . . . . . . . . . . . . 4
U.S.-Vietnam Trade in Textiles and Apparel . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The U.S. Textile and Apparel Industry and Market . . . . . . . . . . . . . . . . . . . . 4
Vietnam Textile and Apparel Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Pre- and Post-BTA Trade in Textiles and Apparel . . . . . . . . . . . . . . . . . . . . 6
Arguments For and Against a Textile Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 8
Support for a Textile Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Arguments Against a Textile Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Labor Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Background on Labor Provisions in Trade Agreements . . . . . . . . . . . . . . . 11
Possible Approaches Concerning a Vietnam Labor Provision . . . . . . . . . . 13
No Labor Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
MOU Plus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Jordan Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Cambodia Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Other Trade Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
“Catfish” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
List of Tables
Table 1. Vietnamese Textile/Apparel Exports to Key Markets: 1999-2001 . . . . . 5
Table 2. U.S. Textile and Apparel Imports from Vietnam: Selected Items . . . . . . 7

---

The Vietnam-U.S. Textile Agreement
Debate: Trade Patterns, Interests, and
Labor Rights
Background on the Normalization of
U.S.-Vietnam Trade Relations
U.S.-Vietnam economic and diplomatic relations virtually ceased after the 1975
victory of communist North Vietnam over U.S.-backed South Vietnam. In addition
to suspending most-favored-nation (MFN, also known as normal trade relations
[NTR]) status to unified Vietnam, the United States imposed a trade embargo, ceased
bilateral humanitarian aid, opposed financial assistance from international financial
institutions, and banned U.S. travel to Vietnam.1
In February 1994, President Clinton took a major step towards normalizing
relations when he lifted the 19-year old trade embargo. Diplomatic relations with
Vietnam resumed the following year, and the first post-Vietnam War U.S.
ambassador to Vietnam was approved in 1997. In 1998 President Clinton granted
Vietnam a waiver of the Jackson-Vanik amendment’s freedom-of-emigration
requirements, a step which opened the way for the Overseas Private Investment
Corporation (OPIC) and the U.S. Export-Import Bank (Ex-Im Bank) to support U.S.
trade and investment in Vietnam.2 Following this waiver and the subsequent
presidential waivers granted in 1999, 2000, and 2001, joint congressional resolutions
of disapproval were introduced but defeated in the House. In these cases, opposition
to the waiver had been based on concerns over Vietnam’s emigration policy,
1 Legislation was enacted in 1998 to replace the term “most-favored-nation” with the term
“normal trade relations” (NTR) in existing and future legislation. The former term is used
here for historical continuity and because of its continued use in international trade
relations, including in the U.S.-Vietnam Bilateral Trade Agreement. For additional
information, see CRS Issue Brief IB93107, Most-Favored-Nation (Normal-Trade-Relations)
Policy of the United States, by Vladimir N. Pregelj.
2 The so-called Jackson-Vanik amendment, which is contained in the Trade Act of 1974,
Title IV, section 402, prohibits the President from normalizing trade relations with selected
non-market economy (NME) countries if they do not meet certain requirements regarding
freedom of emigration. A presidential waiver of the Jackson-Vanik requirements–or,
alternatively, a presidential determination that the NME country complies with the freedom-
of-emigration requirements – gives that country access to certain specific economic benefits,
such as access to U.S. government financial facilities (export credits, export credit
guarantees, and investment guarantees) and the ability to conclude a bilateral trade
agreement with the U.S. For more information, see CRS Report 98-545, The Jackson-Vanik
Amendment: A Survey, by Vladimir N. Pregelj.

---

CRS-2
restrictions on human and religious rights, and lack of appropriate accounting for
POWs and MIAs.
On July 13, 2000, the U.S. and Vietnam signed a sweeping bilateral trade
agreement (BTA), marking a historic moment in the normalization of economic
relations.3 The BTA, which entered into force on December 10, 2001, restored
reciprocal MFN status and commits Vietnam to undertake a broad range of market-
oriented reforms.4 Vietnam’s temporary MFN status reduces U.S. tariffs on
Vietnamese goods from an average of 40 % to about 3%.5
Congressional Interest in a
U.S.-Vietnam Textile Agreement
Congressional discussion regarding a potential textile agreement with Vietnam
began during the debate over the BTA, which contains no restrictions on textile and
apparel imports from Vietnam. Some Members urged the Bush Administration to
negotiate a separate bilateral textile agreement that would place quotas on imports
of Vietnamese textile and apparel products, due to concerns that such imports would
significantly affect the U.S. textile industry. Chapter VII, Article 3 of the BTA
allows for the negotiation of an agreement on trade in “textiles and textile products.”6
In February 2002, the U.S. Trade Representative (USTR) Special Negotiator on
Textiles visited Vietnam to initiate talks regarding the development of a textile
agreement. However, formal negotiations have not yet begun, and the time frame for
such negotiations has not been set.

3 The text of the agreement, along with background documents, a separate Annex on
Services, and two separate letters on investment, can be found on the website of the United
States Trade Representative [http://www.ustr.gov/regions/asia-pacific/regional.shtml].
4 Although Presidential waivers of the Jackson-Vanik requirements had been issued for
Vietnam since 1999, Vietnam did not receive MFN status until the Bilateral Trade
Agreement came into effect in December 2001. Under the Jackson-Vanik amendment, two
conditions must be met in order for NME countries to have their most-favored-nation status
restored. First, the President must either (a) issue a determination that the country complies
with the freedom-of-emigration requirements of the Jackson-Vanik amendment or (b) waive
those requirements, as discussed in footnote 2. Second, the country must conclude a
bilateral trade agreement with the U.S. that includes a reciprocal MFN clause. See CRS
Report RS20717, Vietnam Trade Agreement: Approval and Implementing Procedure, by
Vladimir N. Pregelj.
5 Vietnam’s MFN status is temporary because it must be renewed on an annual basis. For
additional information on Vietnam-U.S. relations and the BTA, see CRS Issue Brief
IB98033, The Vietnam-U.S. Normalization Process, and CRS Report RL30416, The
Vietnam-U.S. Bilateral Trade Agreement, both by Mark Manyin.
6 Chapter VII, Article 3, Number 3, states, “Nothing in this Agreement limits the application
of any existing or future agreements between the Parties on trade in textiles and textile
products.”

