BURMA'S GARMENT SECTOR: SAVED BY THE TAX

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 000190

SIPDIS

STATE FOR EAP/BCLTV, EB
BANGKOK FOR CUSTOMS
COMMERCE FOR ITA JEAN KELLY
TREASURY FOR OASIA
USPACOM FOR FPA

E.O. 12958: DECL: 02/13/2015
TAGS: ETRD ECON KTEX PREL BM
SUBJECT: BURMA'S GARMENT SECTOR: SAVED BY THE TAX

REF: A. 04 RANGOON 1294 AND PREVIOUS

B. 04 RANGOON 768

C. 04 BEIJING 19735

Classified By: COM CARMEN MARTINEZ FOR REASONS 1.4 (B,D)


1. (SBU) Summary: All but in the grave, Burma's garment
sector has been kept alive -- barely -- by China's decision
to impose an export tax on its garments. Though no new hires
or re-opened factories are likely, the manufacturers expect
to maintain the status quo in the short term thanks to orders
from the EU and Latin America spilling over from China -- and
possibly transshipment to the United States. The
sustainability of this situation is uncertain, and totally
dependent on outside forces as the GOB continues to do
nothing to make Burma's industries competitive on anything
but labor costs. End summary.

Export Tax Opens Up Niche


2. (SBU) The December 2004 decision by the PRC government to
impose an export tax on some of its garment exporters (ref C)
has given the breathing room necessary for the Burmese
industry to stay above water. According to two senior
members of the Garment Manufacturers Association (GMA),this
policy, which coincided with the end of the Multi-Fiber
Agreement on January 1st, will allow Burma to remain
competitive in the manufacture of some types of low-value
garments. They also claim that a perceived increased focus
by Chinese manufacturers on large-scale U.S. orders has
allowed Burmese factories to keep most of their smaller EU
customers -- and even add some new orders from Argentina.


3. (SBU) None of this is to say the industry is set for
revival after suffering a severe blow from a U.S. import ban
imposed in 2003 (ref A). The Burmese manufacturers told us
in no uncertain terms that the new and recurrent EU and South
American orders were quite small, low margin, and unlikely to
increase much no matter what happened in China. Neither
foresaw new hires or re-opening of shuttered factories.
However, the current situation should be enough to keep the
100 or so remaining garment factories, and their
50,000-60,000 workers, open for the immediate future.


4. (SBU) One of the officials said he is also watching India
very carefully to see if the GOI follows suit and applies an
export tax to some of India's garment exports. If this
occurs, the current stability in Burma would be more
sustainable. He said he was also watching the EU, as any
European move to restrict imports would certainly sound the
death knell for the crippled industry.

Evidence of Sanctions Evasion Evasive


5. (C) Messages were mixed on transshipment of garments to
evade U.S. sanctions. One manufacturer told us that some
foreign JV factories in Burma were shipping unlabeled, but
otherwise finished, product to Thailand as "unfinished
garments." The Thai factory was then adding labels and
shipping the garments to the United States. He said he
wasn't sure of the names of the Thai factories facilitating
this. We note this is the second time we've heard a specific
account of transshipment of Burmese garments through Thailand
(ref B). The other GMA official (whom we met separately)
told us he had not heard of any such activity occurring. In
any event, the amount transshipped is likely tiny compared to
pre-sanctions volumes. Our source told us he thought about
10,000 dozen/month were going illegally to the United States
now, down from an average of 1.6 million dozen/month in 2003.

Comment: Surprising Survival


6. (SBU) The survival of the garment sector into 2005 defied
expectations. The sustainability of this survival, however,
is entirely dependent on outside factors -- namely the
sanctions policy of the EU and the export polices of China
and India. There is nothing afoot domestically to try and
insure the industry against these vagaries. The garment
factories, and all industrialists, suffer from a terrible
business climate -- including worsening electricity problems
and a shortage of bank capital. They also continue to lament
the lack of support from the GOB, despite the regime's
regular propaganda about building up Burma's decrepit
industrial base. End comment.
Martinez