Burma: A big step by the U.S.

The White House announced yesterday that it is lifting two of its major sanctions against Burma. At the same time, the Obama Administration nominated the first U.S. ambassador to Burma in 22 years. (Technically speaking, President Obama first extended one more year of the "national emergency" that serves as the legal basis for the investment ban, then used his presidential waiver to suspend the sanction. Yeah, it’s confusing.) He also decided to waive a measure banning the export of financial services, which was a provision of the JADE Act passed by the Congress in 2008.

Secretary of State Hillary Clinton outlined five possible responses to the political opening in Burma in remarks she made on April 4. The United States, in Ms. Clinton’s words, resolved to "meet action with action." Yesterday’s announcement means that the U.S. has now implemented all five of the measures she alluded to.

If you take a closer look, it becomes clear that the U.S. action actually goes farther than originally planned. The change of language and its implications are striking. In April, Clinton characterized America’s likely response as the beginning of "the process of a targeted easing" of U.S. investment and financial sanctions. It signaled that even though the U.S. would remove investment and financial sanctions, it would still require American businesses to avoid specific targeted sectors such as jade, mining, timber, oil and gas, which are tied closely with cronies of Burma’s military regime. But yesterday’s policy announcement dropped the talk of "targeted easing" and instead characterized the American action as a "suspension" of sanction regimes. This "suspension," which closely follows actions by the European Union and the United Kingdom, does not exclude any sector. Instead, in her follow-up statement to the White House announcement, Clinton told American business: "Invest in Burma and do it responsibly."

U.S. State Department officials praise the high standard that American companies apply when doing business with developing world, and talk about how Burma will benefit from this responsible business model. But they’re notably reluctant to translate these standards into binding regulations on companies investing in Burma. To name but one example: Members of the ethnic minorities endured forced labor, murder, rape, and torture at the hands of the Burmese military during construction of a $1.2 billion gas pipeline project whose investors included the American energy company Unocal, which partnered with the reigning military junta back in the early 1990s. For the people who suffered back then, this action by the U.S. government will awaken entirely legitimate fears.

So far, foreign investment in agriculture and manufacturing sectors that create jobs are a mere one percent of FDI, and that’s not just because of economic sanctions. A bigger reason is the many problems that plague these sectors, including poor infrastructure, unfavorable exchange rates, electricity shortages, the lack of skilled workers, and so on and so forth. As result, the FDI that has come into Burma has focused on natural resource extraction and hydropower. Burma’s natural resources tend to be located in ethnic minority regions where the rule of law is virtually absent because of long years of civil war. So the local ethnic population, which has already endured a whole range of abuses (including being illegally driven off their land), now find themselves worrying about a potential new wave of abuses triggered by development abetted by foreign investors. Foreign investment and the desire for growth cannot be a substitute for a sustainable political solution in ethnic regions.

On the other hand, some skeptics worry that the language of suspension will create uncertainty and cause any major U.S. businesses to hold off for another year before investing in Burma. Big U.S. companies that are already in close consultation with the administration will probably hold off until July, when Congress will decide whether to review other trade sanctions against Burma.

It is the suspension of financial sanctions that will have the most impact, since money can start flowing into the country almost immediately. At the very least, the Burmese Embassy in Washington, D.C., will soon be able to process checks and money orders rather than relying on a "cash only" basis for visas and other services.