---

CRS-3
Although bilateral textile agreements do not require congressional approval,
Congress can influence the terms of the agreements. Moreover, as USTR begins
examining the possibilities for a textile agreement, Congress faces several issues
regarding U.S.-Vietnam relations that may affect the context of the potential textile
negotiations.
First, on June 3, 2002, the President renewed the Jackson-Vanik waiver for
Vietnam, thus allowing Vietnam to maintain its temporary MFN status, which
reportedly expires July 3, 2002.7 The waiver is subject to Congressional review and
can be rejected through a joint disapproval resolution.
Second, as part of a its review of the Jackson-Vanik waiver, Congress is likely
to scrutinize Vietnam’s record on human rights and labor rights. In its 2001 Human
Rights Report, the U.S. State Department found that Vietnam’s “poor human rights
record worsened in some respects” and that workers have limited labor rights.8
Recently, concerns have been raised regarding the treatment of ethnic minorities,
particularly those belonging to unofficial religious organizations. In March 2002, the
United States agreed to allow 905 Vietnamese ethnic minority refugees who had fled
to Cambodia to resettle in the United States.9 At present, the Vietnam Human Rights
Act (H.R. 2833), which passed the House on September 6, 2001 by a vote of 410 -
1, is on the Senate Legislative Calendar under General Orders. If passed, the bill
would restrict U.S. non-humanitarian aid to Vietnam to its FY2001 levels, unless the
President determined that Vietnam was making “substantial progress” in human
rights. Vietnamese officials have criticized the United States for interfering in
Vietnam’s internal affairs by commenting on its human rights situation.10
Third, Congress is also likely to watch closely Vietnam’s performance in
implementing its initial commitments under the BTA. Vietnam has reportedly taken
steps to carry out nearly all of the reforms that were to be completed upon the BTA’s
entry into force.11 The question remains whether the government will be able to
implement the longer-range reforms, given the opposition of powerful vested
interests and the degree of cooperation required among governmental ministries and
at the provincial level.
7 BNA, International Trade Reporter, January 24, 2002. Alternatively, Vietnam could
maintain its MFN status through a presidential determination that Vietnam was in
compliance with the Jackson-Vanik freedom-of-emigration requirements.
8 U.S. Department of State, Country Reports on Human Rights Practices, Vietnam 2001,
released by the Bureau of Democracy, Human Rights, and Labor on March 4, 2002. The
report may be found on the website of the U.S. Department of State at
[http://www.state.gov/g/drl/rls/hrrpt/2001/eap/8384.htm].
9 New York Times, World Briefing: Asia, “Cambodia: Vietnamese Refugees Leave
Camps,” April 18, 2002.
10 Vietnam News Briefs, “Party Runs Human Rights Spearheads at US,” April 15, 2002.
11 CRS Report RL30416, The Vietnam-U.S. Bilateral Trade Agreement, by Mark Manyin.

---

CRS-4
International Textile and Apparel Trade Regime
From 1974 to 1995, the Multifiber Arrangement (MFA) provided the framework
for international trade in textiles and apparel. The MFA was a set of rules governing
bilateral agreements that applied quotas on imports into countries whose domestic
industries were facing serious damage from a rapid surge of imports from developing
countries. The MFA, in allowing importing countries to set different quota levels for
individual exporting countries, conflicted with the then General Agreement on
Tariffs and Trade’s (GATT) principle of equal treatment for trading partners and
with its general preference for customs tariffs over quantitative restrictions.12
The Agreement on Textiles and Clothing (ATC), negotiated in the Uruguay
Round that established the World Trade Organization (WTO), replaced the MFA in
1995. The ATC is a transitional instrument designed to integrate textile and apparel
trade into WTO rules governing other products by phasing out existing quotas over
a ten-year transition period. The transition period, which allows manufacturers in
industrial countries to prepare for increased competition from developing countries,
ends on January 1, 2005, when all import quotas on textile and apparel products are
to cease.
Vietnam is currently not a WTO member and, therefore, not a party to the ATC.
This puts Vietnam at a significant disadvantage in the international textile and
apparel trade in two ways. First, Vietnam does not benefit from the current phase out
of existing import quotas. Second, if Vietnam is not a WTO member by 2005, its
trade in textiles and apparel will be limited by whatever existing quotas it faces.
WTO members, on the other hand, will then operate under quota-free trade in textiles
and apparel.
U.S.-Vietnam Trade in Textiles and Apparel
The U.S. Textile and Apparel Industry and Market
In 2000, the U.S. textile and apparel industry employed 1.2 million people, 6.5%
of total employment in manufacturing. This marked a 35% and 50% decline in
employment in the textile and apparel industries, respectively, since 1980. This
decrease in employment can largely be attributed to both productivity gains and
increased importation of textile and apparel products. Over the same twenty-year
period, U.S. production of textiles rose, while apparel production fell slightly.13
12 In general, the WTO prohibits countries from taking actions that selectively target one
or more specific Member countries. For further information on textile and apparel issues,
see CRS Report RS20436, Textile and Apparel Trade Issues, by Bernard A. Gelb. Also, for
background information on the WTO, see Trading into the Future on the WTO website at
[http://www.wto.org].
13 CRS Report RS20436, Textile and Apparel Trade Issues, by Bernard A. Gelb.

---

CRS-5
The United States is currently the world’s largest import market for textile and
apparel products.14 In 2001, the United States imported over $70 billion in apparel
and textiles, of which $56 billion was apparel. During the same period, the United
States exported over $16.5 billion worth of apparel and textiles worldwide, with $6.5
billion in apparel and $10 billion in textiles.15
Vietnam Textile and Apparel Industry16
Vietnam’s textile and apparel industry is an important source of economic
growth and employment for the country. It produces about 15% of Vietnam’s
exports and employs 1.6 million workers, approximately 25% of all industrial
workers in the country. The sector comprises over 1,000 enterprises – 190 state-
owned, 800 private, and approximately 180 foreign-invested companies that include
international joint ventures with domestic firms. Individual tailors and small
enterprises currently serve much of the domestic garment market, therefore, most
medium and large apparel enterprises focus on export production. The industry is
dominated by VINATEX, a conglomerate of 60 state-owned enterprises that accounts
for over one-third of all textile and garment exports.
Vietnam’s textile and apparel exports have risen substantially in recent years,
surpassing $2 billion in 2001. (See Table 1) Vietnam’s largest markets for textile
and apparel exports are Japan and the European Union (EU), with 2001 exports of
$617 million and $512 million, respectively. Approximately half of Vietnam’s 2001
exports went to the EU, Canada, Norway, and Turkey, countries with which Vietnam
has completed bilateral textile and garment agreements. The other half of its exports
went to its non-quota markets of Japan, Asia, and the United States.
Table 1. Vietnamese Textile/Apparel Exports to Key Markets:
1999-2001
(millions of dollars)
Country
1999
2000
2001
European Union
555
609
512
Japan
417
619
617
United States
35
50
50
Total (all markets)
1,747
1,892
2,080
Source: U.S. Embassy in Hanoi Reporting, March 15, 2002.
14 BBC Monitoring International Reports, “Vietnam’s Textile Firms Improve Conditions
for Workers,” March 1, 2002.
15 Data from OTEXA, the Office of Textiles and Apparel, International Trade
Administration, U.S. Department of Commerce, available at [http://otexa.ita.doc.gov].
16 Much of the information from this section comes from reporting of the U.S. Embassy in
Hanoi, March 15, 2002.

