House of Lords - Economic Affairs

Select Committee on Economic Affairs Written Evidence

Memorandum by Mr Derek Tonkin CMG

This evidence is submitted by me as an individual. It reflects my experience in the Diplomatic Service in South Africa and South East Asia, and also as the former Chairman of Ockenden International, a refugee charity, and as the former Chairman of Beta Mekong Fund Ltd, a South East Asian venture-capital investment fund. The country highlighted is Burma (Myanmar).[196]

SUMMARY

The military regime in Burma is responsible for serious human rights abuses and the imposition of EU and US sanctions designed to induce reform has been generally accepted in Europe and the US. There is however no evidence that these sanctions have had any measurable effect in persuading the regime to mend its ways. The main reason is that the sanctions are not supported by any of Burma's neighbours, including those dynamic and rapidly industrialising powers, China and India. In the absence of any international consensus, the impact of the sanctions imposed has been the opposite of what was intended. The regime has become more hard-line, more recalcitrant, more self-reliant and more indebted to its Asian neighbours. The people have suffered as resources are taken away from health and education to meet to what the regime sees as the Western threat. The justification for sanctions in these circumstances is almost entirely political—they are designed to respond to EU and US domestic political pressures for something to be done, to send a strong message, to express our moral outrage at continuing human rights abuses and to support Daw Aung San Suu Kyi, who is now in her tenth year of house arrest. These political calculations are likely to continue to outweigh the damage which sanctions cause to the local population.

CURRENT POLICY

1. In 1999 the British Government completed a wide-ranging review of its use of sanctions and concluded that it would launch a new policy of better targeted, "smarter" sanctions. The review confirmed that sanctions remain an important tool of British foreign policy as coercive measures to respond to challenges to international peace and security. A number of broad principles[197] should however normally be followed. Sanctions should:

(a) be targeted to hit the regime, rather than the ordinary people;

(b) include exemptions to minimise the humanitarian impact on innocent civilians;

(c) have clear objectives, including well-defined and realistic demands against which compliance can be judged, and a clear exit strategy;

(d) have effective arrangements for implementation and enforcement by all states, especially by neighbouring countries;

(e) avoid unnecessary adverse impact on UK economic and commercial interests.

2. These principles are reasonable, but in certain circumstances it may well prove difficult, if not impossible to apply effectively what is in essence a policy of punishment and isolation. Burma is a case in point. The application of existing policy to Burma fails almost totally on counts (a) and (d), and significantly on counts (c) and (e). Only on (b) has the impact on innocent civilians been minimised by a generous programme of humanitarian aid. In a situation where four of the five basic criteria have not been met, a policy of economic sanctions against an impoverished nation is difficult to justify, especially when the sanctions have if anything helped to entrench the regime in power.

HISTORICAL BACKGROUND

3. Britain, the former colonial power, maintained until the 1980s a close interest in Burmese affairs, despite its repressive internal policies, notably through our Royal Family. Lord Mountbatten of Burma was a frequent visitor. Princess Anne and Princess Alexandra also paid visits. Her Majesty offered tea to the military ruler, General Ne Win, who was also welcome at number 10 Downing Street. Since the uprising of 8 August 1988, however, when several thousand pro-democracy protesters were killed in bloody street battles with the military regime in Rangoon and other cities, Britain has led the European Union in action designed to compel the regime to grant civil and political liberties to the Burmese people, to release political prisoners and to put an end to continuing and serious abuses of human rights, not least against non-Burman nationalities in Burma including the Karen, Shan, Karenni, Mon, Arakanese, Chin and Kachin peoples.

4. To this end, Britain and the EU have since 1988 introduced a number of economic, financial and political sanctions against Burma. By 1996, the EU had adopted a Common Position which implemented a range of restrictive measures which it was hoped would target those obstructing reform and progress, but would ensure that the ordinary people of Burma suffered as little as possible. According to the FCO web-site: "The Common Position includes: an arms embargo, bans on defence links, high-level bilateral government visits, the supply of equipment that might be used for internal repression or terrorism and an asset freeze and visa ban on regime members, their families, the military and security forces and others who actively frustrate the process of national reconciliation." This is—see paragraph 9 below—an understatement of the Common Position.

5. The US has introduced even tougher measures, which include a formal ban on trade and investment and a range of financial sanctions. US actions are designed to punish Burma for its repressive internal policies and the measures introduced need only to be supplemented by an economic blockade for full economic warfare to be in place against Burma. The US has forced the closure of many garment factories, and there is evidence[198] that some of the female workers have resorted to prostitution in order to survive. Britain and the EU have been generous with their HIV/Aids programme, notably in the wake of the withdrawal of the Global Fund for HIV/Aids, Malaria and Tuberculosis on the grounds of regime obstructionism in project implementation, though withdrawal may well have been due in some measure to pressure from the US Congress.

