The US-China trade war is expected to open up export opportunities for Asian apparel suppliers. In our earlier reports, we analysed how Asia will continue to remain the supplier of choice for US and Europe. And while export volumes are increasing, price realisations are expected to remain suppressed, as many apparel manufacturing countries are facing enquiries, trade sanctions, and other obstacles. Indian apparel industry is above this, but has its own home-grown problems of high and volatile cotton prices, which impact final pricing. The Indian industry and government need to address these issues, to make the most of the market opportunity this time.
Fashion brands reconsider sourcing from Myanmar
Apparel brand Esprit has gone on record to say that it will no longer source from a garment manufacturing facility believed to be linked to Myanmar’s military.
The move comes after a recent report from the UN Independent International Fact-Finding Mission on Myanmar uncovered that revenues from the military’s affiliated businesses have been used to support military operations in the country. As a result of the report, fashion brands, including Esprit, H&M and Bestseller, have made vocal their intentions to re-evaluate where they’re sourcing from, the report said. We expect US retailers could follow suit.
Myanmar’s apparel exports earnings on the rise
From October 1 of 2018-2019 fiscal year, Myanmar’s CMP garment industry earned over US$ 3.8 billion, up over US$ 1 billion compared with the same period last year, according to an official of the Commerce Ministry.
The CMP garment industry topped the list of the total export sector. In 2018, the garment export sector earned nearly US$ 4.6 billion. The sector is expected to earn up to US$ 10 billion in 2024, said Khaing Khaing Nwe, secretary of Myanmar Garment Entrepreneurs Association (MGEA), at the 5th annual meeting at the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI).
“Our garment sector sees a five-fold increase in the number of workers and a 10-fold increase in income. If so, we need to double our productivity. We are making constant efforts for it,” Khaing Khaing Nwe added. The garment sector sees a massive inflow of foreign investments. Currently, the MGEA has over 500 members. Over 500,000 workers are employed in the garment sector.
400 Bangladesh garment factories barred from accepting Western orders
Only 200 out of 1,600 garment factories in Bangladesh have met the requirements of an international accord on worker safety, and 400 factories have been barred from taking international orders.
The Accord on Fire and Building Safety in Bangladesh was set up by European fashion brands to improve factory safety in Bangladesh after a garment factory complex collapsed in 2013 killing more than 1,100 people.
The five-year pact was originally due to expire in May 2018 but the transition period has been extended. The pact’s factory oversight team will then hand over to a government body set up for that purpose. Rubana Huq, president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), accused the Accord’s members of unilaterally imposing new requirements which were hurting the sector. She said she had met with their inspectors to urge them to consult with manufacturers on their decisions. “We had an agreement with Accord in May this year that it will not take any decision unilaterally but that has not been honored,” she said.
“Since the formation of Accord, we implemented lot of remediation as per its requirements that involved huge investment. Now, in the name of final checks, the Accord is asking for several more remediations.”
Huq also said that of the 1,600 factories inspected by the team between 2014 and 2019, only 200 had been awarded completion certificates. At least 400 factories which inspectors found were slow to comply with the new safety rules were as a consequence no longer allowed to accept orders from the Western brands that are members of the Accord, she said. In June, garment manufacturers demanded higher export subsidies from the government, saying proposals in the latest national budget, unveiled last week, were not enough to compensate for higher production costs and low prices.
Cambodia-EU trade deal is on the chopping block
Cambodia’s Everything But Arms (EBA) deal with the European Union is a preferential trade deal that allows Cambodia to export goods other than weapons to the EU tariff- and duty-free. The agreement is in jeopardy because the EU is accusing the Cambodian government of violating human rights. The EU condemned the 2017 arrest of opposition leader Kem Sokha and the dissolution of his party – the Cambodia National Rescue Party (CNRP). Kem is accused of planning to topple the government.
Losing the EBA would principally affect the garment industry, which employs roughly 800,000 Cambodians. Mass layoffs are expected if the EBA falls through. The EU’s six-month investigatory period into Cambodia’s alleged human rights abuses began in February and ended in August. Many observers expected the prime minister to strike a conciliatory tone and offer concessions to preserve the agreement. Instead, he accused the EU of trying to hold Cambodia “hostage”.
Prime Minister Hun Sen claims to be unconcerned about the possible loss of EBA, asserting that China will help mitigate any economic losses. He also says bilateral trade with European countries can replace the deal. But Fei Xue, an analyst with The Economist Intelligence Unit, says it would be “difficult” for the country to make up EBA-related losses.
“Cambodian merchandise exports to the EU stood at US$ 4.2 billion in 2018, while exports to China amounted to only US$ 983 million,” he said. Moreover, EU countries are not allowed to strike their own trade deals outside the bloc. And even if they could, according to Xue, it would not be the same.
“The EU’s EBA scheme grants tariff-free access to some 99% of Cambodia’s exports to the single market. It is unlikely that bilateral deals could achieve the same depth of coverage,” Xue said.
He noted that the US is considering cancelling a similar deal with Cambodia, and the US-China trade war will only further strain relations with Cambodia.
“The escalation in the US-China trade war since 2018 contributed to the rise in Cambodian exports to the US, some of which are likely transshipments from China circumventing the tariffs on Chinese goods,” he explained. “Coupled with US concerns over increasing economic and military ties between Cambodia and China, this will certainly affect the US evaluation of Cambodia’s trade benefits.”
While members of Cambodia’s business community are trying to prevent the withdrawal of the country’s EBA status, political groups point to reasons the trade deal could soon end. The Garment Manufacturers Association of Cambodia (GMAC), appealed to the EU for clemency.
“A suspension of EBA benefits for our sector will result in large job losses across the garment, footwear and travel goods labour force and would not serve the EBA programme objective of poverty eradication and sustainable development,” read an August 12 statement from the GMAC.
Miguel Chanco, a senior Asia economist at Pantheon Macroeconomics, said a downturn in the garment sector would be “damning”. And while Chinese investment in infrastructure might soften the blow, Chanco believes Beijing’s economic influence will not likely “absorb the surplus labour”, which he warns could cause a “jump in unemployment”.
The EU must make its final decision in February 2020. The prime minister frequently complains that the international community holds Cambodia to a higher standard while other countries enjoy positive relations with the EU despite committing similar rights violations.
Chanco said questioning this discrepancy is fair. “I suspect that Cambodia was a ‘less costly’ example to make for other countries in the region, given its economy’s far smaller size,” he said. Cambodia also may be held to a higher standard because the international community has expended a great deal of time and money trying to encourage democratic reforms in the Southeast Asian nation.
Of particular concern to the government will be the garment industry’s propensity for demonstrations. Mass protests gripped Cambodia in 2013-14, led by the CNRP and garment workers.