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Asean Affairs   22 July 2012

United States Announces Steps to Ease Myanmar Sanctions

By Murray Hiebert and Prashanth Parameswaran

On July 11, the Obama administration announced an easing of restrictions to allow U.S. companies to do business in Myanmar. The move comes nearly two months after the United States said it would suspend sanctions against Myanmar in response to political and economic reforms there, and it enables U.S. companies to enter into contracts to invest in and provide financial services to the country. It is also a critical step in launching economic engagement between the United States and Myanmar and bolsters the case Secretary of State Hillary Clinton is making during her trip to Asia this week that the U.S. “rebalance” to Asia has a strong economic and commercial component. Finally, the move sets the stage for the United States to fully engage with the Association of Southeast Asian Nations (ASEAN) on economic and trade promoting agreements.

Q1: What specific measures did the administration announce?

A1: The U.S. Treasury Department’s Office of Foreign Asset Control issued two general licenses: one authorizing new investment in Myanmar by U.S. firms, and another authorizing the exportation of U.S. financial services to the country. These licenses spell out the terms and conditions U.S. firms must adhere to when doing business in Myanmar. They ban U.S. firms from doing business with the armed forces and Ministry of Defense–owned entities in the country. Other sanctions, including a ban on U.S. imports from Myanmar, which the country’s officials say are desperately needed to boost economic development and create jobs, remain in place for the time being.

To address concerns that the easing of sanctions might enrich nefarious actors and that the reforms remain unfinished, President Barack Obama also signed a new executive order expanding existing sanctions to include those undermining reform, violating human rights, stoking ethnic conflict, and participating in military trade with North Korea to ensure that these entities do not “reap the rewards of reform.” Two new entities have been added to the list of Specially Designated Nationals that U.S. companies are prohibited from dealing with: the Directorate of Defense Industries and the Innwa Bank.

Q2: Were any conditions imposed on U.S. companies operating in Myanmar?

A2: The president’s announcement said that U.S. companies will be allowed to do business “responsibly” and added that these firms will be required to provide detailed reports on their activities in Myanmar “in line with international corporate governance standards.” Companies with investments above $500,000 will be required to file two reports: one for the U.S. government, which will be kept confidential, and another that will be released publicly. “The purpose of the public report is to promote greater transparency and encourage civil society to partner with our companies toward responsible investment,” the State Department said in a prepared fact sheet.

The reports must cover the names of all companies’ subsidiaries in Myanmar, the nature of their business, the location of their operations, and the numbers of workers employed. The companies must provide a summary of their policies and procedures governing human and worker rights, anticorruption efforts, environmental policies, engagement with local communities and other stakeholders, and corporate social responsibility. Companies are also required to report any land purchases and whether any people displaced by the acquisitions were compensated, all payments to government entities above $10,000, and any communications with the country’s armed forces. The reports are due annually on April 1.

Companies are allowed to invest in projects with state-owned Myanmar Oil and Gas Enterprise, the government’s largest revenue provider, but they must inform the State Department within 60 days.

Q3: Why was the announcement made now?

A3: Strategically, the move is important for U.S. credibility in supporting economic and political reforms in Myanmar. Having said it would remove sanctions in response to reforms Myanmar has made and implemented, the United States needed to follow through. The move injects momentum into the reforms by bringing world-class best practices, funds, technology, and innovation to Myanmar and by making it much harder for reactionary forces in that country to try to roll back reforms. The United States can and will reinstitute sanctions if the government of Myanmar reverses reforms or commits new human rights abuses.

Additionally, U.S. companies have been anxiously waiting for the specifics on the general licenses since May 17, when the Obama administration first announced that it would ease sanctions in response to reforms in Myanmar. But the administration has been divided for nearly two months on how to balance the opening of commercial opportunities for U.S. businesses and rewarding Naypyidaw for recent reforms with continuing concerns about human rights and transparency issues raised by advocacy groups and the opposition in Myanmar.

Officials also disagreed over whether to treat all industry sectors equally or have different requirements for oil and gas companies, given accountability questions surrounding the state oil and gas company raised by some, including opposition leader Aung San Suu Kyi. In the end, U.S. firms were given the green light to invest in projects with the company.

The announcement was also timed with Secretary of State Clinton’s trip to Asia. She is scheduled on July 13 to speak at a business meeting between U.S. and Southeast Asian businessmen in which she is expected to stress economic and business engagement as a key component in U.S.-ASEAN relations. The announcement also coincided with the presentation of credentials on July 11 by Derek Mitchell, the first U.S. ambassador to Myanmar in 22 years. Obama said in a press statement that the easing of sanctions is “a strong signal” of U.S. support for reform in Myanmar and “will provide immediate incentives for reformers and significant benefits for the people” of the country.

Q4: What are the implications for U.S. and foreign businesses in Myanmar?

A4: The new licenses mean that major U.S. companies will now be allowed to begin operations in the country. U.S. firms had earlier complained that slow-walking the suspension of sanctions would put them at a disadvantage relative to their Asian and European competitors. They also said it would prevent them from helping shape the business culture and norms in Myanmar in a positive way with their high standards of corporate governance and adherence to rule of law.

Specifically, the new investment license means U.S. firms will now be able to build factories, while the easing of financial services sanctions will allow both U.S. and foreign firms to transfer cash through banks to finance investment projects. Myanmar’s president Thein Sein told the Financial Times recently that such investments were something the country “desperately needs at this time” as he prepares to launch a “second wave” of reforms that will include some privatization of state-owned enterprises and the introduction of a minimum wage.

Nonetheless, U.S. companies will probably continue to be cautious about investing until more of the basic business architecture is in place. Basic laws governing foreign investment initially expected in January have been repeatedly delayed. The country’s erratic electricity supply, overextended road and port network, limited skilled workforce, and broken education system still present significant obstacles for companies.

Q5: What are the implications for U.S. policy toward Myanmar and Asia more broadly?

A5: The announcement is the first step in the opening of economic engagement between the United States and Myanmar, which is critical for supporting that government’s reformers and bringing the country out of isolation. Combined with the arrival of the new U.S. ambassador and the visit of two U.S. senior officials on July 14 to accompany a U.S. business delegation, the easing of these sanctions will help build momentum in U.S.-Myanmar relations.

Regionally, the move is also a shot in the arm for U.S. economic and business involvement in Southeast Asia at a time when many in the region have expressed concern that the U.S. “rebalance” to Asia has been too security oriented. It will also reduce friction between the United States and ASEAN over the slow pace of the easing of U.S. sanctions against Myanmar. ASEAN secretary-general Surin Pitsuwan said a few days before the U.S. announcement that there was a “sense of frustration” among ASEAN members “that things are not moving faster."

Murray Hiebert is a senior fellow and deputy director of the Southeast Asia Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Prashanth Parameswaran is a researcher with the CSIS Southeast Asia Program.

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