MADAGASCAR: FURTHER EMBASSY INPUT FOR AGOA REVIEW

C O N F I D E N T I A L SECTION 01 OF 03 ANTANANARIVO 000747 SENSITIVE SIPDIS STATE FOR AF/EPS AND AF/E - MBEYZEROV STATE PLEASE PASS TO USTR -- FLISER, CHAMILTON, AND WJACKSON USDOC FOR RTELCHIN TREASURY FOR FBOYE E.O. 12958: DECL: 10/14/2019 TAGS: ECON ETRD EAGR EAID PHUM MA SUBJECT: MADAGASCAR: FURTHER EMBASSY INPUT FOR AGOA REVIEW REF: ANTANANARIVO 714 Classified By: AMBASSADOR NIELS MARQUARDT FOR REASONS 1.4 B AND D. ¶1. (C) Summary: As the 2010 interagency AGOA review now moves forward toward making decisions, post offers this additional input and background to inform agencies' ongoing deliberations. Post recommends that Madagascar's AGOA eligibility be maintained for 2010 if the Malagasy leaders can demonstrate additional progress on returning to constitutional rule by year-end 2009. AGOA is currently our most effective tool for pressuring the political actors to install a power-sharing transition government, and would continue to provide useful leverage throughout 2010 to ensure that that the plan agreed to in the Maputo Accords, which outlined the institutions of the transition and set a Nov 2010 election deadline, fully comes to fruition. A determination of ineligibility would likely elicit negative reactions at high-levels from France and the African Union, as such a determination may be viewed as undermining the Maputo process we have pledged to support, as well as exacerbating an already volatile situation on the ground. Additionally, American investors, tens of thousands of AGOA workers, other AGOA beneficiary nations (regional suppliers), and the USG image in Madagascar all stand to suffer if AGOA is lost. Madagascar's rival political factions have recently made progress towards implementing a consensual, inclusive transition government that could organize free and fair elections under the terms of the Maputo transition charter. "Summit" discussions organized by the AU for Nov. 3-5 in Addis Ababa could yield further progress; thus, Post recommends that the decision on Madagascar's eligibility be delayed as long as possible to allow maximum time for the unity transition government to be installed and for additional progress to be demonstrated. End summary. AGOA: Critical Positive Leverage -------------- ¶2. (C) Madagascar's main political actors, including the de facto president, have frequently and increasingly alluded to the threat of losing AGOA eligibility as an important factor in their decisions to pursue negotiations and seek a rapid resolution to the political crisis. While the process is fraught with delay and dilatory tactics, much of the urgency currently felt can be attributed, in a positive sense, to the pending AGOA determination. Now well-versed in the disastrous economic and social consequences of losing AGOA, these politicians now understand how important it is to maintain Madagascar's trade benefits. Having already cut all aid funding going directly to the government, suspended all but non-humanitarian assistance, terminated definitively our MCA program, and ceased issuing most visas to government officials, we retain extremely little leverage over the Malagasy government: AGOA is our only remaining "big stick." To continue to influence their actions in a positive direction, Post recommends that AGOA eligibility be maintained for 2010 if the Malagasy leaders can demonstrate additional progress on returning to constitutional rule by year-end 2009. Specifically, the four vying factions should implement the power-sharing transition government envisioned by the August 9 Maputo Accords, which would pave the way for organizing elections by November, 2010. Further progress towards elections could be demonstrated by the establishment of the independent electoral commission mandated by the Maputo Charter. A feasible timeframe for organizing elections will be determined onthe basis of recommendations by technical evaluation teams from the UN and EU. Post assesses that credible elections could not be held prior to April 2010 at the very earliest, given the necessary preparations, including reforming the electoral code (and possibly also the constitution),and the Nov - Mar rain/cyclone season (during which elections would be impossible). Evaluation teams from the UN and EU may/may arrive as early as mid-November, and their mission would take approximately one month; thus, a feasible election date may not be determined before mid-December at the earliest, and possibly not until after the New Year holidays. Progress to Date -------------- ¶3. (C) Concrete steps towards returning to constitutional ANTANANARI 00000747 002 OF 003 order and respecting the rule of law have been taken during negotiations of the four principal political rivals in Mozambique and by their delegations in Madagascar. The August 9 "Maputo" agreement of Madagascar's four vying political rivals to the terms of a transition charter for the formation of a consensual, inclusive transition government to organize elections within 15 months was a critical breakthrough. The further agreement by de facto transition leader Andry Rajoelina to dismiss his prime minister and replace him with a consensus candidate, upon which all four movements agreed October 6, was another important, necessary, and politically difficult step towards resolution of the political crisis. The international community, including the USG, has heralded these breakthroughs and pledged its support for eventual elections after formation of a consensus government. The four movement chiefs (Rajoelina, ousted President Ravalomanana and former Presidents Ratsiraka and Zafy) have agreed to meet in Addis Ababa November 3 through 5 to seek final agreement on the leadership of the transition. If they can achieve this difficult task, they will be poised to move forward with the establishment of the consensual transition government. If these tasks can be accomplished, the US should send a signal of support by renewing AGOA eligibility for another year. International Community Backlash Likely -------------- ¶4. (C) If the USG were to suspend Madagascar from AGOA, it would be viewed by much of the international community, and particularly by the African Union, as undermining the fragile Maputo transition process we have pledged to support. Key AU officials, including Ping and