No US rush to Myanmar despite end to sanctions

Just Style, Apr 18, 2017 by:  Jeremy Mullins

America may have scrapped its major sanctions against emerging outsourcing centre Myanmar, and brought back the southeast Asian country's GSP (Generalised System of Preferences) access to US markets, but the impact on the clothing trade has so far been underwhelming.

Apparel factory owners in Myanmar say American buyers have simply not materialised in the numbers that some expected. "We welcome buyers from Europe and Japan into my factory nearly every day," said one garment businesswoman, who requested anonymity. "In fact, we are close to exporting as much to Europe as to Japan. But I haven't had one American visitor since the sanctions removal."

Speaking to just-style, U Aung Win, deputy chair of the Myanmar Garment Manufacturers Association (MGMA), said it was unclear why fewer US buyers than expected had come, though hoped it would pick up in the future.

One reason why garment exports did not pick up immediately may be because US sanctions have been rolled back over time, but certain controls affecting key areas such as banking remained until November. So, there has been no big bang of sanctions abolition – with the European Union (EU) and Japan liberalising trade relations earlier. As a result, European and Japanese buyers have been busy making the relationships that are needed in a new outsourcing country – and US companies have been far less proactive, even though a few American brands, such as Gap Inc, re-entered Myanmar ahead of the 2016 end of sanctions.

And while Myanmar factory owners speaking with just-style said they were keen on GSP, formally granted to Myanmar in November 2016, they stressed that there are few garment products within the 5,000-plus list of goods affected, limiting its impact on the clothing trade.

A good example of the tepid American appetite to buy and invest in Myanmar can be seen from the fact that only 26% of respondents to a 2016 United States Fashion Industry Association (USFIA) benchmarking study said they had started to explore sourcing opportunities in Myanmar, the same percentage that were exploring Ethiopia.

That said, the 2016 study was released in June before the surprise end to sanctions and extension of GSP benefits to Myanmar.

The Association has not yet released its 2017 study, and it remains to be seen whether it measures an increase in interest.

International trade data certainly bears out the current low level of bilateral US-Myanmar clothing trading, indicating that Myanmar garment exports to the US averaged about US$4m per month in 2016's fourth-quarter. This is about one-tenth of the average clothing exports from Myanmar to Japan of about US$44m per month in 2016. Looked at another way, the US$4m per month exported to the US is about 3% of Myanmar's total garment exports – a tiny portion given the potential sales to the world's biggest economy.

This stands in contrast to rapid growth in Myanmar's trade with Europe. The European Union (EU) imported $260m worth of garments from Myanmar in 2014 and $337m worth in 2015. Although full-year 2016 figures have not been released, its 2016 figures to the end of November totalled $462m.

Put another way, an average month in 2016 saw as many European orders from Myanmar as from the US in an entire year.

Despite all of this, however, Myanmar will become an increasingly attractive destination for American clothing buyers, some say.

Eric Rose, lead director of HRMR (Herzfeld Rubin Meyer & Rose), the first US law firm moving into Myanmar, and a founding member of AMCHAM Myanmar (American Chamber of Commerce in Myanmar), told just-style this growth would come for several reasons.

Myanmar allows 100% foreign ownership in the clothing industry, which is naturally attractive to foreign companies looking to base manufacturing operations in the country. The Myanmar Garment Manufacturers Association (MGMA) has also been moving the industry toward a 'free on board' value-added model, including promoting the development, production and export of garments.

The local market offers some advantages over its competitors. Labour costs are about one-third of those in China, and 30% less than in Cambodia and Vietnam. Productivity is also growing partly due to the devaluation of the Myanmar Kyat. In April 2015, US$1 bought MMK1,067. Now it buys around MMK1,350. Meanwhile, the new civilian government is working to improve facilities and regulations that are of critical importance for the growth in exports, such as export infrastructure (port efficiency leaves much to be desired), developing production hubs with efficient energy and transport infrastructure, and improving the regulatory framework.

"Ultimately, the balance of overall costs versus productivity, and capacity for growth offered by Myanmar will inherently enhance the opportunities of 'Made in Myanmar' brand-building for US importers," Rose said.

And the fact remains that before the introduction of sanctions against the former military government in 2003, the US had been the major buyer of Myanmar garments, purchasing about two-thirds of the total. This portion evaporated overnight with the 2003 Burmese Freedom and Democracy Act, which included bans on the import of Myanmar products to the US.

Buyers from Asia, specifically Japan and South Korea, took up some of the slack as American buyers vacated the market, but the effects on the garment industry in Myanmar were far-reaching – with capacity collapsing and investments falling away, just when other Asian countries – notably China – were starting to tap an outsourcing boom that has transformed their economies almost unthinkable occurrence for much of the previous two decades, when she had languished under house arrest.

While Daw Aung San Suu Kyi is forbidden by the military-drafted constitution from becoming the country's President, she created the position of State Counsellor after her party's November 2015 electoral victory, and installed a placeholder President.

Myanmar's nascent democracy may not be perfect, but the US evidently saw enough progress with the elections to roll back what remained of the sanctions. Now it remains to be seen whether the American clothing industry sees enough promise in Myanmar as an outsourcing location to exploit this new liberalised trading relationship

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