---

CRS-6
The Vietnamese government and textile industry have taken several measures
to expand both production and U.S. sales. The government is granting an export
subsidy of 7% to textile companies that export to the United States.17 VINATEX
opened a representative office in New York, sent several producers to the World
Source Exhibition, and is building four specialized industrial parks.18 In addition, the
government plans to invest $100 million in the domestic cotton industry, with the
goal of expanding production to meet 60% of the local demand by 2010. Currently,
Vietnam’s domestic producers can only supply 10% of the cotton and 20% of the
fabrics used in garment production.19 The present level of Vietnamese cotton
production may benefit the United States, since raw cotton is one of the its leading
export items to Vietnam.
Pre- and Post-BTA Trade in Textiles and Apparel
Prior to the BTA, Vietnam’s textile and apparel exports to the American market
were negligible. In 2001, Vietnam ranked 64th among countries exporting textile and
apparel products to the U.S., with an estimated $50 million in products.20 Overall,
the United States imported more than $70 billion in textiles and apparel last year,
making Vietnam a small player in the U.S. market.
Now that Vietnam enjoys the most-favored-nation tariff rates under the BTA,
Vietnamese exports of garment products to the United States are expected to increase
rapidly. However, given the short amount of time that has passed since the BTA
came into effect, it is not clear how significant or sustained the increase will be.
Some observers expect a dramatic surge in Vietnamese textile and apparel
exports. The Vietnamese textile and garment industry reportedly expects to earn at
least $300 million from the U.S. market this year.21 The post-MFN experience of
Cambodia supports this view. In 1996, prior to receiving MFN status, the United
States imported $2.4 million in textiles and apparel from Cambodia. That amount
rose to $98 million in 1997, $360 million in 1998, and was over $950 million in
2001.22
Others assert that many Vietnamese textile companies are not ready to compete
in the U.S. market, and, therefore, exports in the first year after the BTA will be
lower than most expectations. They argue that potential export expansion will be
17 Vietnam News Briefs, January 7, 2002.
18 Vietnam Investment Review, “Get Ready for Ragtime,” January 14, 2002; Xinhua News
Agency, “Vietnam Takes Measures to Expand Textile, Garment Market,” April 8, 2002.
19 U.S. and Foreign Commercial Service Market Research Reports, International Trade
Administration, U.S. Department of Commerce, May 7, 2002; Reporting from the U.S.
Embassy in Hanoi, March 15, 2002.
20 Of the $50 million in Vietnamese imports, almost $48 million was in apparel products.
21 Malaysia General News, “Vietnam’s Garments, Textiles Export Up,” February 21, 2002.
22 Data from OTEXA, the Office of Textiles and Apparel, International Trade
Administration, U.S. Department of Commerce.

---

CRS-7
limited by factory and industry constraints, such as outdated technology, low output
capacity, lack of capital for investment, and limited domestic fabrics and other
inputs.23 In addition, sources suggest that it will take time for many Vietnamese
companies to understand the preferences of the U.S. market and to meet U.S. quality
and social accountability standards. Also, some Vietnamese companies may be
cautious in shifting production to target the U.S. market for fear of hurting current
sales to their larger markets, such as Japan and the EU.
Initial data for 2002 show a substantial increase in textile and apparel imports
from Vietnam, compared to the same period from last year. In the first quarter of
2002, the United States imported approximately $38 million in Vietnamese textile
and apparel products, an almost 300% increase from last year’s first quarter amount
of $14 million.24 Several products in particular posted dramatic increases, such as
men’s and boys’ man-made fiber coats and jackets, of which imports rose from
$1,400 in the first quarter of 2001 to $1.3 million in the first quarter of 2002. U.S.
imports of women’s cotton blouses and shirts also increased significantly, from
$13,000 to over $2 million.25 While this marks impressive growth, Vietnam still lags
far behind China, whose textile and apparel exports to the United States in the first
quarter of 2002 surpassed $1.5 billion.26
Table 2. U.S. Textile and Apparel Imports from Vietnam:
Selected Items
(millions of dollars)
Product Category
HTS
1999
2000
2001
Jan-Mar
Jan-Mar
Category
2001
2002
Knitted apparel
61
11.24
16.75
21.32
6.48
13.98
Non-knitted
62
25.15
29.92
26.04
7.03
18.47
apparel
Misc. textile items
63
0.28
0.85
0.74
0.12
0.62
Headgear
65
0.06
0.13
0.25
0.04
2.80
Total
36.73
47.65
48.35
13.67
35.87
Source: U.S. International Trade Commission. HTS is the Harmonized Tariff Schedule.
Figures for the first several months of 2002, however, may not be indicative of
the future pattern of trade. It is likely that some shipments planned for late 2001
were held off until the first quarter of 2002 in order to capitalize on the lower MFN
tariff rates. Therefore, the 2001 export total may be artificially low, while the 2002
23 Reporting from the U.S. Embassy in Hanoi, March 15, 2002.
24 Data from OTEXA, the Office of Textiles and Apparel, International Trade
Administration, U.S. Department of Commerce.
25 Trade Dataweb, U.S. International Trade Commission, available at
[http://www.dataweb.usitc.gov].
26 Data from OTEXA, the Office of Textiles and Apparel, International Trade
Administration, U.S. Department of Commerce.

