September 16, 2016 1:00 am JST

US move on Myanmar sanctions sparks jubilation, dismay

GWEN ROBINSON, Chief editor, Nikkei Asian Review

WASHINGTON -- A mix of jubilation and dismay followed the announcement by U.S. President Barack Obama that the U.S. would dismantle nearly all remaining sanctions on Myanmar and restore special trade privileges for the country's exports to America. After meeting Aung San Suu Kyi in Washington on her first official visit as Myanmar's de facto leader, Obama said on Wednesday that the U.S. would lift its nearly two decades-old sanctions in recognition of the country's progress from dictatorship toward democracy.

The U.S. president did not give details on the timing of the move, particularly concerning procedures to remove most of the 111 individuals and groups who remain on the longstanding "blacklist" of specially designated nationals who are blocked from doing business with U.S. companies. Many of the sanctions are renewed each year under a so-called "emergency order" signed by the president which declares that Myanmar is a "security threat" to the U.S.

Administration officials said the lifting of the emergency order would ease trade across most industries. They were unclear as to how far remaining sanctions would be abolished, saying details would be specified in an executive order to be issued by the White House at a "later stage." But some U.S. curbs would remain, they added, primarily restrictions concerning issues such as trade with North Korea, drug trafficking, human rights abuses and other matters, which could see certain individuals continue to be blocked from doing business with U.S. companies.

Broadly the measures would remove one of the last obstacles to fully normalized U.S. relations with Myanmar, and would mark the full entry of the former pariah state into the international community. "This is a hugely important move, both symbolically and practically -- and not just for business," said one Yangon-based Western diplomat. For U.S. companies alone, said Judy Benn, executive director of the American Chamber of Commerce in Myanmar, lifting the sanctions "will help level the playing field for US business in Myanmar."

Equally significant is Suu Kyi's new willingness to end the sanctions regime -- a stark reversal of her earlier support for maintaining sanctions. Speaking in Washington on Wednesday she said that the "time has come" to remove U.S. curbs as her country opens up and becomes an attractive investment prospect. "I've always said that I have no use for businessmen who are incapable of making profits, so I expect your businessmen to come to our country to make profits so that we can make profits for us as well," she added.

To many observers Suu Kyi's words were the most concrete sign yet of confidence in her new and sometimes uneasy relationship with the powerful military. The timing of the sanctions decision shows the extent to which Washington waited on final approval from Suu Kyi to proceed -- confirmed by a White House official who said the timing was "really up to her."

Myanmar's armed forces control a quarter of all parliamentary seats and maintains veto power over changes to the military-backed constitution, which bars Suu Kyi from the presidency due to restrictions on nationals whose family members -- in this case her two sons -- hold foreign citizenship. The military has repeatedly blocked Suu Kyi's attempts to amend the charter's restriction, warning the charter should not be tampered with.

But since her administration came to power after a landslide election victory last November, military commanders have shown an unexpected degree of flexibility and compromise, not least with Suu Kyi's move to create the position of "state counselor" for herself, equivalent to the role of prime minister in a Westminster democratic system.

U.S. officials and Suu Kyi herself have indicated determination to maintain pressure on the military to agree to constitutional reform. In her meeting with Obama, Suu Kyi pledged to continue working to amend the constitution.

"We have a constitution which is not entirely democratic, because it gives the military a special place in politics," she said at the White House. "But we do not think that politics is the place for the military. So we will continue with our efforts to amend our constitution to make our country the purely democratic union that our founding fathers dreamed of."

With its promise of new investment amid surging interest from Western companies, the sanctions decision also removes one of the biggest challenges in Suu Kyi's push to build the country's economy and generate jobs after decades of harsh military rule.

U.S. corporate representatives indicated strong interest from the American business community in investment opportunities in Myanmar. Alex Feldman, head of the U.S.-ASEAN Business Council, said that Obama's announcement "recognizes the remarkable progress that Myanmar has made in reforming its political, economic and legal system."

The council, as well as the U.S. Chamber of Commerce, have said that taking Myanmar companies off the sanctions list would reduce the steep due diligence costs faced by U.S. companies and would open up "more than half" of the economy, dominated by sanctioned entities and individuals. While big U.S. names such as Coca-Cola, GE, PepsiCo, MasterCard and others have set up operations in Myanmar, most U.S. companies and banks have shied away from one of Asia's last untapped markets for fear of official penalties.

Feel good, feel bad

Obama's decision, in his final months in office as the U.S. prepares for presidential elections in November, follows earlier moves to ease restrictions on Myanmar -- initially under the administration of former President Thein Sein. The latest came in May, just after Suu Kyi's administration took power, when Washington announced it would lift sanctions on key Myanmar state-owned banks and timber and mining companies, and loosen curbs on American involvement in Myanmar.

