This week, U.S. Secretary of Commerce Penny Pritzker is leading a delegation of American CEOs to Myanmar – a country whose opening remains filled with peril and promise. Escalating violence against Myanmar’s Muslims has caused more than a thousand deaths; the destruction of more than ten thousand homes, mosques, and schools; and the displacement of nearly 250,000 people in the past two years. Yet from negotiations to end multiple civil wars to economic and legal reforms, there is hope that one of Asia’s poorest countries – where one in four people live below the poverty line – can be stabilized and uplifted.
One key enabler will be foreign investment, which hit $4.1 billion in the 2013-14 financial year, creating more than50,000 jobs. As American companies begin to invest in Myanmar, they have the unique opportunity to not only advance Myanmar’s development but also U.S. commercial and strategic interests and values. Their competitiveness, however, will depend in part on abiding by the letter and spirit of human rights reporting requirements mandated by the U.S. government.
In 2012, the Obama administration eased long-standing sanctions on Myanmar after its government undertook a series of political reforms, including the release of Nobel Laureate and opposition leader, Aung San Suu Kyi. New U.S. investment in Myanmar was authorized subject to compliance with a set of “reporting requirements on responsible investment in Myanmar.” Those reporting requirements state that U.S. persons whose investment in Myanmar exceeds $500,000 must submit an annual report to the U.S. State Department that, among other elements, includes an overview of operations; human rights and environmental policies; procedures for property acquisition; and security provider arrangements.
These reporting requirements matter.
First, meaningfully satisfying them increases U.S. competitiveness. In recent years, Chinese firms have been heavy-handed in executing projects in Myanmar, which have generated a local backlash (and even criticism in the Chinese media). This has ranged from a public outcry over the environmental impact of the Myitsone Dam project, forcing the Burmese Government to suspend it in 2011, to local villagers kidnapping two Chinese workers last month after being displaced by a copper mine project. As a result, Myanmar officials have expressed an interest in U.S. firms taking the lead on certain large-scale projects, such as hydropower. If the U.S. footprint is similar to China’s, this window of goodwill will close and local opposition will drive up business costs.
Second, the reporting requirements hold U.S. firms to an important normative standard in light of Myanmar’s history of human rights abuses under a brutal junta and the checkered record of U.S. firms in Myanmar in the extractive industry. Compliance thus combines a commercial opportunity for U.S. firms with a strategic one for Washington to reorient Myanmar away from Beijing while upholding human rights values.
Yet despite their upside, the reporting requirements have left U.S. firms underwhelmed. Some have expressed concern about the scrutiny stemming from filing a report. These concerns are somewhat overstated. While the report is made public, sensitive information can be submitted in a separate private report, such as dealings with the army. Public scrutiny is also necessary for the requirements to have teeth, given the lack of penalties. Most firms, however, are understandably too preoccupied with navigating core operational issues such as corruption and the lack of electricity to view filing the report as anything more than a bureaucratic box to tick.
How then to reap the potential of these reporting requirements?
First, more firms should be required to file reports. To date, only eight reports have been filed. This is partly due to 2013 having been the first year of filing, yet many firms are entering Myanmar through third-party distributors and reasonably interpret the requirements as inapplicable to them. The State Department should issue guidance, in consultation with the private sector, that firms operating through third parties above certain thresholds must file a report and identify their distributors.
Second, given the sparse nature of some of the reports to date, further disclosure and engagement is necessary. The State Department should borrow from the practice of a regulatory body in the U.S. Government, the Committee on Foreign Investment in the U.S. (CFIUS). In reviewing inbound investment on national security grounds, CFIUS encourages the acquiring foreign company to file a draft notice of the transaction in advance of the final notice so as to identify areas where further information is required. The requirements should similarly incorporate pre-filing consultations and feedback to enable a meaningful dialogue and ensure sufficient detail.
Additional steps can also help foster a wider culture of compliance. U.S. firms entering Myanmar often look to partner with local firms, some of which are state-owned entities subject to U.S. sanctions. Continued policy guidance can help clarify what steps these entities need to take to be removed from the sanctions list, inducing good conduct and fruitful partnerships. To ensure a level playing field for U.S. firms, non-U.S. investors should be encouraged to embrace human rights standards around which international norms are coalescing, such as the UN Guiding Principles on Business and Human Rights. U.S.-China official discussions, private sector engagements, and Track II dialogues should also discuss and exchange best practices.
Addressing the annual conclave of U.S. Ambassadors in March, U.S. Secretary of State John Kerry cited the importance of commercial diplomacy: championing U.S. firms abroad and creating jobs at home. Yet the best Ambassadors for Brand USA can often be U.S. firms themselves. A rare trifecta exists in Myanmar for the U.S. to be commercially and strategically competitive and values driven. Capitalizing on it requires U.S. firms to view compliance with the reporting requirements as an opportunity to conduct profitable and consequential commercial diplomacy.
Will they seize it?
Ziad Haider is an attorney and Asia Director of the Truman National Security Project. He served as a White House Fellow in the U.S. Department of Justice working on international rule of law issues. Follow @Asia_Hand