---

CRS-8
first quarter results may overestimate the increase in trade. On the other hand, the
time lag between orders and deliveries may mean that these early numbers do not
capture sales that will be shipped later in the year. The fact that Vietnamese garment
exports to the U.S. declined between July and November 2001 may validate the
speculation that buyers delayed shipments in anticipation of the BTA. However, the
U.S. recession and post-September 11 effects on the international economy may have
also contributed to lower U.S. imports during those months.
Arguments For and Against a Textile Agreement
Support for a Textile Agreement
Members of the U.S. textile industry have called for a U.S.-Vietnam textile
agreement to protect domestic producers against a potential surge of Vietnamese
exports. With the view that Vietnam, with its low labor costs, most-favored-nation
status, and unrestrained access to the U.S. market, is a threat to domestic production,
they contend that the lack of a textile agreement could lead to increased job losses
and factory closings in an industry already hard hit by the worldwide recession and
trade benefits extended to other countries.27
The American Textile Manufacturers Institute (ATMI), for example, has stated
that the textile industry is already facing “its worst economic crisis since the Great
Depression,” with over 100 U.S. textile mills closing and over 60,000 workers losing
their jobs in 2001 alone.28 In 2001, governors from four textile producing states
urged President Bush to “recognize that the U.S. textile industry, like the steel
industry, is facing a crisis of survival that is not of its own making.”29 After
witnessing recent U.S. government actions to protect the domestic steel, lumber, and
catfish industries, the textile industry has called for comparable consideration.
Domestic pressure for a textile agreement has been further heightened by U.S.
quota concessions granted to Pakistan in February 2002 – estimated at nearly $500
million over three years – to help repay Pakistan for its help in the war against
terrorism. Sources in the textile industry assert that such concessions will have a
substantial impact on the U.S. textile industry and could cost as many as 2,500 jobs.30
In order to offset this negative impact on domestic industry, it has been suggested
that quota space from another country be shifted to Pakistan. Some sources have
hinted that Vietnam is the most likely candidate to lose potential quota, since
27 Inside U.S. Trade, “USTR Officials Visit Vietnam to Begin Talks on Textile Accord,”
February 22, 2002.
28 “ATMI Urges Congress, Administration to Adopt More Equitable Trade Policies,”
February 7, 2002, available on ATMI website at
[http://www.atmi.org/Newsroom/releases/PR200204.asp].
29 International Mass Retail Association, Press Release, August 2, 2001, may be found at
[http://www.imra.org/public/pages.index.cfm?pageid=280].
30 Inside U.S. Trade, “White House Grants Pakistan Quota Concessions Worth Half a
Billion,” February 15, 2002.

---

CRS-9
Vietnam is not a WTO member and it has just begun discussions with the United
States regarding a possible textile agreement.31 The fact that Pakistan, arguably one
of the United States’ most critical allies in the war on terrorism, received
significantly less than its initial proposal does not bode well for Vietnam, since it
may indicate the degree to which U.S. policymakers are willing to support the
domestic textile industry in the face of international competition.
Also, the United States may seek to conclude a textile agreement with Vietnam
in the interest of equity, since it has textile arrangements in place with all other
ASEAN countries, except for Burma and Brunei.32
Labor rights proponents have also pressed for a textile agreement with Vietnam
as a mechanism to promote improvements in Vietnam’s labor conditions, possibly
similar to the provisions under the 1999 U.S. textile agreement with Cambodia. At
this point, it is unclear what type of labor provision, if any, would be acceptable to
both countries.33 (See discussion below.)
Arguments Against a Textile Agreement
Those opposed to a textile agreement with Vietnam argue that by restricting
trade, any textile agreement would end up hurting American consumers, U.S.
industries, and the textile industry itself. By limiting the amount of apparel goods
available to U.S. consumers, in theory, quotas would restrict choice and raise the cost
to consumers of those goods, which in turn would reduce U.S. consumer spending
on goods from other industries. Textile agreement opponents maintain that this
would this weaken U.S. consumers’ purchasing power, and also limit Vietnamese
export earnings, thereby reducing their ability to buy U.S. goods. They assert that
textile quotas, in reducing the U.S. industry’s competition from abroad, also may
discourage the industry from modernizing and improving productivity. This may
leave the industry more vulnerable to international competition after textile quotas
expire under the ATC in 2005. Freer trade with Vietnam may also contribute to
greater voice for the private sector in the economic and political affairs of that
country.
Some opponents of a Vietnam textile agreement ask whether Vietnam can truly
be considered a threat. They assert that even if the level of Vietnamese textile and
apparel exports were to quadruple in 2002 to $200 million, that would still be
insignificant in the over $70 billion of U.S. imports. Moreover, in order for
Vietnam’s production to be a true threat to U.S. domestic producers, it has to be
31 Inside U.S. Trade, February 15, 2002; Paul Wiseman and James Cox, “Competing
Interests Tangle Textile Policy,” USA Today, April 2, 2002.
32 The ASEAN countries with which the United States has concluded textile arrangements
are Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, and Thailand. These
arrangements include bilateral textile agreements, visa arrangements concerning textiles and
textile articles/products, and administrative arrangements regarding textiles. Although the
United States currently has no formal textile agreement with Burma, it has placed import
quotas on selected Burmese textile and apparel products.
33 Inside U.S. Trade, February 22,2002.

---

CRS-10
shown that Vietnam’s increased market share would come out of the market share
of U.S. producers, with the more likely scenario being that increased imports from
Vietnam would displace the market share of China or other developing country
producers.
The Vietnamese government is reportedly reluctant to enter into an agreement,
arguing that quotas should not be discussed until the pattern of textile trade is
established. Given that quota levels are typically based on historical performance,
some observers believe there is a likelihood that quota levels may be set too low or
may be applied to the wrong categories. In the case of Cambodia, there was a period
of over 2 years between the U.S. granting of MFN status and the signing of a bilateral
textile agreement. The latter occurred after textile and apparel imports from
Cambodia surpassed $350 million.
Opponents of a textile agreement also argue that the imposition of quotas could
discourage potential investment in Vietnam’s textile industry. If Vietnam is subject
to U.S. quotas and is not a WTO member by 2005, the country would be at a
significant disadvantage against WTO competitors who will enjoy quota-free trade
in textiles and apparel. Opponents note that potential investors eyeing a post-BTA
Vietnam may choose not to risk being stranded in an industry that cannot compete
well in the world market after 2005. Increased foreign investment in the Vietnam
textile and apparel sector, on the other hand, may increase economic opportunities
for U.S. textile machinery, construction, telecommunications, and financial
companies, who could gain from that sector’s expansion. U.S. producers of raw
cotton, one of the United States’ leading export items to the Vietnam, may also
benefit from expansion of the garment sector. During the first quarter of 2002, when
Vietnamese textile and apparel imports increased rapidly, U.S. exports of cotton to
Vietnam doubled to $8.4 million.34
In August 2001, four U.S. trade associations – representing apparel retailers,
importers, and manufacturers – sent a letter to President Bush urging him to reject
additional protection for the textile and garment industry. Asserting that the industry
is already highly protected, with over “1,000 quotas” and relatively high duty rates
on imports, they dismissed any comparisons with the U.S. steel industry.35 In March
2001, the same trade associations urged United States Trade Representative Zoellick
to hold off on textile negotiations with Vietnam.36
Labor Rights
Accompanying initial discussion of a possible U.S. textile agreement with
Vietnam has been the question of whether such an agreement should have a labor
34 Trade Dataweb, U.S. International Trade Commission.
35 International Mass Retail Association, “President Bush Urged to Reject Additional Textile
Protection,” Press Release, August 2, 2001, may be found at
[http://www.imra.org/public/pages.index.cfm?pageid=280].
36 International Mass Retail Association, March 9, 2001.

