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The Vietnam-U.S. Textile Agreement

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Abstract:

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.