Hanging by a thread
Myanmar garment industry on edge as EU begins review of trade privileges
Myanmar's flourishing textile and garment industry could be decimated if the European Union (EU) decides to withdraw trade privileges, business leaders say.
And while any such decision is at least a year away, some fear the EU could use trade penalties to show its disapproval of the Myanmar government for failing to stop human rights abuses in Rakhine State.
An EU monitoring mission is due to arrive in Myanmar today to begin assessing conditions in the country.
The loss of duty-free export privileges to the EU could put more than 200,000 jobs are at risk, according to textile factory owners. And the knock-on effect would be catastrophic for the country's economy, which is already struggling to gain traction.
The EU only restored Generalised System of Preferences (GSP) status for this sector in Myanmar in 2013, 16 years after suspending it to punish the previous military regime. The textile and footwear industry has grown by leaps and bounds in the past five years as a result.
"If the EU removes GSP, more than half the workforce employed in the garment sector are at risk of losing their jobs," Khine Khine Nwe, secretary-general of the Myanmar Garment Manufacturers Association, told Asia Focus. More than 90% of them are young, unskilled women, with no alternative employment prospects.
"Chinese factories employ around 300,000 people," she said. These Chinese investors were attracted to Myanmar because of the country's easy access to the European market under GSP. If that is withdrawn, they will certainly pull out and relocate elsewhere, probably to Thailand or Vietnam, she predicted.
This would be tragic, she said, because these women sustain their families -- on average five people: a spouse and at least three children. More than a million people would suffer directly as a result, she estimated.
"A slowdown in Myanmar's emerging garment industry would also dramatically affect the textile supply chain -- such as thread and buttons -- and the supporting industries -- embroidery, printing, production of polyester bags and cartons -- that are important for the textile and garment industry," Myint Soe, chairman of the garment manufacturers' association, told Asia Focus.
Kristian Schmidt, the EU ambassador to Myanmar, elaborated on the plans for the visit of the monitoring mission this week.
"The mission will assess the country's progress in respecting the core conditions on which the trade privileges are granted, including respect for human rights, and be informed by the reality on the ground," he told Asia Focus.
The delegation will spend three days meeting with international organisations, especially the International Labour Organization (ILO), trade unions, factory owners, civil society representatives and the government.
After it reports back to Brussels, the EU Trade Commissioner will decide whether to initiate the GSP withdrawal process, at which time Myanmar would be given a six-month notification period. That would be followed by a further six-month assessment period before a determination is made. If the withdrawal is recommended, it would be proposed to a summit of EU leaders for approval.
But the decision can be reversed at any stage if the Myanmar government demonstrates it has complied with the conditions, said Mr Schmidt.
"These are not trade sanctions, nor an embargo nor a ban," he pointed out. Myanmar exports will continue to be welcome in the European market, but they would simply have to face normal customs duties and compete with other countries in the same situation.
But in the face of stiff competition from Bangladesh, Cambodia and Vietnam, loss of duty-free status for Myanmar products would make them far less attractive to European buyers. And with Japan the only other significant importer, finding alternative markets could be nearly impossible.
In 2013 there were about 200 textile and garment factories in Myanmar but now there are nearly 500 -- most of them Chinese-owned or managed. The sector has been a significant source of foreign investment -- especially from China, Hong Kong, Taiwan and South Korea.
More than half the factories are based in Yangon – in special industrial zones -- while Mandalay and Saigang state are the other two key locations. But as the industry has grown, factories are spreading throughout the country, even in some ethnic areas along the border with Thailand, according to Khine Khine Nwe. Many Yangon factories provide jobs for unemployed ethnic women -- Chin, Kachin, Karen and Rakhine -- who cannot find work near their homes.
The industry now employs more than half a million workers, with a market value exceeding US$1 billion, a figure that has more than doubled since 2013.
"In terms of job creation, this has been one of fastest-growing sectors in Myanmar, especially for women, over the last five years," said Rory Mungoven, head of the ILO office in Myanmar. By 2020 it is estimated that the workforce will reach one million with output worth $10 billion.
Textile and garment exports from Myanmar to the EU over the last five years have grown exponentially. In 2014 they were valued at $310 million and have now grown more than four-fold. Last year garment exports accounted for 72% of Myanmar's $1.8 billion in shipments to the EU -- this year the figure will exceed 80%. This makes the EU one of the few markets with which Myanmar enjoys a trade surplus.
