The Transformation of Diplomacy
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Nearly two years after the United States lifted its economic sanctions on Myanmar (also called Burma), the ruling military regime continues to repress the country’s people. Although the rapprochement between the United States and Myanmar had been proffered on the promise of economic, democratic, and social reform, the national outlook only grew darker in subsequent years as Myanmar President Thein Sein cracked down on the press, freedom of assembly, and religious minorities.
And so, in early 2014, after the World Bank published a damning report on Myanmar’s negative economic reality, U.S. President Barack Obama extended the executive orders that prohibit U.S. businesses and individuals from investing in Myanmar. Obama’s justification was that Thein Sein was not demonstrating enough progress and that the Myanmar government’s “actions and policies pose a continuing unusual and extraordinary threat to the national security and foreign policy of the United States.” Despite Obama’s rebuke, members of the Association of Southeast Asian Nations (ASEAN), which are Myanmar’s main trading and investment partners, seem unfazed by Thein Sein’s lackluster reform efforts. Even worse, they might support it.
The reason ASEAN supports Thein Sein is simple: members of the group accrued significant financial benefits during the 20 years of sanctions on Myanmar, and they may not be eager to give them up. Myanmar's regional partners enjoy uniquely protected positions in its resource-rich economy; true economic and political reforms may jeopardize these advantages if they lead to an increase in market competitors. As the United States tightened sanctions over 20 years, China, Germany, India, Japan, Malaysia, and Thailand became Myanmar’s main trading partners, accounting for over 90 percent of the nation’s trade by volume. Multinational corporations (MNCs) from these countries conducted business in the nation through preferential trade deals established by the secretive military regime. The business of those MNCs fueled the wealth of military regime members, their families, and supporters. An example is Tay Za, the self-proclaimed richest man in Myanmar who is the son of a retired lieutenant colonel who worked in high positions during the sanction years for Myanmar’s Ministry of Industry. During those years, it is reported that Tay Za became a close associate of the former chairman of the State Peace and Development Council (SPDC) General Thura Shwe Mann. Because of those connections, Tay Za is first on the list of 3,000 Myanmar nationals against whom targeted sanctions remain in place. Despite sanctions both past and present, Tay Za runs a network of companies with holdings ranging from mining and tourism to telecommunications, aviation, and banking that work with trading partners in China, Malaysia, Russia, and Thailand. Tay Za’s conglomerates make over $500 million a year and are poised to enter a stage of unhindered growth now that easing sanctions make Myanmar more attractive for foreign investment.
THE COST OF DOING BUSINESS
During the sanction years, all trade deals were executed through Myanmar’s licensing structures: the SPDC and the Union Solidarity and Development Association. Both the SPDC and the USDA acted as political parties as well as government-controlled corporations. The USDA appointed regional heads of township associations that were responsible for establishing joint ventures with MNCs. Township associations dictated the terms of regional economic growth, creating labor markets and jobs for local residents. Membership in these associations provided citizens with improved job prospects as well, leading many to sign up in order to better their economic circumstances. Expansion in regional industrial operations first had to be cleared through joint venture partnerships with local government-owned entities. It was the SPDC that controlled this federal aspect of economic affairs, and all foreign firms that did business in Myanmar had to do so via partnership with the party. This remains true today, as the SPDC’s former leadership still controls Myanmar’s economic activity.
Also during the sanction years, business transactions between Myanmar and its partners were purposely secretive. To avoid catching Washington’s attention, leaders had to conduct their business behind closed doors. They got so good at it that the Burmese Freedom and Democracy Act, which specifically names USDA and SPDC members and their holdings as objects of targeted sanctions, did little to hinder the regime’s ability to build wealth. If anything, the legislation may have provided the regime with an incentive to offer preferential trade opportunities to those few countries willing to work with it—and to do so quietly.
These structures remain largely unchanged despite Washington’s rhetoric to the contrary. On April 1, 2014, the Office of Foreign Assets Control at the U.S. Department of the Treasury published a list of the most frequently posed questions on U.S. legal action against Myanmar. The list states that the U.S. Department of State has concluded that there is no evidence of the SPDC’s continued existence or operations, rendering the sanction provisions within the JADE Act of 2008, which followed the Freedom and Democracy Act, inapplicable.
In reality, the SPDC remains in power even if the organization has been dismantled on paper. Thein Sein rewrote Myanmar’s constitution in 2008, including provisions in his draft that would make real democratic changes in the nation unlikely. Most notable is the constitution’s call for a 75 percent majoritarian rule to pass legislation. Since over 80 percent of Myanmar’s parliament is made up of former SPDC officers, the old regime will continue to hold tremendous power.
Although Thein Sein’s government has introduced legislation that would establish special economic zones and change laws on foreign investment firms’ property rights, Myanmar’s economic realities are the same as they were before 2008. To date, foreign firms must acquire a license from the central government to set up operations, forcing investors to vie for political approval just as they had in the past. Sanction-era permission was bestowed upon firms that befriended the government, winning national business rights through the SPDC and regional contracts through the USDA. Today, former leaders of the SPDC and USDA own local enterprises that partner with newly attracted foreign investors. Among this group are nearly 100 multimillionaires and 40 individuals with a net worth of over $30 million each.
There is likewise evidence that Thein Sein has resisted making any real democratic reforms. During ASEAN Summit meetings between Obama, Thein Sein, and Myanmar’s political opposition—including Aung San Suu Kyi—in 2014, tense discussions focused on political reform with the goal of making it possible for Suu Kyi to run for president later this year. Myanmar hosted the summit last year, and Obama made a separate trip to Naypyidaw to meet with Suu Kyi to discuss her ability to run for president. The meetings proved less than fruitful, bearing little more than an official White House statement urging the Myanmar government to follow through with democratic reforms and suggesting that no concrete policy commitments were made.
Despite the grim reality in Myanmar, few regional actors deem it fit to push Thein Sein into adopting further reforms. At the onset of the 2014 East Asia Summit in Rangoon, Human Rights Watch published an examination of Myanmar’s lack of political reform. Post-sanctions, the organization argued, the regime is still guilty of gross human rights abuses and repression. Indonesia raised the same issue in 2011, when it pressured ASEAN into delaying its final decision to allow Myanmar to resume the 2014 ASEAN chairmanship. The official ASEAN response declared that it would be unwise to give the chairmanship to Myanmar until genuine democratic reforms were implemented. Despite these complaints, Myanmar was allowed to assume the ASEAN chairmanship and host the organization’s 2014 summit.
The reasons are purely economic. According to the Asian Development Bank, Myanmar is trading at 15 percent of its export potential and future growth possibilities are significant. No doubt if further economic reforms are implemented, doing business in the nation will become easier for foreign firms. The ensuing increase in competition would provide an unwelcome development for established trading partners and their dominance of local industrial sectors and would raise the cost of doing business locally. Perhaps for those reasons there has been little evidence of pressure for any political and economic reform in Myanmar from its major trading partners.
For now, the only sign of pressure on Myanmar to change is the United States’ official statement released after the 2014 ASEAN Summit talks that “urges” Myanmar to continue making democratic improvements. This unilateral gesture is an effort to maintain pressure on Myanmar until regional actors—the ASEAN member states that are arguably in the best position to push for reform—lean on Thein Sein to do so. But for China, India, Japan, and Malaysia, the former political system worked well despite sanctions and regime brutality. Few nations would be inclined to introduce instability at the risk of interrupting a working financial model, even if doing so would benefit global human rights and democracy.