US embassy cable - 04RANGOON912

C O N F I D E N T I A L RANGOON 000912 
 
SIPDIS 
 
STATE FOR EAP/BCLTV, EB, DRL 
COMMERCE FOR ITA JEAN KELLY 
TREASURY FOR OASIA JEFF NEIL 
USPACOM FOR FPA 
 
E.O. 12958: DECL: 07/19/2014 
TAGS: ETRD, ECON, KTEX, BM, Economy 
SUBJECT: BURMA'S GARMENT SECTOR TAKES A TURN FOR THE BETTER 
 
REF: A. RANGOON 768 
 
     B. RANGOON 138 AND PREVIOUS 
 
Classified By: COM Carmen Martinez for Reasons 1.4 (B,D) 
 
1. (C) Summary: New garment orders from Europe and Canada 
have put about 25,000 back to work around Rangoon.  These 
orders are offering a much smaller profit margin than normal, 
though, thus the GOB is gaining little extra income from the 
new business.  Despite the good news, garment factory owners 
continue to suffer from low demand and poor competitiveness, 
though they swear they are not transshipping.    End summary. 
 
Europe and Canada to the Rescue 
 
2. (C) A senior member of Burma's Garment Manufacturers' 
Association (GMA) told us that fresh orders from Europe and 
Canada this spring have proved a huge boon for the 
beleaguered sector.  Orders from Asia remain stagnant.  He 
noted, though, that production is still about 50 percent off 
from the same period last year -- prior to implementation of 
the U.S. import ban in August.  Also foreign buyers are only 
paying 50 percent of what they were paying last year, so 
profit margins are quite tight even as orders increase. 
 
3. (C) Nonetheless, he said that GMA members had been 
rehiring workers laid off since the import ban at a rapid 
pace to meet the new orders.  He estimated that 25,000 
workers had been re-hired so far this year.  (Note: Rangoon's 
semi-official "Myanmar Times" last week even had an article, 
in its English version, lauding increased employment in 
Rangoon's industrial zones, particularly garment factories.) 
However, he admitted that in 2003 and early 2004 lay-offs 
were about 15 percent higher than he had previously thought 
(ref B).  Thus, the net employment situation in the garment 
sector stands now about 45,000 off of pre-August 2003 levels. 
 The official was optimistic that the new orders would 
continue to come in throughout the summer, but he did not 
think there would be many additional hires.  Likewise, he 
said no closed factories had re-opened due to the new demand. 
 
4. (C) A South Korean Embassy official here concurred with 
the GMA assessment.  He told us that a handful of moribund 
Korean-owned garment factories (many if not most of the 
foreign garment factories here are run by Koreans) had come 
back to life due to new orders. 
 
Transshipment: "Not Us!" 
 
5. (C) We raised with the GMA official the problem of 
transshipment or relabeling of Burmese garments for export to 
the United States (ref A).  He denied that it could be a 
widespread problem, saying the profit margin for Burma's 
exclusively Cut, Manufacture, and Package (CMP) garment 
factories was far too slim to afford the extra expense of 
transshipping.  He said a transhipper to Thailand would have 
to pay huge bribes to Customs, particularly on the Thai side, 
or equally large transportation costs to smuggle the garments 
in small bundles across the river that marks the border.  He 
admitted, though, that he had "heard" some garment 
manufacturers here had been stuck with product following the 
advent of sanctions in August 2003 and had sent them overland 
through Thailand for relabeling and onward shipment to the 
United States.  He did not know the name of the Thai company 
used in this alleged transshipment. 
 
Comment: Good News for U.S. Policy 
 
6. (C) The recent turn of events in the garment sector is 
positive for U.S. policy objectives in two ways.  First, the 
rehiring has taken a chunk out of the unemployed garment 
workers, most of whom are young women (a fact used as 
anti-American propaganda by the regime).  Second, because the 
profit margins are slimmer than ever for the companies, the 
amount of money going into the GOB's coffers from this 
increased production of CMP garments is negligible.  End 
comment. 
Martinez