Myanmar Coup and Fast Fashion: Sanctions Would Harm Poor Textile Workers

By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She is currently writing a book about textile artisans.

The Wall Street Journal ran a piece today, Myanmar’s Garment Factories Suffer One-Two Punch of Covid and Coup, highlighting the impact imposing economic sanctions on Myanmar in response to last week’s military coup would have on workers who make clothes for fast fashion retailers.

Per the Journal:

A decade ago, as Myanmar was turning toward democracy from military rule, Western governments began dropping crippling sanctions—drawing fast-fashion labels to the country. Factories sprang up, employing hundreds of thousands of people making shirts and dresses for consumers in Europe and elsewhere.

Last week’s military coup threatens to turn back the clock. Factory owners fear political instability will push Western clients away, and that any Western efforts to pressure the generals by restoring broad sanctions or withdrawing trade preferences would be crushing.

“I am very afraid of going back to that time because I already know what the situation was like with sanctions,” says Aung Myo Hein, who opened a garment factory in Myanmar in 2013, when the European Union gave Myanmar’s garment exports duty-free access.

Now, downsizing or eliminating entirely the fast fashion industry would undoubtedly benefit the planet. But going cold turkey  would cause immediate misery to the many poor textile workers who would be deprived of their livelihoods.

Globally, COVID-19 has caused a huge drop in fashion sales, as those working from home have slashed their spending on garments. Part of this drop comes from a lesser need for new clothes, while part is no doubt driven by economic uncertainty.

Faced with such plummeting demand, many fashion companies have responded by stiffing their suppliers, as the Guardian discussed in World’s garment workers face ruin as fashion brands refuse to pay $16bn:

Powerful US and European fashion companies have refused to pay overseas suppliers for more than $16bn (£12.3bn) of goods since the outbreak of Covid-19, with devastating implications for garment workers across the world, according to analysis of newly released import data.

Two US-based groups, the Center for Global Workers’ Rights (CGWR) and the Worker Rights Consortium (WRC), used previously unpublished import databases to calculate that garment factories and suppliers from across the world lost at least $16.2bn in revenue between April and June this year as brands cancelled orders or refused to pay for clothing orders they had placed before the coronavirus outbreak.

This has left suppliers in countries such as Bangladesh, Cambodia and Myanmar with little choice but to slim down their operations or close altogether, leaving millions of workers facing reduced hours and unemployment, according to the report.

This practice of non-payment has not gone unchallenged. In fact, activists have launched a campaign to focus public attention on this problem and so shame fashion companies into paying their bills – with some success. At this point, I won’t discuss these efforts further, but will revisit them in a future post, so as to focus instead today on the Myanmar situation.

Fast Fashion and Myanmar

Before the COVID-19 decline in demand for new clothing, Myanmar had seen its textile exports surge, as reported by the WSJ:

The coronavirus pandemic has already wiped out orders and caused layoffs. Before it hit last year, apparel exports had been rising sharply—to about $5 billion in 2019, 15 times the 2010 total—creating an industry that employed 700,000 people. Brands include fast-fashion retailers Hennes & Mauritz HM.B -0.22%AB of Sweden, Mango of Spain, Next PLC of the U.K. and Primark, a retailer with stores across Europe.

Myanmar’s garment industry has a small share of the global business, but it has been seen as a promising, low-cost alternative to China for clothing from simple shirts to more complex jackets and coats.

At the moment, although the fashion and textile trade press is rife with contradictory and confused speculation as to what governments and companies might do next, the Journal reports that companies are largely taking a wait and see attitude:

Retailers buying clothes in Myanmar haven’t yet said what they will do about the military takeover. Primark has no current plans to change its sourcing strategy, it said, but is closely monitoring the situation. H&M said it is concerned but wouldn’t comment on how it will respond. Next and Mango didn’t answer requests for comment.

Wherever imposed, from Iran to Venezuela, economic sanctions have proven to be a largely ineffective tool for forcing governments to change policies. Where they are effective is in making ordinary people  suffer, with the greatest misery falling on the poor and vulnerable. Over to the WSJ again:

As Western governments weigh their options, experts are warning against measures that could hurt Myanmar’s poor and civilian businesses, such as withdrawing EU trading preferences.

EU officials said the bloc will explore all options, including withdrawing tariff preferences. The EU considered doing just that in 2018 over human-rights concerns. In the end it didn’t act against Myanmar—citing its “constructive attitude and engagement on the issues of concern” such as internally displaced people and media freedom—but did penalize Cambodia by withdrawing tariff preferences on one-fifth of its exports to Europe.

If the trade benefits disappear in response to the coup, factories would be forced to close, Mr. Aung said. His factory makes mainly shirts, selling 85% of its production to Europe.

“I will consider switching to another business” if EU orders fall, he said.

Mr. Aung is no stranger to such turbulence. In 2003, when Myanmar was under military control, Washington banned all goods from the country, whose exports to the U.S. had totaled $356 million in 2002. Mr. Aung’s parents closed two of their three garment factories, cut the workforce to 300 people from 2,000 and shifted their focus entirely to Myanmar’s small domestic market.

“Of course there is a need to signal that this coup is completely unacceptable, but it is imperative not to do so in such a way that ultimately hurts the economy,” says Richard Horsey, a Yangon-based political analyst.

Mr. Horsey, who worked with the U.N.’s International Labor Organization in 2003, remembers interviewing garment workers who lost their jobs when the U.S. halted imports. “It was absolutely devastating. They were the breadwinners for their families,” he said.

Yet even if the EU and US reject pursuing sanctions at this time, fashion companies may decide that increased political risk now weighs heavily against continued sourcing from Myanmar. With COVID-19 continuing to depress demand for fashion and apparel worldwide, retailers would find it very easy to switch to more politically stable their sources of supply.

Reuters reports that U.S. investors are mulling such issues and would face few impediments to setting up garment factories in other countries, according to Myanmar Coup To Dampen US Trade, Impact Footwear Companies:

Lucas Myers, analyst with the Woodrow Wilson International Center for Scholars, said the coup would exacerbate strains in US-Myanmar ties following sanctions imposed by Washington in December 2019 and would further complicate trade relations.

“On trade, the Rohingya situation and Myanmar’s troubled human rights record rendered investment less attractive for Western firms as compared with China,” Myers said.

William Reinsch, trade expert with the Center for Strategic and International Studies think tank, said US companies could opt to pull out of Myanmar, given new developments and the Biden administration’s vow to focus more on human rights.

While some US companies had moved work from China to Myanmar in recent years to take advantage of lower wages, the country’s infrastructure was still lacking, which had kept investment from booming, he added.

Most of the US work was in relatively low capital-intensive industries and could be relocated fairly easily, Reinsch said. “It’s not semiconductors. These factories are relatively easy to set up,” he said.

The Bottom Line

The situation in Myanmar remains volatile, with massive ongoing public protests. U.S. and EU sanctions are unlikely to be an effective tool for shaping particular political outcomes, despite the widespread economic distress they would cause.