US embassy cable - 04LILONGWE477

C O N F I D E N T I A L LILONGWE 000477 
 
SIPDIS 
 
E.O. 12958: DECL: 06/03/2014 
TAGS: ETRD, PREL, ECON, MI, Trade, Economic 
SUBJECT: MALAWI UPDATE ON AGOA III 
 
REF: STATE 120038 
 
Classified By: Pol/Econoff Marc Dillard for reasons 1.5 b/d. 
 
1. (C) Per reftel request, failure to extend the African 
Growth and Opportunity Act's (AGOA) third-country fabric 
provision, if permanent or even long-term, would likely have 
a significant impact on Malawi's garment exports to the 
United States.  Of the five companies currently exporting 
under AGOA, the two largest are both Taiwanese and import all 
of the fabric they use from Asia.  Managers at those 
companies have told Econoff that the end of the third-country 
fabric provision would force them to reorganize their 
production and to consider pulling out of Malawi.  Malawi's 
primary producer of textiles is currently restructuring as 
part of the country's privatization program, and has not 
produced fabric for about six months.  The lapse of the 
third-country provision would therefore immediately raise 
production costs, as no local alternatives are available, and 
regional alternatives would be logistically difficult to 
obtain.  (Comment: the Taiwanese authorities are keen to see 
the companies remain in Malawi because Malawi has diplomatic 
relations with Taiwan, and inducements from the authorities 
might keep the companies here.  Continued expansion of 
production and job growth, however, would be unlikely.) 
 
2.  (C)  Although there is significant U.S. investment in 
Malawi, it is not highly visible.  To the average Malawian, 
AGOA is Malawi's economic relationship with the United 
States, and therefore layoffs or company closures among AGOA 
exporters would be seen as a step backwards in bilateral 
relations.  Given that a lapse of the fabric provision could 
also make the current restructuring of Malawi's primary 
textile producer appear to be a failure, ending of the fabric 
provision could also undermine the country's privatization 
program and USG efforts to support private sector growth over 
state-run companies. 
 
DOUGHERTY