Gap Gambles on Myanmar

The company spent a year preparing to enter the former pariah state. Will it be a trailblazer or a cautionary tale?

Gap Inc. began considering operating in Myanmar almost a year after the United States and the European Union formally eased sanctions on the former pariah state; it took another year of preparation before the company became the first U.S. retailer to make clothes in the country formerly known as Burma. In June, Gap announced it will be putting "Made in Myanmar" jackets and vests on its shelves later this summer.

Gap's decision to invest in one of Asia's poorest countries and the long process from conception to reality highlight the promise and potential hazards of the country as it reenters the global economy. Being the first in Myanmar could give the company an edge -- keeping its supply chain "flexible and nimble," Gap executives say. In the fiercely competitive apparel market, staying trendy requires the speed afforded by a complex web of suppliers and factories that can react at a moment's notice. But there are risks -- to the company's investment as well as its reputation -- in working in a country without a minimum wage or reliable electricity. And the government's precarious international standing, as its treatment of minorities, political dissidents, and journalists frequently draws outcries, only makes it riskier.

The retailer first started exploring the option last summer by meeting with local NGOs, trade union leaders, and officials. Sonia Syngal, who runs the company's supply chain, worked with Gap's team responsible for the company's environmental impact and labor standards, led by Kindley Walsh Lawlor, to consider all aspects of sourcing from Myanmar, from human rights to anti-corruption policies.

In the fall, the Gap team reached out to Claude Fontheim, a labor lawyer and consultant with experience in brokering deals between apparel companies and international unions. (Fontheim declined to be interviewed for this story.) By winter, the Gap team had a plan that included the outlines of a private-public partnership. The company announced in June at the U.S. Embassy in Myanmar that along with its factory orders, Gap would also work with USAID and Hewlett-Packard on a women's education program. The company didn't disclose how much money it was investing in Myanmar overall or in the USAID program.

In addition to partnering with USAID, the company also consulted other current and former government officials, including former State Department ambassador-at-large for global women's issues, Melanne Verveer. A Gap spokeswoman said the company paid Verveer's firm, Seneca Point Global, a "nominal fee" to consult on women's empowerment in Myanmar. Verveer applauded Gap's efforts in this blog post on the company website.

The company's Myanmar plan also includes at least a year of factory audits by an outside firm. Gap's in-house team usually inspects factories to make sure they meet the company's international labor standards, but in Myanmar the clothier decided to also contract with an independent auditor to check working conditions. That firm, Verité, inspected factories over six months and worked with suppliers to improve circumstances.

"We found, when we first assessed, that workers didn't really have any idea of what they could expect in terms of payment, time spent on-site, limitations on overtime, days off -- very basic-level benefits," Verité CEO Dan Viederman said.

Viederman said Gap won't allow his firm to discuss specifics but that the factories' working conditions have improved since Verité began its inspections.

Viederman's findings highlight the risk for Gap: The company has to create standards or it could be blamed for those poor working conditions later.

Gap says it's ready to do that.

"In Myanmar, we're currently working with two factories and are committed to applying industry-leading best practices and to doing our part to ensure that internationally recognized human rights and labor standards are upheld," Courtney Wade, a company spokeswoman, stated in an email. She added that Gap's decision would result in 700 local hires for a new building at one of the factories and that the company's business will contribute to the employment of 4,000 people.

Wade said Gap is placing orders through two South Korean vendors that the company has used before, though she wouldn't disclose which ones for competitive reasons. She said Gap's supply chain includes more than 40 countries, many of which are emerging markets.

Gap has said it will file disclosures about its business with the State Department, even though the company is not required to because it isn't building its own brick-and-mortar factories. U.S. companies that invest more than $500,000 in Myanmar or invest in the oil and gas industry have to file annual reports about corruption, human rights, and environmental programs.

"It's our goal to release it soon so that it can act as a baseline," Lawlor, the Gap vice president for social and environmental responsibility, said.

Despite all of Gap's efforts to convince the world that it is acting aboveboard in Myanmar, there are skeptics. Local unions and international labor rights activists say pay and factory conditions are the most important factors.

"There's no lower-wage place to go with lower enforcement of labor conditions than Myanmar," said Dara O'Rourke, a professor at the University of California at Berkeley who studies labor conditions and supply chains. O'Rourke said that Gap must be "radically transparent" by, for instance, disclosing the independent factory auditor's findings to prove that it isn't relying on sweatshops.

"Just the fact that they've hired a bunch of consultants doesn't give me any confidence in the conditions," O'Rourke said. "They're going into a country which has, currently, very little infrastructure for enforcing labor rights, so it's incumbent on Gap Inc. to prove that they've created safe, healthy, humane, dignified jobs."

Vicky Bowman, a former British diplomat who now runs the Myanmar Centre for Responsible Business, said Myanmar's government has very little capacity to police labor standards.

