Project Description
10 April 2014
Dr. Bonnitcha is a lawyer and Visiting Fellow in International Investment Law and Policy at the Australian National University. He holds the degrees of DPhil, MPhil and BCL from Oxford University, where he studied as a Rhodes Scholar, and the degrees of BEc and LLB from the University of Sydney. In 2012-13 he held an Economic and Social Research Council-funded Postdoctoral Fellowship at the London School of Economics. Dr. Bonnitcha has advised the UK Government on policy relating to the negotiation of new investment treaties, and is currently assisting the Australian Government with the defence of an investment treaty claim arising from Australia’s tobacco plain packaging laws. He curently lives in Yangon (Myanmar), where his research focuses on the legal regime governing foreign investment in Myanmar. He is a correspondent of the Investment & Human Rights Project (IHR Project) and will be reporting regularly on investment and human rights issues.
IHR Project lead Andrea Shemberg spoke to Jonathan about the recent opening of Myanmar to foreign investment, the policy and regulatory changes that accompany this opening and the human rights-related challenges that this poses. Jonathan also offered insights on how the UN Guiding Principles on Business and Human Rights (the ‘Guiding Principles’ or the ‘UNGPs’) may help governments and foreign investors to address these challenges.
Jonathan, you have been in Myanmar for almost a year now. Could you share with us your impressions of the country and of changing attitudes towards foreign investment?
After decades of authoritarian rule, the military regime in Myanmar transferred power to a nominally civilian regime in 2011. This transfer of power initiated a rapid and unexpected process of political transition. Institutionalised censorship has ended, political prisoners have been released, and the country is on track to hold democratic elections in 2015. However, the consolidation of democratic rule faces many serious challenges. Many of the country’s long-running civil wars remain unresolved, although there are ongoing efforts by the government and most of the non-state armed groups to move towards a comprehensive peace agreement; sectarian tensions between Buddhist and Muslim communities are high, particularly in Rakhine state; and the military retains a major role in politics and society. Despite these challenges, Western governments have responded to political changes in Myanmar by relaxing economic sanctions and engaging with the government on a range of issues. These political changes have triggered a wave of interest in Myanmar as a destination for foreign investment.
The Government of Myanmar is very keen to attract new foreign investment to the country. There is particular enthusiasm for Western investment, which is seen as operating to higher standards and as a means of reducing the country’s economic dependence on China. Increasing inflows of foreign investment is also a key part of the Government’s strategy to create ‘quick wins’ from the transition process before the 2015 election. It hopes that rapid expansion of foreign investment will create new jobs and raise incomes.
There is widespread popular support for the Government’s re-engagement with the West and a sense that the country needs economic development – people talk of Thailand’s economic success with envy. However, public attitudes to foreign investment are more ambivalent, largely on account of past experiences. Under the military regime, investment projects, both domestic and foreign, were associated with uncompensated land seizures, forced labour and severe environmental degradation. Struggle for control of extractive industries in border areas, and of the illegal cross-border trade in timber and gemstones, has also contributed to the political economy of ethnic conflict. For this reason, civil society organisations operating in conflict areas have called for all foreign investment in those areas to be suspended until a comprehensive peace agreement has been negotiated.
Myanmar’s business community is also ambivalent about foreign investment, albeit for very different reasons. For decades, the former military government awarded investment concessions and monopolies to influential cronies (the word ‘crony’ is also used in Burmese to describe these individuals) in return for their support for the continuation of military rule. Many of the cronies are concerned that economic liberalisation will erode their special privileges, although some have come to see that they have more to gain from partnering with new foreign investors. (Myanmar’s Foreign Investment Law requires foreign investors in a range of different sectors to enter into joint venture arrangements with local partners.) Myanmar’s small and medium-size enterprises are also apprehensive. They doubt their ability to compete with foreign firms that are more productive and have greater access to credit.
So there is excited interest and enthusiasm as well as uncertainty and apprehension about what new inflows of foreign investment might mean for people. Could you give us an idea of the current presence of foreign investment in Myanmar and the possibilities that the country offers in terms of future investment opportunities? Despite the attention that Myanmar has received in the last two to three years, the basic pattern of foreign investment in Myanmar has changed less than one might expect. Myanmar’s neighbours, particularly China and Thailand, remain the largest foreign investors in Myanmar, and investment remains concentrated in a handful of sectors – oil and gas, mining, and hydropower. Since 2010, there has been a sharp increase in the number of new approvals for foreign investment granted. Actual inflows of foreign investment have also increased, but not to the extent suggested by the data on investment approvals. New foreign investment in Myanmar is becoming more diverse, both in terms of sector and country of origin. Investors are slowly entering new sectors, such as telecommunications, tourism, and food and beverages. More investment is arriving from Japan, Korea and Western Europe. The Government of Myanmar’s plans are more ambitious. They hope to encourage new investment in a much broader range of sectors, including agriculture and manufacturing.
What policy and regulatory changes is the Government introducing to attract foreign investment?
© Jonathan Bonnitcha 2010
The Government has made several major changes to the laws and policies governing foreign investment in Myanmar. In 2012, the Government passed a new Foreign Investment Law, which sets out the basic process governing the admission and approval of foreign investment projects. The law vests considerable discretionary power in the Myanmar Investment Commission to review and approve investment projects. Various regulations partially clarify the way this discretion will be exercised in different economic sectors. Investors are required to undertake environmental and social impact assessments (‘ESIAs’) as a condition of approval in some sectors but not others. This Foreign Investment Law is already in the process of being revised and merged with the law that governs investment by Myanmar nationals (the Myanmar Citizens Investment Law).