Lamamra, have made this point repeatedly and pointedly. Post would expect negative high-level reactions from France, SADC, and the AU. The AU and SADC have undertaken major efforts to resolve this political crisis, as have the French, who have extremely important interests here. (It may not be not well understood just how much more important Madagascar is to France than it is to the US. The enormous French Embassy here is one of the 10 largest in the world. More French nationals -- estimated at 25,000 -- reside here than in any other AU member state. Some 700 French businesses are established here. President Sarkozy is personally engaged, as are multiple ministers and high-level officials of the GOF.) The French, in concert with the AU and SADC, are certain to be vexed if US unilateral actions were to fan the flames they are trying painstakingly to extinguish. In a country of striking poverty and almost no industrial development outside textiles, the garment sector offers more formal jobs (estimated at around 100,000) than any other sector, besides the government. Most of these jobs, around half of which depend on AGOA, are located in or near the capital city, which would face increasing crime rates and worsening social instability in the event of AGOA's loss. The French have already demonstrated a strong aversion to the idea of even the targeted sanctions currently being wielded as a stick by the AU; they can be expected to intervene at a high level in Washington if they perceive AGOA as heading towards suspension. AU Chairman Jean Ping chastised the US at the Oct 6 international contact group meeting for the "negotiating problems" posed by the Dec 31 AGOA decision deadline, implying that Rajoelina's argument to move forward with rapid elections (despite the lack of consensus, implementation of a neutral entity to organize them, or proper preparation) was based partly on Rajoelina's concern for maintaining AGOA eligibility. Ping implicitly urged the USG to more closely align an eventual AGOA determination with the timeframe of the Maputo Charter, a document which the entire international community supports as the only way forward out of the political crisis. American Investor Concerns -------------- ¶5. (SBU) Madagascar has long been a poster child for AGOA. In fact, 2008 USITC data showed that Madagascar ranked second in AGOA apparel shipments by value only after Lesotho, with exports worth USD 279 million. Several large US buyers such as the GAP, Gloria Vanderbilt, and Jordache purchase garments in Madagascar for import into the US. In addition to the many US companies that source garments from Madagascar, several American companies, including Jordache, Cottonline, and Winds, have invested tens of millions of dollars in ANTANANARI 00000747 003 OF 003 Madagascar as a result of the trade benefits offered under AGOA. Jordache alone has invested USD 60 million in its Malagasy facilities. They stand to lose much or most of their investments if AGOA is no longer in effect. Although the makers of denim products may be able to survive a temporary suspension of AGOA, those that produce synthetic garments that are subject to higher duties are already scoping out other countries to which to relocate. According to most of the investors, American, Mauritian, Chinese, etc., once they pull out, they will not return; AGOA "suspension" would therefore amount to its permanent termination here. There may also be significant, negative regional effects in African nations that supply fabric, zippers, and other accessories to Malagasy garment production. The impact of AGOA suspension here therefore could have a chilling effect far beyond the shores of Madagascar and throughout the AGOA-eligible region. US Image Concerns -------------- ¶6. (C) If Madagascar was deemed no longer eligible for AGOA benefits, the four rival political factions, who have been involved in negotiating the formation of a consensual transition government, would likely point fingers at each other, wiggling out of the blame for the consequences of their selfish actions -- and at the US. The US would be the most tempting, obvious, and unified target for the resentment of unemployed workers and family members,Q well as Malagasy citizens in general, who would see the economic and security situation of their country worsen due to a decision made by and attributed to the US President. The US likely would be seen as "abandoning" Madagascar. Post obviously would seek to deflect the blame back on the Malagasy politicians who overthrew a democratically-elected government and triggered this crisis, but such an explanation would likely fall on deaf ears in this intensely insular nation. The highly positive images that most Malagasy now hold of the US and of the American president would be tarnished significantly, and for the long haul. Comment: Deferring the Decision is Key -------------- ¶7. (C) For all of the aforementioned reasons, Post urges strongly that the decision on Madagascar's AGOA eligibility be deferred until the latest date possible. We doubt that all the elements for a positive decision on eligibility will be fully in place in time for the Nov 13 interagency meeting, especially given its proximity to the Nov 3-5 Addis Summit and the need for time afterwards to assess and implement whatever is agreed there. When the interagency recommendation is formulated, if Madagascar's leader's have made additional progress on returning to constitutional rule, Post recommends that AGOA be maintained for one year in order to provide a "carrot" for the progress that has been made -- and a "stick" for encouraging the full implementation of the Maputo Accords during 2010. If AGOA were suspended, we would lose the main remaining point of US leverage over the country's rogue leaders -- and over a fragile reconciliation process. The rival political factions have recently made progress towards implementing a consensual, inclusive transition government that could organize free and fair elections under the terms of the Maputo transition charter. The international community has endorsed this charter as the only way forward out of the Malagasy political crisis. The USG should support this process by renewing AGOA eligibility if progress continues toward the installation of a transition government in the coming weeks. End comment. MARQUARDT