Thailand
Myanmar and ASEAN a great unknown to Trump
Eric Rose is lead director of Herzfeld Rubin Meyer & Rose (“HRMR”), the first US law firm established in Myanmar. HRMR is a founding member of the American Chamber of Commerce Myanmar, and Mr Rose serves on its Executive Committee, and also chairs its HR Committee. In an exclusive interview with the Myanmar Times, he talks about the remaining sanctions on Myanmar, the new Donald Trump government and the challenges for American investors to enter the market.
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You’ve been in the United States in the past few weeks. Have you gotten a feel for what US President Donald Trump’s broad policies towards Myanmar and ASEAN may be, or is the region a “great unknown” to him?
In my opinion, it is a great unknown to him. Although he has licensed two projects in the Philippines, I don’t believe that he truly understands, at this time, the strategic importance of Myanmar – both in terms of the ASEAN itself, as well as in terms of the new pan-ASEAN policy of the Chinese government.
How long do you expect him to formulate his policies in this regard? Is this region high on his agenda?
I don’t think the ASEAN is high on his agenda, in particular as even the relationship with China is still developing.
Former President Barack Obama lifted most sanctions on Myanmar in October. Could Trump rescind this action? Would that affect the bilateral relations?
Yes, he could re-impose sanctions simply by issuing an Executive Order, because the underlying legislation which authorised the US Burma Sanctions is still in effect. The president could, if he wanted to, declare a national emergency concerning Myanmar, notify Congress and re-impose those sanctions. But that is not likely. Frankly, I don’t think that would be within the realm of possibilities, at this point.
One should note, however, that President Obama has not removed all the sanctions against Myanmar. In particular, the 2003 financial sanctions under Section 312 of the USA Patriot Act continue to be in effect. These sanctions, administered by the Financial Crimes Enforcement Network [FinCEN], which is part the US Treasury Department, primarily target US financial institutions, as well as banks which have operations in the US. The provisions of Section 312, as applied to Myanmar, require financial institutions to undertake “enhanced due diligence” investigations of transactions with Myanmar. It’s been shown that these continued sanctions have a chilling effect on the actions of US banks and financial institutions,and, more broadly, on a number of financial institutions in Myanmar.
Why didn’t Obama lift the sanctions under section 312 of the Patriot Act, and what are their impact on Myanmar’s investment climate for both American firms and multinationals?
In my opinion, the primary reason why the application of section 312 to Myanmar continues is due to the ideological bent of the Obama administration in its foreign policy. President Obama tried to strike a balance between the human rights community, on the one hand, and the business community, on the other. Especially after all other countries dropped their sanctions against Myanmar in 2012, the latter group has been urging the administration since then for relief from the sanctions. These pervasive sanctions, which have been multi-layered against Myanmar for almost 30 years by eight consecutive administrations, both Democrat and Republican, have done nothing but enhanced the financial position of successive military governments, and that of their cronies who were the main targets of these sanctions, while contributing to the impoverishment of the Myanmar people.
For example, U Tay Za, the first Myanmar billionaire according to Forbes, before the sanctions were imposed in 2003 had a net worth of about US$250 million. If you fast forward ten years to 2012, during which time both his family and businesses were made subject to sanctions, his net worth is now estimated to be in excess of one billion dollars. The same applies to U Zaw Zaw [Max Myanmar], Steven Law [Asia World], and the other cronies. In the meantime, Myanmar became the second poorest country in Asia, based on GNP per capita according to the World Bank, with an appalling human rights record. There is no empirical evidence that these sanctions have contributed to either an improvement of the Myanmar human rights record, or of the rights of ethnic minorities, or of the rights of women in Myanmar, etc. It was purely an ideological decision made by the Obama administration.
My hope is that, if one believes the rhetoric of President Trump, at some point in time, the Treasury, Commerce and State Departments are going to revisit these remaining sanctions and say “why are we still having them?” As of now, the effect of the remaining sanctions does nothing but punishes the poor, the farmers in Myanmar and the young entrepreneurs in the cities who are not able to work with or for American companies, or companies financed with American capital, while, at the same time, discouraging trade with and investment from the US.
Specifically, what is the impact of the USA Patriot Act on the local banking sector?
One should not exaggerate the effect of this American law on the local banking sector. Banks in Myanmar are being kept under the thumb of the Central Bank, which has set up extraordinarily punitive rules that do not allow the local banks to grow, or compete internationally, or even borrow or receive a capital infusion from abroad.
The Central Bank has set fixed interest rates for both deposits and lending, for short periods of time, with no market competition between domestic banks. It allows most loans to be taken for only one year, and some can be extended to three years. There is practically no business which will finance its capital investment for that short period of time.
