BURMA'S SHRINKING APPAREL INDUSTRY

UNCLAS SECTION 01 OF 03 RANGOON 000878 SENSITIVE SIPDIS STATE FOR EAP/MLS, EEB/TPP/ABT - GCLEMENTS COMMERCE FOR ITA/OTEXA - MDANDREA USTR FOR CMILLER PACOM FOR FPA TREASURY FOR OASIA:SCHUN E.O. 12958:N/A TAGS: ECON ETRD KTEX BM SUBJECT: BURMA'S SHRINKING APPAREL INDUSTRY Ref: Rangoon 871 RANGOON 00000878 001.2 OF 003 ¶1. (SBU) Summary. Burma's textile and apparel industry, once a vibrant and thriving industry, continues to lose competitiveness on the world market. Burmese apparel exports have dropped 56 percent, from 661.8 million in 2003 to 288.8 million in 2006. Private industry officials are confident that textile and apparel exports in 2007 will match 2006 levels, but are unsure about the future of Burma's dwindling textile industry. Although companies face declining profits, they are afraid to produce high-value products for niche markets and instead focus on basic Cut-Make-Pack operations. There has been no new "official" foreign direct investment in the textile sector since 2003, although foreign companies from Korea and Taiwan provide indirect support to Burmese-owned factories. Illegal imports of Chinese garments continue to enter the market, and because they only compete with privately-made apparel and not government products, the GOB does not consider them a threat. End Summary. Garment Industry Shrinking -------------- ¶2. (SBU) Burma's garment industry has taken a big hit in the past five years. In 2003, more than 400 private garment factories existed in Burma, exporting a total of $661.8 million in apparel products to countries including the United States, Europe, and Japan. Between 2004 and 2006, investors closed more than 230 private factories and laid off more than 200,000 workers. U Myint Soe, Chairman of the Garment Association, confirmed that there has been no new "official" foreign investment in the garment industry since 2003. While industry analysts point to the imposition of U.S. sanctions in 2004 as the driving force behind the decline of the garment industry, Burma's poor investment climate and deteriorating infrastructure also triggered the factory closings. ¶3. (SBU) Private firms dominate Burma's garment industry, controlling approximately 170 private garment factories in Burma. The majority of these firms export finished apparel products only , while less than thirty factories produce for the Burmese market. The government, under the Ministry of Industry (I) operates two garment production centers, manufacturing only for domestic sale. Burma's investment laws do not favor foreign companies, which must pay their bills and taxes in foreign currency at the official exchange rate of 6 kyat/$1. Locally owned companies pay in kyat at the market rate of 1350. Of the 170 private factories, less than twenty are 100 percent foreign-owned and approximately eighty receive funds from Taiwanese and Korean companies but are registered under a Burmese owner. U Myint Soe acknowledged that the government condones this practice because it is the only way to keep the garment industry from collapsing. They're Just Sewing Machines -------------- ¶4. (SBU) Unlike other Asian countries with developed garment sectors, Burma's garment industry is not particularly innovative. Garment factories are Cut-Make-Pack (CMP) businesses; factories earn profits not on goods sold, but rather on the commission made on low-wage sewing. (Note: Burma's labor costs are the lowest in the region; garment factory workers make an average of 30,000 kyat or $23 a month. End Note.) Garment factories in Burma do not sell directly to the end users, but instead establish relationships with companies from Hong Kong, Taiwan, Japan, and Korea, which order a certain number of finished apparel pieces to resell to the European and Asian markets. To fulfill orders, Burmese garment factories import 100 percent of inputs, including fabrics, threads, and adornments, and create the garment from a specific pattern. The *********************** * Missing Section 002 * *********************** *********************** * Missing Section 003 * ***********************