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News Clips 14 June, 2013

[ PRGMEA: Budget balanced ]
[ Made in Sialkot: Child labour free footballs a success story, says ILO ]
[ Obama nears decision on Bangladesh trade ]
[ India: Garment exporters fear inflation, pricing pressure from global buyers ]
[ After Bangladesh Tragedy, Questions for Burma’s Garment Sector ]

PRGMEA: Budget balanced   [ top ]

PAKISTAN OBSERVER, Staff Report, June 14, 2013
Friday, June 14, 2013 - Islamabad—The Zonal Chairman PRGMEA, Mr. Shaikh Mohammad Shafiq has termed the Federal budget as a balanced one. He said that the proposal to reduce corporate income tax rate by 1% is appreciable. He also appreciated Minister’s announcement that the corporate income tax will be reduced to 30%, in phases, over next four years. He, however, said that the increase in the sales tax from 16% to 17% will have inflationary effect on consumers. He said that the overall burden due to this increase will have about 5% on prices of items. On the import side this will give rise to under invoicing and smuggling of goods. He also welcomed the various austerity measure proposed in the budget and said that enhancing the tax-to-GDP ratio to 15 percent, from the current 8.9%, in the next five years is a positive sign.

The Chairman said that the industry appreciates governments’ resolve to tackle circular debt and energy issues, however, no concrete plan in this regards is announced by the government. He said that the availability of electricity and gas is a priority for the industry and the government should come up with solid action plan to tackle this issue. Moreover, reforms regarding water, infrastructure development and social uplift are commendable.

Made in Sialkot: Child labour free footballs a success story, says ILO    [ top ]

EXPRESS TRIBUNE, Ali Usman, June 14, 2013
LAHORE: The north-eastern city of Sialkot is being hailed as a success story in the fight against child labour in Pakistan by the International Labour Organisation (ILO).

Sialkot, a city famous for producing millions of footballs each year, will likely supply the upcoming 2014 FIFA World Cup in Brazil. The ILO Country Director Francesco d’Ovidio believes that there will be no misery or exploitation of children in Sialkot to mar the joy of sport. Talking to The Express Tribune on Wednesday – The World Day Against Child Labour – d’Ovidio explained that combating child labour is possible with ongoing effort. “The ILO has been working in Sialkot with several companies and factories that previously employed children. We created awareness among them and today, no factories in Sialkot employ children.” D’Ovidio explained that while economic hardships still afflict Sialkot factories, the fact that child labour has been so dramatically reduced there is worth noting. “We have chosen Sialkot to celebrate,” he said.

He also announced the release of the ILO’s first global report on domestic child labour on Wednesday. The report finds that approximately 15 million children are employed as domestic labourers around the world and 10 million of them are girls. “Most of them don’t have the right to education or have any free time to play. We are aiming to end this,” d’Ovidio explained.

In Pakistan, d’Ovidio said, it was up to the authorities to decide whether domestic child labour should be on the list of hazardous occupations for children, but the ILO appreciates debate on the subject. He said that the ILO will continue to provide opportunities for children at vocational institutes, but added that the organisation hopes to step back in the future and have Pakistan take the lead on such efforts.

Obama nears decision on Bangladesh trade    [ top ]

DHAKA TRIBUNE, June 14, 2013
US President Barack Obama could soon decide to cut off trade benefits for Bangladesh, in a largely symbolic response to tragedies in Bangladesh's garment sector that have cost more than 1,200 lives in the past eight months.

The US Trade Representative’s office, with input from other government agencies, is completing its recommendations in preparation for a White House announcement by June 30.

Even though the trade benefits affect less than 1% of Bangladeshi exports to the United States, the Bangladeshi government has pleaded with the Obama administration not to be cut off.

The AFL-CIO, the largest US labour organisation, first filed a petition to suspend Bangladesh from the US Generalised System of Preferences programme in 2007.

The US government has put off that decision for six years, hoping the threat would be enough to encourage Bangladesh to make long-needed labour reforms.

But after the Tazreen factory fire in November that killed 112 people and the Rana Plaza building collapse in April that killed 1,129 more, it seems likely that Obama will eliminate or reduce the trade benefits, Celeste Drake, the AFL-CIO's lead on trade issues, told Reuters this week.