BRITAIN A LEADING ADVOCATE OF SANCTIONS IN THE EU AGAINST BURMA

6. Britain has supplemented measures under the Common Position with additional actions held to be consistent with this Position, and together with Denmark, The Netherlands and the Czech Republic is closer to the US than most other EU countries. These actions include strong discouragement of trade, tourism and investment. Some other countries in the EU, however, including France, Germany, Spain, Austria and Italy, are unwilling to go further than the letter of the agreed Position. While Britain discourages trade and has withdrawn ECGD facilities, France provides COFACE credit guarantees at high risk premiums and maintains a web-site[199] devoted to Franco-Burmese trade relations. While Britain also maintains a high-level profile in discouraging travel to Burma, which has made the British traveller to Burma almost an endangered species,[200] more than twice as many French and German tourists visit the country without inhibition, while the Austrian Institute for Integrative Tourism and Development, which is financed by the Austrian Foreign Ministry, issued a report in 2003 which concluded that, on balance, tourism to Burma had more positive than negative implications. EU sanctions policy is at root necessarily a Lowest Common Denominator.

7. The restrictive measures applied by Britain and the EU since 1988 have had no perceptible effect in persuading the military junta in Burma to moderate its repressive policies. As a result of the steady ratcheting up of sanctions, the regime has become progressively more hard-line and the prospects of an early end to the misfortunes of the Burmese people have slowly receded. Burma, aware of attempts to inflict punishment and isolation, has over the last two years strengthened its relations not only with China, but also with Russia now resurgent on the international scene, as well as with India. That sanctions would be counterproductive was widely predicted by international scholars[201] who warned that the military regime was bound to respond to such challenges by tightening the screws. Neither the EU nor the British Government have published any analysis of the effectiveness of sanctions applied against Burma over the last 10 years. I would suspect that this is because the results are so marginal.

8. I recognize that Ministers face particular difficulties in formulating policy on Burma. They assure Parliament that "our policy of sanctions is deliberately targeted on the Burma regime and its cronies. We do not believe that economic sanctions that would harm the Burmese people are appropriate. They are already suffering enough as a result of that despicable regime and sanctions that affected their livelihood would be inappropriate."[202] But if Ministers were to conduct an objective analysis of the sanctions imposed by Britain and the EU, this would show that our targeting of the regime is regrettably ineffective, despite the best of intentions, and that it is the people who are suffering. An asset freeze against members of the junta and their families netted only some €87 in the first 12 months, and the latest accounting from all 25 EU countries records a grand total of some €5,000 in only a handful of accounts. More recent EU measures which impose a ban on investment and on the provision of any financial facilities to named State and military controlled enterprises have likewise failed to make any impact. The enterprises concerned were either 100 per cent controlled by the military, who have traditionally secured their facilities from SE Asian banks, or were Joint Ventures with Asian partners who have no commercial interest in allowing European companies to invest in their enterprises or provide facilities which they themselves can provide.

SANCTIONS SUPPOSEDLY TARGETED TO HIT THE REGIME, BUT IT IS THE PEOPLE WHO SUFFER

9. It is regrettable that most of the measures which have been applied against Burma have affected the economy generally rather than the junta and its cronies. They include the withdrawal of the EU General System of Preferences accorded to all other 49 developing countries, as well as a denial of the "Everything but Arms" extension in 2001. In addition, the EU does not support the provision of IMF or Asian Development Bank facilities as these would necessarily be channelled through the military regime. So while Ministers say that their measures are "targeted", in point of fact it is the broad economy which is suffering. The counter-argument is that as the "formal" economy is controlled by the generals and their cronies, the Burmese people at large are unlikely to be affected. To the extent that this concerns high value exports like natural gas, timber and precious stones which are under military control, this may well be true. But Burma is still primarily a labour-intensive agricultural country producing for export rice, fish products, beans and pulses which account[203] for some 35 per cent in value of the country's annual exports of around US$ 3.5 billion. According to Burmese official statistics, about 91 per cent of GDP is generated in the private sector. Any assault on the formal economy is therefore bound to have its effect on the ordinary people, who at the very least will continue to suffer stagnation in their living standards and more probably a deterioration.

