EU sanctions threaten to de-industrialize Myanmar
20 October, 2018
A European Union (EU) mission will arrive in Myanmar this month to assess the possibility of revoking the nation’s Generalized System of Preferences (GSP) trade status, a punitive move that would devastate key sectors of the local economy.
EU Trade Commissioner Cecilia Malmstrom initiated the review earlier this month in response to the United Nations Human Right Council’s fact-finding report on alleged abuses perpetrated by Myanmar military’s in the Rakhine, Kachin and Shan states.
The report, released at the UN General Assembly last month, accuses the military of abuses including crimes against humanity and genocide in a well-planned brutal campaign against the Rohingya Muslim community that sent over 700,000 refugees across the border into Bangladesh.
Malmstrom, whose mandate allowed her to initiate the punitive trade move against Myanmar without seeking the approval of other EU members, warned in her blog on October 5th, “We are not yet at the cliff edger and there is still time for Cambodia and Myanmar to draw themselves back from the brink.”
Cambodia’s recent democratic backsliding is another potential target for EU sanctions through withdrawal of its so-called “Everything But Arms” trade privileges. The EU has so far only imposed asset freezes and travel bans on individual military members believed to be involved in abuses.
Myanmar military troops take part in a military exercise at the Ayeyarwaddy delta region, February 3, 2018. Photo: Reuters/Lynn Bo Bo/Pool
Removing Myanmar’s GSP status, which was granted by the EU in 2013 following a series of political and economic reforms that eventuated in 2015 elections after decades of military rule, would be a significant blow to Myanmar’s already faltering economy.
The export-oriented garment sector, one of the country’s few economic bright spots, would be especially hard hit.
Garments ranked second only to oil and gas in last year’s exports, earning the country about US$2.7 billion in foreign exchange, up from US$1.9 billion in 2016 and about US$1 billion in 2015, according to Myanmar Garment Manufacturers Association (MGMA) figures.
The World Bank earlier this month downgraded its forecast for Myanmar’s economic growth in 2018 to 6.2%, from its previous 6.8% estimate, largely due to domestic factors.
Garment exports accounted for 72% of Myanmar’s US$1.8 billion in shipments to the EU in 2017, making the EU one of the few markets with which Myanmar enjoyed a trade surplus.
The sector is a huge source of employment in a country where 15.2 million people, or 32% of the population, is still living below the poverty line. Many of the garment factory employees come from the Rakhine, and other conflict-torn states such as the Chin and Karen.
Workers at a garment factory in Yangon’s Shwe Pyi Thar industrial zone. Photo: AFP/Ye Aung Thu
“Our members and the non-members in the garment sector employ about 500,000 people, and 95% of them are women,” said Khine Khine Nwe, the MGMA’s secretary general, in an interview. “Chinese factories employ about 300,000.”
Chinese factories account for more than 200 of the MGMA’s membership, according to Khine Khine Nwe, although other industry sources say the total is closer to 300. Chinese investment started to flow into the garment sector in 2013 to capitalize on Myanmar’s GSP status in the EU’s lucrative markets.
The European Chambers of Commerce and trade promotion organizations in Myanmar have opposed the EU trade commissioner’s move to remove Myanmar’s GSP privileges, largely on humanitarian grounds.
“Withdrawing the GSP will potentially harm the livelihoods of approximately half a million households in Myanmar, affecting an estimated 2 million people,” the chambers said in a joint statement.
The chambers added that the move, which would take more than six months to implement, would also further undermine the EU’s waning influence on Myanmar’s business scene, which is increasingly dominated by Asian investors including from China.
“The presence of European business in Myanmar champions European values including gender equality, transparency, accountability as well as social and environmental responsibility,” said the statement.
Although Chinese-owned garment factories are not known for all-of-the-above, the ones in Myanmar are under pressure to abide by EU compliance rules.
