VZCZCXRO4003
RR RUEHBZ RUEHDU RUEHJO RUEHRN
DE RUEHMR #0023 0211250
ZNR UUUUU ZZH
R 211250Z JAN 10
FM AMEMBASSY MASERU
TO RUEHC/SECSTATE WASHDC 4560
INFO RUCNSAD/SADC COLLECTIVE
RUEHMR/AMEMBASSY MASERU 4996
UNCLAS MASERU 000023
CORRECTED COPY
SIPDIS
DEPT FOR AF/S, AF/EPS, DRL:TU DANG
JOHANNESBURG FOR LABOR OFFICER ROBERT EWING
E.O. 12958: N/A
TAGS: ELAB ECON SF LT
SUBJECT: CORRECTED COPY: TERMINATION OF MADAGASCAR'S AGOA ELIGIBILITY
MAY LEAD TO FURTHER JOB LOSSES IN LESOTHO
REF: 09 MASERU 437
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Madagascar's AGOA eligibility terminated
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1. On December 23, 2009, President Obama announced that
Madagascar, together with Niger and Guinea, was not making
continual progress in meeting African Growth and Opportunity Act
(AGOA) requirements. Effective January 1, 2010, those
countries' designations as AGOA beneficiaries was terminated.
The termination of Madagascar's AGOA eligibility is expected to
have negative effects on employment in Lesotho, especially at
the local denim mill. Blue jean manufacturers in Madagascar
were major customers of the denim mill. Madagascar's AGOA
status may also affect other countries in the region since the
same local factory which imports Lesotho denim uses exclusively
African-origin cotton.
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1,200 job losses and factory closure possible
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2. The local denim mill is known as Formosa Textile, a
subsidiary of the Nien Hsing group. The mill exports 30% of the
denim fabric it produces to manufacturers of blue jeans in
Madagascar. In a statement submitted to the Office of the U.S.
Trade Representative on October 15, 2009, in support of the
renewal of Madagascar's eligibility under AGOA for 2010, Nien
Hsing pointed out that blue jeans manufacturers in Madagascar
are major buyers of denim fabric produced by Formosa Textile.
Nien Hsing predicted that the economic viability of Formosa
Textile would be seriously undermined if Madagascar were to lose
its AGOA eligibility, putting Formosa's customers in Madagascar
out of business. Nien Hsing also mentioned that Formosa Textile
was already losing money due to sagging orders for the United
States market under AGOA since the end of the Multi-Fiber
Arrangement. According to the company, losing the Madagascar
customer base would force them to close the denim mill, which
would lead to 1,200 job losses in Lesotho. Nien Hsing has
invested $120 million in Lesotho and employs 9,000 workers,
1,200 of whom work at the denim mill.
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Will after-shocks spread to cotton-producing countries in the
region?
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3. Nien Hsing is one of the largest producers of denim fabric in
Africa. The denim plant in Lesotho has a capacity of 27 million
square meters annually. In addition, the Lesotho denim mill
uses exclusively African-origin cotton, consuming approximately
16,000 tons of cotton annually from Malawi, Zambia, Mozambique,
Tanzania, and Benin, as well as other countries in the region.
4. Note: Nien Hsing is the same company profiled in reftel,
which described the firing and subsequent rehiring of employees
following a Christmas party. End note.
NOLAN