The past year has been so horrendous that unless the United States acts the labour provisions of the GSP program will be seen as meaningless, she said.

The GSP programme is aimed at helping create jobs in poor countries by waiving US duties on thousands of goods as long as the countries meet certain eligibility requirements.

Bangladesh has been in the programme since it began in 1976. But its main export, clothing, is not eligible for GSP tariff cuts, in deference to the US textile and apparel industry, which employed some 2.4 million workers four decades ago compared to less than 300,000 now.

Last year, the GSP programme spared Bangladesh about $2 million in duties on $35 million worth of tents, golf equipment, plates and other items it exported to the United States, said Ed Gresser, a trade analyst with the GlobalWorks Foundation.

But Bangladesh paid about $732 million in duties on $4.9 billion worth of clothing to the United States. That is almost twice as much as the $383 million in US tariffs collected on $41 billion worth of French goods in 2012, Gresser said.

In the past, some lawmakers have proposed changing the GSP programme to provide duty-free benefits for clothing from Bangladesh and Cambodia, but US textile manufacturers lobbied to prevent action on the legislation.

At least 13 countries have lost some or all of their GSP benefits since workers rights protections were added to the eligibility criteria in the 1980s. Most have been reinstated after making progress on the concerns.

While Bangladeshi clothing manufacturers would not be directly affected by a decision to suspend the GSP programme, Drake said she expected other Bangladeshi companies hit with increased duties to join the international community in lobbying the government for labour reforms.

“It’s a small stick, which is perhaps right, given that it is a developing country. Nobody wants to do something that would be an earthquake to their economy,” Drake said.

Sanchita Saxena, associate director of the Center for South Asia Studies at the University of California at Berkeley, said revoking Bangladesh’s GSP benefits would not help workers in Bangladesh’s garment industry.

“If the US wants to help improve conditions, international brands and international NGOs can help in building capacity to monitor the thousands of factories that need monitoring and help to enforce some of the laws that are in the books,” she said.

US retailers should also sign an agreement embraced by European retailers to improve safety conditions in Bangladesh's garment industry, Saxena said.

India: Garment exporters fear inflation, pricing pressure from global buyers   [ top ]

BUSINESS LINE, Swetha Kannan, June 12, 2013
Chennai, June 11: The rupee’s free fall may cheer garment and textile exporters temporarily but they are not getting carried away, as inflation and pricing pressure from global buyers threaten to cut the party short.

Exporters are concerned about the “dramatic” fall in the Indian currency. Says Charath Narsimhan, Managing Director of the Chennai-based Celebrity Fashions, “The volatile rupee could go back as quickly as it fell. The impact can be truly felt only if the momentum sustains.”

According to A. Sakthivel, Chairman, Apparel Export Promotion Council, and owner of Tirupur-based Poppys group, the rupee has fallen “so much, so rapidly” that exporters are scared buyers will start negotiating price reductions.

Exporters have to resist these moves, advises D. K. Nair, Secretary, Confederation of Indian Textile Industry. “When wage and power costs went up, nobody compensated us,” argues Nair.

There is the fear of inflation raising its ugly head again. “While the rupee fall works for me, inflation will surely catch up,” says Vijay Mahtaney, Managing Director, Ambattur Clothing. For export firms, such as Poppys and Celebrity, which have hedged part of their orders, the rupee slide may not benefit completely. But any gain is welcome now, says Sakthivel.

Economic slump

The depreciation comes at a time when the garment industry has been hit hard by the global economic slump. With the US economy improving and demand in Europe too picking up, export orders have started to look up. The current “disenchantment” in the Bangladesh exporting community, with the recent fire incidents and labour unrest, has also aided Indian exporters with orders gradually moving to competing countries, including India.

According to Thyagu Valliappa of Bangalore-based Sona Valliappa Textiles, Indian suppliers have re-instilled confidence in American and European buyers. “Especially after what happened in Bangladesh, global buyers prefer to work with India.”

The prospects for the industry are clearly good, says Nair, who expects garment and textile exports to grow to $40 billion this year. Last year’s exports are estimated to touch $30-32 billion, down from $34 billion in 2011-12.

