HANOI, April 19: Hanoi and Washington have agreed to a yearly cap on the value of Vietnam textile and garment exports, the communist country’s second biggest earner.

The pact in principle, coming after a week of strenuous negotiations, will limit Vietnam’s exports of the products to the United States to $1.7 billion a year and is expected to take effect in the next few months, a source familiar with the talks said on Saturday.

“It was a very tough negotiation,” the source added.

It was not immediately clear what impact the pact would have, as Vietnam’s sales of textiles and garments to the United States last year were worth only around $800 million.

Total exports of the product, however, earned it $2.7 billion last year, second behind revenues from crude oil, and the industry expects the figure to rise to $3.2 billion this year, the official Vietnam News Agency (VNA) said in a report.

Officials in the Vietnam government and the US embassy involved in the talks could not immediately be reached for comment.

Vietnam had been able to sell as much as it wanted until the new curb, which was urged by US textile manufacturers but opposed by 35 American retailers who fear the loss of a new production hub.

Exports of the product to the United States in the first quarter were up 76.5 per cent to $165.1 million, according to an April 15 VNA report.

Though dreaded, Vietnam’s textile sector has been bracing for the cap. “We hope certain categories will be quota-free but we know that’s unlikely,” a Ho Chi Minh City-based foreign executive working in the industry said as the talks began this week.

“The US will definitely impose quotas, we hope they will give us a a reasonable amount,” he added. Of particular risk, he said, were sales of cotton pants and knit tops, which dominate the garments made in Vietnam.

A report in Friday’s Saigon Times Daily newspaper said that the United States might grant an import quota to the Southeast Asian country equivalent to $1.5 billion this year, citing Vietnam Ministry of Industry experts.

A second, Hanoi-based source involved with the issue said that figure looked accurate, and that the amount agreed upon “will be at least that” if not more.

Vietnam, which has seen a vast trade expansion with its former war foe since a 2001 trade pact, has sought to avert the textile quotas, particularly after seeing another lucrative sector, catfish, threatened by anti-dumping duties.

The country was the 20th biggest exporter of textiles and garments to the United States last year, with China taking the top spot.—Reuters