At his meeting with visiting Myanmar (Burma) State Counselor Aung San Suu Kyi on September 14, President Obama announced that he intends to issue a new Executive Order that will generally remove longstanding U.S. sanctions on Burma. Given further progress in Myanmar’s transition to a democracy, he argued that “it is the right thing to do in order to ensure that the people of Burma see rewards from a new way of doing business and a new government.”  He pointed out as well that “a lot of work remains to be done but it’s on the right track.”

In her response, Aung San Suu Kyi stated that “the time has now come to remove all the sanctions that hurt us economically because our country is in a position to open up to those who are interested in taking part in our economic enterprises.” She committed to “continue with our efforts to amend the constitution to make our country the truly democratic union that our founding fathers dreamt of.”

Immediately following this, the U.S. Treasury’s Office of Foreign Asset Control (OFAC) posted on its website that: “The President has announced his intention to terminate the national emergency with respect to Burma.  His decision will be legally effective when he issues a new Executive Order terminating that national emergency and revoking the Burma Executive Orders.  At that time, the sanctions imposed under OFAC’s Burmese Sanctions Regulations will no longer be in effect.  OFAC will formally remove the Burmese Sanctions Regulations from the Code of Federal Regulations and take other administrative actions as necessary.  Other departments and agencies will implement additional changes that will be announced on their websites as appropriate.”

What follows?

The expectation is that the President will issue this new Executive Order fairly shortly, possibly within the next week or two. It is expected that this will remove the bulk of remaining U.S. economic sanctions on Burma, in particular, the prohibition on dealing with many of  the hundred or so Burmese parties currently on the List of Specially Designated Nationals and Blocked Persons (SDN) list under the Burma sanctions program and the entities in which they own a majority interest.  This also is expected to lift sanctions on the export of financial services to Burma’s Defense Ministry in connection with the provision of security services, and allow the import of minerals such as jadeites and rubies from Myanmar into the United States.  U.S. sanctions affecting Burmese persons and companies designated under other laws, e.g., related to trade with North Korea or drug trafficking, are expected to remain.  OFAC will be providing more detailed and precise explanations following the issuance of the new Executive Order, presumably also to address whether existing reporting obligations associated with new investment in Burma will be phased out.

What is the likely impact?

The most immediate and concrete impact will be to lower the regulatory hurdles for U.S. persons and companies seeking to do business in Myanmar. This will also facilitate their joint ventures and business cooperation with other foreign companies trading with and/or investing in the country.  This should significantly spur U.S.-Myanmar trade and investment relations, especially after the Generalized System of Preferences (GSP) trade benefits and tariff reductions are restored to Myanmar after the lifting of the sanctions.

More broadly, the expansion of economic ties with the United States could further boost Myanmar’s economic growth. Although Myanmar’s annual real GDP growth rate has climbed to over eight percent (from a very low base) over the past few years, it is still considered the poorest country in Southeast Asia, after having been among the most prosperous Asian countries before WWII.  It reported a GDP of less than $70 billion (nominal terms) for a population of about 60 million in 2015.  It is estimated that nearly one-third of its people live below the poverty line.  Hence, the need and desire for investment in infrastructure and energy and virtually every sector of the economy from agriculture to manufacturing and services, e.g., tourism and banking, is enormous.  U.S. companies should thus be able to find abundant trade and investment opportunities in Myanmar.

Increased U.S. economic presence in Myanmar would also help the country diversify its overall trade and investment relations. Notwithstanding longstanding U.S. sanctions, most other countries have continued to trade with and invest in Myanmar over the years.  In particular, China has grown to be Myanmar’s dominant trading partner, taking in nearly 40 percent of Myanmar’s exports and making up over 40 percent of Myanmar’s total imports in 2015.  China has also been by far the largest foreign direct investor in Myanmar with cumulative investment at an estimated $18 billion, compared to $10.5 billion from neighboring Thailand, $4 billion from the U.K. and $3.5 billion from South Korea.  As a result of U.S. sanctions, direct U.S. investment in Myanmar is currently negligible.

Human rights groups express concern that the lifting of U.S. sanctions will remove pressure for further political reforms. Others argue that President Obama’s decision could potentially support the democratization process in Myanmar. To the extent that this boosts the country’s economic development, it helps to improve the environment within which the new civilian government can address the many critical political and security challenges of the country, especially the ongoing religious and ethnic strife between Buddhists and Muslims across the country.  As Aung San Suu Kyi herself noted here in Washington, “we want to make sure that our people are better off materially in order to strengthen our political initiatives.”  Moreover, to the extent that America’s increased economic presence also reduces the country’s dependence on China, this could also strengthen the position of the civilian government vis-à-vis the military in their currently tenuous relationship and eventually lead to constitutional reform limiting the latter’s role in government.