After Bangladesh Tragedy, Questions for Burma’s Garment Sector   [ top ]

THE IRRAWADDY, Andrew D. Kaspar, June 11, 2013
RANGOON — At last week’s World Economic Forum in Naypyidaw, one message seemed to transcend the rest: Burma is open for business, and labor, the government and foreign companies are all weighing the promise and pitfalls of the nation’s increasingly attractive investment climate.

With the lifting of long-entrenched barriers to investment in the country, Burma’s low-wage workforce of some 33 million people could prove tempting to manufacturers globally. But labor rights groups are urging Burma to get it right when it comes to responsibly managing any new wave of labor-intensive job opportunities, as neighboring Bangladesh takes a hard look at its own textile industry after a building collapse there killed more than 1,100 garment factory workers in April.

Burma’s Parliament passed a new foreign investment law last year that was largely seen as a welcoming overture to outside investors, and the business landscape is expected to boom in the coming years as the private sector adjusts to new opportunities brought about by the reformist government of President Thein Sein.

Meanwhile, Bangladesh has seen its international business reputation as a low-wage manufacturing enclave tainted by serious questions about the country’s ability to ensure a safe work environment for its people.

That country’s labor woes were highlighted on April 24 when a building collapse outside the capital of Dhaka killed 1,129 workers of garment factories housed in the structure.

Employees there were ordered into the factories the day of the collapse despite the appearance of large cracks in the building. It was later revealed that the building’s owner had illegally stacked four extra floors onto a structure that was only certified to stand five stories tall.

Apparel firms from around the globe set up shop in Bangladesh or subcontract work out to the country, which has some of the world’s lowest wages. Workplace fires and other incidents like the latest collapse have put pressure not only on the Bangladesh government, but also on Western firms invested there who are seen as complicit in regulatory violations that are often the result of penny-pinching local factory owners.

Judy Gearhart, executive director of the US-based International Labor Rights Forum, said the situation in Bangladesh should serve as a cautionary tale as Burma’s garment industry sees renewed interest from foreign firms.

“The one thing for sure that we hope will be the lesson drawn from the tragedy in Bangladesh is that Burma very much should take the high road to development,” she told The Irrawaddy, adding that companies may start to trickle out of Bangladesh in search of countries with labor markets that are less of a potential liability.

The garment industry has historically been a first-phase path to development for impoverished nations, as it requires little initial capital investment and is well-suited to low-skilled labor.

“They’ve got to take some notes from the calamities in Bangladesh: to invest well in infrastructure and, frankly, to pay decent wages,” Gearhart said.

The International Labor Organization’s (ILO) liaison officer in Burma, Steve Marshall, describes the organization’s role as “coordinating” among labor rights groups, the private sector and the government.

Marshall said he was optimistic that Burma would avoid becoming the next sweatshop hot spot.

“There are many, many companies looking at investing in this country and they are all concerned about ensuring that the risks are managed in terms of their company interests, but in the main we are actually seeing an approach in which they see and want to be seen as their investment adding to the building of the society and the building of the labor market,” he said.

Burma saw a boom in garment exports beginning in the early 1990s. By 1997, exports stood at US$200 million, soaring to more than $800 million in 2001, when clothing was the country’s largest export. But international boycotts and the imposition of US sanctions in 2003 sent exports plunging. Since then, the figure has slowly recovered as Japan and other Asian markets made up for the crimped Western demand.

Myint Soe, chairman of the Myanmar Garment Manufacturers Association, said textile exports reached $860 million in 2012, and MGMA expects that $1 billion in clothing will be shipped from Burma this year as barriers to Western entry continue to fall. The industry has some way to go, however, before it can compete with Bangladesh’s garment exports, which stand at about $20 billion annually.

‘Asleep for 10 Years’

Among other recent changes to Burma’s investment climate, the European Union in April permanently dropped all sanctions against the country except a ban on arms exports, and the United States has suspended broad sanctions on investment and trade. Washington is also considering granting Burma Generalized System of Preferences (GSP) status, which would allow for duty-free imports on more than 5,000 items, including much of the garment world’s products. The European Union has already reinstated Burma’s GSP status in the 27-nation bloc.

