April 28, 2023
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.
Reporting
by Khanh Vu and Francesco Guarascio; Additional reporting by Kate Masters,
Casey Hall and Phuong Nguyen; Editing by Miyoung Kim and Sonali Paul
Video Shows Transfer of Uyghur
Detainees | Radio Free Asia (RFA)
Oct 9, 2019
https://www.youtube.com/watch?v=5FiTfJfea0c
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