The government has also taken a range of steps at the international level that it hopes will encourage foreign investment. In 2013, Myanmar signed the New York Convention on the Enforcement of Foreign Arbitral Awards, although implementing legislation has not yet been passed. Myanmar has also signed a bilateral investment treaty (‘BIT’) with Japan, and is reportedly negotiating BITs with several other countries. Further, Myanmar is preparing to join the Extractive Industries Transparency Initiative. This is a welcome move, which owes much to the concerted efforts of civil society organisations within Myanmar.
The Government’s desire to attract foreign investment also influences laws and policies targeted at particular sectors. For example, the Thilawa Special Economic Zone project is driven primarily by the desire to attract Japanese investment in manufacturing. Two laws governing the use of agricultural land that were passed in 2012 – the Farmland Law and the Vacant, Fallow and Virgin Lands Law – were intended partly to clarify the legal regime governing foreign investment in agriculture.
What challenges do you see for the country now that it is opening up to foreign investment in this way?
Many of the challenges that Myanmar faces are not specific to foreign investment. For example, land grabs – the illegal expropriation of land by military and government officials – remain a major problem. The risk is that foreign investment could exacerbate the problem by encouraging officials to seize land, which can then be offered to investors.
Similarly, low government capacity creates specific complications relating to foreign investment. One example concerns ESIAs. Even where ESIAs are required, there are challenges for the government in assessing the quality of an ESIA, and in monitoring compliance of any conditions attached to a foreign investment as a result of the ESIA process. Another example concerns the implementation of the 2011 Labor Organization Law. While the law recognises the right of workers to form and join a union, workers still report summary dismissal and threats of violence when they attempt to exercise these rights. A third example concerns the negotiation of investment treaties. Several countries are seeking to negotiate new investment treaties with Myanmar, including the EU. It is a challenge for the Government of Myanmar to fully assess the implications of these proposed agreements within the ambitious negotiating timetables set by their negotiating partners.
In your view, are the investment policy and regulatory changes addressing these challenges?
It is a mixed picture. Some challenges are being addressed to some extent. For example, late last year, the Parliament established a commission to resolve land disputes. For displaced land-holders, this is a more promising ‘grievance mechanism’ than pursuing a remedy through Myanmar courts. The existence of the commission could also serve to discourage further land grabbing. However, lack of capacity remains a problem. Recent press reports suggest that the commission is already overwhelmed by the volume of complaints.
More generally, the Government of Myanmar recognises the need to encourage responsible investment. However, both the Government and the business community in Myanmar tend to see ‘responsible investment’ as being about corporate philanthropy, rather than about the management of an investor’s human rights impacts.
What guidance do the United Nations Guiding Principles on Business and Human Rights offer to foreign investors to deal with these challenges?
The Guiding Principles are important in that they clearly articulate investors’ basic responsibilities: to avoid causing or contributing to adverse human rights impacts and to address them when they occur. In order to identify and prevent potential adverse human rights impacts, the Guiding Principles envisage an active process of engagement with people who are potentially impacted by an investment before it takes place. The political changes of the past three years have made it easier for affected communities to voice their concerns without fear of retribution. Investors should take advantage of this greater openness by initiating consultations as early as possible in the project development stage, and ensuring that it continues throughout the lifecycle of the investment.
The Guiding Principles also state that companies should seek to prevent or mitigate adverse human rights impacts that are directly linked to their operations, products or services through their business relationships. These risks are particularly acute in Myanmar for two reasons. First, Myanmar’s history of military rule means that military, military-linked or crony companies are prominent in almost every sector of the economy. Second, under Myanmar law, foreign investors in many sectors are required to enter into a range of business relationships with local partners.
In practice, this means that investors in Myanmar should undertake a thorough due diligence exercise before entering into business relationships. This due diligence should examine both legacy issues – for example, whether the land supplied by a local partner for an investment project was seized from its owners without compensation – and the risks of prospective human rights impacts – for example, whether local partners have systems in place to govern relationships with security forces and armed groups.
What useful guidance do the Guiding Principles offer to the Government of Myanmar to ensure that investment in Myanmar respects human rights?
During the period of military rule, most attention focused on actions by the Government of Myanmar that violated individuals’ human rights. The role of the Government in preventing third parties from causing human rights harm received much less attention. The Guiding Principles are useful in that they clarify that States have legal obligations to protect the human rights of those within its territory from interference by third parties, including businesses, and to provide access to an effective remedy to those whose human rights have been violated. The Guiding Principles provide a range of more specific guidance which is directly relevant to Myanmar – notably, on the State’s obligations related to State-owned enterprises (Guiding Principle 4), and on the need to ensure policy coherence (Guiding Principle 8) and to maintain adequate domestic policy space when negotiating investment treaties and contracts (Guiding Principle 9).
How is your current research related to these issues?
My current research looks at the legal and policy regime governing foreign investment in Myanmar. In particular, I am focusing on the interaction between Myanmar’s investment treaties and the national legal regime governing foreign investment. As part of the process of political and economic transition, the Government of Myanmar will need to renegotiate the terms of investment concessions awarded by the previous regime and bring laws governing foreign investment in line with international standards. One well known example is the case of the Myitsone Dam project. I am investigating the extent to which new and existing investment treaties constrain this process.
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