Burma’s government has put in place a fast-track registration service for outside firms looking to tap the country as a source of cheap labor, according to Myint Soe. The move aims to reduce bureaucratic headaches and streamline the application process for foreign investors wishing to set up shop in Burma.

MGMA training centers aim to better prepare Burma’s underutilized workforce for an influx of garment makers and the jobs that they will bring. From the country’s current textile manufacturing core in Rangoon, Myint Soe said his association is looking to expand employment opportunities in the surrounding Pegu and Irrawaddy divisions.

But as the garment industry lures investment from abroad through legislation and other carrots, there are concerns about the ability of stakeholders to ensure that everything is up to code—an obligation Bangladesh has struggled to meet.

“Having a law is one thing, the application of that law is a second,” Marshall conceded, describing the task as a burden shared by government, employers and their workers. “They [Burma’s stakeholders] have capacity [to follow laws and enforce regulations], but it is by no means at the level that is required for the full implementation and operation of everything.”

That assessment dovetails with the observations of David Birnbaum, an American who began working as a factory manager in Asia more than four decades ago before building several factories of his own in the region. Birnbaum said he toured seven factories in a visit to Burma in February, none of which would pass a test of compliance to international occupational health and safety standards.

For a domestic industry long shut out from major Western markets, Birnbaum said the poor conditions were hardly surprising. “These people have no idea what the [global] industry looks like. They’ve been asleep for 10 years,” said Birnbaum, who has written textbooks on the garment industry and served as an adviser for the United Nations, the World Trade Organization and the World Bank. “They have to have a series of workshops so that they can learn what the world industry looks like.”

The labor rights group Clean Clothes Campaign (CCC) insists that in a rush to attract outside entrepreneurs, important worker protections may get short shrift.

“It is deeply upsetting to see the EU put aside the need for due diligence in line with the UN’s Guiding Principles on Human Rights and Business in favor of rewarding what even they consider to be unmet promises,” Dominique Muller from the CCC International Secretariat said in a press release last month, referring to the recently lifted sanctions.

“The EU’s decision further underscores the need for companies to be directly pressured into paying a living wage to ensure that the Burmese workers get the most benefit from their government’s new policies. But without key leverage this will be a massive challenge,” she added.

A new minimum wage law has been passed by Parliament, according to Marshall, but some of the legislation’s regulatory provisions are still being drafted. The ILO liaison declined to reveal the contents of the law until it is made public, but given the country’s economic position, Burma will likely continue to offer manufacturers one of the cheapest labor pools in the region.

Not a Manufacturing Eden

Despite the increasingly welcoming investment climate, there is plenty to give potential investors pause.

Infrastructure concerns, including an electricity grid that is prone to frequent blackouts, mean manufacturers run the risk of productivity losses or, alternatively, higher energy costs in the form of diesel fuel to power backup generators.

Burma’s political trajectory also remains far from certain, despite a trend in the last 18 months toward democratization and more open relations with the international community. Recent deadly rioting, marked by Buddhist violence against the nation’s minority Muslims in several areas across the country, has led to questions about the government’s ability to maintain stability. Ceasefires with ethnic armed groups remain tenuous, while ethnic Kachin rebels in the nation’s north have yet to re-establish a ceasefire that collapsed two years ago with the government.

And there are still major gaps in information about Burma’s workforce.

“Unfortunately we’re working in a situation where there is almost no statistics or knowledge of the shape, size or nature of the labor market,” Marshall said. His organization is in the middle of conducting a household survey to rectify that problem. The ILO, which for more than a decade worked in Burma primarily within the limited scope of eliminating forced labor in the country, is now taking on an increasingly ambitious portfolio.

The organization is working on a wide range of issues, from better educating Burma’s future workforce to ensuring that employees understand the proper procedure for carrying out a strike, in a country where labor unions were banned until just last year. The garment industry is one of two economic sectors that will be a focus of the ILO’s efforts and will serve as a staging ground for comprehensive “good practice modeling,” Marshall said.

Still, he acknowledged the daunting challenges in getting the country’s labor market up to international standards. “It’s not an easy task,” he said. “This is not something in which you snap your fingers and everything falls into place tomorrow. It’s very much an evolutionary process.”