U.S. Eases Myanmar Sanctions in Response to Reforms

  • May 18, 2012

    The Obama administration announced May 17 that it would ease sanctions against Myanmar in response to the government’s recent political and economic reforms. Sanctions were suspended, not revoked, and the move still holds back U.S. companies from moving forward in some key sectors in Myanmar. Relations between the United States and Myanmar have improved dramatically since a new government took office early last year, freed democracy icon Aung San Suu Kyi from years of house arrest, and ended decades of direct rule by the military.

    The new sanctions policy has received bipartisan support in the Congress. Leading members of Congress from both parties have been outspoken in supporting the move.

    The administration also announced that it was nominating Derek Mitchell, the current U.S. special envoy to Myanmar, to be the first U.S. ambassador to the country in over two decades. Myanmar said that it would appoint UN ambassador U Than Shwe to be ambassador to the United States.

    Q1: What specific measures did the administration announce?

    A1: U.S. officials said the government would suspend sanctions that had long blocked American investment in Myanmar. In a press conference after a meeting with Foreign Minister Wunna Maung Lwin at the State Department, Secretary of State Hillary Clinton said the government would provide a general license to permit U.S. companies to invest in various sectors of the economy, including energy, mining, and financial services.

    Clinton said the United States would retain its arms embargo against the country. Other officials added that U.S. companies would not be allowed to do business with military companies and said the Treasury Department is updating its list of sanctioned companies and business tycoons who allegedly engaged in human-rights violations that would remain off limits for U.S. companies.

    In addition, Clinton said that the government will keep the laws in place that have long provided the framework for U.S. sanctions against Myanmar. She told journalists that Washington would keep the laws as an “insurance policy” against backsliding from the reforms by the government and called on officials to free their remaining political prisoners and halt military operations against the country’s ethnic minorities. Clinton said the U.S. government would work with officials in Myanmar to “put in place internationally recognized business and labor practices that foster respect for the rule of law.”
    Many details on what exactly U.S. companies will now be able to do in Myanmar weren’t immediately available and will need to be clarified by the State Department, and legal certainty will need to be provided by the Treasury Department’s Office of Foreign Assets Control (OFAC) in the days ahead.

    Q2: Why were these changes important to U.S. companies?

    A2: Since late last year, a number of U.S. company representatives have visited Myanmar, as did their counterparts from Europe, Japan, and other Asian countries, to explore business opportunities in the wake of the government’s political and economic reforms. But few foreign firms have done more than window shop, despite the fact that many countries have begun relaxing sanctions in recent months.
    Part of the reason for the caution has been the country’s dilapidated infrastructure, daily electricity brownouts, shortages of skilled labor, and weak legal architecture. The parliament has passed a foreign investment bill, but the president has not yet signed it into law. But the biggest factor holding back companies anxious to do business in one of Asia’s last remaining frontiers was the remaining U.S. sanctions.

    These sanctions included rigorous controls on financial transactions that prevented bank transfers in U.S. dollars. This made it difficult for companies from not only the United States, but also those from Europe and Japan, to transfer money without triggering the U.S. Treasury Department’s alarm bells. Without the ability to transfer cash through banks, it has been difficult for investors to build factories or invest in infrastructure projects. These sanctions also blocked the use of credit cards, which squeezed the country’s tourism business.

    With the easing of sanctions, U.S. businesses will be able to actively engage with the people of Myanmar to upgrade their devastated infrastructure and participate in the country’s economic recovery.

    Q3: Why did the U.S. government move to ease sanctions?

    A3: The U.S. government was responding to a series of political and economic reforms launched by President Thein Sein that culminated in pro-democracy icon Aung San Suu Kyi and 42 of her National League for Democracy colleagues taking seats in the country’s parliament early this month. Aung San Suu Kyi said in a Skype call to a conference in Washington earlier this week that she was “not opposed” to an easing of U.S. sanctions, although she warned that the Myanmar government could still “slide back” from the reforms launched over the past year.

    In a statement released by President Barack Obama, he said “opening up greater economic engagement between our two countries is critical to supporting reformers in the government and civil society, facilitating broad-based economic development and bringing Burma out of isolation and into the international community.” (The U.S. government refers to Myanmar as Burma.)

    Q4: How might Myanmar benefit from the easing of sanctions?

    A4: Advisers to President Thein Sein and local businessmen who have not profited from decades of links to the military hope that U.S. investment will help jumpstart the country’s impoverished economy. The new U.S. policy recognizes that economic momentum is a key to continued political reforms. Senator John Kerry (D-MA) said, “[Easing sanctions] is the best way to provide incentives to change-agents inside and outside the government, improve the lives of the people on the ground, and retain congressional leverage if reforms slow down or back slide.”

