US Relaxes Burma Sanctions, With A Twist

As expected, the US suspended its Burma sanctions yesterday.  The move took place as US Secretary of State Hillary Clinton attended the ASEAN Regional Forum meeting in Cambodia, and a few days after the new US Ambassador to Myanmar Derek Mitchell arrived in the country.  A delegation of business executives from the US-ASEAN Business Council arrives this Saturday (another delegation from various American Chambers of Commerce in Asia will go in mid-August; I am participating in that mission).

First, the US Treasury Department issued a new general license authorizing the exportation of U.S. financial services to Myanmar, subject to certain limitations.   The license excludes, in connection with the provision of security services, the exportation of financial services to the Myanmar Ministry of Defense, state or non-state armed groups (which includes the military), or entities owned by the foregoing (hence the US business missions will continue to drive from Yangon to Naypyidaw instead of flying on military-owned Air Bagan).  The general license also does not authorize the exportation of financial services to any person blocked under the Burma sanctions program.  Transfers of funds to or from an account of a financial institution that is blocked under the Burma sanctions program are authorized, however, provided that the account is not on the books of a U.S. financial institution.

Second, the US State Department has waived the ban on new U.S. investment in Burma. Hence the US Treasury Department issued a new general license authorizing new investment in Myanmar, subject to certain limitations and requirements.  The general license does not authorize new investment in projects with the Myanmar Ministry of Defense, state or non-state armed groups (which includes the military), or entities owned by the foregoing, or any person blocked under the Burma sanctions program.  Furthermore, any U.S. person (both individuals and entities) engaging in new investment in Myanmar whose aggregate new investment exceeds $500,000 must provide to the State Department the information set forth in the State Department’s “Reporting Requirements on Responsible Investment in Burma,” available at www.HumanRights.gov/BurmaResponsibleInvestment.  The reports must be filed on an annual basis and will be made publicly available.  In addition, investments made with the Myanma Oil and Gas Enterprise (MOGE) must be notified with the State Department within 60 days of the new investment.

Third, President Obama signed a new Executive Order providing new authority to impose blocking sanctions on persons determined by the Secretary of the Treasury, in consultation with or at the recommendation of the Secretary of State:  to have engaged in acts that directly or indirectly threaten the peace, security, or stability of Myanmar, such as actions that have the purpose or effect of undermining or obstructing the political reform process or the peace process with ethnic minorities in Myanmar; to be responsible for or complicit in, or responsible for ordering, controlling, or otherwise directing, or to have participated in, the commission of human rights abuses in Myanmar; to have, directly or indirectly, imported, exported, reexported, sold or supplied arms or related materiel from North Korea or the Government of North Korea to Myanmar or the Government of Myanmar; to be a senior official of an entity that has engaged in the foregoing acts; to have materially assisted any of the foregoing acts, or a person whose property and interests in property are blocked pursuant to the order; or to be owned or controlled by, or to have acted for or on behalf of, such a person.

The foregoing represents a guarded show of support for the Myanmar government’s reform efforts, but also allow the Obama administration to re-impose sanctions should those efforts be jeopardized, and to impose those sanctions on a targeted basis. Furthermore, although the reporting requirements are unique to the US Burma sanctions (the US does not require this in other jurisdictions, and the other Western countries did not require this), it perhaps will provide American companies with a unique opportunity to distinguish themselves from their competitors.  The ban on importing goods from Myanmar is not affected, but that can be addressed another day. For now, it is enough to say that the United States has finally allowed its business community to start re-engaging with Myanmar. 

Pakistan, Sri Lanka and Timor Leste in ASEAN?

The headline “Pakistan needs Indonesian support for ASEAN membership” in yesterday’s Pakistan Daily Times was jarring to see on the Google news widget on this blog yesterday.  Only after reading the actual text of the article could one determine that the interviewee, an Indonesian diplomat, was actually talking about an ASEAN-Pakistan free trade agreement (FTAs), not actual membership in ASEAN itself. 

I write “jarring” but not absurd in the above paragraph because South Asian countries such as Pakistan have sought membership in ASEAN before.  Sri Lanka tried to join ASEAN at the time of its founding in 1967:

Suddenly the issue of Ceylon’s efforts to join ASEAN came up. Tun Abdul Razak, who led the Malaysian delegation, announced that the Malaysian Prime Minister Tunku Abdul Rahman “had made a promise” to the Prime Minister of Ceylon “regarding Ceylon’s admission to the group”. An “undertaking had been made and he, Razak, could not retract it”. The other delegates were “stunned”. The geographical limits proposed for the organization did not extend beyond Burma.  Reluctantly every body “decided to wait for the arrival of application from Ceylon. Nothing happened. The clock was ticking and the Thais wanted the birth of the organization to take place within an auspicious time. Before that deadline, the meeting was called to order”.

