Lifting Burma sanctions unlikely to increase Burmese garment sales

We suspect the EU decision on April 22 to drop most remaining anti-Burma sanctions won’t stimulate European garment imports from Burma.

A meeting of EU foreign ministers on April 22 decided to drop all remaining sanctions against Burma, apart from an arms embargo. Apparel imports into Europe have never been banned: the most important sanction the EU had earlier imposed was the suspension of the duty-free privilege Burma, officially among the world’s 49 poorest countries, would have been entitled to had it honoured human rights. The foreign minsters’ decision means an almost immediate removal in the average 12% import duty imposed on Burmese-made garments.

This will not dramatically change Burma’s poor competitiveness. Poor labour productivity, an increasingly uncompetitive exchange rate, power shortages and inadequate transport make it a relatively expensive place to make garments in: prices per square metre of garments imported into the EU from Burma in 2012 were 12% higher than those from China, and almost twice prices from Bangladesh.

But the EU decision almost coincided with growth in Burmese ethnic tension, with alleged killings of Muslims by Buddhists no longer confined to the country’s western areas, but now reported in the central provinces. Many human rights activists reacted with near-hysteria to the EU’s decision: Human Rights Watch says more than 125,000 have been recently uprooted by what it described as a government campaign of “ethnic cleansing”, and the reaction of its spokesperson Lotte Leicht was typical of many similar groups:  “Gushing superlatives appear to have replaced objective assessments in EU decision-making on Burma,” she said, adding  that “the EU's scrapping of targeted sanctions on Burma is premature and recklessly imperils human-rights gains made so far.

Burma’s minimal share of European garment buying (Burma had 0.16% of all EU apparel imports in 2012) is not the direct result of sanctions, but comes from the combination of an inefficient garment-making industry and the country’s pariah status among activists. Most European buyers for the past 15 years have been uninterested in the country because the high likelihood of activist protest should Burmese garments be found in a store dramatically outweighed the low likelihood any buying trip would uncover a manufacturer with any kind of competitive offer.

Removing sanctions changes none of the country’s competitiveness difficulties as an apparel supplier: in the short term, by stimulating growth in other parts of the economy, lifting sanctions makes Burma’s uncompetitive exchange rate still more uncompetitive and inflates many wages and intensifies pressure on power supplies and transport. The clumsy timing of the EU’s decision to remove most sanctions has inflamed activist sentiment – which is likely, if anything, to inflame new boycott campaigns.

Even without activist intervention, easier access is unlikely to have much impact on Burma’s garment industry. Burma has never had the pariah status in Japan it has carried in the UK and US, and since 2008 Japanese garment makers have actively encouraged new manufacturing in Burma much as they have sought to in Vietnam, Cambodia, Indonesia and Bangladesh. As a result, Burmese garments have grown from 0.3% of Japan’s imports in 2008 to 1.1% in 2012. But over the same period, Japan’s imports from Vietnam, Cambodia, Indonesia and Bangladesh have all increased far faster: Japan imported about as many clothes from Indonesia as from Burma in 2008 – but in 2012 imported twice as many.

In the longer term, Burma’s growing normalisation is likely to improve its commercial infrastructure – and might force both its government and its majority population to accept worldwide standards of decent behaviour. Equally, the effect of boycott campaigns is always unpredictable.  But any real improvement in manufacturing competitiveness on the ground is likely to take years or decades. A few demonstrations take just a few emails to organise.

The human rights campaigners’ anger at sanctions lifting sounds understandable. But sanctions clearly have failed to stop the Burmese government at best standing by as Buddhists appear to have targeted Muslims for violence. This Blog claims some expertise on global garment trading, not on engineering respect for human rights – but there is at least a reasonable argument to be made that the isolation the sanctions regime has fostered in Burma may well have actually made it easier for widespread ethnic violence to take place. Activists’ rage at the EU’s lifting sanctions has included no evidence at all that the sanctions helped anyone except Burma’s competitors in global markets.

Rights activists have every right to organise protests against Burmese garments, and I believe the threat of such protests will dampen retailer interest in buying garments from there. But that’s no reason rights activists should insist Europe imposes an unfair competitive disadvantage against Burmese workers it doesn’t impose on workers in equally poor countries.