The Cable

Obama breaks with Aung San Suu Kyi, lifts Burmese investment ban

President Barack Obama announced Wednesday he is lifting the investment ban on Burma, allowing U.S. companies to enter Burma's lucrative energy sector, above the objections of Nobel Peace Prize winner Aung San Suu Kyi.

"Today, the United States is easing restrictions to allow U.S. companies to responsibly do business in Burma," Obama said in a Wednesday statement. "President Thein Sein, Aung San Suu Kyi and the people of Burma continue to make significant progress along the path to democracy, and the government has continued to make important economic and political reforms. Easing sanctions is a strong signal of our support for reform, and will provide immediate incentives for reformers and significant benefits to the people of Burma."

Obama said that that entities owned by the Burmese armed forces and the ministry of defense will not be covered by the general licenses to invest in Burma that the administration is issuing to U.S. companies today.

"Burma's political and economic reforms remain unfinished. The United States Government remains deeply concerned about the lack of transparency in Burma's investment environment and the military's role in the economy," he said.

He also noted that U.S. companies will be required to report on their new activities in Burma and adhere to international corporate governance standards. The president signed a new executive order expanding sanctions against human rights violators in Burma at the same time it repealed the investment ban, which has been in place since the Clinton administration.

Wednesday's announcement comes after an intense internal debate over whether to include Burma's energy and natural resource sectors in the new general licenses. Industry groups such as the U.S.-ASEAN business council, working with oil companies like Chevron, lobbied hard and successfully for a full repeal of the investment ban. They were supported by some lawmakers, such as Sen. James Inhofe (R-OK) and Jim Webb (D-VA).

Human rights groups and other lawmakers, including Sens. John McCain (R-AZ) and Joe Lieberman (I-CT), cautioned the administration to go slow and issue only a partial repeal of the investment ban. They especially wanted the administration to retain bans on U.S. companies working with the Myanmar Oil and Gas Enterprise (MOGE) the state controlled entity through which all energy sector business flows, which they say is still heavily influenced by the Burmese military.

"We share Aung San Suu Kyi's concerns that MOGE's operations lack transparency, that it remains overly influenced by the Burmese military, and that the large amounts of foreign investment flowing into MOGE are not sufficiently accountable to the Burmese people or its parliament," the senators wrote to Secretary of State Hillary Clinton in a July 3 letter.

"We are not opposed in principle to U.S. investment in Burma's oil and gas industry. However, it is critical that foreign investment in Burma be carefully structured to benefit the Burmese people and strengthen the political and economic reforms that are at last underway there."

Suu Kyi, who was elected to Burma's parliament in April after more than two decades of house arrest, last month specifically asked foreign governments not to allow their companies to partner with MOGE at this time.

"The Myanmar Oil and Gas Enterprise (MOGE) ... with which all foreign participation in the energy sector takes place through joint venture arrangements, lacks both transparency and accountability at present," she said June 14 in a speech in Geneva. "The [Myanmar] government needs to apply internationally recognized standards such as the IMF code of good practices on fiscal transparency. Other countries could help by not allowing their own companies to partner [with] MOGE unless it was signed up to such codes."

The Obama administration has repeatedly said that it would follow Suu Kyi's lead while cautiously opening up to closer ties with the Burmese regime. The new U.S. ambassador to Burma Derek Mitchell arrived there today.

But in this case, supporters of a more cautious path of easing Burma sanctions inside the administration lost out. They included the State Department Bureau of Democracy, Human Rights, and Labor (DRL), let by Assistant Secretary of State Michael Posner, and those in the National Security Staff focused on human rights, such as Senior Director for Multilateral Affairs Samantha Power, according to sources familiar with the internal discussions.

Following a Deputies Committee meeting last week, the side that advocated for a broader repeal of the investment ban won out. That side included the State Department's East Asian and Pacific affairs bureau (EAP), led by Assistant Secretary Kurt Campbell, the economics office at State led by Undersecretary Robert Hormats, and the Treasury and Commerce departments. Hormats is set to travel to Burma next week with a contingent of business leaders in tow.

Human rights experts saw today's move as a change from the administraion's original promise to pursue targeted easing of the investment ban. Administration officials promised a sector-by-sector approach whereby the administration would have begun by focusing on sectors of the economy most likely to help the Burmese people, rather than the country's military.

The idea was to encourage development of tourism, banking, agriculture, and manufacturing sectors, while maintaining investment bans on industries such as natural gas, mineral extracting, and timber, which are mostly controlled by the military.

"The pro-industry lobby convinced the administration to back off from the sector-by-sector approach and issue the general license which allows companies to go into any sector, including oil and gas," said Human Rights Watch Washington director Tom Malinowski.

He said that U.S. companies understandably don't want to lose out on market share due to the influx of European corporations now set to do business with Burma's energy and mining sectors, but opening up MOGE to vast new sources of financing could have a negative effect on Burmese political reform.

"All the money the Burmese military uses to finance their wars in the ethnic areas and their procurement of illicit materials from North Korea comes from MOGE. If the military wants to hold on to power and resist civilian oversight, this is what would finance their ability to do that. It represents the bulk of the regime's hard earnings," Malinowski said.

