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Cablegate: Burma's Garment Industry Seams Doomed

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 RANGOON 000004

SIPDIS

SENSITIVE

STATE FOR EAP/BCLTV, EB/TPP
STATE PASS USTR
COMMERCE FOR ITA JEAN KELLY
TREASURY FOR OASIA JEFF NEIL
CINCPAC FOR FPA

E.O. 12958: N/A
TAGS: EIND ETRD KTEX BM
SUBJECT: BURMA'S GARMENT INDUSTRY SEAMS DOOMED

REF: 02 RANGOON 666

1. (SBU) Summary: The threat of sanctions, the ongoing
consumer boycott, and the GOB's own inane trade and
investment policies are decimating the Burmese garment
sector. The upcoming elimination of textile quotas in 2005
should put the final nail in the Burmese garment industry's
coffin. The regime gains little from the garment industry;
trade sanctions now will only give the government cover for
its own mistakes. End summary.

U.S. Taste for Burmese Garments Declines

2. (SBU) U.S. imports of Burmese garments rose steadily
through 2001 when they topped out at $415 million (about 80
percent of Burma's total garment/textile exports). However,
thus far for 2002 the numbers tell a very different tale with
U.S. garment imports off 30 percent year on year to about
$250 million (through October 2002).

3. (SBU) What gives? The drop off, according to local
industry sources, is due in part to consumer boycotts in the
United States which have been steadily eroding demand for the
"Made in Myanmar" label. A second, related, reason is the
looming threat that the U.S. Congress will impose textile
sanctions.

4. (SBU) However, there are also production problems here.
Foreign investors (primarily from China, Taiwan, and South
Korea) flocked to the Burmese garment sector in the 1990s
seeking to take advantage of Burma's low cost and placid
workforce, and the fact that, because of the small scale of
the industry, most of Burma's textile products are allowed
quota-free import to the United States (64 percent of Burma's
garment exports in 2001 were non-quota items to the United
States). However, in 2002, the number of operational
foreign-owned garment factories has plummeted as foreign
investors and buyers grow increasingly reluctant to sign any
long-term deals with Burmese factories because of sanction
threats and consumer boycotts, and the impending expiration
of the Multi-Fiber Agreement (MFA) on December 31, 2004.
With quota considerations no longer constraining choices,
most investors have quickly turned their backs on Burma. A
capricious and unfriendly business climate has also
contributed to this exodus.

Government Gains Minuscule, Workers Need Jobs

5. (SBU) Though export numbers, and values, look high, in
fact the regime earns very little. We estimate that most
garment manufacturers here, 95 percent of which are private,
are paid only for "cutting, manufacturing, and packaging"
(CMP) services generally worth about 20 percent of each
shipment. The GOB then takes about 10 percent of the 20
percent in taxes, as well as some income from the small
number of government-owned and joint venture garment
factories. Overall, on $200 million in exports to the United
States, the government might earn $5 million at most.

6. (SBU) The industry does benefit Burmese workers. In this
perilous economic period of high inflation and unemployment,
the industry supports an estimated 100,000 unskilled workers
(who in turn support an estimated 400,000 family members).
Though wages are low on a global scale, they are average to
above average for Burma -- and often include some minimal
health and insurance benefits.

Prospects are Bleak

7. (SBU) Burmese industry sources tell us that the drop off
of exports to the United States will not likely be replaced
by sales elsewhere. Currently, there is no other country or
region that comes close to U.S. consumption of Burmese
textile exports. Though EU markets may pick up some of the
slack, the same consumer boycotts that make exporters wary of
the United States are also active there. More importantly,
the MFA is a global agreement which will be phased out in
Europe as well as the United States after 2005.

8. (SBU) In short, garments are a dying industry in Burma.
It flourished in the context of quota arrangements, which,
for a brief period, overshadowed an atrocious trading and
investment climate. With these quotas now being phased out,
manufacturers are wisely moving elsewhere.

Comment
9. (SBU) In that context, it is really hard to say what
impact even a total ban on trade with the United States would
have on Burmese garment exports. Such a ban might accelerate
the decline of the industry, but it will also give the GOB
political cover for short-sighted economic and industrial
policies that have scared away investment. They will make
for great political theater (both in the United States and
here), but their real impact on economic life here and on the
regime will be close to negligible. The only ones who will
really suffer will be those workers who lose their jobs one
year early. And they, unfortunately, will tend to blame the
United States rather than their own government. That however
is one of the penalties for imposing sanctions on a dying
industry. End comment.
Martinez

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