AMBASSADOR DISCUSSES AGOA WITH AMCHAM

UNCLAS ANTANANARIVO 000449

SENSITIVE
SIPDIS

STATE FOR AF/EPS AND AF/E - MBEYZEROV
USDOC FOR BECKY ERKUL - DESK OFFICER
TREASURY FOR FBOYE
STATE PASS USTR FOR LISER, HAMILTON, AND JACKSON

E.O. 12958: N/A
TAGS: ETRD ECON MA
SUBJECT: AMBASSADOR DISCUSSES AGOA WITH AMCHAM


1. (SBU) Summary: On June 18, the Ambassador urged the
members of AMCHAM to lobby Malagasy political leaders to take
concrete steps to reinstall constitutional order to preserve
AGOA benefits, protect U.S. investments, and save tens of
thousands of jobs. AMCHAM explained that it has already
begun lobbying the transition authority and intends to lobby
the USG as well. Business owners expressed concern that, due
to their lengthy production cycles, they will have to begin
reducing production and closing their doors as early as
mid-July if AGOA renewal remained uncertain. The AmCham is
still acting in schitzophrenic fashion, diluting lobbying
appropriately directed at the Malagasy political process with
unhelpful, even counterproductive efforts to sway President
Obama and the USG with sentimental, irrelevant arguments.
End summary.


2. (SBU) The Ambassador addressed approximately fifty members
of the American Chamber of Commerce of Madagascar (AMCHAM)
June 18 regarding the political situation and the status of
Madagascar's eligibility for African Growth and Opportunity
Act (AGOA) trade benefits. At least twenty percent of AMCHAM
members, including several U.S. investors, are involved in
the garment trade. The Ambassador explained that Madagascar,
which is the second largest exporter of apparel to the U.S.
under AGOA, risks losing these benefits if it can not show
concrete progress toward re-establishing the rule of law,
such as agreeing on and starting tio implement a transition
charter and roadmap to elections, before the annual
eligibility decisions are finalized by President Obama in
December. He encouraged the members to use their connections
to lobby the Malagasy political leaders from all factions to
agree as soon as possible to a consensual transition
government that would be able to produce credible elections.


3. (SBU) AMCHAM President Robert Strauss explained that
AMCHAM, in conjunction with other local commercial chambers,
had already begun to lobby members of the transition
authority (HAT),including the minister of economy and the
economic commission. On June 15, AMCHAM, the export
processing zone association, and two other local chambers
placed advertisements in the local press, calling on the
wisdom of Malagasy leaders to take responsibility to resolve
the political dilemma in order to save AGOA (septel). The
article pointed out that 100,000 direct jobs and sixty
percent of Madagascar's foreign exchange earned through
exports were at stake. According to official Malagasy data,
total garment exports fell by 17 percent in the first quarter
of 2009, compared with the same time period in 2008. Embassy
data on garment exports to the U.S. under AGOA indicates that
such exports fell by only 4 percent in the first quarter of
2009, compared with 2008, but dropped by 31 percent in
April-May 2009 compared with the same period in 2008.


4. (SBU) Strauss explained that AMCHAM also intends to
support a petition by Malagasy workers to urge President
Obama to preserve AGOA. The Ambassador and the CEO of an
American garment joint-venture, Salim Ismail, argued that
AMCHAM and others instead should focus their pressure on the
Malagasy political leaders, rather than dividing their
efforts and giving the Malagasy a scapegoat, i.e. the U.S.,
to blame for the consequences of their own actions. The
Ambassador reiterated that the decision to renew AGOA
must/must include a consideration of the U.S. legal criteria,
including whether or not the country is making progress
toward implementing the rule of law, although other factors
would also be taken into account.


5. (SBU) Factory owners explained that they were already
losing orders due to the uncertainty of AGOA renewal and that
this situation would become critical in three weeks, by
mid-July. If AGOA is withdrawn, goods must enter the U.S. by
December 31 to be duty-free, which means shipping from
Madagascar by late October. By mid-July, orders begin coming
in for shipment in October, because the companies need three
months to order and receive their inputs and complete
production. Business owners, who have already laid off a
large percentage of their work force, will be forced to begin
closing operations in mid-July if they start to lose
additional orders. They claim that if AGOA is lost, they
will not return to Madagascar (particularly if the third
country fabric provision expires in 2012.) The partially
U.S.-owned company Mazava has already begun shifting business
to Tanzania, rather than expanding in Madagascar, and others
are following suit. (Comment: the international financial
crisis and resulting lack of demand for garment exports, the
appreciation of the Malagasy currency over the past year, and
the political instability since January have all come
crashing down on the Malagasy garment industry. The loss of
AGOA would be the straw that broke the camel's back. End
comment.)


6. (SBU) About half of the garments produced in Madagascar
are for the U.S. market and about half for the European
market. Companies that produce for both markets will lose
the economies of scale that they depend on to keep production
costs low if they lose the U.S. market and thus may not be
able to remain open if they are reduced to serving only the
European market. The loss of AGOA would hurt not only
garment factories, but would also have a ripple effect on
logistics, shipping, and other periphery service providers.
According to the director of the U.S. logistics firm
Expeditors International, its business in Madagascar is
already down by fifty percent.


7. (SBU) Comment: Although some members of the transition
authority (HAT) and Zafy and Ravalomanana's political
movements are understanding of and sympathetic to company and
worker concerns about losing AGOA, none of them are in a
position to ensure its survival alone: a return to
constitutionality will require all of them to work together.
If there is not political progress before year-end and AGOA
is lost, they will all point fingers at each other, but the
blame for the loss risks being placed in the lap of the USG.
Responding to a question about the negative impact of a loss
of AGOA eligibility on US-Malagasy relations, the Ambassador
said he would continue to do his utmost to promote a
political solution that will protect AGOA eligibility. If
that fails, it will be his responsibility to explain to the
Malagasy why America's gift of AGOA had been squandered by
their irresponsible polical leaders. He closed on an
optimistic note by restating his hope and desire that the
political solution will prevent this from happening. End
comment.
MARQUARDT