Myanmar has emerged as a manufacturing hub for European brands, including Adidas, C&A, H&M, Inditex, Next and Primark. H&M sources from over 30 factories in Myanmar, mostly Chinese-owned or managed. When contacted for an interview the firm declined, but issued a statement to Asia Focus:
"We fully understand the need for the European Union to look into how to address the severe human rights situation in Myanmar," it said. "It's an important but also complex issue, and also has potential negative effects on employment for the people in the garment industry that must be taken into consideration."
The company declined to give information on the value of its Myanmar production.
The local textile and garment industry has seen the crippling effect of sanctions once before and does not want to see a repeat. The United States imposed trade sanctions against the military regime in July 2003, following an attack on Aung San Suu Kyi and the subsequent renewal of her house arrest.
The import ban had a disastrous effect on the fledgling industry. At the time Myanmar exported nearly half of its production to the US, with more than 80% of US imports from Myanmar being clothing.
Myint Soe -- now head of the MGMA -- was a leading factory owner at the time: "It was crippling, we had to lay off more than 150,000 workers," he told Asia Focus.
By 2005 the industry employed a little over 60,000 women. Many of the women who became jobless were forced into prostitution, according to a US State Department report released at the time.
"These women workers from before the US sanctions have all disappeared; it's a different workforce now," said Khine Khine Nwe. Many were trafficked or sought employment in Thailand, she explained.
When the EU suspended GSP in 1997, the sector was only three years old and did not feel the impact as much.
The industry since then has matured greatly and has become a model for the manufacturing sector in Myanmar. "The garment sector is leading the way in terms of addressing health and safety, working conditions -- including formal contracts -- and industrial relations," said Mr Mungoven of the ILO. "When employers and unions work together, the industry can move ahead of the curve."
Duty-free access is just one of a number of areas in which the EU is helping industries in Myanmar. Its Aid for Trade programme helps industries become more efficient and better able to meet the EU's stiff standards for imports, especially agricultural products.
"We are actively supporting Myanmar so that it can benefit from these opportunities offered by GSP," said Mr Schmidt. "In fisheries and aquaculture we support inspections so that Myanmar can meet European standards -- good for European consumers' public health -- but also good for Myanmar's fishing industry, making sure fish products are hygienic and meet environmental standards."
The EU also backs a programme called SMART, which helps textile and garment factories address environmental concerns, improve energy efficiency and reduce waste and pollution. It also ensures that employees understand their rights and earn a decent wage through collective bargaining.
"These are all development concerns that go hand in hand with our trade policy," said Mr Schmidt. "And it's been highly successful -- since the introduction of GSP in 2013 -- because we have seen how many jobs are being created."
Analysts believe that access to the European market, and the need to meet its exacting standards, has been the main impetus for the transformation of the industry because it is so export-dependent. It is connected to a global supply chain, which necessitates adopting responsible business practices.
The EU mission comes in the wake of a UN fact-finding mission report that said the military's conduct in Rakhine state was tantamount to genocide. It documented a campaign that forced more than 700,000 Rohingya Muslims to flee to Bangladesh, burned villages and committed massive human rights abuses -- including widespread rape and summary executions. In these circumstances, the EU felt it had no alternative but to reconsider Myanmar's GSP status.
The governing National League for Democracy and parliamentarians are concerned that the international community, and the EU in particular, do not understand Myanmar's situation and are too preoccupied with Rakhine.
Bo Bo Oo, an NLD lawmaker in the lower house, was part of a parliamentary delegation that recently visited Europe to voice concerns about possible GSP withdrawal. He said the EU should also consider the rights of the 500,000 people would be adversely affected by these "trade sanctions".
"I see no connection between these women workers' rights and Rakhine," he told Asia Focus. "These trade sanctions will only disrupt the government's economic reforms, and jeopardise our political transition after more than six decades of isolation under military dictatorship.
"Instead the EU should support Daw Aung San Suu Kyi in what she is trying to do and not attack her."
Lifting GSP won't affect those responsible for the problems in Rakhine, said prominent businessman, Moe Kyaw. "The EU instead should consider imposing a visa ban on the NLD politicians, to force them to wake up and protect Myanmar's businesses."