Vietnam may take US export share away from China

Shipments of plastics from Vietnam to the US increased 41 percent through August to $112 million, led by polyethylene bags. Vietnam may take US export market share from China should the former be admitted to an American program that would eliminate some import duties, the Congressional Research Service found in a study.

Though experts say that the US might want something in return, Vietnam’s government asked the US in May to make it eligible for a program that promotes growth in poorer countries by axing tariffs on some imports. While there is no regulatory timetable, the target is for President George W. Bush to admit Vietnam this year, according to the US-Association of Southeast Asian Nations Business Council. “Rising production costs in other parts of Asia, especially in China, are leading manufacturers to explore alternative locations for their Asian operations,” said the report by Washington-based Michael Martin and Vivian Jones, Asian trade and finance analyst and international trade and finance expert respectively. Olympus Corp., a Tokyo-based digital-camera maker, will close a factory in China to move some operations to Vietnam, the Nikkei newspaper said in November. Olympus said last year it plans to build a factory in Vietnam. “Chinese companies in particular, facing rising labor costs and the strengthening of the renminbi against the US dollar, may find the added bonus of Generalized System of Preferences eligibility an incentive to relocate their final assembly operations to Vietnam,” Martin and Jones wrote. Exports to US Vietnam’s exports to the US, the world’s largest economy, have grown quicker this year than those from China, which is not a member of the US program. Shipments rose 20 percent through August, and Chinese exports gained 6 percent in the same period. Any shift to Vietnam “could partially offset the general rise in the US bilateral trade deficit with China,” the Congressional Research Service said. Last year, the US posted a US$262 billion trade shortfall with China, its largest gap with any trading partner, according to figures from the US International Trade Commission. Vietnam’s machinery industry would probably benefit the most, according to the study. Electrical-machinery exports to the US jumped 23 percent through August to $253 million, paced by shipments of video cameras and wiring. Plastics exports may also gain from duty-free access under the American program, the US said. Shipments of plastics from Vietnam to the US increased 41 percent through August to $112 million, led by polyethylene bags. Apparel, furniture Vietnam’s top exports to the US – apparel, furniture, shoes and crude oil – are largely excluded from the tariff-elimination program, the Congressional Research Service study said. Products designated by the US as “import-sensitive” aren’t part of the program, according to a June report from the US-ASEAN Business Council. Inclusion in the program offers the potential for Vietnam to diversify its exports into new areas where it has so far not been competitive, the US-ASEAN Business Council report said. “It’s probably not going to happen this year,” said Fred Burke, a partner in the Ho Chi Minh City office of the law firm Baker & McKenzie. “The American business community hasn’t been pushing it.” The US may want Vietnamese concessions in exchange. “My sense is that American companies don’t want to just give away something for nothing,” Burke said. “They’d want something in return, like better access to retail distribution in Vietnam.” Source: Bloomberg