(Thanks to Dr. V. Suryanarayan for this discussion).  As Singaporean President S.R. Nathan recounts in his memoirs, the Sri Lankan government later decided to drop the application:

Nathan has mentioned in his book that few years later Gunasingham, Sri Lankan High Commissioner to Singapore, explained why Colombo “failed to take its application forward”. Gunasingham had sent an analysis of the emerging geo-political situation in Southeast Asia. In that note he had explained how the Southeast Asian countries wanted to “shore up the strategic environment …than the protective shield offered by the American presence and by the umbrella of Southeast Asia Treaty Organisation”. Gunasingham was of the view that the “dominoes will continue to fall” as things stood “at present”. There will be no “stopping the process”, unless the Southeast Asian States associate themselves in a regional organization, which will usher in “unity of will and purpose and co-operative setting”. Gunasingham discussed the subject with Thanat Khoman, the Thai Foreign Minister, who “seemed to welcome the idea” of Ceylon’s membership. Gunasingham also felt that other member states were sympathetic to the idea.

Gunasingham got no reply from Colombo. His analysis was that the Government came under pressure from the left parties and also from India “which feared that its sphere of influence might be eroded” China and Soviet Union also opposed the move. Some non-aligned countries also felt that Sri Lanka would be giving up its policy of non-alignment. Gunasingham concluded, “Sri Lanka’s hope of breaking away from its moorings in South Asia and becoming a trading nation with links to Southeast and East Asian nations as well as to all of littoral Asia was lost”. The application was shelved, and as Nathan concludes, in later years, Sri Lanka’s “internal security situation deteriorated”.

Frankly, the nature of ASEAN as a regional institution would have been irrevocably changed had Sri Lanka been considered seriously as a member.  History would have been much different had the meeting started a little later.  In any event, any application by Sri Lanka or Pakistan would now be barred by Article 6.2(a) of the ASEAN Charter, which requires a prospective applicant to have a “location in the recognised geographical region of Southeast Asia.”

Moving from the hypothetical to the actual, the current ASEAN membership application of Timor Leste is being considered by an ASEAN committee, which met this month.  This article in the Jakarta Post comments on Singapore’s supposed opposition to Timor Leste’s application. The author posits that Singapore may oppose Timor Leste’s membership because (1) it does not want Indonesia to have another ally in the grouping, (2) taking in Timor Leste now would delay the ASEAN Economic Community (AEC) implementation, and (3) Singapore is bargaining for economic advantage, particularly with regard to energy resources in Timor Leste.   

The article correctly notes that (1) is not relevant because of the “ASEAN way of consensus,” such that having another vote in ASEAN is not really so important. It also states that ASEAN has demonstrated flexibility in the implementation of the AEC, particularly for Cambodia, Laos, Myanmar and Vietnam (CLMV) countries, so why not for Timor Leste?  The author goes to note that Article 21(2) of the ASEAN Charter allows for this differential treatment pursuant to the “ASEAN – X” formula. Thus, the article posits that (2) is not a justifiable reason to delay Timor Leste’s ASEAN membership, such that continued reliance on these issues may lead to unwarranted speculation that (3) is the real reason for Singapore’s opposition.

In my view, the Jakarta Post article assumes that ASEAN’s institutions and structures for the AEC are sufficiently developed to handle another developing country member, one that is not a WTO member (Laos is not a WTO member but will join soon).  As regular readers of this blog know, I don’t think that the ASEAN institutions and structures are sufficiently developed, as I discussed here.   In other words, it is not just that Timor Leste is not ready for ASEAN, but that ASEAN is not ready for Timor Leste. 

To put it in more stark terms, if Timor Leste is accepted as an ASEAN member, by my estimate, Timor Leste would become ASEAN Chair by 2020.  A lot can happen in eight years, as occurred in Cambodia after it joined. But there would really need to be major leaps in development and infrastructure assistance for the country, similar to what happened in Cambodia.  That effort would be highly distracting from current efforts to complete the AEC. 

Finally, I really don’t think that Singapore is jockeying for economic advantage in Timor Leste.  The country is not traditionally part of Singapore’s trading patterns, and as the Jakarta Post article notes, the Australians and Indonesians have already filled most of the major economic roles there.

Again, I have no doubt that Timor Leste will eventually join ASEAN, given the high level of support from ASEAN member states and the need to promote regional stability by including the country in ASEAN. But ASEAN needs to complete the AEC by 2015 before taking on another member.  Both Timor Leste and ASEAN will benefit from having a longer time horizon for ASEAN membership.

Thoughts on US Trade Policy Regarding China

I am interviewed by John Richardson in today's ICIS report on US trade policy regarding China.  It is not directly related to ASEAN but touches upon some issues also raised during the APCAC "doorknock" described in my previous post.  Follow the link for more.