    The government of Myanmar aspires to levels of foreign investment that helped fuel early economic growth in neighboring China and Vietnam. Officials are particularly interested in investments to build labor-intensive industries like garment manufacturing and boost agricultural production to tackle serious under- and unemployment.

    The Myanmar president’s advisers believe that the involvement of well-run U.S. companies in sectors ranging from manufacturing to agriculture and natural resources will help the country establish international best practices, the rule of law, increased transparency, respect for labor rights and environmental protection, and measures to rein in corruption.

    Despite the easing of sanctions, investors will not be able to invest in many projects successfully until the basic business architecture is in place. Beyond the ability to move money through international banks, U.S. companies need efficient roads and ports and reliable electricity before they will build factories. The country also needs much more technical expertise, which will be tough to achieve until the deterioration of the country’s education system is halted.

    Q5: Did Myanmar’s policies toward North Korea influence the U.S. decision to suspend sanctions?

    A5: One of the key concerns in the United States was Myanmar’s relationship with North Korea and its suspected importation of equipment and technology that could be used for nuclear weapons. Foreign Minister Wunna Maung Lwin told Secretary Clinton that Myanmar would sever military ties with North Korea and fully comply with international conventions on nonproliferation. This move marks important progress in nuclear nonproliferation efforts in the Asia-Pacific region and removed a major stumbling block for the United States to ease sanctions.

    Q6: Was there broad political support for easing the sanctions?

    A6: Washington has been divided on how to lift the sanctions. In the Senate, John McCain (R-AZ) and Jim Webb (D-VA), both of whom have visited Myanmar this year, had publicly called on the administration to lift the economic restraints against U.S. companies doing business in Myanmar.
    Senators including Foreign Relations Committee chairman Kerry, Minority Leader Mitch McConnell (R-KY), and James Inhofe (R-OK) were bipartisan champions of easing sanctions.

    But some in the House of Representatives, including Representative Ileana Ros-Lehtinen (R-FL), chair of the House Foreign Affairs Committee, and others in human rights organizations were opposed to any moves to ease the tight controls. Human Rights Watch said in statement that “tough rules are needed to ensure that new investments benefit the people of Burma and don’t fuel human rights abuses and corruption, or end up strengthening the military’s control over civilian authorities.”

    Without a doubt, abuses of political prisoners and brutality in minority areas have not totally ended. The military continues to play an outsized role in running the country, particularly in remote areas, and is not accountable to the parliament, which Aung San Suu Kyi recently joined. But keeping the sanctions did not hurt the military and its friends who long ago found ways to do business with Myanmar’s neighbors despite the restraints. Instead, the sanctions hobbled the president and his team seeking to promote reform ahead of 2015 elections and hurt the ordinary people who the sanctions were originally intended to help.

    Secretary Clinton said that U.S. investment in Myanmar would be subject to rigorous standards of corporate responsibility and that the U.S. government would watch to ensure that those who abuse human rights would not benefit from increased economic ties between the two countries. “We expect our businesses to create a grievance process that will be accessible to local communities; to demonstrate appropriate treatment of employees, respect for the environment; to be a good corporate citizen; and to promote equitable, sustainable development that will benefit the people,” Clinton told journalists.

    Q7: What is the geopolitical impact of the United States easing sanctions on Myanmar?

    A7: By easing sanctions, the United States substantially increases the credibility of its strategy to promote a strong and integrated Association of Southeast Asian Nations (ASEAN). The United States can now engage all 10 ASEAN countries in capacity building and support for economic reforms and trade-opening efforts, such as in the U.S.-ASEAN Trade and Investment Framework Agreement.
    After Laos becomes a member of the World Trade Organization (WTO) later this year, all ASEAN members will be in the WTO. The United States should then support recommendations for including the three remaining ASEAN countries that are not part of Asia-Pacific Economic Cooperation (APEC) forum—Cambodia, Laos, and Myanmar—to join that grouping also, which would make them eligible for eventual membership in the Trans-Pacific Partnership trade negotiations.

    Myanmar’s reforms and the U.S. response also demonstrate that countries operating outside global and regional norms can change and be reintegrated into the larger international community. This is an important example for North Korea, for instance.

    Ernest Z. Bower is a senior adviser and director of the Southeast Asia Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Murray Hiebert is deputy director of the CSIS Southeast Asia Program.

    Critical Questions
    is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

    © 2012 by the Center for Strategic and International Studies. All rights reserved.

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