Once corporations make long-term investments in Burma's energy sector, it will be almost impossible to get those countries to abrogate those agreements if the tide turns in Burma and the U.S. government decides it wants to reinstate the investment ban. Chevron's stake in Burma  was grandfathered in when the investment ban was originally instituted.

Overall, the concern in the human rights community is that the U.S. government is now making diplomatic decisions about Burma policy based on economic considerations, and not national security or the desire to see the Burmese people live a better life.

"For the last 20 years or so, U.S. policy on Burma was focused on promoting a democratic transition and nonproliferation. The desire of U.S. based companies to get contracts was never on the table until the last couple of months. The fact that is now being balanced against longstanding U.S. interests in Burma really does represent a shift in priorities," Malinowski said.

"The bottom line here is that you have Aung San Suu Kyi asking the administration to hold up on allowing unfettered investment in Burma, and the administration went with Chevron over Aung San Suu Kyi."

NSC spokesman Tommy Vietor told The Cable that the administration shares concerns about MOGE and views MOGE as meriting closer oversight than other firms in Burma. U.S. investors must alert the U.S. government within 60 days of entering into any contract with MOGE, he said

"We are working very hard with MOGE and the wider Government of Burma to quickly improve its operations.  We have been pleased with MOGE's and the Government's commitments in this regard, which include engagement with the Extractive Industries Transparency Initiative (EITI)," Vietor said. "While we share these concerns we believe that there will be benefits both to the people of Burma and to U.S. investors in allowing U.S. companies, in a careful, calibrated and responsible manner, to engage with MOGE."

Aung Din, executive director of the U.S. Campaign for Burma, told The Cable today that Obama's action has freed the Burmese regime and military from any fear of being substantively sanctioned going forward.

"I am sure Obama will be appreciated by the Burmese generals, cronies and U.S. corporations, but not by the people of Burma," he said.

Soe Than WIN/AFP/Getty Images

The Cable

Will Congress pass new Iran sanctions this year?

Legislation that would impose a new regime of sanctions against Iran appears stalled in Congress, but behind the scenes both chambers are working to come up with a package that can be signed into law this summer.

The Senate passed the Johnson-Shelby Iran Sanctions, Accountability and Human Rights Act of 2012 in May, legislation that would punish any entity that provides Iran with equipment or technology that facilitates censorship or the suppression of human rights, including weapons, rubber bullets, tear gas, and other riot control equipment -- as well as communications jamming, monitoring, and surveillance equipment. It also calls on the Obama administration to develop a more robust Internet freedom strategy for Iran and speed new assistance to pro-democracy activists in the country.

The legislation, named for Senate Banking Committee heads Tim Johnson (D-SD) and Richard Shelby (R-AL), would formally establish that U.S. policy is intended to prevent Iran from obtaining a nuclear weapon and would require the administration to report extensively and repeatedly on its efforts to increase diplomatic and financial pressure on the Iranian regime. The House version was passed last December and has some key differences compared to the Senate bill.

Senate Majority Leader Harry Reid (D-NV) said in May that the sanctions were so urgent he couldn't even allow floor time for senators to debate the bill and offer amendments. Now, two months later, there seems to be no progress. The Cable asked Reid on Tuesday what was going on with the bill.

"Nothing's happening. I wish I had a better answer," Reid said. "We can't get it done unless we have two to tango."

Reid and multiple senate aides said that the House has not been responsive to Senate requests to iron out differences between the two versions of the bill so both chambers can pass it again and send it to the president's desk.

Sen. Robert Menendez (D-NJ) told The Cable that there will be no conference involving lawmakers, but rather an informal staff conference. Menendez is the author of some of the key provisions in the legislation

"The House hasn't shown any capacity to do it and we are going to call over there and see if we can get them focused on this in the midst of everything else," he said. "I think time is of the essence."

Multiple aides in both chambers said that staff discussions between key offices are ongoing, with meetings being held this week. One senior Senate aide said that the House committee leaders wanted a formal conference but Senate Democrats resisted. Johnson's staff is working behind the scenes to come up with a compromise draft bill, this aide said, while various offices and the American Israel Public Affairs Committee (AIPAC), in particular, are working behind the scenes to lobby for the inclusion of provisions they think are important.

Some of the disputed issues between the  House and the Senate are minor. For example, one provision under discussion focuses on how stringent the language should be requiring the administration to investigate allegations of sanctions busting by other countries. Other issues are more pronounced, such as whether all Iranian banks should be included in the sanctions.

The clock is ticking, however. If the bill isn't finished by the end of this month, which is the end of the current legislative session, there's little chance Congress will pass it this fall so close to the election.

"There is a sense that if this isn't done in July it will not get done before the congressional election," one senior Senate aide said. "If the staffs of all the key offices agree on a compromise bill this could be done very quickly via a suspension vote in the House and a unanimous consent vote in the Senate. This is the time to do it.

Ileana Ros-Lehtinen (R-FL), chairwoman of the House Foreign Affairs Committee, struck an optimistic note in a statement she gave to The Cable.

"I'm pleased that we are making progress on this important Iran sanctions legislation that the House passed overwhelmingly last year," Ros-Lehtinen said. "House and Senate negotiators are committed to reaching an agreement on final Iran sanctions text to send to the President's desk before the Congress adjourns in August."