FAILURE TO MEET THE 1999 CRITERIA

10. EU sanctions against Burma thus fail to meet the first criterion (a) set out in the 1999 sanctions policy of being targeted to hit the regime. It is however extraordinarily difficult, if not impossible, to identify any "smart" sanctions which might have an impact on a regime whose impoverished population is in such dire straits. The problem facing Ministers is that the junta has such an unsavoury reputation that the political pressures to apply sanctions of some kind are almost irresistible. In these circumstances, the effectiveness of sanctions applied against Burma has become a secondary consideration. Even the US Administration has acknowledged that: "Of course, we don't think that sanctions—just from economics alone—are going to change the Burmese leadership, but politically it is an important signal . . . sanctions have a symbolic meaning."[204] Nonetheless Eric John was constrained to acknowledge in the same interview: "I mean, we kind of set aside the sanctions discussion because in the next couple of years we are not going to get China to sanction Burma, that's not a realistic goal. . . ." More generally, Ministers might at times favour tougher sanctions, even if their effect is marginal or even counterproductive, rather than face domestic criticism for seeking to follow a possibly more effective "carrot and stick" strategy which critics in favour of a sanctions-only policy would be likely to assail.

11. So it has proved impossible for Britain to give effect to the fourth criterion (d) set out in 1999, that there should be "effective arrangements for implementation and enforcement by all states, especially by neighbouring countries". In point of fact, all of Burma's neighbours and all the principal regional powers, irritated and frustrated as some are by Burma's recalcitrance and intransigence, have pointedly declined to impose economic sanctions, partly for commercial reasons, but primarily because in their view sanctions would be counterproductive, and they have to deal with Burma on a day-to-day basis. When it is appreciated that these neighbours include the dynamic economies of China and India as well as all other countries of the Association of South East Asia, Russia, Japan, Pakistan, Bangladesh, Israel, South Korea and even Australia, it can be seen that any hope of our sanctions policy being effective in the case of Burma is a forlorn hope.

MINISTERS NOT WELL ADVISED ON BURMA

12. Possibly because Burma is not held to be important to British interests, the quality of advice to Ministers on Burma has not been of a high standard. In 1998 the late Derek Fatchett, FCO Minister of State, wrote to the Chairman of the Association of British Travel Agents (ABTA), Mr Keith Betton, asserting that: "Tourism is an important source of income for the Burmese regime. Last year official Burmese figures suggested over 260,000 tourists visited the country, contributing over £50 million of much needed hard currency in revenue. Since most large hotels and the internal airlines are owned partially or wholly by the government, a great deal of that money goes directly into central government revenues". The facts are however that most of the 260,000 tourists who visited Burma in 1997 were not genuinely international visitors, but Thais and Chinese crossing on short 1-3 day cross-border trips into Burma, mostly to gamble at casinos. The £50 million of revenue was gross operating revenue, and after the deduction of operating costs, depreciation, interest on loans and taxation, the net profit for most hotel, restaurant and tourist outlets was marginal. The notion that this £50 million gross "goes directly into central government coffers" is simply not true. Nor is it true that most large hotels in Burma are owned partially or wholly by the government, for they are mainly owned by overseas hotel groups.[205]

13. In pursuit of their sanctions on travel to Burma, Ministers have at times given misleading information even to Parliament. Derek Fatchett's successor, John Battle, told the House of Commons on 22 November 2000 that "every tourist who enters Burma must pay an entry fee of US$ 200" when the facts at the time were that only independent travellers, about one third of the total, were required to make an obligatory exchange of US$ 200 into Foreign Exchange Certificates (FECs) to be spent in hotels and hard currency outlets, which is less than US$ 30 per day over a seven-day visit.[206] John Battle's successor Mike O'Brien repeated the factual error that "each tourist is required to buy US$ 200 of FECs" in another letter to ABTA on 14 July 2003. Mike O'Brien also found it unacceptable that: "Some people go to Burma for their own reasons, and we want to discourage them from doing so."[207] Mr O'Brien announced his intention to target "all travel organisations with any links with tourism in Burma." He was clearly not constrained by the inevitable adverse impact on British commercial interests, which is the fifth (e) of the 1999 criteria.

14. In a moment of self-doubt in 2004, Mike O'Brien told Parliament that: "If I may be critical of the UK, I should say that in the early part of last year we could have been more encouraging of the process of reform undertaken before 30 May [when Daw Aung San Suu Kyi was taken into custody after an assault on her motorcade]. We could have said that we welcomed that reform and been more positive. However, I have no idea whether that would have made a difference to events on 30 May." Clearly, the third criterion (c) about "realistic demands from which compliance can be judged" was allowed to slide.