Despite the "feel good" nature of her current U.S. visit and the obvious warmth between Obama and Suu Kyi, who initially met in 2014, human rights campaigners around the world responded with fierce criticism. Many groups protested that the U.S. was moving too fast too soon and was "throwing away" its leverage over Myanmar's military, widely condemned in the past for human rights abuses and its pervasive control of the political system. Others argued that Washington was giving up any influence over the overall process of democratization.

Human Rights Watch for example said that sanctions targeting military officials "shouldn't be fully lifted until the democratic transition is irreversible." A spokesman for Global Witness which monitors business interests in Myanmar's lucrative natural resources sector said the news was "a major setback" for anti-corruption efforts in Myanmar. Lifting curbs before Suu Kyi's National League for Democracy-led government can fully implement reforms "effectively invites U.S. companies to do business with some of the worst figures from the country's past, which could have devastating impact on the ground," said Juman Kubba at Global Witness.

These and other groups argue that the military retains major political and economic interests, and continues to engage in illegal trade in goods including jade and timber.

The U.S. moves do not just benefit U.S. companies, reason supporters. Despite the perception that this will be the starting gun for U.S. companies to play "catch-up" in Myanmar, Obama's announcement has also been warmly welcomed by non-U.S. companies and officials as well as local Myanmar businesses.

"Certainly the lifting of many of the remaining U.S. sanctions and the granting of U.S. GSP [referring to Generalized System of Preferences] to Myanmar will remove a potential complication for European multinational companies that also have operations in the U.S.," said Chris Humphrey, executive director of the EU-ASEAN Business Council.

The European Union lifted sanctions in 2013, granting Myanmar GSP and other benefits under its "Everything But Arms" scheme - a move that has allowed for more trade and investment between the EU and Myanmar, he noted. "Additionally, the EU is currently negotiating a bilateral Investment treaty with Myanmar," he added.

Ken Tun, chief exeutive of Parami Energy, said it is high time for U.S. companies to enter the country's lucrative oil and gas sector. "Myanmar is among the world's fastest growing economies and one of the largest exporters of gas in Southeast Asia, and we offer potential big discoveries of energy resources - now we're open for business for U.S. companies, also in renewable energy and infrastructure, as 70% of Myanmar is not electrified with limited infrastructure in place. It's time for them to come," he told the Nikkei Asian Review.

Apart from easing or eliminating the blacklist of sanctioned nationals, the U.S. moves restore Myanmar to the GSP, a program that grants developing nations special trade preferences. In Myanmar's case, it would effectively reduce the duties on around 5,000 types of products exported to the U.S. 

Most of the 111 individuals and groups on the SDN list are under sanctions due to alleged ties to drug trafficking or money laundering. While a separate measure will be needed to remove the ban on importing jade and rubies, nearly all the U.S. sanctions imposed on Myanmar over the past two decades can be terminated by Obama if he certifies to Congress that Myanmar has met key conditions set out in the 2003 Burmese Freedom and Democracy Act.

Key questions ahead

Many questions remain concerning the sanctions move, noted Aaron Hutman, a lawyer at Washington-based law firm Pillsbury Winthrop Shaw Pittman.

"The breadth of the announcement caught a number of people by surprise. The return of GSP trade status will be welcome of course... but while it's quite promising news, we are waiting on the executive order that will implement the change," he told the Nikkei Asian Review. Key questions, according to Hutman, include:

First, how SDNs, or sanctioned individuals and groups, will be treated. "Will some be moved to sanctions listings under different authorities? Also, some Myanmar SDNs are listed under narco-trafficking authorities so the removal of the sanctions regime would not delist them without specific action."

Second, he noted, "what announcements will follow on the banking and anti-money laundering side, particularly as special measures still are in place under the [U.S.] Patriot Act?"

Third, "what changes will come on the export control side from the U.S. Commerce Department and Directorate of Defense Trade Controls? There are special controls for MEC [the military-controlled Myanmar Economic Corporation conglomerate] and other parties and an arms and defense services embargo is still in place. "

Eric Rose, a lawyer who has advised U.S. companies on Myanmar sanctions, told media that a big concern was the continuation of significant potential legal obstacles to U.S. business in Myanmar. "This is work in progress, which will be passed, with an uncertain outcome, to the next president and Congress," he said.

Another Washington-based lawyer who did not want to be named said "it really will be fascinating how the administration implements here. Leaving even a small number of key SDNs on a list or under sanctions -- for example MEC and Asia World Co. [the construction and logistics conglomerate controlled by blacklisted Steven Law] -- could cause some of the chilling effect to linger...That said, it will be a big and very welcome change, and maybe enough of a push for business to move ahead."

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