Another example is the lending interest rate, also mandated by the Central Bank, which is capped at 13%, with deposit rates set at 8%. This margin does not allow the banks to compete with microfinance companies, for example, which are allowed to lend with interest rates up to 30%, and pay 15% interest on deposits.
Furthermore, with limited exceptions, the Central Bank does not allow foreign banks to offer most services in Myanmar, even in joint ventures, which, if permitted, would allow for a substantial amount of know-how and technology to enter, and, furthermore, enhance the capitalisation of the financial sector in Myanmar. Add to that the restrictions on the Western banks which are imposed by Section 312, and you have this chilling effect, which has kept most Western banks, and all American financial institutions, away from Myanmar.
To understand the depth of the “chilling effect” on US banks, there are no American banks that undertake trade finance with Myanmar, or that finance investment in Myanmar, or repatriate profits from Myanmar for US companies.
We are an American law firm, owned 100% by Americans. My firm in New York has been around since 1948, which is as long as Myanmar has been independent. Yet, if I want to dividend up to my partners in New York, we couldn’t do that directly. It would have to be done through a corresponding bank in a different country. And then, any transfer would have to be restricted because of the Central Bank having to be involved and the restrictions on the convertibility of the kyat into dollars, which is a combination of both domestic and international restrictions.
So the Section 312 is like a wet blanket over an otherwise very restricted banking system in Myanmar.
What is the likelihood of Trump lifting these financial sanctions soon? Would scrapping them be high on his foreign policy agenda?
I honestly believe that if somebody will make Steven Mnuchin, the new Secretary of the Treasury, or Wilbur Ross [Secretary of Commerce], or Rex Tillerson [Secretary of State] aware of the effect of these remaining sanctions, they probably will consider removing them soon. But they have other priorities which are higher at this point.
What other sanctions remain and how do they affect the investment climate?
There are remaining sanctions under the drug kingpin law [Foreign Narcotics Kingpin Designation Act, and other related legislation]. Those sanctions are also administered by the Office of Foreign Assets Control [OFAC], which had administered the US Burma Sanctions. But these sanctions mostly affect individuals and businesses affiliated with the United Wa. Outside of the United Wa territory, there are relatively few businesses controlled by the United Wa. Yangon Airways is one exception.
Other sanctions involve the remaining “black list” of individuals prohibited from travelling to the US under the Jade Act. Even though that act is no longer in effect, the list is still active. There are practically no SDNs [Specially Designated Nationals] on that list, yet, most are people who are related to people who used to be SDNs. The result is that a large percentage of the Myanmar economy is closed to US businesses, as it would be hard to imagine a substantial relationship with a party which cannot travel to the US.
Another issue is the exploration of natural resources by minorities protected by armed groups. There is a Reuters story that came out late last year having to do with tin exploration in Myanmar. The major reserves of tin in Myanmar are primarily in the United Wa territory. The Wa brought in Chinese companies to mine the tin deposits to a point that Myanmar became, for the last couple of years, one of the top three producers of tin in the world.
Why is that important? It’s because my iPad has tin, lots of tins in it. Motorola phone? Lots of tin. More likely than not, some of that tin actually comes from Myanmar because most of these products are made in China. China’s tin is currently sourced, in large part, from the United Wa territory. In this case it creates an issue of how these sanctions are put into effect. It is very hardto follow the money trail once it goes into China. Any product that comes out of China and which may have tin from Myanmar’s United Wa territory is hard to trace, as the tin has been co-mingled some places in China. The ability of OFAC to follow that trail is minimal.
You told the media last month that the sanctions imposed by the US “have created for many public companies interested in Myanmar trade and investment a public relations issue”. Could you elaborate on this?
In a nutshell, Myanmar has suffered for over 60 years from mismanagement by its own governments. The result of that has been an impoverishment of the country in becoming the second poorest country in Asia, and also a combination of human rights abuses, lack of rule of law, and an economy that is tremendously suffering, except for a chosen few.
Then-Burma was the richest country in terms of GNP [gross national product] per capita in 1948. It was then the largest producer of rice, beans, pulses, teak, rubies and jade in the world, as well as a large producer of many other natural resources, including having the estimated tenth largest global natural gas reserves. And yet, in the span of this rather short historic period, Myanmar went from the top in the ASEAN to the poorest country. That happened not because they were invaded by another country; it was primarily because of mismanagement by its own successive governments, and the effect of sanctions which were imposed on the country over 30 years, primarily by the US, which resulted in an enormous number of job losses, especially after 2003.
As an example, from a 2006 study done by the Congressional Budget Office,the effect of the 2003 sanctions against Myanmar was that over 60,000 Myanmar workers, primarily women, lost their jobs in the textile sector alone. More than 200 factories were closed. Each family in Myanmar supports about five to six people, and these workerswere mostly the primary bread winners in their families. So, about half a million people were affected in just in one industry by this particular set of sanctions.
