Cablegate: Textile and Apparel Production in Burma

VZCZCXRO6335
RR RUEHBZ RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGO #0871/01 2561026
ZNR UUUUU ZZH
R 131026Z SEP 07
FM AMEMBASSY RANGOON
TO RUEHC/SECSTATE WASHDC 6506
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHGG/UN SECURITY COUNCIL COLLECTIVE
RUEHBY/AMEMBASSY CANBERRA 0503
RUEHKA/AMEMBASSY DHAKA 4608
RUEHNE/AMEMBASSY NEW DELHI 4036
RUEHUL/AMEMBASSY SEOUL 7593
RUEHKO/AMEMBASSY TOKYO 5150
RUEHCN/AMCONSUL CHENGDU 1194
RUEHCHI/AMCONSUL CHIANG MAI 1079
RUEHCI/AMCONSUL KOLKATA 0057
RUEATRS/DEPT OF TREASURY WASHDC
RHHMUNA/CDR USPACOM HONOLULU HI
RUEHGV/USMISSION GENEVA 3285
RHEHNSC/NSC WASHDC
RUCNDT/USMISSION USUN NEW YORK 0940
RUEKJCS/SECDEF WASHDC
RUEHBS/USEU BRUSSELS
RUEKJCS/JOINT STAFF WASHDC

UNCLAS SECTION 01 OF 03 RANGOON 000871

SIPDIS

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: TEXTILE AND APPAREL PRODUCTION IN BURMA

REF: STATE 114799

RANGOON 00000871 001.2 OF 003

1. Summary. Burma's garment and textile sector faces many
difficulties, including poor investment climate and crumbling
infrastructure. It has the added disadvantage of being subject to
U.S. sanctions. In the past five years, employment levels and
company profits in the Burmese garment and textile sector have
decreased steadily, and the textile sector accounted for less than
five percent of total trade earnings in 2006. Since most garment
exports are produced using imported goods, the real economic impact
of the decline has been increased unemployment. U.S. sanctions
alone cannot be blamed for the decline of the sector. Although the
Burmese Government reports no legal imports of Chinese textile
products, they are often sold in higher-end stores. The GOB has
done little to bolster the textile and apparel sector, and is unable
and unwilling to stop the illegal import of Chinese products. End
Summary.

2. GOB economic data is closely guarded and generally unreliable.
The regime considers data on industrial production and textile and
apparel production to be confidential and therefore does not publish
it. We met with private textile producers and local statistical
associations to obtain the following information:

--Total industrial production for FY05/06: $262 billion
--Total garment exports in 2006: $288.9 million
--Garment exports Jan-July 2007: $161.4 million
--Textile/apparel share of total imports in FY05/06: 12 percent
--Textile/apparel share of total exports in FY05/06: 9 percent
--Textile/apparel share of total imports in FY06/07: 9 percent
--Textile/apparel share of total exports in FY06/07: 5 percent
--Textile/apparel share of total imports in FY07 (through July): 13
percent
--Textile/apparel share of total exports in FY07 (through July): 4
percent
--Total Exports in textile/apparel to the U.S. in 2006: $0
--Total Manufacturing employment: 1.2 million, as projected from GOB
1990 Labor Force Survey
--Total Textile and apparel employment: 125,900 in private sector.
Employment figures for state-owned garment industry are not
available.

(Note: Burma's fiscal year runs from April 1 - March 31.)

3. Q: Are host country producers receiving lower prices due to
heightened international competition? Have manufacturers received
more, less, or the same number of orders as in years past? Have
foreign investors, particularly Asian investors, closed factories or
otherwise pulled out of local production?

A: Garment producers in Burma primarily perform cut, manufacture,
and pack (CMP) operations. They use textile inputs mainly imported
from China and export finished products to Europe, Japan, Korea,
Singapore, Malaysia, and Hong Kong. Private garment factory owners
tell us that they face decreasing prices for their production.
Labor costs in Burma are lower than most competitors in the region,
they explained, but their logistic costs are higher. Burma's
crumbling infrastructure, cumbersome import/export processes, and
unpredictable government interference make operations riskier and
more expensive, do garment producers are forced to take lower prices
per piece.