---

CRS-11
provision, possibly modeled after the U.S.-Cambodia textile agreement. This section
will provide a brief background on the debate over labor provisions and explore some
preliminary issues relative to Vietnam.
Background on Labor Provisions in Trade Agreements
Linking the promotion of labor standards to international trade policy is a highly
controversial issue, both in the United States and internationally.37 Within the
broader debate about the effects of trade on labor standards and the impact of varying
labor standards on trade competitiveness is the question of whether trade agreements
should include legally-enforceable standards to protect worker rights. Labor rights
proponents argue that the WTO’s Trade-Related Aspects of Intellectual Property
Rights (TRIPS), which protects owner rights for seven types of intellectual property,
sets a precedent for including legally-binding standards that protect the rights of
resource holders in trade agreements. Some also ask whether it is morally acceptable
for the United States to import items made under labor conditions that would be
illegal if the production occurred in the United States. Proponents believe that a
critical advantage of including a labor rights provision in the body of a trade
agreement is that it allows for the use of the agreement’s dispute settlement process
to ensure that labor standards are enforced.
On the other hand, many argue that trade and labor issues should not be linked.
Some economists point out that labor provisions inhibit free trade, thereby raising the
prices and reducing the selection of imported goods. Other critics of the trade-labor
linkage assert that requiring poor countries to meet industrial nations’ standards
simply serves to protect developed country industries from developing country
competition and, in doing so, limits the developing country’s potential economic
growth through trade. Opponents of labor provisions maintain that, in the end, by
restricting trade and imposing higher standards, provisions that are ostensibly
designed to help workers may actually cause factories to close and workers in
developing countries, who have few safety net resources and work alternatives, to
lose their jobs.38 The WTO, faced with strong debate on this issue in the 1996
Singapore Ministerial, declared that the International Labor Organization (ILO) was
37 The labor standards outlined in the ILO’s 1998 Declaration on Fundamental Principles
and Rights at Work are widely accepted as the international core labor standards: freedom
of association and the right to bargain collectively, elimination of forced labor, abolition of
child labor, and the elimination of discrimination in employment. The U.S. Trade Act of
1974, as amended by P.L. 98-573, contains the first three standards in its definition of
worker rights; however, rather than non-discrimination in employment, its final standard
is acceptable conditions of work with respect to minimum wages, hours of work, and
occupational safety and health.
38 For more information, see CRS Report RS20909, Trade Agreements: A Pro/Con Analysis
of Including Core Labor Standards, by Gary Wells; and CRS Electronic Trade Briefing
Book, “Worker Rights Protection in Trade Agreements and Fast Track Authority,” by Mary
Jane Bolle.

---

CRS-12
the appropriate organization for labor matters and refused to link these issues to its
trade policies.39
Two U.S. trade agreements that are considered possible models for linking trade
and labor issues are the Cambodia-U.S. textile agreement and the Jordan Free Trade
Agreement. The “Cambodia model” introduced an innovative, incentive-based labor
provision that ties Cambodia’s improvements in labor standards to increased access
to the U.S. market. Under the agreement, Cambodia is entitled to receive annual,
one-time “bonus” increases in its quotas if a U.S. interagency panel determines that
working conditions in the textile and apparel sector “substantially comply” with
internationally recognized worker rights and Cambodian labor law.40 The bonuses,
which take effect for one year only, are in addition to the 6% increase that typically
is automatically granted to textile import quotas. In the 1999 agreement, the amount
of the potential quota bonus was up to 14%, and Cambodia received bonuses of 9%
in 2000, 2001, and 2002.41 After the awarding of each bonus, the Cambodian
government, American textile importers, and some labor rights organizations
criticized the United States for not awarding the full 14% increase. In December
2001, the U.S.-Cambodia textile agreement was amended and extended for another
three-year period, with the potential quota bonus raised to 18%.42 In order to gather
information on conditions in the garment sector, the United States, Cambodia, and
the Garment Manufacturers Association in Cambodia funded the establishment of an
independent monitoring system operated by the ILO. The ILO program began
monitoring factories in June 2001 and has so far produced two synthesis reports on
baseline conditions in 64 factories.43
The Jordan-U.S. Free Trade Agreement, adopted into law in September 2001,
represents the first U.S. free trade agreement to include labor provisions directly in
the body of the agreement, where they would be subject to dispute resolution
procedures. The labor provisions require each country to enforce its own labor laws
and authorize sanctions for non-enforcement. However, controversy over the use of
sanctions to enforce labor standards led to a last minute exchange of letters between
39 WTO, Trading into the Future. See also CRS Electronic Trade Briefing Book, “Labor
Issues and the WTO,” by Mary Jane Bolle.
40 The text of the Cambodia Bilateral Agreement is available on the website of the Office
of Textiles and Apparel, International Trade Administration, U.S. Department of Commerce,
at [http://web.ita.doc.gov/Otexa/]
41 The 2000 bonus was parceled out over the year. In December 1999, the U.S. promised
a 5% quota increase if Cambodia established an industry-monitoring program to be run by
the ILO. After Cambodia complied with this request, it was awarded the 5% increase in
May 2000. Five months later, the U.S. acknowledged further progress in Cambodia’s labor
rights situation by awarding an additional 4% increase. Inside U.S. Trade, “CITA Awards
Cambodia Nine Percent Quota Hike on Textiles, Apparel,” January 19, 2001.
42 Press release, USTR, “U.S.-Cambodian Textile Agreement Links Increasing Trade with
Improving Workers’ Rights,” January 8, 2002, available at
[http://www.ustr.gov/releases/2002/01/01-03.htm].
43 The Synthesis Reports from the ILO Garment Sector Working Conditions Improvement
Project are available on the ILO website at
[http://www.ilo.org/public/english/dialogue/govlab/cambodia/cambodia2.htm].

