BURMA'S GARMENT SECTOR TAKES A TURN FOR THE BETTER

C O N F I D E N T I A L RANGOON 000912 SIPDIS STATE FOR EAP/BCLTV, EB, DRL COMMERCE FOR ITA JEAN KELLY TREASURY FOR OASIA JEFF NEIL USPACOM FOR FPA E.O. 12958: DECL: 07/19/2014 TAGS: ETRD ECON KTEX BM SUBJECT: BURMA'S GARMENT SECTOR TAKES A TURN FOR THE BETTER REF: A. RANGOON 768 ¶B. RANGOON 138 AND PREVIOUS Classified By: COM Carmen Martinez for Reasons 1.4 (B,D) ¶1. (C) Summary: New garment orders from Europe and Canada have put about 25,000 back to work around Rangoon. These orders are offering a much smaller profit margin than normal, though, thus the GOB is gaining little extra income from the new business. Despite the good news, garment factory owners continue to suffer from low demand and poor competitiveness, though they swear they are not transshipping. End summary. Europe and Canada to the Rescue ¶2. (C) A senior member of Burma's Garment Manufacturers' Association (GMA) told us that fresh orders from Europe and Canada this spring have proved a huge boon for the beleaguered sector. Orders from Asia remain stagnant. He noted, though, that production is still about 50 percent off from the same period last year -- prior to implementation of the U.S. import ban in August. Also foreign buyers are only paying 50 percent of what they were paying last year, so profit margins are quite tight even as orders increase. ¶3. (C) Nonetheless, he said that GMA members had been rehiring workers laid off since the import ban at a rapid pace to meet the new orders. He estimated that 25,000 workers had been re-hired so far this year. (Note: Rangoon's semi-official "Myanmar Times" last week even had an article, in its English version, lauding increased employment in Rangoon's industrial zones, particularly garment factories.) However, he admitted that in 2003 and early 2004 lay-offs were about 15 percent higher than he had previously thought (ref B). Thus, the net employment situation in the garment sector stands now about 45,000 off of pre-August 2003 levels. The official was optimistic that the new orders would continue to come in throughout the summer, but he did not think there would be many additional hires. Likewise, he said no closed factories had re-opened due to the new demand. ¶4. (C) A South Korean Embassy official here concurred with the GMA assessment. He told us that a handful of moribund Korean-owned garment factories (many if not most of the foreign garment factories here are run by Koreans) had come back to life due to new orders. Transshipment: "Not Us!" ¶5. (C) We raised with the GMA official the problem of transshipment or relabeling of Burmese garments for export to the United States (ref A). He denied that it could be a widespread problem, saying the profit margin for Burma's exclusively Cut, Manufacture, and Package (CMP) garment factories was far too slim to afford the extra expense of transshipping. He said a transhipper to Thailand would have to pay huge bribes to Customs, particularly on the Thai side, or equally large transportation costs to smuggle the garments in small bundles across the river that marks the border. He admitted, though, that he had "heard" some garment manufacturers here had been stuck with product following the advent of sanctions in August 2003 and had sent them overland through Thailand for relabeling and onward shipment to the United States. He did not know the name of the Thai company used in this alleged transshipment. Comment: Good News for U.S. Policy ¶6. (C) The recent turn of events in the garment sector is positive for U.S. policy objectives in two ways. First, the rehiring has taken a chunk out of the unemployed garment workers, most of whom are young women (a fact used as anti-American propaganda by the regime). Second, because the profit margins are slimmer than ever for the companies, the amount of money going into the GOB's coffers from this increased production of CMP garments is negligible. End comment. Martinez