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U.S. Plans to Ease Myanmar Trade Sanctions

Josh Rogin is a former Bloomberg View columnist.
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The U.S. Treasury Department is preparing to make it easier for American companies to do business through a port in Myanmar that is owned by a sanctioned company whose reclusive owner has close ties to the ruling military junta.

Since July, U.S. banks have been wary of processing payments for trade through the main port in Yangon, Myanmar, after it was discovered that the port is operated by Asia World, a company that Washington has sanctioned since 2010. Asia World is controlled by Steven Law, who is also sanctioned by the U.S. government for illicit activities and aid to the regime. His father, Lo Hsing Han, was known as the “Godfather of Heroin,” and was “one of the world's key heroin traffickers dating back to the early 1970s,” the Treasury Department determined. He died in 2013. Representatives from Asia World told the Wall Street Journal that the company hasn’t received special treatment from either the Myanmar military or government.

But now, following a warming of relations with the Myanmar government and under pressure from the U.S. business community, the Treasury Department’s Office of Foreign Assets Control is set to issue a general license that would in effect provide permission for U.S. businesses and banks to pay fees for the use of the Asia World port in Yangon, even though the money flows into the coffers of Asia World and the Burmese regime, two administration officials who work on the issue told me.

The Treasury and State Departments briefed some Congressional officials about the pending decision this week, although they do not need legislative approval for the change. Staffers on both the Republican and Democratic side told me that there was concern that the administration was moving forward with the license before properly consulting Congress. Some legislators are also concerned that the timing sends the wrong signal to the Myanmar government, which has not yet completed several crucial reforms. Last month, the party led by the dissident Aung San Suu Kyi overwhelmingly won the nation's first open parliamentary elections, but the new government won’t be formed until next spring.

“While I await to be briefed by the administration on any potential changes in the U.S. sanctions policy toward Burma, I am concerned with any such actions prior to the completion of the political transition in Burma early next year,” Senator Cory Gardner, the chairman of the Senate Foreign Relations subcommittee on Asia, told me. “Any modification of remaining U.S. sanctions toward Burma during this sensitive time would only weaken U.S. leverage as Burma’s democratic transition continues. Furthermore, Congress should be involved in any actions relating to sanctions, and I hope the administration takes that into account should it move forward. ”

Gardner met this week with Scot Marciel, the State Department official nominated by President Barack Obama as the next U.S. ambassador to Myanmar, which the U.S. government still refers to under its old name, Burma. In his confirmation hearing, Marciel told senators that the U.S. needed to encourage democracy, rule of law and civil society. He didn’t mention any administration plans to alter sanctions.

“The people of Burma want us there to support and where possible help them,” he said in the hearings. “We can't fix their problems for them but we do have a role to play: engaging diplomatically to encourage progress, calling out behavior that opposes reforms, and suggesting ways forward.”

Several congressional aides told me that the administration has been briefing Congress in a cursory manner. An aide to Senate Foreign Relations Committee Chairman Bob Corker told me that sanctions are a key policy tool when dealing with Myanmar, and any efforts to recalibrate them "must be justified and consistent with our support for a peaceful and inclusive democratic transition.”

A Treasury Department spokesperson would not confirm the plans to change the status of the transactions at the Yangon port, but told me that the Office of Foreign Assets Control was responding to concerns about the flow of trade and trade finance through major ports in Myanmar and the impact of sanctions.

Another administration official who is involved in the issue told me that the administration needed to address a crisis caused when some major U.S. banks suddenly discovered that they were processing payments to Asia World and, out of fear of triggering scrutiny from the U.S. government, stopped clearing transactions related to the Yangon port fees for both U.S. and foreign businesses.

Since this is Myanmar’s main port, the banks’ actions threaten to shut down a significant portion of the country’s international trade, which was not the intention of the sanctions and could harm broader U.S. policy goals there, the official said. The administration wants to find a way to allow continued use of the port while maintaining, and possible tightening, restrictions on doing business with Law directly, the official said.

Many U.S. businesses have been pushing the Treasury to allow transactions for trade through the Asia World port. The Clearing House Association and the Bankers Association of Finance and Trade wrote to the Treasury Department in July to warn that if no action is taken, the consequences “could amount to a de facto trade embargo on Burma.”

Peter Kucik, a former official in the Treasury's foreign-asset office who now consults for companies that do business in Myanmar, told me that adjustments to sanctions are often needed to make sure well-intentioned policies do not have unintended and dire consequences for overall economies. For example, Treasury issued a general license in 2013 to allow transactions with two sanctioned Myanmar banks, after it was determined that those banks were crucial to the country's economic development.

“Something needs to be done,” he said. “The intention of targeted sanctions is to target to the extent possible the individual or entities to which they are directed, but they are not supposed to have a broader impact on people who are caught up in the day to day.”

Yet John Sifton, the Asia advocacy director at Human Rights Watch, said that the administration is moving too quickly to take an action that would benefit some of Myanmar’s worst actors. Allowing businesses to easily pay fees to Law and Asia World only undermines the effectiveness of the sanctions and sets back Myanmar’s overall path of reform, he said.

“Why is loosening the pressure on these guys the answer? There are other ways,” said Sifton. “These are the people who have helped propped up the junta and ruined Burma’s economy in the first place.”

He added that the U.S. government should press Burma to revoke concessions at ports and other infrastructure owned by sanctioned individuals, or to take other steps to ensure the money doesn’t actually get into the hands of those sanctioned.

The U.S. government is caught in a conundrum. The more it opens up Myanmar to the world, the more those considered the worst actors in Myanmar benefit. The recent elections showed that the country is making real progress, albeit fragile. Allowing trade with Asia World may make sense in the short term, but only if the long-term effort to fight corruption and cronyism in Myanmar is redoubled.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Josh Rogin at joshrogin@bloomberg.net

To contact the editor responsible for this story:
Tobin Harshaw at tharshaw@bloomberg.net