---

CRS-13
Jordan and the U.S. agreeing to “make every effort to resolve [the disputes] without
recourse to the formal dispute resolution procedures.”44 Some Members of Congress
have called on the Administration to include the “Jordan standard” in the areas of
trade and labor in future trade agreements.45
Possible Approaches Concerning a Vietnam Labor Provision
No Labor Provision. Many argue that there is no need for a labor provision
in any textile agreement, including a U.S.-Vietnam textile agreement. In addition to
the arguments mentioned above regarding the potential negative effects on workers
and consumers, opponents of a labor provision contend that the BTA in itself will
improve labor rights by promoting economic development, foreign investment, and
the rule of law in Vietnam.46
Other critics of a labor provision point out that Vietnam is already working with
the United States to improve its labor situation. Under a Memorandum of
Understanding (MOU) signed during former President Clinton’s visit to Vietnam in
November 2000, the Vietnamese Ministry of Labor, Invalids, and Social Affairs
(MOLISA) and the U.S. Department of Labor (USDOL) agreed to a program of
technical cooperation in six areas: employment services, social insurance,
employment for people with disabilities, industrial relations and labor law, child
labor, and HIV/AIDS workplace-based education. To date, projects in four of those
areas have been approved and are underway, with an industrial relations project
awaiting approval of MOLISA and the HIV/AIDS project in development. Some
contend that through its labor cooperation with the U.S. prior to the BTA, its
numerous labor programs with the ILO and other foreign governments, and its recent
revision of the Labor Code, Vietnam has already demonstrated its commitment to
improving labor standards. These critics conclude that a labor provision is not only
unnecessary, but that it could potentially distort the current efforts to improve worker
rights in Vietnam.
As discussed above, however, labor rights supporters view a labor provision
both as leverage to level the competitive playing field and as insurance against the
use of unfair or substandard labor practices to bolster exports.
MOU Plus. Another approach would be to supplement the current U.S.-
Vietnam labor cooperation program with an initiative tailored to the purpose of the
labor provision. For example, if the goal of the labor provision were to improve
conditions in the garment sector, efforts could be targeted at building the capacity of
the Vietnamese labor inspectorate to identify and enforce violations in that sector.
44 CRS Report RL31178, Trade Promotion Authority (Fast-Track): Labor Issues (Including
H.R. 3005 and H.R. 3019), by Mary Jane Bolle.
45 Inside U.S. Trade, “Daschle, Baucus Warn Zoellick Against NAFTA Approach to Labor,
Environment Provisions,” March 22, 2002.
46 For further information on Vietnam’s labor situation, see CRS Report RL30896,
Vietnam’s Labor Rights Regime: An Assessment, by Mark Manyin, Thomas Lum, Lois
McHugh, Phuong-Khanh Nguyen, and Wendy Zeldin.

---

CRS-14
This could also entail focusing attention on the garment industry through cooperation
with the ILO. Such an approach would likely be supported by those who argue that
the improvements in Cambodia’s garment sector are the result of the international
attention focused on the industry, rather than the specific incentives of the U.S.-
Cambodia textile agreement.
Jordan Standard. Supporters of a labor provision would argue that, at a
minimum, any textile agreement should have language similar to that in the U.S.-
Jordan Free Trade Agreement that requires Vietnam to enforce its labor laws. A step
beyond that would be to include dispute resolution procedures that would provide a
mechanism for the U.S. to legally enforce the labor provision. This would give the
United States economic recourse in the event that Vietnam lowered its labor
standards. U.S. opponents of a dispute resolution mechanism that includes labor
standards argue that it opens the door to the imposition of trade sanctions for alleged
violations, or lack of enforcement, of a country’s own labor laws. Based on
Vietnam’s reaction to U.S. comments on its human rights situation, Vietnam would
likely view this approach as an unwarranted interference in its internal affairs.
Cambodia Model. Some have suggested that a Vietnam textile agreement
include a trade incentive provision modeled after the Cambodia textile agreement.
Advocates of this provision point to numerous improvements in Cambodia’s labor
system as evidence of the model’s effectiveness. For example, since the agreement
began in 1999, Cambodia has established a tripartite Labor Advisory Committee,
ratified 7 of the 8 ILO core conventions, and established new regulations on union
representation for collective bargaining. In addition, the minimum wage in the
garment sector has been raised, and the number of registered unions has risen from
20 in 1997 to 245 by January 2002. Approximately 218 of those unions are in the
garment sector.47
The Cambodia ILO monitoring system itself has also been praised for
contributing to increased communication, trust, and understanding of Cambodian
labor laws among unions, employers, and the government. Through a Project
Advisory Committee, the monitoring program has provided a forum for the tripartite
social partners to discuss labor issues related to the project. That committee also
serves as an effective monitor of the monitoring program itself, since all three social
partner groups review, and in some cases approve, activities under the project.
Through factory visits and meetings with workers, the monitoring program has also
increased awareness among factory management and employees about Cambodian
labor laws.
Other supporters of the Cambodian model view it not only as a way to
encourage governments to take action to improve labor conditions, but, more
importantly, as a mechanism to empower workers. Because enterprises have to
demonstrate good working conditions in order to receive quota bonuses under the
agreement, it is in their interest to keep workers satisfied in order to minimize the
incidence of complaints and disputes. This provides workers with an environment
47 Labor Trends Report 2002, U.S. Embassy in Cambodia, April 2002, available at
[http://usembassy.state.gov/cambodia].

---

CRS-15
in which their issues are more likely to be addressed to their satisfaction and without
reprisal from management.
Supporters of the Cambodia model emphasize that as labor conditions
improved, through the incentive system, so did the economic benefits to Cambodia.
Since the start of 1999, Cambodia has increased its garment and textile exports to the
U.S. by roughly $500-600 million, the number of garment factories has increased,
and approximately 100,000 jobs have been created in the sector.48 Some contend that
the ILO’s neutral review of labor conditions makes Cambodia’s garment sector more
attractive for buyers and retailers who are concerned about social responsibility.
They also assert that by contributing to improved labor relations, the Cambodia
model has enhanced political stability – another critical factor in economic growth.
Thus, according to some, the Cambodia model proves that linking trade and labor can
bring about the win-win results of economic growth and improved working
conditions. U.S. Trade Representative Robert Zoellick called the Cambodia
agreement “an excellent example of the way trade agreements lead to economic
growth and promote a greater respect for workers’ rights.”49
On the other hand, the Cambodia agreement has been criticized for several
reasons. Some critics argue that focusing international attention and inspection
resources on the garment sector distorts the equal protection of workers in other
sectors. Although garment sector workers account for 50% of the industrial work
force in Cambodia, they represent only 3% of the national work force.50 Some
question whether the United States should be promoting increased rights for workers
in favored sectors only, and why the United States only examines conditions in one
sector to determine whether Cambodia complies with international labor standards.
These critics also point out that despite the increased international attention and
Cambodia’s efforts, there continue to be reports of child labor, forced overtime, and
anti-union discrimination in the garment sector.
Other critics have called into question the effectiveness of the Cambodia
incentive provision, citing the fact that most of Cambodia’s apparel exports to the
United States are not under quota. According to a private-sector source, Cambodia’s
unrestricted trade to the United States as of October 31, 2001 was almost two and a
half times the volume of the trade under quota.51 Some observers suggest that
leaving most textile and apparel trade unrestrained is a greater benefit to Cambodia
than the bonus quota offered through the labor provision. Of the factories that do
produce quota goods, there is the question of whether those in compliance with labor
laws actually receive the bonus quota or more of the bonus quota than non-complying
48 Labor Trends Report 2002, U.S. Embassy in Cambodia; Data from the OTEXA, the
Office of Textiles and Apparel, International Trade Administration, U.S. Department of
Commerce.
49 Office of the United States Trade Representative, Press Release, January 7, 2002.
50 Labor Trends Report 2002, U.S. Embassy in Cambodia.
51 Inside US Trade, “U.S.-Cambodia Textile Deal Leaves Most Trade Unrestrained,”
January 11, 2002.