Myanmar de facto leader Aung San Suu Kyi stands in front of an EU flag. Photo: Reuters/Vincent Kessler
“Their standards are there because the European consumers want them,” said Filip Lauwerysen, executive director of Eurocham Myanmar. “When it’s Korean buyers, the standards are different.”
This is not the first time that Myanmar’s garment sector has been imperiled by sanctions. In 2003, the US imposed economic sanctions on Myanmar for the then military regime’s chronic rights abuses, effectively decimating a then fledgling garment sector.
“The industry really dried up,” Khine Khine Nwe recalled . “In those days we had over 300 garment factories and some 250,000-300,000 workers. Two months after the sanctions, many factories closed down. By 2005, we had less than 100 factories left, and about 60,000 workers.”
Some fear a repeat of that experience if the EU removes Myanmar’s GSP status, with workers and small entrepreneurs suffering the most. Maung Tun, for instance, started a small business as a garment factopry sub-contractor in 1989 with a work force of less than ten.
In 1992, he shifted the operation to Yangon’s Yuzana Plaza market, to be closer to the factories making orders and exporting to the US.
“That was our golden age,” said Tin Kyi, who is Maung Tun’s wife. “We were able to purchase new sewing machines imported from Japan for the business, and a new home where we set up our workshop and a Toyota Hilux truck for transportation.” Their workforce grew to 90, she said.
Then the US economic sanctions hit in 2003, orders dried up, and heir factory was closed by 2005. They had to sell off their new house and pickup truck to pay off the staff, she recalls.
“We wasted many years hoping the business would return to normal,” Tin Kyi said. “By 2008 we had nothing left and started facing hard times.”
Migrant workers pass the Thai-Myanmar border at Mae Sot town in western Thailand. Photo: AFP/Ye Aung
Her husband joined the Buddhist monkhood to seek sanctuary from their hardship. Many of their former garment employees were forced to migrate to neighboring Thailand in search of alternative, often dangerous, jobs.
Although garment jobs are hardly a path to riches for factory workers (the average monthly wage is only 220,000 kyat (US$141), it is one of the few sectors where Myanmar laborers, many of whom only have primary school educations thanks to decades military mismanagement, can find regular paying work.
“What sort of jobs can they get? In the garment sector it is easy to train people. You can train a worker in two weeks. Which industry can provide that kind of job to the workers?” asked Khine Khine Nwe.
The question might be directed to State Counsellor and Myanmar’s de facto leader Aung San Suu Kyi, whose cabinet has so far been unresponsive to the EU’s sanctions threat.
Suu Kyi’s National League for Democracy (NLD) is in an effective joint venture with the military in running the government, as stipulated under the 2008 constitution which assures the military a 25% stake in parliament and control over the defense, border and home affairs ministries.
Bringing the generals to heel for past atrocities is not a realistic option in light of their still-strong political grip on the country. Nor will bowing to Western pressure prove popular among certain hardline elements of Myanmar society.
Buddhist monks protest against UN Secretary General Ban Ki-Moon for using the term ‘Rohingya’ at an Asean summit in Yangon in a file photo. Photo: Reuters/Soe Zeya Tun
On October 14, ultra-nationalist Buddhist monk U Wirathu held a mass rally in Yangon in support of the military, including military chief Senior General Min Aung Hlaing, and to condemn “foreign interference” in the country’s affairs.
But the EU faces its own political pressures, among them a spike in populist, ultra-nationalist movements in several European states.
“There are a lot of things happening at the EU, such as an election for European Parliament coming up in May, so the [sanctions] topic is being politicized,” said Eurocham Myanmar’s Lauwerysen. “I hope the Myanmar authorities will take this very seriously and try to listen to the EU recommendations.”
He and others hope the EU can find another way to penalize rights-abusing generals that doesn’t impact on local garment workers.
“Those who played a role in the Rakhine conflict will be completely unaffected [by sanctions], while the ones who will pay the bill are the ones who cannot even point to the Rakhine on the map,” Lauwerysen said.