As of September 2007, there were approximately 200 garment factories
in Burma, and less than 20 of them were foreign owned. Japanese and
Korean companies remain the largest foreign investors in the textile
and apparel market. Burma's business laws do not favor
foreign-owned companies, which must pay taxes and all bills in

RANGOON 00000871 002.2 OF 003

foreign currency, converted at the official rate of 6 kyat to $1.
These companies face significant profit loss, as the archaic
exchange rate (the market rate is now over 1350 kyat to the $1) acts
as a tax on foreign companies.

In 2006-2007, one local garment factory closed its operations due to
profit losses.

4. Q: Have U.S. and EU restrictions on certain exports of textiles
and apparel from China, effective through 2007/2008, affected export
prospects for host country manufacturers?

From January-July 2006, Burmese factories received 50 percent more
orders than the prior year because of U.S. and EU-imposed safeguards
on Chinese products. After August 2006, the number of orders
reduced to normal levels, as most buyers returned to Chinese
suppliers.

5. Q: Has the host government implemented, or is it considering
implementing, safeguards or other measures to reduce growth of
imports of Chinese textile and apparel products into the host
country?

Although the Burmese Government does not record any imports of
Chinese textile or garment products, Chinese apparel is readily
available in larger cities and in upscale stores. Some of these
Chinese products are imported via Thailand; the rest is illegally
smuggled into Burma over the border. The GOB does not consider
Chinese textile or apparel products to be a threat to local
industries, and thus is not considering implementing safeguards on
Chinese products.

6. Q: Does the host government have any policies or programs in
place to deal with any dislocated workers in the sector resulting
from increased competition?

A: Under Burmese law, a laborer can request a subsidy from the
government's unemployment benefit program. In practice, the
government does not provide money to unemployed workers.

7. Q: Has increased global competition affected local labor
conditions by causing employers to reduce wages, seek flexibility
from government required minimum wages, or adversely affected union
organizing?

A: Burmese wages are among the lowest in the region, so global
competition has little to no impact on Burma's already isolated
economy. In April 2006, factory workers demanded and received a
significant wage increase after the GOB increased civil service
salaries. Currently, garment workers at the bottom of the scale
earn 30,000 kyat/month (approximately $23 at market exchange rates).

While Burmese law permits workers to form unions with the prior
consent of the government, the government, in practice, does not
allow unions. Global competition does not affect union organizing
in Burma; rather the GOB blocks the formation of unions as a method
of political control.

8. Q: Has the host government or private industry taken action to
increase the country's competitiveness, such as improving
infrastructure, reducing bureaucratic requirements, developing the
textiles (fabric production) industry, moving to higher value-added
goods, or identifying niche markets? Does post think that the host
government or private industry's strategy will be successful?

A: Burma's infrastructure is baldy dilapidated, with little evidence

RANGOON 00000871 003.2 OF 003

of GOB plans to improve. The GOB offered modest tax benefits to
factory owners and promised to supply a few industrial zones with
more reliable electricity. Officials plan to establish special
economic zones (SEZs) by 2015 in the border areas with Thailand and
China. These SEZs will function as free trade zones, and the GOB
plans to offer tax incentives for foreign companies who invest.
However, the law has been awaiting final approval for several years.
As another incentive, the government-controlled Federated Chamber
of Commerce offers training courses with private-sector sponsorship
to upgrade workers' skills.

In 2007, the GOB streamlined the process for import/export licenses.
Previously, it took up to 21 days to receive a license; now some
companies receive their licenses in less than 7 days. The
streamlined process is not universally applied; several smaller
garment factories complained that it still takes up to 21 days to
receive a license. Additionally, companies must apply for the
licenses in Nai Pyi Taw, Burma's new capital, which is located more
than 200 miles from Rangoon. Companies must apply in person for a
license, and cannot apply in advance of either the import or export
shipment.

Because most local garment factories perform CMP operations, neither
the government nor companies have made any effort to find niche
markets or produce high value-added products. Textiles produced in
Burma are of lower quality and thus are not exported; there is no
plan to improve textile production.

9. Q: Overall, if not already addressed, does post think that the
host country can be competitive in textiles and apparel exports
given heightened global competition?

A: Burma's business climate remains unattractive to both domestic
and foreign investors. Productivity is low, infrastructure
continues to deteriorate, and corruption and political intervention
are rife. Until the government establishes more predictable,
efficient, and transparent economic and business policies, Burma's
share of global textiles and apparel will continue to shrink.

VILLAROSA

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