---

CRS-16
factories.52 If Cambodian garment factories do not need additional quota nor expect
to receive it, the bonus quota may have little impact on factory management
behavior. Some contend that it is the international attention focused on its main
industry, rather than the quotas, that prompted the reported improvements in
Cambodia’s labor situation.
Another criticism of the incentive provision is that it acts in effect like a reverse
sanction. Under a regular quota, the exporting country is entitled to ship a set amount
of goods to the United States. If the United States believes labor laws in that country
are not being enforced, then the United States must prove it in order to take that
country’s quota away. Under the incentive approach, the presumption is that the
exporting country has poor labor standards. In order to receive its bonus quota, the
country must prove that presumption wrong. If, in the end, it receives less than the
full amount of bonus quota, as the case has been with Cambodia, it has little
recourse.
Some opponents of the Cambodia agreement assert that it suffers from a lack
of transparent criteria used to measure Cambodia’s “substantial compliance.”53
While the ILO monitoring program bases its factory inspections on a comprehensive
checklist of criteria, the program is still gathering baseline data on most factories and
has yet to release a follow-up report that will show whether conditions have
improved or worsened. Since 1999, however, the U.S. has awarded bonus quota to
Cambodia 3 times for improvements in complying with core labor standards. Some
critics question how those determinations were made, since the ILO program did not
produce its first report until November 2001, and since information from the semi-
annual labor consultations conducted under the textile agreement is not available to
the public. On the flip-side, these critics ask whether a monitoring program is
necessary at all, if the data used to make the “substantial compliance” determination
is available from other sources.
Another view holds that the Cambodia model, whether effective in Cambodia
or not, is not applicable to the Vietnam context. Some argue that it would be difficult
for Vietnam to comply with the labor standards criteria and difficult for the United
States to find Vietnam in “substantial compliance.” The key question is how to deal
with the issue of freedom of association, one of the internationally-recognized core
labor standards. Although Vietnam, as an ILO member state, is obligated to promote
freedom of association, workers in Vietnam are reportedly not accorded that right by
the government. According to the State Department, in Vietnam, “Workers are not
free to join or form unions of their choosing ... Trade unions are controlled by the
Party and have only nominal independence ... Individual unions legally are not free
to affiliate with, join, or participate in, international labor bodies.”54 The argument
can be made that, by restricting freedom of association in this way, Vietnam does not
52 Brenda Jacobs, “The Growing Market for US Investment in Textiles,” Doing Business
in Cambodia Today Conference Report, April 18, 2001.
53 Brenda Jacobs, April 18, 2001.
54 U.S. Department of State, Country Reports on Human Rights Practices, Vietnam 2001.

---

CRS-17
comply with international core labor standards. Therefore, some observers believe
that Vietnam would be ineligible for any bonus quota under an incentive provision.
Critics of a Vietnam incentive provision speculate that the only way Vietnam
could receive bonus quota would be if the United States, focusing on the term
“substantial,” chose to reward Vietnam’s compliance with other labor standards.
Alternatively, the United States could examine other, perhaps more factory-level
indicators of freedom of association, such as whether workers are free to join or not
join unions, or whether factory unions have the ability to represent workers and
negotiate on behalf of workers. Given that the United States has been a strong
supporter of labor standards and, as an ILO member state, is obligated to respect all
of the core standards, such an approach may be inconsistent with avowed U.S.
policies on labor standards.
Additionally, some question whether a textile agreement would press Vietnam
to lift its restrictions on freedom of association. Since this would require the
Communist Party to relinquish significant control, the achievement of complete
freedom of association over the next few years is highly unlikely. However, a strong
labor incentive could perhaps influence Vietnam to allow greater freedom for the
hundreds of unofficial “labor associations” that exist in Vietnam.
In terms of applying a Cambodia-like monitoring program to Vietnam, some
argue that the logistics would be much more complicated and costly. In Cambodia,
the garment sector is limited to an estimated 220 factories, located mostly in and
around Phnom Penh, that employ 200,000 workers.55 In Vietnam, there are over
1,000 textile and apparel enterprises located across the country, with 1.6 million
employees. Even if a monitoring program were to focus solely on garment factories,
since clothing rather than textiles dominates the sector’s exports to the United States.,
this would still require substantial financial and manpower resources. If the
Cambodia program’s monitoring and reporting schedule were applied to Vietnam,
with a rate of inspection of approximately 100 factories per year, it would take
several years for a sizeable sample of Vietnamese factories to be evaluated.
The bureaucracy of conducting surprise inspections, critics contend, may also
be cumbersome. Because factories are located across numerous provinces and
special investment zones, approval for random inspections would be needed from the
national government, provincial governments, export-processing and industrial zone
authorities, national and local unions, national and local industry associations, and
the factories themselves. In addition to maintaining a geographic balance among
participating factories, a balance would have to be sought in ensuring that state-
owned, domestic private, and foreign-invested enterprises are treated equally.
Inspection of the state-owned enterprises, in particular, may be a politically sensitive
issue, especially if the monitoring process finds violations. Moreover, unlike
Cambodia, where the independent tripartite social partners – the employer
association, unions, and government – ensure the neutrality of the monitoring
program by voicing their different interests, Vietnam’s social partners are all linked
55 Labor Trends Report 2002, U.S. Embassy in Cambodia; Synthesis Reports from the ILO
Garment Sector Working Conditions Improvement Project.

