Its economy in poor shape, Myanmar’s textile sector might be crippled if...

Its economy in poor shape, Myanmar’s textile sector might be crippled if EU acts tough

Larry Jagan,

Myanmar’s flourishing textile industry is in severe danger of being decimated, if the European Union (EU) decides to withdraw its special trade privileges. A EU monitoring mission is due in Myanmar shortly to begin an assessment process. If that happens, more than 200,000 jobs are at risk in the sector, according to textile factory owners.

The knock-on effect would be catastrophic for the country’s economy, which is already stagnant. But it may be good news for the other garment producers in the region, particularly Bangladesh. The likely exodus of young workers across the border into Thailand—looking for employment—will be a drain on the Thai economy.

In 2013, the EU reinstated Myanmar this favoured trade status – which had been withdrawn in 1997 because of the country’s prevalent use of forced labour. Under a system known as the Generalised System of Preferences (GSP), Myanmar is allowed to export goods to the EU duty-free. This has provided a significant stimulus that has made the textile and footwear industry one of the fastest growing and profitable sectors in the country.

“If the EU removes GSP, more than half the workforce employed in the garment sector are at risk of losing their jobs,” KhineKhineNwe, secretary general of the Myanmar Garment Manufacturers Association told the South Asian Monitor. More than 90 percent of them are young, unskilled women, with no alternative employment prospects.

“The mission will assess the country’s progress in respecting the core conditions upon which the trade privileges are granted, including respect for human rights, and be informed by the reality on the ground,” EU Ambassador to Myanmar Kristian Schmidt told South Asian Monitor in an interview.

“Chinese factories employ around 300,000,” she said. These Chinese investors were attracted to Myanmar because of the country’s easy access to the European market under the GSP, and if that is withdrawn, they will certainly pull out altogether and relocate elsewhere in the region, probably Thailand or Vietnam, she predicted. Some Asian investors are already downsizing in anticipation of international sanctions, she added.

This would be tragic she insisted, for these women sustain their families – on average five people: their spouse and at least three children. The impact would reverberate throughout the country. More than a million people would suffer directly as a result of the GSP withdrawal, she estimated. And it would also severely affect industries that support the textile and garment sector.

“A slowdown in Myanmar’s emerging garment industry would also dramatically affect the textile supply chain that like, accessories—such as thread, buttons—and the supporting industries—embroidery, printing, production of polyester bag and cartons—that are important for the textile and garment industry,” said Garmet Manufacturers’ Association Chairman MyintSoe.

A monitoring mission will arrive in Myanmar on Monday to assess the situation, which could lead to this favourable trade status being revoked.

“The mission will assess the country’s progress in respecting the core conditions upon which the trade privileges are granted, including respect for human rights, and be informed by the reality on the ground,” EU Ambassador to Myanmar Kristian Schmidt told South Asian Monitor in an interview. The delegation will spend three days discussing the issue with international organisations, especially the ILO, trade unions, factory owners, civil society and the government.

“Both the government of Myanmar and the industry must appreciate that this access to the European market isn’t just about lifting standards as a whole, but by so doing will gain access not only to the European market, but eventually all sophisticated markets,” said Schmidt. “The onus is on the government: its about people, and Myanmar’s future economic development.”

The EU does much more than offer duty-free access to the European market, and also extends development assistance—known as Aid for Trade—to help developing 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 Schmidt. “We are supporting inspections in fisheries and aquaculture so that Myanmar can meet European standards—good for European consumers’ public health—and good for Myanmar’s fishing industry, making sure fish products are hygienic and meet environmental standards.”

And in textiles the EU is supporting the SMART project, which supports the textile factories in addressing environmental concerns, making savings on energy efficiency and wastage. It is aimed at preventing the factories from polluting the environment, ensuring that employees are well organised and 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,” Schmidt told the South Asian Monitor. “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 their exacting standards has been the main impetus for the transformation of the industry because it is largely export-dependent. It is connected to the global supply chain, which necessitates adopting responsible business practice.

The recent UN fact-finding mission report that alleges that the military’s conduct in Rakhine, which forced nearly a million Arakan Muslims to flee to Bangladesh, burned villagers’ home and committed massive human rights abuses, including widespread rape and summary executions, was tantamount to genocide. In these circumstances, the EU felt it had no alternative but to reconsider Myanmar’s GSP status.

Myanmar’s governing National League for Democracy (NLD) and the parliamentarians are concerned that the international community, and the EU in particular, do not understand Myanmar’s situation and are too preoccupied with the situation in Rakhine.

Bo BoOo, an NLD lawmaker in the lower house—just returned from a parliamentary delegation visit to Europe to voice concerns about the EU considering withdrawing GSP—said the EU should also consider the rights of the 500,000 people who would be adversely affected by the ‘trade sanction’.

“I see no connection between these women workers’ rights and Rakhine,” he said. The 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,” he said.

Anger at the possible move is also strong among Myanmar’s business community. 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 NLD politicians to force them to wake up and protect Myanmar’s businesses.”

Even if this generous trade practice is withdrawn, the EU would continue to support Myanmar’s democratic transition, insisted Schmidt. But this is cold comfort for Myanmar in the event of the EU’s GSP being withdrawn.

In an economy that is stagnant, the increased unemployment of upwards of half-a-million will cause even more hardship. This will further discourage foreign investment, already slumped significantly since last year, and the loss of some $2 billion will increase the trade deficit and put a greater strain on the exchange rate that has plummeted in recent months.