DAVID PRATT ON THE WORLD: It's time for rough trading, Myanmar style

It’s over 100 days now since the February 1 coup in Myanmar when the army under Senior General Min Aung Hlaing seized power, overthrowing and detaining the elected civilian leader Aung San Suu Kyi.

Since then, given the widespread protests and brutal crackdown by the regime alongside calls for international sanctions and boycott campaigns, Myanmar has been both a chaotic place to do business and posed an ethical challenge for foreign companies with links to the country.

In few other sectors has this been more apparent than in the country’s garments industry. The announcement then last week by international clothing companies including H&M and Primark saying they have resumed placing orders with suppliers in Myanmar for the first time following the coup has once again thrown the spotlight on what qualifies as ethical trading and due diligence over human rights and supply chains.

Both the UK and Swedish companies were among those that suspended orders from the south-east Asian country because of human rights concerns and civil unrest. This is a country where nearly half a million people are employed in factories producing textiles for retailers that also include, among many others, Gap, Next, Adidas (ADSGn.DE) and Zara.

Shortly after the military seized power, H&M was among the 55 foreign investors in Myanmar who signed a statement committing to the country and employees there during developments of “deep concern”. Subsequently, H&M said it had been shocked “by the use of deadly force” against protesters in Myanmar.

‘No direct links’

AS the world’s second-biggest fashion retailer, H&M has more than 50,000 people relying on jobs at its textile hubs and says its decision now to resume placing orders is based on both concern over job losses and making good on commitments to its Myanmar suppliers. After due diligence, H&M has now concluded that as a company it has no direct links with the military in Myanmar.

“We are now looking for legal guidance on how to handle any potential indirect links international companies may have,” the retailer assured.

“With our decision we want to avoid the imminent risk of our suppliers having to close their factories which would inevitably result in unemployment for tens of thousands of garment workers,” the Swedish company explained.

In turn, Primark said it was committed to honouring its existing orders from its Myanmar suppliers “however long they take to fulfil”, adding that it had “recommenced placing some orders with our key strategic suppliers in the country”.

But as the Financial Times last week pointed out, C&A, the Belgian-German-Dutch chain of fast-fashion retail stores, has adopted a different stance, telling its suppliers that “we are at this point –

unless we see significant improvements within the country – not placing any new orders.”

And so once again, as with other similar global crises in the past, in Myanmar today the question of just how corporate groups should respond to such challenges remains a subject of some industry debate.

For those foreign companies operating in the country their presence has long been a juggle between high risk and potential high reward. After half a century of military rule, the opening up of one of Asia’s last frontier markets in 2011 led to a surge in foreign direct investment.

Huge investment

IN the specific case of Myanmar’s garments and apparel industry, foreign investment has surged over the past decade as economic reforms and an end to Western sanctions and trade deals helped establish the sector as the greatest symbol of its nascent emergence as a manufacturing hub.

Myanmar garment shipments rose from less than $1 billion in 2011, about 10 per cent of exports, to more than $6.5bn in 2019, about 30% of exports, according to UN Comtrade data.

The first blow to this increasingly lucrative sector came with the coronavirus pandemic which as it plunged the world into recession, choked consumer demand, resulting in tens of thousands of lost garment factory jobs in Myanmar and elsewhere in Asia.

But Myanmar’s garment industry was then hit with another blow in the shape of the coup. Since then, it has been workers and trade union leaders, many from within the garment sector, who have played a leading role in organising protests against the military junta.

As international condemnation of the coup and the crackdown against these protests grew, European and US fashion brands, among them H&M, Primark, Next and Italy’s Benetton, began to express through statements their respective positions and stances.

While H&M and Primark initially simply halted orders, Next said it would split its orders previously going to Myanmar between Bangladesh, Cambodia and China, while Benetton said it would mainly move business to China.

“They don’t want to abandon Myanmar ... but it’s being forced upon them,” said Peter McAllister of Ethical Trade Initiative (ETI), a labour rights organisation whose members include European high-street brands.

Speaking to Reuters Business News last month, McAllister said that it would be very difficult for Myanmar’s garment sector to recover if Chinese investors left, given that its estimated Chinese nationals fund nearly one-third of Myanmar’s 600 garment factories, according to the Myanmar Garment Manufacturers Association. That would make the Chinese by far the largest investor group.

And therein lies the real problem given that a few Chinese-financed garment factories have in some instances found themselves razed to the ground as anti- Chinese sentiment grew along with the belief that Beijing was supplying, directing and on the international stage diplomatically defending Aung Hlaing’s regime.

But this still begs the question: why would people who earn their living from these factories want to burn them down?

Nick Vyas, an associate professor at the University of Southern California and an expert in end-to-end global supply chain management, believes some protesters see such factories as obstacles to the type of change they want.

