Vietnam, the world’s footwear and apparel hub, is struggling as US cotton ban bites

File photo: Workers work in a clothing factory near Hanoi, Bac Giang Province October 21, 2015. Vietnam’s textiles and footwear would gain strongly from the TPP, after exports of $31 billion last year for brands such as Nike, Adidas, H&M, Gap, Zara, Armani and Lacoste. REUTERS/Kham

HANOI  -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.

A Reuters analysis of U.S. official data revealed that Vietnam was the hardest hit among garment exporters by the Uyghur Forcible Labor Protection Act. 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.

This U.S. crackdown is hurtful, because it follows a fall in the demand for clothes from wealthier nations. The drop has already affected industrial production and exports of Southeast Asian manufacturing giant, a key supplier to brands like Gap and Nike.

Data from U.S. Customs up until April 3, showed that more than 80 per cent of the $15 million in apparel and footwear held for UFLPA inspections came from Vietnam and just 13 per cent of their cargoes had been cleared to enter.

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 organizations and the Industry Ministry did not respond to Reuters’ questions regarding 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.

Only 1 percent of the electronic cargoes that were checked for entry was denied, compared to 43 percent for apparel and footwear shipments.

Customs officials in the United States checked more than 3,600 shipments from a variety of countries, totaling over $1 billion, to ensure that they didn’t contain goods containing forced labor from Xinjiang.

Xinjiang links

Although the stopped shipments are a very small part of the 27 billion dollars worth of clothing and footwear Vietnam exports to the U.S. each year, risks of non-compliance may result in more painful adjustments to Vietnam.

According to the U.S. Department of Commerce, this will also affect U.S. cotton clothing consumers, as Vietnam is their primary source of apparel.

“Vietnam’s heavy reliance on cotton textile materials from China poses a significant risk of containing Xinjiang cotton, as the province produces over 90 percent of China’s cotton,” Sheng Lu, Director at the Department of Fashion and Apparel Studies at the University of Delaware, told Reuters.

Vietnam is unlikely to be able to drastically reduce its dependence on China, he said.

A government official and an industry representative familiar with this issue confirmed that certain Vietnamese suppliers might find it difficult to adhere to the new regulations, because they either import cotton from Xinjiang (or are unable prove otherwise) or they have imported cotton.

Carl Bentzel a Federal Maritime Commission commissioner, responsible for the international transportation of goods by ocean, issued a warning earlier this month regarding the potential for supply chain disruptions due to UFLPA check. The statement was published on the Commission website.

As a result of the U.S. forced labor laws, almost 60 percent (60%) of fashion managers in America said that they are looking for suppliers outside Asia.

Sheng Lu has said that the U.S. will have a hard time finding alternative suppliers and therefore, there should be more scrutiny of Vietnamese goods.

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.

The Shedding of Jobs

Weaker demand has forced the industry, Vietnam’s biggest employer after agriculture, to shed nearly 3 percent of its 3.4 million workers since October, and contributed to an 11.9 percent drop in the country’s exports and a 2.3-percent decline in output in the first quarter of this year from a year earlier, slowing growth.

Vietnam produces approximately one third of the shoes and clothing that Nike and Adidas worldwide sells, and 26% and 17% of the apparel, respectively.

Nike, however has drastically reduced the amount of clothing and footwear it produces in Vietnam even though this country remains its major manufacturing hub. This is according to Nike’s most recent annual report (updated to May 20, 2022). The company did not respond to any questions regarding UFLPA.

Adidas has not commented on UFLPA but says that it will comply with local law by reducing its Vietnamese supplier base.

“Vietnam continues to be among our major sourcing countries,” an Adidas spokesperson said.

Gap has said that it did not have any shipments seized.

According to officials in the U.S. footwear, apparel and industry associations, new rules on Vietnam haven’t had any major effect so far and recent job cuts are due to lower global demand.

Reuters reported on February that major cuts to the workforce were being made at Pou Chen in Vietnam, a key supplier for Nike and Adidas. The company was also planning a significant 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.

Vietnam exporters are worried about the potential impact on trade of U.S. Xinjiang rules

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