Vietnam exporters fret over potential trade fallout of U.S. rules on Xinjiang

HANOI, Feb 14 (Reuters) - Concerned Vietnam-based exporters are seeking to ensure they comply with a U.S. ban on imported products using raw materials from China's Xinjiang as lucrative trade in goods like garments and solar panels comes under closer scrutiny in Washington.

As U.S. Trade Representative Katherine Tai visits Vietnam this week, executives and other people familiar with the situation said some industries in Vietnam may be importing, sometimes unwittingly, raw material from Xinjiang - or might find it hard to prove they were not doing so.

The U.S. embassy in Hanoi had no comment on the issue and the matter was not on the official list of topics that Tai planned to discuss with the Vietnamese government, according to a media statement.

The U.S. Uyghur Forced Labor Prevention Act, which came into force last June, has already halted more than 1,500 shipments to the United States from all over the world worth about $500 million, according to data from the U.S. customs agency.

Washington accuses China of committing genocide against ethnic Uyghurs and other Muslims in Xinjiang, and herding them into camps. Beijing denies abuses in Xinjiang, but says it had established "vocational training centres" to curb terrorism, separatism and religious radicalism.

Vietnam posted a $116 billion trade surplus with the United States last year, led by shipments of goods such as electronics, clothing and footwear.

The solar panel sector could be particularly at risk, as it greatly relies on polysilicon for solar cells, whose global production is concentrated in Xinjiang. Alongside other Southeast Asian countries, Vietnam accounts for about 80% of U.S. panel supplies, and Vietnam's panel exports to the United States were worth $3.4 billion in 2020.

"This is a major concern if the silicon is sourced from the concerned region," said Kheng Joo Ung, Managing Director at the Vietnam unit of First Solar Inc (FSLR.O), a leading exporter of panels to the United States.

First Solar did not use polysilicon in its panels, but competitors in Vietnam did, he said, without identifying any companies. Some polysilicon is produced in Vietnam, Ung said.

In addition to First Solar, the top solar panel makers in Vietnam are mostly Chinese companies, according to investment consultancy Dezan Shira.

More Chinese providers of components and supportive services, such as plastic molding and die casting, planned to invest in Vietnam to supply solar panel makers there, two industry experts said, declining to be named because the information was confidential.

No evidence has been publicly released so far of use of Xinjiang's polysilicon in Vietnam.

The Vietnamese government did not immediately respond to a request for a comment.

A third trade expert who attended internal meetings with U.S. customs officials in recent weeks told Reuters Vietnam had recently been repeatedly mentioned among the countries at highest risk of falling foul of U.S. trade restrictions. The expert declined to be identified due to the sensitivity of the matter.

U.S. officials have cited Vietnam's positive efforts to comply with the new rules and some have said compliance may be a temporary hiccup.

Even companies determined to play by the rules face compliance risks.

For smaller actors it may not be easy to produce the documentation needed because of higher due diligence costs and sprawling supply chains, said one Vietnam-based executive, noting that the textile industry is also wary, since Xinjiang is also a big producer of cotton yarn. The executive declined to be named because he was not allowed to speak to media.

Reporting by Francesco Guarascio; Additional reporting by Phuong Nguyen; Editing by Ed Davies and Kenneth Maxwell

Our Standards: The Thomson Reuters Trust Principles.

Thomson Reuters

Francesco leads a team of reporters in Vietnam that covers top financial and political news in the fast-growing southeast Asian country with a focus on supply chains and manufacturing investments in several sectors, including electronics, semiconductors, automotive and renewables. Before Hanoi, Francesco worked in Brussels on EU affairs. He was also part of Reuters core global team that covered the COVID-19 pandemic and participated in investigations into money laundering and corruption in Europe. He is an eager traveler, always keen to put on a backpack to explore new places.