Unwarranted changes to sanctions endanger Burma’s transition to democracy

In 1988 the military junta in Burma brutally cracked down on a wave of peaceful uprisings. From then on, the country was under the iron fist of a military dictatorship, which repressed all democratic opposition, violated human rights, and was pervasively corrupt. In reaction, the U.S. government imposed a strict embargo against Burma. After seeing signs of political reform, in 2011 the U.S. government slowly began lifting sanctions against Burma, including through constructing a “carrot and stick” regulatory framework. First, targeted sanctions were imposed against certain entities and individuals directly involved in human rights abuses. Second, a General License was issued to allow U.S. investments in Burma so long as investors complied with reporting requirements. Specifically, all businesses that invested over $500,000 had to submit reports to the Department of State detailing their human rights policies and risk management mechanisms.

This framework was unprecedented, and it was working. Two-way trade between the United States and Burma increased significantly in recent years, with U.S. exports to Burma more than doubling and U.S. imports increasing by over 60 percent in 2015. According to a recent U.S. Chamber of Commerce report, U.S. businesses are well regarded in Burma for being socially responsible and respecting human rights. Even major companies like Coca-Cola supported the model, stating that the reporting requirements “help to facilitate open conversations with stakeholders, further[] trust and understanding, as well as promot[e] responsible business practice within the private sector.”

{mosads}Fast forward to 2015, when Burma held its first openly-contested national elections since the military assumed control. While the peaceful transition of power is a laudable achievement, significant problems remain. Members of the military that previously controlled the government retain political and economic power, journalists and activists continue to be arrested, and Rohingya Muslims are still denied basic human rights.

Still, the Obama Administration decided to take steps to further ease sanctions. In May this year, the Department of Treasury removed sanctions from seven state-owned enterprises and three state-owned banks. A month later, the Department of State relaxed rules for American business investments in Burma by raising the reporting threshold tenfold, permitting companies that invest less than $5 million to evade the reporting requirements. These changes weakened the regulatory framework that the U.S. government established to encourage responsible investments in a country where progress is being realized, albeit slowly.

Of the ten State-owned entities removed from the sanctions list, several retain heavy ties with military elites. For example, the Myanmar Timber Enterprise (MTE), which enjoys a lucrative timber monopoly, has a history of political corruption involving military elites. The MTE routinely subcontracts extraction tasks to private companies and accept bribes in exchange for over-extraction of timber. The Myanmar Gems Enterprise is similarly closely connected to the military and offers a significant amount of subcontracts to military members and their families. Although the military is no longer in power, the legal system is constructed to allow its members to maintain significant political and economic power. Permitting these entities to freely contract with U.S. companies and profit from these business relationships can undermine the very democratic transition the United States is trying to support.

The decision to relax the reporting requirements on American investments in Burma is similarly concerning. Foreign direct investment is growing rapidly, but corruption and human rights abuses remain prevalent. The need for a strong reporting framework for companies’ human rights practices is clear. And yet, despite support from civil society groups and a number of businesses, the Department of State increased the reporting threshold tenfold without providing justification on how such an increase is warranted and without addressing concerns raised by stakeholder groups. This week, a trade union and eight civil society organizations, led by the International Corporate Accountability Roundtable, issued a letter to Secretary Kerry urging the Department of State to provide justifications and specific evidence for the need to increase the reporting threshold.

Burma is at a tipping point and it may fall in either direction—a flourishing democracy or continued oppression. Recently, President Obama traveled to Burma and noted that the transformation to democracy is not yet complete and could even be reversed if not supported. Sanctions and the corresponding reporting framework can be extremely effective tools for the United States in leveraging its economic power to promote the U.S. policy agenda in Burma, which is to support the establishment of a democratic state that respects human rights and the rule of law. To be effective, the U.S. government needs to administer these measures more strategically by adjusting them only when there is clear and demonstrable progress on the ground, including on human rights. Burma is not there yet, and the U.S. approach risks setting back the progress its policies sought to achieve.

Sophia Lin is legal and policy associate at the International Corporate Accountability Roundtable (ICAR). Teresa Gilbert is a legal and policy intern at ICAR.