VZCZCXRO0181
RR RUEHAG RUEHAP RUEHBZ RUEHDE RUEHDF RUEHDU RUEHGI RUEHHM RUEHJO
RUEHLZ RUEHMA RUEHPA RUEHPB RUEHRN
DE RUEHMR #0072/01 0701142
ZNR UUUUU ZZH
R 101142Z MAR 08
FM AMEMBASSY MASERU
TO RUEHC/SECSTATE WASHDC 3592
INFO RUCNSAD/SADC COLLECTIVE
RUCNWTO/WORLD TRADE ORGANIZATION COLLECTIVE
RUEHMR/AMEMBASSY MASERU 4007

UNCLAS SECTION 01 OF 02 MASERU 000072 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT ALSO FOR AF/EPS, AF/S; 
PASS TO USTR 
 
E.O. 12958: N/A 
TAGS: ETRD ECIN ECON BEXP BTIO PREL LT
SUBJECT: LESOTHO: GOL DISCUSSES TRADE COMPLEXITIES FACING LDC'S 
 
 
MASERU 00000072  001.2 OF 002 
 
 
¶1.  (U) SUMMARY.  Government of Lesotho (GOL) officials and 
local business leaders discussed a range of national economic 
challenges publicly and in private meetings with Ambassador 
Nolan, Charge, Deputy USTR Ambassador Allgeier, and AUSTR Liser 
prior to, and on the margins of, a February 27-29 Least 
Developed Countries (LDC) Trade Ministerial Meeting in Maseru. 
Lesotho's Prime Minister, Trade Minister, and others discussed 
the country's international negotiating position, supply side 
constraints, increased competition and declining foreign orders 
in the textile sector, potential loss of tax revenue, and lack 
of diversification.  When coupled with the recent revelation 
that a major U.S. retailer (Target) would eliminate its 
Lesotho-based orders by 2009, the messages constituted a 
sobering reminder of the complexities facing Lesotho and other 
LDCs in benefiting from the current trading system and 
preference programs like AGOA, as well as future opportunities 
resulting from the Doha Development Agenda Round (DDA) talks. 
END SUMMARY. 
 
---------------------- 
Mosisili Sets the Tone 
---------------------- 
 
¶2.  (U) Lesotho Prime Minister Pakalitha Mosisili inaugurated 
the Least Developed Countries (LDCs) Ministerial Meeting on 
February 28 by declaring that LDCs share many of the same 
challenges and opportunities, despite the diverse mix of nations 
that comprise the LDC trade-negotiation block.  Mosisili listed 
a number of hurdles - such as external debt and lack of private 
sector development - as common to most LDCs, and he called on 
the LDC trade representatives to negotiate common positions 
which directly addressed the unique needs and aspirations of 
LDCs. 
 
¶3.  (U) Offering Lesotho as a specific example of a typical LDC, 
PM Mosisili cited a number of challenges including the potential 
loss of revenue due to tariff cuts, a lack of industrial 
diversification, and a low national savings rate.  He also 
highlighted a recent rise in food prices as a significant 
problem for net food importers such as Lesotho.  The Prime 
Minister concluded by drawing attention to Lesotho's eventual 
goal - achieving full integration into the worldwide trading 
system; a difficult challenge, according to Mosisili, due to 
supply-side constraints and other limitations. 
 
------------------------ 
"Serious Problems Ahead" 
------------------------ 
 
¶4. (SBU) Ambassador Nolan called on Trade Minister Lebesa on 
February 25 in order to discuss general trade issues in advance 
of the LDC Ministerial Meeting.  In the course of the 
discussion, Lebesa revealed a letter written by the U.S. 
retailer Target to the CGM Industrial Corporation, one of 
Lesotho's largest textile manufacturers.  According to the 
letter, Target was withdrawing from Lesotho due to "political 
instability," comparing the situation in Lesotho to Kenya or 
Pakistan.  Lebesa vigorously protested Target's assessment, 
complaining that such an inaccurate characterization could give 
other companies pause in filling orders from Lesotho.  The 
letter's message notwithstanding, Lebesa labeled lower labor 
costs in competitive nations as the true motivation for Target's 
pullout. 
 
¶5.  (SBU) During a private meeting with D/USTR Ambassador 
Allgeier (joined by Charge, AUSTR Liser, and econoff) on 
February 27, Lesotho Trade Minister Popane Lebesa expanded on 
the issues he had raised with Ambassador Nolan, warning that he 
saw "serious problems ahead."  The reasons, according to Lebesa, 
were many fold: supply-side constraints, potential losses in 
customs tax revenue due to lower tariffs (expected to comprise 
60% of total national revenue in 2008), and significantly 
increased competition in the textiles sector from lower 
labor-cost countries such as India and Bangladesh.  Not 
uniformly downbeat, Lebesa sounded a note of optimism regarding 
the LDC Maseru Ministerial meeting and potentially subsequent 
benefits for Lesotho.  However, the point delivered was clear: 
Lesotho faced significant obstacles and greatly appreciated 
any/all U.S. support. 
 