"It's all very well to tell the companies to do the right thing, but if you don't have local government enforcing it, it makes it harder for the company to do the right thing," Bowman said.

"All Western companies are aware, as they should be, that they're going to come under a lot more scrutiny in Myanmar than they will in Laos, Cambodia, or Vietnam," she said.

Activists targeted Gap for not signing an accord on labor rights in Bangladesh after a series of disasters drew attention to the lack of basic fire and building safety standards in the country. An Asian-American political group, 18 Million Rising, recently created a fake Gap website to draw attention to the issue during the company's annual shareholder meeting.

In addition to the possible reputational risks to Gap, the U.S. government could reinstate sanctions if the government of President Thein Sein is seen as backtracking on its commitment to democracy. Last week, House Foreign Affairs Committee Chairman Ed Royce (R-Calif.) called for new punitive measures against his government for human rights abuses, including visa bans and possible new economic sanctions.

Over the past year, 15 U.S. companies, including Coca-Cola and Western Union, have registered with the State Department that they've invested in Myanmar. As of April, Myanmar's government approved $243.6 million in foreign direct investment from U.S. companies, according to a recent U.S. Embassy report. The energy sector provides the bulk of outside investment but that could be changing. And Gap's trailblazing could be a helpful test case for other U.S. companies waiting on the sidelines.

Peter Kucik, a former Treasury Department sanctions official now with Inle Advisory Group who provides consultancy services to companies on business in Myanmar, said he expects more companies to commit to doing business in the country over the next two or three months.

"Last year people just wanted the broad strokes and now you have people saying they've looked at the numbers and this does make sense," Kucik said.



What Hamas Wants, What Israel Needs

Neither side can gain from this war of attrition. But is Benjamin Netanyahu willing to risk a ground invasion to stop it?

The war of attrition that's ebbed and flowed between Israel and Hamas since the Islamic radical group forcefully took over the Gaza Strip in 2007 has returned with round three: Operation Defensive Edge.

The damage is already gruesome, and bound to get worse. Millions of people are facing constant fear of attacks from the air: a broad swathe of Israelis are seeing Hamas rockets targeted at them (and Iron Dome defensive missiles being launched to counter), while massive airpower over the small and crowded Gaza Strip is killing scores of innocents, as well as the combatants at which it is aimed.

Without in any way diminishing the severity of suffering, reports on the conflict can give the impression that it's to be perversely celebrated. Social media in particular seem to be saying one thing, in two voices: My enemy is evil. Israelis repeatedly point to the moral asymmetry between those who try to kill civilians and those who try to avoid hitting them. Palestinians repeatedly point to the numbers of their civilian casualties, ready to accuse Israel of anything, even, preposterously, "genocide" -- in the words of Palestinian President Mahmoud Abbas. 

But if we are interested in preventing the suffering rather than using it for political purposes, the real question is not whether Israel is stronger than Hamas (it is, and feels no need to apologize for that fact), nor whether Hamas spends its energy stoking terror (it does, and does not even claim otherwise) rather than on governing and developing Gaza. Faced with the terrible consequences of war, the real questions we face now are: How can this round of violence end? And what are the sides really after? 

The special tragedy of this round of fighting is that neither side had clear or attainable objectives going in. Israel, from the start, didn't want this escalation in Gaza; it hoped to isolate the events in the West Bank and Jerusalem from the Gaza front and attempted Egyptian mediation before the official operation began. In rare overtures to Hamas, Israel conveyed its desire for de-escalation. Israeli Prime Minister Benjamin Netanyahu, despite criticism from his right flank, has made clear that his primary goal is to end the fighting. And yet it relentlessly continues, with increasing numbers of civilian casualties. 

The modest Israeli goal of restoring calm may now evolve into something wider and more deadly. With no end in sight to the fighting, Israel is now contemplating entering Gaza with ground forces. Israel would likely aim to sever the Strip in two or three parts, limiting Hamas's freedom of action while degrading weapon stockpiles. Israel has -- and will continue to -- try to strike at the Hamas tunnel infrastructure. While the Egyptian military has dealt a heavy blow to the tunnels between the Gaza Strip and northern Sinai, there are continued attempts by Hamas to dig beneath the Israel border. (One such tunnel was targeted early in the fighting, when Israel, which had intelligence on the its construction, feared the passageway would be used to infiltrate and attack Israeli troops or civilians.)

An Israeli ground incursion risks far greater casualties, however, especially on the Palestinian side. In Operation Cast Lead (2008-2009), Israel, then led by Prime Minister Ehud Olmert, entered Gaza in what became, predictably, a gruesome and internationally condemned operation. In 2012, during Operation Pillar of Defense, led by Netanyahu, Israel called up very large numbers of reservists, signaling its readiness to enter Gaza, yet refrained from doing so. Despite criticism from the right and frustration by thousands of reservists for being used in the bluff, Netanyahu chose caution. As many have noted, Netanyahu, Israel's second longest-serving prime minister (after the founder of the state, David Ben-Gurion), has only engaged in two relatively small military operations: the air operation in 2012 and the current one. Despite his hawkish rhetoric, Netanyahu is actually a cautious, conservative leader -- in war as well as in peace. This operation may turn out to be his first major use of ground forces across Israel's borders.