The sanctions that were imposed by successive US administrations have created an environment for American companies in which US businesses did not want to come and even look at Myanmar opportunities. Numerous companies have pulled out over the years, the result of which is that the total amount of American FDI in Myanmar is less than US$300 million dollars. There is some investment that has come through Singapore, but that is relatively speaking negligible when you are looking at the total FDI investment of over US$40 billion. We have fallen from the 13th largest investor to somewhere around the 15th, according to the Directorate of Investment and Company Administration [DICA].
The American Chamber of Commerce in Myanmar [AMCHAM], which groups and advocates for the interests of the US business community, as well as for other businesses interested in trade with the US, has a few dozen American members – not because AMCHAM is not good at what it’s doing, but because the US business community has been discouraged for so long to invest in, or even trade with Myanmar.
Many are not coming here because of the public relations issue that they have to deal with in the US: Are you investing in a country that is oppressing the minorities, oppressing the Rohingyas, oppressing this … oppressing that? They never hear about the good stories that come out of Myanmar. Or, for that matter, the fact that Myanmar, a country which has held two free elections in the last five years, which elections have brought a true change of government recognised by the Tatmadaw, and is about to hold a third free election, is being held to a different standard than its neighbours.
Thailand no longer has free elections, Laos, Vietnam and China have not had free elections, Malaysia, Cambodia and Singapore are ruled by the same families for dozens of years, and several also have appalling human rights records. Yet, there are no sanctions against any of them to speak of.
The election of the NLD government is the first major positive story coming out of Myanmar in recent years, and even that is now being tarnished by human rights organisations. The issues in northern Rakhine State, as well as the continuing civil conflict between the Myanmar army and some of the minority groups under arms, are somehow extrapolated to the entire country, without any discernible recognition for the progress made in race relations nationwide, or of how complicated the political issues are here. So, American companies coming into Myanmar have to deal not only with economic issues, some of which we discussed earlier, but they also have to deal with a public relations or image issue.
How can the public relations issue be resolved?
Myanmar has to continue to do a lot of things, all at the same time, many of which will require the cooperation of the Tatmadaw. First, though, from an economic standpoint, the government should take the measures which will allow it to get a sovereign credit rating. A lot of things that Myanmar cannot do today are as a result of the lack of financing, primarily because of its very poor tax collection system, and limited access to debt markets.The income tax system, for example, is antiquated, as it is based on income estimates as opposed to actual numbers, due to the lack of accounting for many Myanmar SMEs. The moment Myanmar gets a sovereign credit rating, it can start entering the international financial market in conjunction with the dropping of the remaining US financial sanctions. This will provide it with funds to improve its tax collection, restructure its legal system, and create a policy of promoting Myanmar through commercial centres in the US, Japan, China, Singapore, India, Canada, Australia, the UK and Continental Europe, among others, which will promote the image of the country as being open for business with foreigners. Obviously, there are a number of economic, legal and financial restructuring measures which need to be taken domestically, in order to enhance the opportunities of both foreign and domestic investors. Furthermore, Myanmar needs to enter into bilateral investment and double taxation treaties with a number of countries, and specifically with the EU, the UK and the US.
Improving Myanmar’s image will help American companies with their public relations issues. After all, we helped introduce CSR [corporate social responsibility] to Myanmar, have brought numerous training opportunities for Myanmar young people, and especially students, through continuous outreach and sponsorship. For example, AMCHAM sponsors every year 35 students from the University of Yangon and Yangon University of Economics, which is the largest program of its kind in the country. Individual American investors have contributed to creating centers of excellence, re-writing investment legislation, expand interactions with domestic entrepreneurs, etc. But these initiatives get lost in the “white noise” created by human rights organisations with no counter balance from the Myanmar government.
There is almostno Myanmar government voice to talk about the good things that are happening in the country, which we see every day. The NLD government has undertaken enormous steps forward, in a short year, which have helped promote understanding with minority groups, improved education, healthcare, andpromoted investment – the whole new investment law is targeted specifically at investment in minority areas. Yet, the NLD government has made all of these efforts, and practically nobody knows about it outside of Myanmar.
AMCHAM talks about it. I talk about it. The US Chamber of Commerce, and numerous other foreign Chambers talk about it. But our voice is a “white” voice. It is what the Myanmar people call Naing Ngan Jar Thar, which means a foreigner. It is a foreigner’s voice. Businesses need to hear from the NLD government, to hear from Daw Suu, from U Thin Kyaw, from U Win Thein, from the leaders of the NLD, as well as from the UMFCCI and its many federations, who can tell the rest of the world why now is finally the time for the world to take notice of the positive changes in Myanmar. In other words, come to this country and see for yourself!
Source: http://www.mmtimes.com/index.php/business/25352-myanmar-and-asean-a-great-unknown-to-trump.html