The Cable

Could the next U.S. free trade agreement be with Tunisia?

House Rules Committee chairman David Dreier (R-CA) announced last week during a visit to Tunis that he intends to head an initiative to propose a free trade agreement between the United States and Tunisia, which experienced a popular uprising in 2010 and held democratic elections in October.

"One of the most effective ways the United States can offer support to the Tunisian people as they work to solidify democratic gains is by expanding trade and commercial ties," Dreier, who is also the founding chairman of the House Democracy Partnership, said in an emailed statement yesterday. "Spurring economic growth through increased trade would ... help to create the resources necessary for sustainable democratic development and prosperity in Tunisia."

According to congressional sources, Dreier first discussed the topic with Tunisian Prime Minister Hamadi Jebali at the Davos meeting of the World Economic Forum in March, just months after Dreier introduced a bipartisan resolution calling for a free trade agreement with Egypt and the Office of the U.S. Trade Representative relaunched Trade and Investment Framework Agreement (TIFA) talks with Tunisia. Even though Dreier's proposal has yet to gain a substantial congressional base, he is partnering with House Committee on Foreign Affairs senior member Rep. Gregory Meeks (D-NY) and Ways and Means Committee member Rep. Erik Paulsen (R-MN).

As Brookings Institute Saban Center on the Middle East director Tamara Wittes noted, there's a growing feeling of congressional support for Tunisia.

"I think there's a tremendous amount of support on the Hill for Tunisia," she told The Cable. "I think members of Congress understand how important it is to have a successful model in North Africa for the other countries struggling with democratic reform."

U.S. Chamber of Commerce vice president of Middle East and North Africa affairs Lionel Johnson agrees that Tunisia has a lot of potential.

"The Tunisian government is the one in the region that shows the most promise," he told The Cable. "We'd like to see talks begin in early 2013."

Washington has already pledged to help Tunisia with short-term economic problems like debt and unemployment.  In March, it was announced that the United States would transfer $100 million to Tunisia, which faces a $25 billion debt, and in June the parliament in Tunis voted in favor of a bill allowing for a $400-450 million sovereign bond issue "with up to 100 percent of the principal and interest guaranteed by the U.S. government," enabling Tunisia to "borrow at almost risk-free rates." The State Department's Middle East Transitions office is pursuing a series of "smaller but important steps."  

"There are investment regulations, border controls, and other regulatory changes that could help facilitate trade between the U.S. and Tunisia," Middle East Transitions program director William Taylor told The Cable. "What we're hoping is that by taking some of these steps earlier on, they might get some of these trade benefits sooner than if they were wrapped into one large negotiation for a free trade agreement."

Ultimately, though, a free trade agreement stands to make a significant economic impact on Tunisia, which counted the United States among its top five trading partners in 2010.

"There's a lot that the U.S. is already doing with economic and technical assistance to support the growth of the private sector in Tunisia, so an FTA would complement that because it would be mutually beneficial," Wittes explained. "Over the long term, we know that Tunisian economic health is going to come through a robust private sector that will help to cement a democratic transition. This is not an FTA that's going to have a massive impact on the U.S. economy. It will, however, have an important impact on the Tunisian side."

Senate Foreign Relations Committee ranking Republican Richard Lugar (R-IN) says he thinks Tunisia will become a strong economic partner for the U.S.

"Most successful middle-income countries want deeper bilateral trade relationships," he said at an event on Wednesday. "Countries that undergo successful transitions often ... become our best allies and trading partners."

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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.

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