¶6.  (SBU) Lebesa expressed ambivalence when referring to 
Lesotho's membership in the Southern African Customs Union 
(SACU).  On one hand, he admitted, membership in SACU brought 
the Kingdom significant benefits, including redistributed 
customs revenue.  However, according to Lebesa, SACU also 
represented Lesotho's difficult balancing act because of 
commitments to the Union.  Lebesa described Lesotho as "not 
completely independent," needing to consult with middle income 
 
MASERU 00000072  002.2 OF 002 
 
 
nations before establishing its position.  Responding to 
Ambassador Allgeier's statement that true revenue-sharing 
customs unions like SACU called for unique solutions, Lebesa 
stated that he was pleased to hear that the U.S. was "looking 
for solutions." 
 
¶7.  (SBU) Lebesa also voiced significant concern about the 
Lesotho textile industry, which comprise about 40 percent of 
GDP, according to some estimates.  After highlighting the 
extreme disparity in labor costs between Lesotho and Bangladesh 
(some in Maseru argue that salaries are up to 10 times higher in 
Lesotho), Lebesa reiterated the concerns about Target he had 
raised earlier in the week with Ambassador Nolan (para 4). 
 
----------------- 
CGM Factory Visit 
----------------- 
 
¶8.  (U) One of southern Africa's largest textile manufacturers, 
CGM Industrial is a standard-bearer for Lesotho's economic 
fortunes following the implementation of the African Growth and 
Opportunity Act (AGOA), which provides duty-free export 
potential to the U.S. market for Sub-Saharan Africa.  (NOTE: 
Lesotho's textile and apparel exports under AGOA currently 
account for 86 percent of its total exports to the United 
States. END NOTE.)  Although CGM first established itself as a 
supplier to major U.S. based retailers over 20 years ago - long 
before AGOA - orders for the company surged under AGOA until 
2004, dropping since then due to increased global competition 
from the end of global apparel quotas and the anticipated end of 
AGOA third-country fabric provisions, according to Krish 
Moodley, Production Director at the primary Maseru plant. 
During a factory site tour attended by D/USTR Allgeier, AUSTR 
Liser, and Embassy Maseru representatives, Moodley explained 
that CGM was forced to reduce its employment rolls from 10,000 
to 6,500 since 2004 due to declining orders. 
 
¶9. (U) Moodley indicated to the USTR delegation that while the 
recent Target letter announcing the termination of Lesotho 
orders was significant, though wholly inaccurate regarding the 
domestic political situation, it was also representative of a 
larger problem.  Moodley cited various reasons buyers regularly 
provided for ceasing business with CGM, including longer product 
lead times, higher material prices, and political instability. 
However, Moodley opined that lower labor costs in countries like 
Bangladesh and Cambodia more accurately explained the pullbacks. 
 Anticipating this trend to continue, Moodley stated that CGM 
was examining the European market as well as organizing an 
industry delegation to lobby U.S. based stakeholders. 
 
------- 
COMMENT 
------- 
 
¶10.  (SBU) While GOL and private sector leaders in Lesotho 
recognize the opportunity offered by the DDA, there is a 
palpable sense of insecurity regarding Lesotho's economic 
prospects.  The principal forces driving this sentiment - 
difficult challenges in the textile sector, the possible loss of 
customs tax revenue, a lack of foreign and domestic investment - 
are unlikely to change substantially in the near term. 
 
¶11.  With respect to the LDC Maseru Declaration (February 28) 
and the ongoing DDA talks, Lesotho faces a difficult balancing 
act.  Leaders here clearly recognize the benefits of free trade 
and multilateral solutions, and support the Declaration's 
central goal of greater integration of LDCs.  However, it is 
recognized that implementation of the DDA's Duty Free Quota Free 
(DFQF) initiative may exacerbate Lesotho's economic 
difficulties.  In Lesotho - and possibly other small LDCs - 
where the closure of one textile factory could swell the 
unemployment rolls by as much as 15 percent, domestic 
policy-makers are seeking nuanced solutions that they view as 
critical for ensuring continued political and economic 
stability.  END COMMENT. 
 
¶12.  (U) This cable has been cleared by USTR. 
NOLAN