VZCZCXYZ0000
PP RUEHWEB

DE RUEHAN #0449/01 1700729
ZNR UUUUU ZZH
P 190729Z JUN 09
FM AMEMBASSY ANTANANARIVO
TO RUEHC/SECSTATE WASHDC PRIORITY 2557
INFO RHEHNSC/NSC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS ANTANANARIVO 000449 
 
SENSITIVE 
SIPDIS 
 
STATE FOR AF/EPS AND AF/E - MBEYZEROV 
USDOC FOR BECKY ERKUL - DESK OFFICER 
TREASURY FOR FBOYE 
STATE PASS USTR FOR LISER, HAMILTON, AND JACKSON 
 
E.O. 12958: N/A 
TAGS: ETRD ECON MA
SUBJECT: AMBASSADOR DISCUSSES AGOA WITH AMCHAM 
 
¶1. (SBU) Summary:  On June 18, the Ambassador urged the 
members of AMCHAM to lobby Malagasy political leaders to take 
concrete steps to reinstall constitutional order to preserve 
AGOA benefits, protect U.S. investments, and save tens of 
thousands of jobs.  AMCHAM explained that it has already 
begun lobbying the transition authority and intends to lobby 
the USG as well.  Business owners expressed concern that, due 
to their lengthy production cycles, they will have to begin 
reducing production and closing their doors as early as 
mid-July if AGOA renewal remained uncertain.  The AmCham is 
still acting in schitzophrenic fashion, diluting lobbying 
appropriately directed at the Malagasy political process with 
unhelpful, even counterproductive efforts to sway President 
Obama and the USG with sentimental, irrelevant arguments. 
End summary. 
 
¶2. (SBU) The Ambassador addressed approximately fifty members 
of the American Chamber of Commerce of Madagascar (AMCHAM) 
June 18 regarding the political situation and the status of 
Madagascar's eligibility for African Growth and Opportunity 
Act (AGOA) trade benefits.  At least twenty percent of AMCHAM 
members, including several U.S. investors, are involved in 
the garment trade.  The Ambassador explained that Madagascar, 
which is the second largest exporter of apparel to the U.S. 
under AGOA, risks losing these benefits if it can not show 
concrete progress toward re-establishing the rule of law, 
such as agreeing on and starting tio implement a transition 
charter and roadmap to elections, before the annual 
eligibility decisions are finalized by President Obama in 
December. He encouraged the members to use their connections 
to lobby the Malagasy political leaders from all factions to 
agree as soon as possible to a consensual transition 
government that would be able to produce credible elections. 
 
¶3. (SBU) AMCHAM President Robert Strauss explained that 
AMCHAM, in conjunction with other local commercial chambers, 
had already begun to lobby members of the transition 
authority (HAT), including the minister of economy and the 
economic commission.  On June 15, AMCHAM, the export 
processing zone association, and two other local chambers 
placed advertisements in the local press, calling on the 
wisdom of Malagasy leaders to take responsibility to resolve 
the political dilemma in order to save AGOA (septel).  The 
article pointed out that 100,000 direct jobs and sixty 
percent of Madagascar's foreign exchange earned through 
exports were at stake.  According to official Malagasy data, 
total garment exports fell by 17 percent in the first quarter 
of 2009, compared with the same time period in 2008.  Embassy 
data on garment exports to the U.S. under AGOA indicates that 
such exports fell by only 4 percent in the first quarter of 
2009, compared with 2008, but dropped by 31 percent in 
April-May 2009 compared with the same period in 2008. 
 
¶4. (SBU) Strauss explained that AMCHAM also intends to 
support a petition by Malagasy workers to urge President 
Obama to preserve AGOA.  The Ambassador and the CEO of an 
American garment joint-venture, Salim Ismail, argued that 
AMCHAM and others instead should focus their pressure on the 
Malagasy political leaders, rather than dividing their 
efforts and giving the Malagasy a scapegoat, i.e. the U.S., 
to blame for the consequences of their own actions.  The 
Ambassador reiterated that the decision to renew AGOA 
must/must include a consideration of the U.S. legal criteria, 
including whether or not the country is making progress 
toward implementing the rule of law, although other factors 
would also be taken into account. 
 
¶5. (SBU)  Factory owners explained that they were already 
losing orders due to the uncertainty of AGOA renewal and that 
this situation would become critical in three weeks, by 
mid-July.  If AGOA is withdrawn, goods must enter the U.S. by 
December 31 to be duty-free, which means shipping from 
Madagascar by late October.  By mid-July, orders begin coming 
in for shipment in October, because the companies need three 
months to order and receive their inputs and complete 
production.  Business owners, who have already laid off a 
large percentage of their work force, will be forced to begin 
closing operations in mid-July if they start to lose 
additional orders.  They claim that if AGOA is lost, they 
will not return to Madagascar (particularly if the third 
country fabric provision expires in 2012.)  The partially 
U.S.-owned company Mazava has already begun shifting business 
to Tanzania, rather than expanding in Madagascar, and others 
are following suit. (Comment: the international financial 
crisis and resulting lack of demand for garment exports, the 
appreciation of the Malagasy currency over the past year, and 
the political instability since January have all come 
crashing down on the Malagasy garment industry.  The loss of 
AGOA would be the straw that broke the camel's back.  End 
comment.) 
 
¶6. (SBU) About half of the garments produced in Madagascar 
are for the U.S. market and about half for the European 
market.  Companies that produce for both markets will lose 
the economies of scale that they depend on to keep production 
costs low if they lose the U.S. market and thus may not be 
able to remain open if they are reduced to serving only the 
European market.  The loss of AGOA would hurt not only 
garment factories, but would also have a ripple effect on 
logistics, shipping, and other periphery service providers. 
According to the director of the U.S. logistics firm 
Expeditors International, its business in Madagascar is 
already down by fifty percent. 
 
¶7. (SBU) Comment:  Although some members of the transition 
authority (HAT) and Zafy and Ravalomanana's political 
movements are understanding of and sympathetic to company and 
worker concerns about losing AGOA, none of them are in a 
position to ensure its survival alone:  a return to 
constitutionality will require all of them to work together. 
If there is not political progress before year-end and AGOA 
is lost, they will all point fingers at each other, but the 
blame for the loss risks being placed in the lap of the USG. 
Responding to a question about the negative impact of a loss 
of AGOA eligibility on US-Malagasy relations, the Ambassador 
said he would continue to do his utmost to promote a 
political solution that will protect AGOA eligibility.  If 
that fails, it will be his responsibility to explain to the 
Malagasy why America's gift of AGOA had been squandered by 
their irresponsible polical leaders. He closed on an 
optimistic note by restating his hope and desire that the 
political solution will prevent this from happening.  End 
comment. 
MARQUARDT