By Murray Hiebert —
As Aung San Suu Kyi’s National League for Democracy (NLD) prepares to take power in Myanmar April 1, one of the questions U.S. policymakers will eventually need to address is what to do about the remaining U.S. economic sanctions against the country. Although many in the U.S. business community say it is time to lift the remaining sanctions in response to the NLD’s landslide victory in the November elections, at least some in Congress have argued the remaining restrictions should remain in place until the current democratic transition is farther along and human rights conditions facing ethnic and religious minority groups improve.
U.S. policy toward Myanmar is now in the somewhat unusual position of wanting to support the country’s economic development under a democratically elected government while at the same time maintaining sanctions against a country in which the military will retain major clout within the new government.
Aung San Suu Kyi’s views will be critical in any U.S. moves to further ease the sanctions. She has been briefed on the existing sanctions by U.S. officials, but has said nothing publicly about her views on whether or when the sanctions regime should be amended. Aung San Suu Kyi may want to use remaining U.S. economic sanctions and restrictions on assistance from the international financial institutions to bargain with the military.
Washington began easing its long-standing economic and trade sanctions against Myanmar in May 2012 in response to political reforms launched by the outgoing military-dominated government. President Barack Obama said at the time that he was making the move to ease sanctions to promote further reform and contribute to the economic development of the country and improve the welfare of Myanmar’s impoverished population. He argued that the involvement of U.S. companies in the country’s economy would “set a model for responsible investment and business operations.”
But U.S. companies have been slow to enter the market, even though many of the restrictions against doing business with and investing in the country were eased or removed. There are many reasons for that, including an uncertain legal and regulatory environment, dilapidated infrastructure, and a shortage of skilled labor. But these problems don’t seem to be holding back Japanese, Korean, Singaporean, and other Asian companies from piling into Myanmar. U.S. firms say remaining targeted sanctions play a role in holding them back.
One of the biggest challenges confronting U.S. companies is the outsize role individuals and firms on the U.S. Treasury Department’s Specially Designated Persons (SDN) list play in the country’s economy. U.S. companies are prohibited from dealing with any of the 150 or so individuals and companies on the list who are considered cronies of the previous military regime as well as with any firms that are 50 percent owned by an entity on the list even if the company itself is not on the list. This “50 percent rule” sends ripples through the whole economy and effectively means that U.S. companies cannot risk engaging many local firms.
As a result, U.S. companies, even those that have legally set up representative offices in Yangon, are often reluctant to sell equipment or products directly to an entity in Myanmar in case it turns out that someone on the SDN list holds unknown stakes in the firm. Instead, U.S. companies mostly sell their products through a third party, increasing costs and adding inefficiency.
Late last year, U.S. companies operating in Myanmar and legitimate local entrepreneurs trying to sell to American consumers faced increasing difficulties in moving shipments in and out of Yangon because U.S. banks were refusing to process payments for trade through the city’s main port after it was revealed last July that the port is owned and operated by a subsidiary of Asia World, whose founder, Steven Law, has been on the SDN list for the past six years. The banks feared they could face future scrutiny from the U.S. government. In an effort to get trade flowing again, the Treasury Department’s Office of Foreign Assets Control in December issued a general license for six months allowing U.S. firms and banks to pay fees to ship their products through Asia World’s port and keep Myanmar’s international trade going.
Some members of Congress, concerned that this decision was made in the midst of Myanmar’s sensitive political transition and without adequately consulting Congress, responded by holding up for two months the confirmation of Scot Marciel, who had been nominated as the next U.S. ambassador to Myanmar. The Senate eventually approved Marciel after the administration assured senators that it would not move quickly to revise existing sanctions policy as the country transitions from military rule.
The next phase of U.S. policy toward Myanmar will require working closely with the new government in Naypyidaw and members of Congress in Washington to address the unintended consequences of remaining economic and financial sanctions, as the NLD government looks to promote broad-based economic growth and U.S. companies seek more opportunities in Myanmar’s market.
Last April, Win Aung, head of the Dagon Group and chair of the Myanmar Federation of the Chambers of Commerce and Industry, was removed from the SDN list after he established that he had changed his business behavior and fulfilled the conditions for graduating off the list. Other Myanmar business leaders are also working to be removed from the list so they will be able to begin dealing with U.S. business groups.
As the new government takes office in April, it will be critical that more truly reformed Myanmar business leaders be graduated off the SDN list relatively quickly if they can demonstrate that they no longer engage in the activities for which they were listed earlier. The process will need to be streamlined so that sanctioned business leaders see the longer-term benefits of changing their business practices.
One of the key legal underpinnings of the U.S. sanctions policy for the past two decades has been the International Emergency Economic Powers Act, which gave Washington legal flexibility to target bad actors and prevent backsliding on reform. It must be renewed every year on May 20. One can easily imagine the perplexed reaction in Myanmar in May, shortly after the new, democratically elected government takes office, if the first U.S. policy announcement is that an “emergency” continues in Myanmar.
Washington can also pursue other policy means aimed at helping Myanmar build the foundation for broad-based economic growth under an NLD government. A relatively easier option would be to grant Myanmar trading privileges under the Generalized System of Preferences, which has been under review for several years.
Aung San Suu Kyi does not hold a veto on U.S. foreign policy, but her ability to pick up the phone and call prominent members of Congress like Senate Majority Leader Mitch McConnell can play a critical role in helping Washington hammer out a new consensus on its economic engagement with Myanmar.
Murray Hiebert serves as senior associate of the Southeast Asia Program at CSIS.