MALAWI UPDATE ON AGOA III

C O N F I D E N T I A L LILONGWE 000477

SIPDIS

E.O. 12958: DECL: 06/03/2014
TAGS: ETRD PREL ECON MI
SUBJECT: MALAWI UPDATE ON AGOA III

REF: STATE 120038

Classified By: Pol/Econoff Marc Dillard for reasons 1.5 b/d.


1. (C) Per reftel request, failure to extend the African
Growth and Opportunity Act's (AGOA) third-country fabric
provision, if permanent or even long-term, would likely have
a significant impact on Malawi's garment exports to the
United States. Of the five companies currently exporting
under AGOA, the two largest are both Taiwanese and import all
of the fabric they use from Asia. Managers at those
companies have told Econoff that the end of the third-country
fabric provision would force them to reorganize their
production and to consider pulling out of Malawi. Malawi's
primary producer of textiles is currently restructuring as
part of the country's privatization program, and has not
produced fabric for about six months. The lapse of the
third-country provision would therefore immediately raise
production costs, as no local alternatives are available, and
regional alternatives would be logistically difficult to
obtain. (Comment: the Taiwanese authorities are keen to see
the companies remain in Malawi because Malawi has diplomatic
relations with Taiwan, and inducements from the authorities
might keep the companies here. Continued expansion of
production and job growth, however, would be unlikely.)


2. (C) Although there is significant U.S. investment in
Malawi, it is not highly visible. To the average Malawian,
AGOA is Malawi's economic relationship with the United
States, and therefore layoffs or company closures among AGOA
exporters would be seen as a step backwards in bilateral
relations. Given that a lapse of the fabric provision could
also make the current restructuring of Malawi's primary
textile producer appear to be a failure, ending of the fabric
provision could also undermine the country's privatization
program and USG efforts to support private sector growth over
state-run companies.

DOUGHERTY