“The entire protest in Myanmar is led by the people and a big chunk of this group that’s leading this protest, the ones who don’t want to go back to the past and live under the dictatorial military rule, are the people working in the garment factories,” Vyas explained in an interview with Insider, the financial global news portal.

“These people are working six days a week, sometimes seven days a week, and there are disputes sometimes about not being paid overtime, issues with benefits, and not being able to unionise.

“So even before this military protest and the coup, there has been some bad history with the previous government of Aung San Suu Kyi not standing up for worker’s rights,” Vyas said, adding that because the factories are owned

by China, some protesters view them

as part of the cycle that prevents change.

Cheap labour

Vyas describes the cycle as follows: “The garment workers provide cheap labour to these factories, which helps China grow its influence in Myanmar. Then, China’s lack of support for protesters bolsters the military regime, which then cracks down on pro-democracy movements.”

It’s a complicated political situation, one that only adds to the existing challenges of how to operate an ethical trading and supply chain approach that does not appease the junta but does not jeopardise the livelihoods of workers, most of them women who earn as little as 4,800 kyat ($3.40) a day, the lowest rates in the region.

Views differ on the best approach.

Chris Sidoti was part of a UN-led

fact-finding mission which in 2019 urged foreign firms to cut business ties with Myanmar’s military over human rights abuses and pursue private sector investments there instead.

He sees the situation now as different with a military regime in place that has taken over every aspect of government, making it now risky to do any business there. “If businesses are responsible, they will put everything on hold at this point,” Sidoti told Reuters barely a month after the coup, before going on to form an independent advisory group on Myanmar with some other former UN investigators.

But, as history has shown, sometimes sanctions hurt more than they help. Previous sanctions on Myanmar have had a humanitarian impact. For example, the US state department estimated that a 2003 US ban on Burmese textile imports cost 50-60,000 jobs (although orders from the EU mitigated the effect).

Given such past experiences, other activist groups today have called for a more nuanced approach, conscious of the economic fragility of Myanmar and the vast poverty that still prevails in much of the country.

Long before the coup, Myanmar was widely being described as a “fragile” state because of its economic uncertainty, institutional dysfunction, and political instability. But the danger now, say some analysts, is that a heavy-handed blanket approach of punitive sanctions could easily turn it into a failed state.

A nuanced approach, say observers, is vastly different from those expanded sanctions by Western governments targeting the vast network of the Myanmar military’s economic assets, which are based on two conglomerates: Myanmar Economic Holdings Limited (MEHL) and Myanmar Economic Corporation (MEC).

“The debate over the effectiveness of sanctions is bedevilled by many complex variables, including the objectives of the sanctions and the amount of international compliance, observed veteran journalist, filmmaker and Asia-watcher Tom Fawthrop recently in the online magazine, The Diplomat

“In addition, the politics of sanctions could be differentiated into the good, the bad, and the ugly,” Fawthrop added.

Limited leverage

Some also stress that the international community’s ability to influence developments is finite. “The outside world has limited leverage, the West in particular,” says the ICG’s Richard Horsey.

“That doesn’t mean the West should sit on its hands and do nothing, but it means their actions will not have a determinative effect on what happens.”

Horsey told the Financial Times recently: “It’s a huge problem for the region, and a problem for the international community ... it’s a human catastrophe, and one that has direct implications on Myanmar’s neighbours.”

While government sanctions are one thing the corporate approach could be something else again, say activists’ groups, while insisting that Western brands still need to be rigorous with due diligence as to who they work with.

The rights group Burma Campaign UK has called on companies not to abandon Myanmar workers but instead look at ways similar to H&M’s approach highlighted – to maintain placing orders with suppliers albeit under strict scrutiny.

John Bray, director at business consultancy Control Risks, said that pressure on firms in Myanmar needed to be guided by an assessment of “complicity”.

“If you are providing a service for the Myanmar people, which they are paid for and which promotes the development of the economy, I don’t think you’re complicit in what is going on in the streets,” said Bray.

For the moment there remain some Myanmar union leaders and rights groups that continue to urge clothing chains to stop buying from suppliers in the country to intensify economic pressure on Min Aung Hlaing’s junta.

But equally there are others who stress that the proceeds from the garment industry for the most part do not go directly into the regime’s coffers, unlike industries like gemstones, timber, and oil and

gas.

Many in this latter camp are of the view that what matters more than anything right now is to keep alive structures and jobs outside of the junta’s control that will keep people working, eating and afloat.

Just how many other clothing companies and retailers make the same decision as H&M and Primark, and now resume placing orders with suppliers in Myanmar, remains to be seen.

“The brands feel they have a commitment to the country, and just cutting and running won’t solve anybody’s problems,” said Vicky Bowman, director of the Myanmar Centre for Responsible Business (MCRB) that advocates for human rights.”

It’s quite a dilemma, but just how many of us, I wonder, will even pause to give it a thought next time we pick up a garment with a label that says “Made in Myanmar”.