Myanmar: Open for Business or Closed by Sanctions?

The Status Quo

In January Aung Sang Suu Kyi stood at a platform in a brightly lit conference centre in Naypyidaw. The room was ostentatious and so was her speech. Citing the series of economic reforms her government planned to implement, she claimed that Myanmar ‘was open for business’ and welcome to the world. The ‘Invest Myanmar Summit’ was meant to be the launching of a new, business-friendly image. Guests included international journalists, business people and diplomats. Suu Kyi’s speech was received with rapturous applause with government spokesmen calling it a resounding success.

However, perceptions can belie the truth. While some members of the audience were undoubtedly pleased with the new vigour that Myanmar was approaching the issue of economic liberalisation, others were visibly nervous. Their apprehension was due to the continued widespread international condemnation of Myanmar’s response to the Rohingya atrocities. More specifically, they were concerned about what the European Union will do next.

Economic Sanctions

In 2018 the EU froze the assets of 14 army officials, while in January of this year they imposed tariffs on rice to curb a surge of imports. Most notably, though, they are considering trade sanctions through the revoking of Myanmar’s Everything but Arms (EBA) access to the European single market. It would be a significant move that would likely cause Myanmar’s GDP growth to decline by more than the 0.6% that was forecast by The World Bank. Investors are rightly nervous.

From a European governmental perspective, they must ask themselves about the effect of such a diplomatic procedure. Will sanctions have the desired socio-economic effect of ending persecution of the Rohingya people and helping Myanmar further liberalise? Historical evidence is not kind on this front. Economic sanctions only succeed 34 % of the time and this number drops to just 21% in the case of military activities, as is the situation in Myanmar. Moreover, when sanctions do work, it almost ubiquitously requires significant multilateral action involving large coalitions, or at very least action from the offending countries’ main trading partner. Europe is neither Myanmar’ main trading partner, accounting for just 7% of its total trade, nor is it capable of creating a majority coalition. As such, this is not an issue of Europe effecting meaningful change, but rather one of morality and whether it is right to be trading with a country accused of ethnic cleansing.

In asking themselves this question, European officials should also consider the unintended consequences that could arise in response to economic sanctions against Myanmar. Precedent shows that sanctions can actually have a negative rather than a positive impact, whereby ‘a rally round the flag’ effect is created. In these situations, the offending government becomes empowered rather than enfeebled. A perfect example is the recent announcement of the revoking of Cambodia’s EBA access due to governmental crackdowns on the opposition. Prime Minister Hun Sen’s response was to announce provocatively that ‘if you want the opposition dead just cut it [EBA].’

Previous experience also tells us that the impact of economic sanctions is often borne by those with narrowest rather than the broadest shoulders. The classic international example is Iraq in the 1990s where an ‘oil for food’ programme had to be introduced due to rising child malnutrition. In Myanmar itself, US sanctions in 2003 led to the estimated loss of 80,000 jobs, most of them women in the garment industry. European imports are also heavily concentrated in the textile sector so any economic sanctions are also likely to impact women and low-wage workers.

Lastly, any restrictions on trade is likely to have a geopolitical impact. The loss of a trading partner is usually significantly offset by increased production from another. In Myanmar’s case this void would probably be filled by China and other Southeast Asian allies, who already make up the vast majority of their trade. European officials should consider the impact that such a move would have on its political ambitions in the region. In all likelihood their influence, and ability to make FTAs, would be weakened while the influence of China would be strengthened.

What Should Europe do Next?

Given the ethical dilemma that the EU faces, they need to consider their next step carefully. From a symbolic perspective it is necessary to further condemn the atrocities. Such action could include personal sanctions against military top brass, General Min Aung Hlaing, the commander-in-chief of the armed forces and his Deputy General, Soe Win. Hitherto they have avoided punishment. They could target military businesses where most foreign direct investment goes through. They could impose trade restrictions on the two largest military conglomerates: The Union of Myanmar Economic Holdings Ltd. and Myanmar Economic Corp. Through these umbrella companies the military is involved in a host of industries from tourism to banking from transport to real estate. However, unfortunately a holistic map of the military’s entrepreneurial activities does not exist and as such it would be fairly easy to circumnavigate any restrictions introduced. The symbolic impact would nevertheless be significant.

From a more pragmatic standpoint, the EU should continue to work with NGOs to create a nuanced understanding of the military’s economic activities. This will consequently allow future sanctions to be better targeted and more successful. They should also put increased pressure on the military through strong diplomatic engagement with civilians of influence at regional and national level. This could create a greater culture of condemnation within Myanmar. Lastly, member states of the EU should continue to publicise the plight of Myanmar on the world stage at the UN, including at the General Assembly in September.

A word of caution is needed though. Getting sovereign states to change their behavior is a fiendishly difficult and lengthy task with no panacea or magic bullet. However, sometimes it is necessary to simply follow the ‘least bad’ options.