Why then did Hamas refuse the Israeli overtures for de-escalation? Or, as Mahmoud Abbas said to Hamas: "What are you trying to achieve by sending rockets?" 

The political leadership of Hamas seems to have been dragged into this conflict by the events that preceded it and by its own militants, not always under the control of the political wing. As Khaled Mashal, the head of the Hamas political bureau, claimed: "Yes, we want calm. We don't like escalation, and we didn't make an escalation. Netanyahu imposed this aggression upon us." Hamas now demands the opening of the Rafah border crossing with Egypt (ostensibly not even a demand from Israel, directly) and the release of prisoners recently swept up in Israeli police actions.

Hamas finds itself in a very difficult situation, and has for a couple years now. Since 2012, when Egypt was governed by a president from the Muslim Brotherhood (Hamas's parent organization), Hamas's fortunes have declined precipitously. The current regime in Cairo despises the Brotherhood and has only slightly more tolerance for its Palestinian offshoot. Around the region, the apparent ascendancy of actors friendly to the Muslim Brotherhood, including Qatar and Turkey, now appears reversed. Saudi Arabia and the Gulf countries (save Qatar) have taken a harsh stance against the Brotherhood, in support of the new regime in Cairo. The Egyptian military has gone to lengths to destroy the vast network of tunnels that connected Gaza to Sinai, through which both civilian goods and weapons were transferred. Hamas regulates and taxes these tunnels, providing it with an important revenue source.

Cornered by Israel's naval blockade of Gaza and the new Egyptian regime, Hamas is strapped for cash. Even the recent formation of the unity government with Abbas's Fatah party hasn't helped: The deal provided funding to the official Palestinian Authority (PA) employees in Gaza but not to Hamas employees, to which banks would not transfer for fear of Israeli sanctions. 

Hamas operatives inside Gaza (Mashal resides in Qatar) may have been searching for a way out, feeling they had little to lose. More likely, they lost control of their own cadres.

Unintended war is hardly new. This round of violence came on the backdrop of a brutal four weeks in which three Israeli teenagers were kidnapped by Hamas operatives (to be fair, Hamas claims its leadership did not order the kidnapping -- but went on to praise the operation); an Israeli operation to recover them that left several Palestinians dead and scores of Hamas sympathizers in jail; hate crimes against Arabs by Israelis that culminated in the horrific murder of a Palestinian teenager; and widespread low-level violence among Palestinians and Israeli Arabs in Jerusalem and the West Bank. Some have even spoken of the start of a Third Intifada.

The horrible events ongoing have been a reactive mess. Neither Israel nor Hamas has much to gain from it, which only adds to the tragedy. There may be some room for a deal involving the Rafah crossing, but Israel and Egypt will likely insist that the PA man that border point -- as was the case before the Hamas takeover in 2007 -- to avoid renewed smuggling or rewarding Hamas for its violence. In any case, negotiating such a deal appears far off at present.

In the meantime, each side is striving to prove its resolve and restore deterrence against future infractions and interventions. Even if Israel were to enter Gaza with ground forces, it's unlikely to try and topple the Hamas regime, for fear of the immense cost of such an operation to the local population and to Israeli troops. Instead, Israel prefers a weakened, deterred, but effective Hamas. With the tunnels from Sinai now closed, a hit to the Hamas stockpile stands some chance of lasting longer than previous attempts, since it would be harder for Islamists to replace the lost weaponry.

But even if its weaponry were degraded, Hamas's motivation to prove "resistance" to Israel will remain. Most acutely, this round of violence has the potential to reinforce the unrest -- which had subsided -- in the West Bank and in Jerusalem. A full blown Intifada, possibly coupled with attacks from Lebanon or elsewhere, could make this round of violence seem tame by comparison.

And yet, the lack of true objectives for either side in this confrontation also offers some hope. With little to gain, a ceasefire, if reached, might hold. If Hamas could be brought to stop firing its rockets, Israel would likely reciprocate. The formidable challenge, however, is to find channels through which to credibly mediate with a splintered Hamas, as the United States is now reportedly trying to do. 

But without a fundamental change to the regime in Gaza -- one which Israel would like to avoid carrying out itself -- the dismal cycle of this war of attrition will likely continue. Today, generations of Israelis and Palestinians grow up suffering a brutal reality for which they blame only the other. Meanwhile, two populations have become desensitized to human suffering and are increasingly prone to wish vengeance upon the other. This, sadly, is attrition at its most pointless and brutal nadir.