US embassy cable - 05RANGOON190

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 000190 
 
SIPDIS 
 
STATE FOR EAP/BCLTV, EB 
BANGKOK FOR CUSTOMS 
COMMERCE FOR ITA JEAN KELLY 
TREASURY FOR OASIA 
USPACOM FOR FPA 
 
E.O. 12958: DECL: 02/13/2015 
TAGS: ETRD, ECON, KTEX, PREL, BM, Economy 
SUBJECT: BURMA'S GARMENT SECTOR: SAVED BY THE TAX 
 
REF: A. 04 RANGOON 1294 AND PREVIOUS 
     B. 04 RANGOON 768 
     C. 04 BEIJING 19735 
 
Classified By: COM CARMEN MARTINEZ FOR REASONS 1.4 (B,D) 
 
1. (SBU) Summary: All but in the grave, Burma's garment 
sector has been kept alive -- barely -- by China's decision 
to impose an export tax on its garments.  Though no new hires 
or re-opened factories are likely, the manufacturers expect 
to maintain the status quo in the short term thanks to orders 
from the EU and Latin America spilling over from China -- and 
possibly transshipment to the United States.  The 
sustainability of this situation is uncertain, and totally 
dependent on outside forces as the GOB continues to do 
nothing to make Burma's industries competitive on anything 
but labor costs.  End summary. 
 
Export Tax Opens Up Niche 
 
2. (SBU) The December 2004 decision by the PRC government to 
impose an export tax on some of its garment exporters (ref C) 
has given the breathing room necessary for the Burmese 
industry to stay above water.  According to two senior 
members of the Garment Manufacturers Association (GMA), this 
policy, which coincided with the end of the Multi-Fiber 
Agreement on January 1st, will allow Burma to remain 
competitive in the manufacture of some types of low-value 
garments.  They also claim that a perceived increased focus 
by Chinese manufacturers on large-scale U.S. orders has 
allowed Burmese factories to keep most of their smaller EU 
customers -- and even add some new orders from Argentina. 
 
3. (SBU) None of this is to say the industry is set for 
revival after suffering a severe blow from a U.S. import ban 
imposed in 2003 (ref A).  The Burmese manufacturers told us 
in no uncertain terms that the new and recurrent EU and South 
American orders were quite small, low margin, and unlikely to 
increase much no matter what happened in China.  Neither 
foresaw new hires or re-opening of shuttered factories. 
However, the current situation should be enough to keep the 
100 or so remaining garment factories, and their 
50,000-60,000 workers, open for the immediate future. 
 
4. (SBU) One of the officials said he is also watching India 
very carefully to see if the GOI follows suit and applies an 
export tax to some of India's garment exports.  If this 
occurs, the current stability in Burma would be more 
sustainable.  He said he was also watching the EU, as any 
European move to restrict imports would certainly sound the 
death knell for the crippled industry. 
 
Evidence of Sanctions Evasion Evasive 
 
5. (C) Messages were mixed on transshipment of garments to 
evade U.S. sanctions.  One manufacturer told us that some 
foreign JV factories in Burma were shipping unlabeled, but 
otherwise finished, product to Thailand as "unfinished 
garments."  The Thai factory was then adding labels and 
shipping the garments to the United States.  He said he 
wasn't sure of the names of the Thai factories facilitating 
this.  We note this is the second time we've heard a specific 
account of transshipment of Burmese garments through Thailand 
(ref B).  The other GMA official (whom we met separately) 
told us he had not heard of any such activity occurring.  In 
any event, the amount transshipped is likely tiny compared to 
pre-sanctions volumes.  Our source told us he thought about 
10,000 dozen/month were going illegally to the United States 
now, down from an average of 1.6 million dozen/month in 2003. 
 
Comment: Surprising Survival 
 
6. (SBU) The survival of the garment sector into 2005 defied 
expectations.  The sustainability of this survival, however, 
is entirely dependent on outside factors -- namely the 
sanctions policy of the EU and the export polices of China 
and India.  There is nothing afoot domestically to try and 
insure the industry against these vagaries.  The garment 
factories, and all industrialists, suffer from a terrible 
business climate -- including worsening electricity problems 
and a shortage of bank capital.  They also continue to lament 
the lack of support from the GOB, despite the regime's 
regular propaganda about building up Burma's decrepit 
industrial base.  End comment. 
Martinez