15. Professor Jeff Sachs, who is the Special Adviser to the UN Secretary-General on the UN's Millennium Development Goals, has pointed[208] to "the long saga of failed sanction regimes against Cuba, Haiti and Iraq". He describes US sanctions against Burma as misguided, enabling the regime "to blame foreign meddling for policy mistakes". Daw Aung San Suu Kyi, on the other hand, has mesmerised most British politicians through her call for sanctions, though there is little anecdotal evidence that on this particular issue she has the support of the Burmese people. Her support for sanctions has however deepened the regime's hostility to her and the pro-democracy opposition. Another dissident, Dr Khin Zaw Win, who was imprisoned for 11 years at Myikyina Prison in northern Burma in much harsher conditions that Daw Aung San Suu Kyi's house arrest, has commented ruefully[209] that "the country is being subjected to more punitive measures from the world's economic powers. The mood—and perhaps the likely consequences—hark back to the Treaty of Versailles and the US involvement in Iraq and Vietnam, all of which have few parallels as engines of instability." Dr Khin Zaw Win, who now works for the EC in Burma on HIV/Aids issues,[210] is in my judgement more representative of broad Burmese thinking on this issue than Daw Aung San Suu Kyi. The EU in general, and the UK in particular, may however feel that the imposition of sanctions, ineffective as they are, might and indeed should be seen as a gesture of solidarity with Daw Aung San Suu Kyi and other political prisoners. This makes it politically very difficult to change UK sanctions policy, however manifestly counterproductive.

CONCLUSIONS

16. What conclusions may be drawn about British and EU policy on sanctions against Burma?

(a) In the absence of an international consensus on sanctions, they have not been effective. There was little hope from the start that there would be such a consensus.

(b) The imposition of sanctions may have some value as a symbolic gesture and serve a domestic political imperative, but if the message is ignored by the junta and the situation deteriorates, it is a high price to pay when the population suffers as a consequence.

(c) It is politically difficult to remove sanctions once imposed, even when there is an apparent improvement in the situation, because then sanctions might appear to be working and this could lead to pressure for them to be applied more rigorously.

(d) Fortunately EU sanctions are not too serious, so that through a generous policy of humanitarian-development aid, something can be done to remedy the deleterious effects due primarily to US sanctions.

(e) There is little evidence that the sanctions applied, notably by Britain against tourism and by the EU on investment, were properly analysed and assessed before implementation and subsequently monitored by experienced analysts.

(f) Political expediency has dominated all consideration of UK sanctions policy towards Burma, and is likely to continue to do so.

17. It is not reasonable to expect unpopular regimes to commit political suicide. The dynasty of Generals currently ruling Burma and their families, as in all military dictatorships, will never go hungry. There are better, more productive ways (outside the scope of this paper, but they do exist) of dealing with impoverished, recalcitrant dictatorships than trying to impose isolation, punishment and sanctions. US and EU policy has only served to entrench the military junta in power and delayed the deliverance of the Burmese people from their oppression. But, to be realistic, there no likelihood that the US will change their sanctions-only policy towards Burma in the foreseeable future, and little likelihood of any change to the "more stick than carrot" policy of the UK, despite pressures from certain EU members for a more enlightened approach.

1 September 2006

196 Myanmar is the official name of the country and is used in all formal communications. Back

197 Written Answer House of Commons 15 March 1999-FCO Minister of State Mr Tony Lloyd. Back

198 David I Steinberg "Burma/Myanmar: The Triumph of the Hard-Liners", South China Morning Post, 15 August 2003. Back

199 http://www.missioneco.org/birmanie/ Back

200 In 2005, the total number of private British visitors to Burma was in the region of 5,500. Back

201 See for example "Essays on US relations with Burma", National Bureau of Asian Research, March 2004. Text at http://www.nbr.org/publications/analysis/pdf/vol15no1.pdf Back

202 FCO Minister of State Mr Ian Pearson 7 February 2006, Column 722, Hansard House of Commons. Back

203 IMF 2003 statistics: See http://www.state.gov/r/pa/ei/bgn/35910.htm Back

204 US Deputy Assistant Secretary for East Asia and the Pacific Eric John-Interview in The Irrawaddy June 2006. Back

205 As Chairman of the Beta Mekong Fund Ltd 1994-2000 which in 1998 had investments in six major hotels in Burma, none of them had until my retirement in 2000 succeeded in recording a net profit in any year of its existence, let alone in declaring any dividend. That was why when I met Daw Aung San Suu Kyi in December 1999, I told her that we were liquidating all our investments in her country: they were simply not profitable. She approved. Back

206 The compulsory exchange was abolished in August 2003 after the introduction of new US sanctions. Back