Myanmar is slowly but steadily finding its way back on to the radar of American companies

Myanmar is slowly but steadily finding its way back on to the radar of American companies

American orders of 'Made in Myanmar' garments are growing, although uncertainty on sanctions and a lack of preferential market access is hindering further expansion, according to experts.

Yet a shift may be coming in bilateral trade relationships, as the April transition to a democratically-elected government headed – in practice if not in name – by Nobel Laureate Daw Aung San Suu Kyi, as well as ongoing political and economic reforms, has opened the door to improvements.

"I think we will start to see a change in the approach of US companies overall toward Myanmar now that the NLD [the ruling National League for Democracy] is in power," says Peter Kucik, principal at Myanmar-focused business consultants the Inle Advisory Group and an expert on sanctions.

A decade-and-a-half ago, the US was the major buyer of Myanmar's garments, accounting for more than half of all exports. However, in 2003 the US instituted wide-ranging sanctions on Myanmar, which was then run by an oppressive military regime, and the trade quickly came to a halt.

While broader sanctions have now largely been removed, a fear of falling foul of the remaining restrictions, as well as complications in areas such as money transfers and reporting requirements, still hinder business.

"The effect on the Myanmar garment industry was quite devastating and lingering sanctions remain an impediment to business development," says one expert.

Indeed US companies investing more than US$5m in Myanmar must still submit a report on business practices. The investment amount trigger for this rule was only recently raised from US$500,000.

The only garment business that has submitted such a report is Gap Inc, which claims to have done so voluntarily, as its business sourcing garments in the country from third-party suppliers does not require mandatory reporting under existing rules.

The US has also not extended its GSP (Generalized System of Preferences) to Myanmar, so duties remain in place. While the GSP scheme excludes most textile and apparel products, the designation of a country as eligible for GSP sends a strong message that it is taking steps to improve worker and intellectual property rights.

EU leading the way

By contrast, with the European Union (EU) removing most sanctions (except on the arms trade) by April 2013, and reinstating tariff-free access for most Myanmar goods that year (applied retroactively to 2012), Myanmar-made products have become much more attractive to European buyers.

So European firms have outpaced American companies in sourcing from the newly democratic Myanmar. The EU imported EUR423m (US$473m) worth of garments in 2015, while overall US imports from all business sectors in Myanmar was just US$143.8m in 2015, according to official trade statistics.

US trade data suggests apparel imports accounted for $41.0m of the total, a rise of 160% on the year before.

Indeed, Myanmar is slowly but steadily finding its way back on to the radar of American companies looking to source garments.

"No question that the sanctions meant European companies and their suppliers developed connections for sourcing in Myanmar earlier than US brands and retailers," says Julia Hughes, president of the US Fashion Industry Association (USFIA).

"But that does not mean that the US is not also expanding operations. In the most recent US import statistics (through June 2016), US imports of textiles and apparel [from Myanmar] jumped by 170% compared to one year ago. Most of those imports are apparel, although there is a growing market for home textiles and travel goods, too," she adds.

Easing trade restrictions

Importers are being encouraged by Washington easing, if not sweeping away, trade restrictions.

In May, the US Office of Foreign Assets Control (OFAC) removed seven Myanmar state-owned firms and three banks from its Specially Designated Nationals (SDN) list, often referred to as the blacklist, which effectively blocks US companies from trading with listed entities or people. It also liberalised general banking licences regarding financial exchanges with the country.

The official notification said that Myanmar had reached an "historic milestone" with the elections and transition to a democratic government. "Our actions demonstrate our strong support for this political and economic progress while continuing to pressure designated persons in Burma to change their behaviour," said Adam J Szubin, US treasury acting under secretary for terrorism and financial intelligence.

As regards the US GSP status, Myanmar media has reported that discussions were to take place on the subject between the US and Myanmar governments by July – although no announcement has been made on the result.

Daw Khine Khine New, secretary general at the Myanmar Garment Manufacturers Association (MGMA) said there are some complications from sanctions for Myanmar companies, such as on sending and receiving dollars, but a larger concern is receiving the trade benefits that come with the GSP.

Also, awareness of Myanmar as a sourcing destination within the US is still relatively low. Hughes points to a recent USFIA study in which only one-quarter of respondents said they have started to explore sourcing opportunities in Myanmar.

"That suggests to us that companies are taking it slow to begin sourcing in a new destination," she said.

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