BURMA SANCTIONS: GARMENT INDUSTRY TAKES STOCK

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 000138

SIPDIS

STATE FOR EAP/BCLTV, EB
COMMERCE FOR ITA JEAN KELLY
TREASURY FOR OASIA JEFF NEIL
USPACOM FOR FPA

E.O. 12958: DECL: 02/01/2014
TAGS: KTEX ETRD PHUM ECON PGOV BM
SUBJECT: BURMA SANCTIONS: GARMENT INDUSTRY TAKES STOCK

REF: 03 RANGOON 1425 AND PREVIOUS

Classified By: COM CARMEN MARTINEZ FOR REASONS 1.5 (B,D)


1. (C) Summary: We are getting a slightly clearer picture of
the impact of last year's U.S. import ban on the Burmese
garment industry -- the industry most directly impacted by
the measure. Even the most optimistic garment manufacturers
say they will not survive 2005, when the global quota system
will end, unless the import ban is lifted in 2004. Employers
lament the number of layoffs thus far, and predict more as
the year progresses. Finally, based on information gathered
from our garment industry contacts, it does not appear that
large numbers of garment workers have entered the region's
flourishing illegal sex and entertainment industries. End
summary.

The Calm Before the Storm


2. (SBU) Six months after the implementation of a ban on
Burmese imports into the United States, garment makers have
basically written off their industry's future. Burma's
garment industry, operating purely on a low-profit "cut,
manufacture, and package" (CMP) basis, had relied on the U.S.
market for about 80 percent of its orders.


3. (C) Industry representatives are not in accord on the
viability of the garment sector once global quotas are
abolished in 2005. Some think they could take advantage of
rising labor costs in China to squeeze out some market share
based solely on low wages. However, others insist that the
high non-wage costs of production in Burma, particularly
energy costs, and the total lack of domestically produced
inputs, including fabric and accessories, have already doomed
the garment sector. All agreed, though, that if U.S.
sanctions continue through 2004 nothing can save the
remaining garment factories. No matter their assessment, all
of the garment manufacturers with whom we spoke are packing
their parachutes, fully preparing to try and bail out over
greener pastures by the end of this year.

Critical Condition


4. (C) According to estimates given us by several garment
factory owners, since sanctions went into effect in late
August 2003, about 120 out of roughly 300 factories have
closed. 50,000-60,000 workers have lost their jobs both from
shuttered plants and other factories trying to stay alive by
sloughing off a few workers every month. The manufacturers
told us that most of these closures and lay-offs had occurred
in the first few months of sanctions, and that the situation
was in stasis at the moment. Some unexpected, but
short-term, orders from Europe had frozen firings and factory
closures, though no factories have re-opened as has been
reported in the media.


5. (C) Though the fate of the newly unemployed workers,
mostly young women, is still debatable one factory owner had
an anecdote which provides an unscientific glimpse at one
group of workers. He told us that when he recently contacted
300 ex-workers to try and rehire them to take advantage of
some new orders, he was surprised that only 60 took him up on
his offer. Of the 240 that refused to come back, he said
about 180 had gone back to their rural hometowns and were, he
opined, forbidden by protective families to return to the
city. Another 50 had stayed in Rangoon and taken lower
paying, but far easier, service jobs. The remaining ten had
entered the entertainment industry, though he thought most
had become waitresses or karaoke hostesses rather than
prostitutes.

Government Help is Too Little Too Late


6. (C) As mentioned in reftel, the government has made a
half-hearted effort to hire some laid-off workers to take up
similar positions (at less than half the pay) in new
state-owned textile plants. Our private sector contacts said
they knew of no former employees that had grabbed this
opportunity. The government has also loosened a few
regulations for garment makers, including the one which
previously banned them from using their export income to
finance imports, which is helping moribund garment makers to
keep their heads above water.

Comment: The Picture Sharpens


7. (C) As always, predicting the fate of laid off workers,
and the industry itself, is difficult. However, we are
getting a slightly clearer image of the post-sanctions shake
out of the garment sector. The regime has no intention of
helping make the industry more competitive with neighboring
countries for non-U.S. orders. It's also clear that garment
manufacturers are pragmatically preparing for the worst,
though still hoping that the plight of their factories and
workers will move Congress to lift the import ban this year.
Finally, information gathered from our garment industry
contacts does not indicate that large numbers of garment
workers have entered the region's flourishing entertainment
or illegal sex industries. Though inevitably some ex-workers
have been enticed into the entertainment industry, it seems
that others have, for now, just returned home to be
re-assimilated into farm work or local cottage industries.
End comment.
Martinez