Expect more action on Myanmar from the USTR

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Hello from Washington, where the cherry blossoms are just about out and provide a reminder of just how long Covid-19 has been with us.

Our main piece today is on Myanmar, and the US Trade Representative’s new human rights-related move. Our take: it won’t do much economically, but symbolism is sometimes important.

Our Person in the News is Liz Truss, while Charted Waters looks at some good news for Chinese exporters.

The symbolism of the USTR’s Myanmar clampdown

Myanmar, which on Saturday saw its bloodiest day since last month’s military coup led to the overthrowing of the government of Aung San Suu Kyi, has become the latest subject of punitive US trade measures from Washington.

On Monday, the US Trade Representative’s office released an unusual statement announcing that it would cut off all trade engagement with Myanmar — specifically under the 2013 Trade and Investment Framework Agreement, or Tifa — until a democratically elected government was restored.

While economic sanctions on foreign countries in response to major human rights abuses are not uncommon, they don’t frequently come from the USTR’s office. Under former president Donald Trump, the USTR would certainly issue tariffs over national security issues, but not over humanitarian crises.

In this case, suspending trade engagement under Tifa, which is an outline of how the US and Myanmar would consult each other over trade, is unlikely to mean much. But like many economic enforcement or coercion mechanisms, sometimes a vague sense of menace from the US — and an uncertainty as to what might happen next — is enough to scare businesses away.

The US has issued sanctions against Myanmar’s military leaders in recent weeks, and on companies controlled by or linked to the country’s military. Businesses invested in Myanmar and trading with any entities on which the US has imposed sanctions risk triggering US secondary sanctions.

The US sanctions have yet to ratchet up to the level of intensity they were at for about two decades before 2016, when Barack Obama lifted them after the election of Aung San Suu Kyi — but they’re not heading in a good direction. 

USTR also made another thinly veiled threat — it suggested it would or could expel Myanmar from the GSP, or Generalized System of Preferences, a trade status offered to developing economies and giving them the opportunity to export goods to the US duty free. Specifically, USTR said it would be considering whether Myanmar now fulfilled the workers’ rights criteria it needed to in order to remain in the GSP when it is reauthorised by Congress. It’s a broad-brush move, however, that risks hurting the ordinary people of Myanmar rather than its military specifically.

The World Bank has already revised its 2021 forecast for Myanmar’s economy to a 10 per cent contraction from a previous estimate of 5.9 per cent growth, citing “ongoing disruptions in essential public services”. Trade friction with the US if it is expelled from the GSP will only worsen that, even if the volume of trade is relatively small.

Outside of USTR, there are other signs that the US is looking at companies and countries providing cash flow to Myanmar’s military and raising its eyebrow. In a press conference to introduce the state department’s annual human rights report on Tuesday, secretary of state Antony Blinken noted that some companies “in various parts of the world” hold “significant investments in enterprises that support the Burmese military. They should be looking at those investments and reconsidering them as a means of denying the military the financial support it needs to sustain itself against the will of the people.”

This might include US companies. Rights groups such as Global Witness have urged US oil company Chevron to freeze payments to Myanmar’s state-owned oil and gas company in case those funds were appropriated by the country’s military junta.

One US ally for whom this is uncomfortable is Japan, one of Myanmar’s biggest trading partners. Japanese companies have invested nearly $2bn in the country since its democratic transition began in 2011. Since the coup, there have been few signs of corporate Japan retreating. The Japanese brewer Kirin decided to quit a joint venture with ties to the country’s military merely days after the toppling of Aung San Suu Kyi’s government. But, as my colleagues in Tokyo report, for now, most Japanese companies are staying put

It’s highly unusual for a Japanese defence minister to join others in condemnation of concern, says Matthew Goodman of the Center for Strategic and International Studies think-tank, but a recent statement by 12 defence ministers condemning the junta’s brutality was signed by the UK, US and Japan, among others. It’s unclear though, says Goodman, how Tokyo will see the way forward — and whether they can support American sanctions on their small neighbour.

For the US, at least, the involvement of USTR is just the latest diplomatic condemnation. There is likely to be more from Washington, and more, it now seems, from USTR.

Charted waters

Good news for China’s exporters. The renminbi’s strong appreciation against the dollar over the second half of last year appears to have slowed over the opening quarter of 2021.

Line chart of Renminbi per dollar showing China’s currency loses its edge

A stronger currency puts exporters at a disadvantage by making their wares more expensive.

Person in the news

Liz Truss
Liz Truss says new rules on digital trade and data are needed © Justin Tallis/AFP/Getty Images

The UK’s international trade minister Liz Truss plans to use the virtual G7 meeting, of which the UK is chair, to urge its members to put their weight behind reform of the World Trade Organization.

In an interview with the Financial Times, Truss echoed much of the US’s hawkish sentiment on China, and said an updating of WTO rules was needed — including new rules on digital trade and data.

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