PHNOM PENH -- Denmark's Bestseller should resume sourcing from Myanmar "as quickly as possible," as the exit of international companies threatens to cause widespread poverty and famine, according to an independent report commissioned by the company.
Bestseller tasked lawyer Jonas Christoffersen, previously the head of Danish Institute for Human Rights, to assess the company's business in Myanmar following the Feb. 1 military coup.
Bestseller is among several international fashion companies to have halted new orders in the wake of the military's takeover, which has plunged the country's vital garment industry into chaos. Sweden's H&M, Italy's Benetton Group and Ireland's Primark have also paused orders.
The Danish company commissioned the report to look into whether its sourcing from three factories within an industrial zone linked to military conglomerate Myanmar Economic Holdings (MEHL) breached European Union sanctions.
The company and its billionaire CEO, Anders Holch Povlsen -- Denmark's richest man -- have faced pressure from the Danish government to ensure its supply chain does not breach sanctions by supporting the junta. Around 48,000 employees work at factories in Myanmar supplying Bestseller.
The three factories in question are in the Ngwe Pinlae Industrial Zone, which was developed and is administered by MEHL, a sprawling military-controlled conglomerate with interests in everything from construction, gem mining and insurance, to tourism, banking and manufacturing.
MEHL and Myanmar Economic Corporation (MEC), another military holding company, have both been hit by sanctions from the EU, the U.K. and the U.S.
The report by Christoffersen's law firm, Offersen Christoffersen, released Monday, said its research found that Bestseller did not have a direct or indirect economic relationship with the military.
"We do not believe that there are reasonable grounds to assume that the three factories are located on plots of land that are owned, directly or indirectly, by the military," the report stated. "Neither do we believe that there are reasonable grounds to assume that the three factories have paid administration fees, directly or indirectly, to the military."
The report went on to say that pulling out of Myanmar would be a "clear violation" of Bestsellers' corporate and social responsibility, as the exit of international companies would likely cause an economic meltdown.
Bestseller's sustainability manager Dorte Rye Olsen said in a statement on Monday that the company would "continue undaunted to establish decent working conditions in Myanmar," and that the "majority of workers" were back at factories.
He added, however, that newer EU sanctions made it "doubtful" that new orders would be placed at the three factories in the Ngwe Pinlae Industrial Zone, which employ some 7,300 workers. The company did not respond to Nikkei Asia's question as to when exactly it plans to resume orders at other factories.
Justice for Myanmar, a group that investigates alleged links between international businesses and Myanmar's military, said it was "surprised" by the report's conclusion and that it had supplied the law firm with documents showing the military owned land at the industrial zone and is the administrator.
"Ngwe Pinlae was developed by MEHL and MEHL administers the zone, collecting fees from tenants," said JFM spokesperson Yadanar Maung, who said the report's findings were an attempt to "absolve Bestseller of responsibility."
Christoffersen told Nikkei that his law firm had received more than 100 pages of documents from JFM on the weekend before the report was released. Those documents had been forwarded to the firm's researchers in Myanmar to assess, he said, but added that the issues raised did not appear relevant to the report.
"Paper trails run out sometimes," Christoffersen said. "You can never be totally sure, and new things might also come up and things might change on the ground. That's why the due diligence process has to be ongoing and keep looking into the issues, which is exactly what Bestseller has done."
The impact of businesses pulling out is already being felt by Myanmar's garment industry, which accounted for more than 30% of the country's exports by value in 2019, up from 7% in 2011, U.N. statistics show.
More than 700,000 people, most of them women, worked in the sector before the COVID-19 pandemic caused global demand to slump, resulting in tens of thousands of layoffs. Citing a labor rights advocate, Myanmar Now reported in late April that around 200,000 garment workers had lost their jobs in the wake of the coup.
The drop in orders, exacerbated by the impact of a civil disobedience campaign on the country's ports and transport sector, has yet to show up in U.S. trade statistics, which reported a spike in garment, footwear and travel goods imports from Myanmar in March.
However, experts say a crash is imminent. Nate Herman, senior vice president for policy at the American Apparel & Footwear Association, said the coup and increasing violence were making it "increasingly difficult to continue sourcing from Myanmar."
"The longer the military junta remains in power and democracy is not restored, the more the economic livelihoods of the people of Myanmar will be put in jeopardy by their actions," he said in an email to Nikkei Asia. "Again, we call on the military junta to immediately step down, end all violence, release all those detained and arrested, and restore democracy."
Sheng Lu, an associate professor at the University of Delaware's department of fashion and apparel studies, said the bump in March fit a seasonal pattern and belied a "very concerning" situation. He noted that it was in late March that the U.S. government officially announced a suspension of engagement with Myanmar under the 2013 Trade and Investment Framework Agreement.
March also saw the torching of Chinese-owned garment factories. Most brand order suspensions, meanwhile, were announced in April. "The worst is yet to come, as leading importing countries are considering more draconian economic sanctions or import bans on Myanmar," he said.