Analysis: World's apparel, sneakers hub Vietnam struggles as US ban on Xinjiang cotton bites

Regina Miracle International (Holdings)

27/04/2023 11:00

* 
      Vietnam apparel worst hit by U.S. curbs, data show
    

        * 
      Apparel suppliers to big brands depend on Chinese input
    

        * 
      Blow to apparel exports hurts Vietnam's growth 
    

  
    By Francesco Guarascio and Khanh Vu
       HANOI, April 27 (Reuters) - Tighter U.S. rules to ban
imports from China's Xinjiang are compounding pressure on
Vietnam's apparel and footwear makers, hitting a sector that has
already shed nearly 90,000 jobs since October in the global
manufacturing hub as demand slowed.
    Among garment exporters, Vietnam has faced the worst hit
from the the Uyghur Forced Labor Protection Act (UFLPA), a
Reuters review of official U.S. data showed. The law, in place
since June, requires companies to prove that they do not use raw
material or components produced with Xinjiang's forced labor. 
    The U.S. clampdown hurts as it comes on top of a drop in
clothing demand from richer nations that has already dented
industrial output and exports from the Southeast Asian
manufacturing powerhouse, a major supplier to big brands such as
Gap  GPS.N , Nike  NKE.N  and Adidas  ADSGn.DE .
    Of the $15 million worth of apparel and footwear shipments
held up for UFLPA checks more than 80% were from Vietnam, and
only 13% of its cargoes were cleared for entry, U.S. customs
data up to April 3 showed.
        
    
    Many U.S. importers are still sanguine, but their supply
chains could still be disrupted as Vietnam's apparel makers
depend on China for about half of their input materials,
according to the country's industry association.
    Vietnamese manufacturers, trade associations and the
industry ministry did not reply to Reuters questions about the
impact of UFLPA.
    The value of shipments from Vietnam that have been denied
entry to the U.S. exceeded $2 million, three times more than
those from China - with the sanctions having increased
exponentially in the first months of this year.
    While U.S. controls have been far more frequent for the
electronics industry, especially for solar panels which could be
made with polysilicon from Xinjiang, only 1% of electronics
cargoes checked were denied entry, as opposed to 43% of apparel
and footwear shipments. 
    In total, customs checked nearly 3,600 shipments worth more
than $1 billion from a range of countries to ascertain they did
not carry goods with input from forced labor in Xinjiang, U.S.
customs data showed.
        
    XINJIANG LINKS
    While the halted shipments represent a tiny portion of the
$27 billion worth of garments and footwear Vietnam exported to
the U.S. last year, compliance risks may lead to more painful
adjustments for Vietnam.
    That, in turn, will hit U.S. consumers as Vietnam is their
main source of cotton apparel, according to the U.S. Department
of Commerce.
    "Vietnam's heavy reliance on cotton textile materials from
China poses a significant risk of containing Xinjiang cotton, as
the province produces over 90% of China's cotton," Sheng Lu,
Director at the Department of Fashion and Apparel Studies at the
University of Delaware, told Reuters.
    He said it was unlikely Vietnam could drastically reduce
this dependence, also because many manufacturers there are owned
by Chinese investors. 
    An industry and a government official familiar with the
matter confirmed that some Vietnamese suppliers may find it hard
to comply with the new rules, either because they import cotton
from Xinjiang or because they are unable to prove they do not.  
    The Federal Maritime Commission, the U.S. agency responsible
for international ocean transportation, warned earlier this
month of potential supply chain disruptions caused by UFLPA
checks.
    In a survey last year, nearly 60% of U.S. fashion industry
managers said they were exploring countries outside Asia for
their supplies as a reaction to the forced labor law.
    Sheng Lu said it would be hard for U.S. firms to rapidly
find alternative suppliers, therefore more checks on Vietnamese
cargoes are to be expected.
    Western companies should "make more significant efforts to
map their supply chain, figure out where production at each
stage happens and demonstrate adequate due diligence", he said. 
    SHEDDING JOBS
    Weaker demand has forced the industry, Vietnam's biggest
employer after agriculture, to shed nearly 3% of its 3.4 million
workers since October, and contributed to an 11.9% drop in the
country's exports and a 2.3% decline in output in the first
quarter of this year from a year earlier, slowing growth.
    Roughly one in every three pairs of shoes that Nike and
Adidas sell globally and 26% and 17% of their clothing,
respectively, is made in Vietnam.
    However Nike has significantly reduced its output of apparel
and footwear in Vietnam despite the country remaining its main
manufacturing hub, according to its latest annual report updated
to May 2022. It did not reply to questions about UFLPA. 
    Adidas did not comment on UFLPA either, but said downsizing
at its Vietnamese suppliers would respect local law. 
    "Vietnam continues to be among our major sourcing
countries," an Adidas spokesperson said. 
    Gap said it had no shipments detained. 
    Two officials from U.S. footwear and apparel industry trade
associations said the new rules have had no major impact so far
on Vietnam and blamed recent job cuts on lower global demand.
    Major job cuts in Vietnam were under way at Pou Chen
 9904.TW , a major supplier to Nike and Adidas, Reuters reported
in February, at a time when it is planning a big manufacturing
investment in India. 
    People were fired at a contractor of U.S. sportswear company
Under Armour, and workers had their hours slashed at Regina
Miracle International, a supplier of U.S. lingerie giant
Victoria's Secret, workers and executives told Reuters.
    Those companies did not reply to Reuters' questions.
    "Normally, firms recruit new workers after Tet (Lunar New
Year), but this year everything has gone the opposite," said
Nguyen Thi Huong, 45, who worked for Pou Chen for ten years and
recently lost her job.

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Frozen trade    https://tmsnrt.rs/41FXanr
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Khanh Vu and Francesco Guarascio; Additional
reporting by Kate Masters, Casey Hall and Phuong Nguyen; Editing
by Miyoung Kim and Sonali Paul)
 ((Francesco.Guarascio@tr.com))