---

CRS-18
in varying degrees to the Communist Party. This implies, some argue, that the
interests of the government, the entity most closely connected to the Party, will
dominate any type of monitoring program.
In the end, because of the controversial nature of the Cambodia model and the
particular sensitivities of applying it to Vietnam, the Vietnamese government may be
unwilling to agree to such a provision. The Vietnamese reaction to U.S. comments
on its human rights situation suggests that it would likely claim a Cambodia-type
program to be interference in its internal affairs.
On the other hand, Vietnam may also recognize the potential economic benefits
of such a program. If a Cambodia-style labor provision could contribute to both
increased employment and exports, as it reportedly did in Cambodia, it might be an
attractive option for Vietnam, which currently faces concerns over unemployment
and underemployment. In addition, if a neutral monitoring system were to find
favorable labor conditions in Vietnam, or could contribute to improved labor
conditions, it might attract buyers and retailers who had not been operating in
Vietnam due to unfavorable accounts regarding Vietnam’s working conditions.
Moreover, since many of the criticisms discussed above focus on implementation
aspects of the Cambodia provision, they may provide useful “lessons learned” for the
design of a more effective Vietnam labor provision. As mentioned, the United States
has significant leverage on this issue, given that it could impose textile and apparel
quotas unilaterally on Vietnam at any time.
Other Trade Issues
Several recent issues may influence the U.S.-Vietnam relationship and the
negotiation of a textile agreement.
“Catfish”. The first potential post-BTA trade dispute between the U.S. and
Vietnam is centered around the labeling of Vietnamese so-called “catfish.” In late
2001, after American catfish farmers successfully argued that imports of the cheaper
Vietnamese whiskered fish (also known as basa and tra, from the pangasius family
of catfish) – which have increased sharply in recent years – were improperly labeled
as “catfish,” Congress included language in the Food and Drug Administration 2002
appropriations act that temporarily restricted use of the name “catfish” in the U.S.
market to the ictaluridae catfish family. Section 10806 of the recently-enacted 2002
U.S. Farm Act (P.L. 107-171) also prohibits non-ictaluridae fish from being
marketed as “catfish” in the United States. In spite of this trade dispute, Vietnamese
basa fish exports to the United States increased to $30 million in the first two months
of 2002, already surpassing the $22 million total for 2001. In the latest move, the
Catfish Farmers of America are reportedly preparing to launch a possible
antidumping campaign against Vietnam.56
Intellectual Property Rights. In April 2002, the United States placed
Vietnam on its “301 watch list” of countries that fail to protect against violations of
56 Washington Post, “U.S. Catfish Industry Readies for Fight,” April 26, 2002.

---

CRS-19
intellectual property rights.57 During the first yearly review of the BTA in May,
Assistant U.S. Trade Representative Jon Huntsman stated that intellectual property
rights were at “the very foundation of our trading relationship,” with Vietnam and
warned that failure to act against violations of those rights may result in retaliation.58
Under the BTA, Vietnam agreed to be in full compliance with trademark protection
within 12 months and copyright protection within 18 months of the agreement
coming into effect.59 Implementation of these commitments will likely be closely
watched by the United States.
Conclusion
Textile and apparel trade has been a highly contentious issue in trade legislation
for decades. It is not clear at this point whether formal U.S.-Vietnam textile
negotiations will move forward and, if so, at what speed. The recent U.S. actions
taken in the interest of the domestic steel, lumber, and catfish industries suggest that
a textile agreement with Vietnam may well be on the horizon. The United States
may have leverage on the issue because it could impose quotas on Vietnam at any
time. Under Section 204 of the Agriculture Act, the United States can impose quotas
for textiles in the event that imports lead to “market disruption.” Therefore, while
textile quotas can be set through the negotiation of a textile agreement with Vietnam,
the United States could also impose them unilaterally because Vietnam is not a
member of the WTO and, therefore, does not have access to the WTO dispute
settlement mechanisms.60
Given the current low level of textile imports from Vietnam and the numerous
alternative suppliers, arguments for and against a textile agreement seem to be more
precautionary and based on principles of free trade and economic liberalization for
Vietnam rather than being aimed at redressing past or current injury to the U.S.
textile and apparel industry. However, while Vietnam’s textile industry is now
relatively small, it appears to have the potential to become large. A textile agreement
would provide predictability over the medium term of just how much the industry
would be allowed to compete in the U.S. market and would bring textile trade with
Vietnam under agreement similar to those already signed with other Southeast Asian
countries.
57 The “Special 301” provisions of the Trade Act of 1974, as amended, require the U.S.
Trade Representative to identify “foreign countries that deny adequate and effective
protection of intellectual property rights or fair and equitable market access for U.S. persons
that rely on intellectual property protection.” The 2002 Special 301 Report is available on
the website of USTR at [http://www.ustr.gov].
58 David Brunnstrom, “United States warns Hanoi on intellectual property,” Reuters, May
7, 2002.
59 Tini Tran, May 7, 2002.
60 Inside U.S. Trade, “Zoellick: Problems with Environment, Labor in U.S.-Jordan FTA,”
March 9, 2001; 7 U.S.C. 1854; P.L. 84-540 as amended.

---

CRS-20
Yet an agreement would impose more restrictions on textile and apparel imports
just as such restrictions are being phased out under the WTO. Although current
imports from Vietnam are small, restrictions are likely to have a distorting effect on
trade flows, prices of such products from Vietnam, and the incentives for investment
in the industry. Allowing Vietnam’s textile and apparel industry to develop further
by not restricting access to the American market can also be seen as fostering
Vietnam’s nascent market economy and possibly a greater voice for the private sector
in the nation’s economic and political affairs.
If the combined pressure of textile interests and labor rights supporters succeeds
in prompting the negotiation of a textile agreement, the key for the Administration
and Congress will be satisfying both agendas. With respect to a labor provision, the
more such a provision would require Vietnam to open its labor environment to
scrutiny, or to open itself to the risk of some form of economic sanctions, the more
likely Vietnam may be to reject the accompanying textile deal or to seek U.S.
concessions in setting quotas. If the United States sets stringent quotas, it may be
more difficult to obtain Vietnamese agreement to an extensive labor provision. On
the other hand, the Vietnamese government may be more amenable to a labor
provision than expected, if it anticipates that it could benefit through increased
employment and investment in the textile and apparel industry. In addition, as
Vietnam has witnessed in its “catfish” labeling dispute with the United States,
increased international attention on Vietnamese products may translate into increased
sales. Until formal textile negotiations actually begin, it is not clear what type of
labor provision, if any, would be acceptable to both Vietnam and the United States.

---