Economy

A Rocky Start for U.S.-Japan Cooperation in Myanmar

Myanmar is a prime opportunity for the U.S. and Japan to work together on economic development, but foreign policy differences undermine their efforts.

Myanmar is proving to be a major test of strategic economic cooperation between the United States and Japan – one which reveals wider foreign policy differences between the allied nations. Those differences make substantial collaboration towards realizing a “free and open Indo-Pacific” (FOIP) in specific countries difficult, despite joint strategic interests and aligned high-level political visions.

In Japan’s pursuit of a policy response to China’s infrastructure Belt and Road Initiative (BRI), economic cooperation with partners in third countries to beef up the financing on offer has emerged as a key component. Strategic commercial cooperation is arguably most opportune and necessary in Myanmar because the country is at a fraught stage in its democratization, set into motion in 2010 when it pivoted to form closer ties with countries like the United States and Japan in order to reduce economic over-dependence on China.

However, despite similar headline commitments under FOIP by the United States and Japan to promote rule of law and needs-based economic development, the extent of cooperation in Myanmar has been limited to Japanese trading houses subcontracting to General Electric and U.S. aluminum can manufacturer Ball investing in the Japan-led Thilawa Special Economic Zone (SEZ). Why has the type of economic cooperation much touted by their FOIP strategies come to so little fruition in Myanmar? Is there a way forward?

Cooperation in Myanmar is revealing substantial differences in foreign policy between the United States and Japan

A major issue preventing cooperation is the dire state of U.S. economic relations with Myanmar. Japanese officials and business executives view, perhaps not wrongly, the costs of cooperating with U.S. government bodies and corporations to outweigh potential benefits. A prerequisite for substantial joint economic cooperation is the United States lifting sanctions, to allow for its own economic ties with Myanmar to flourish.

The United States has not put garments and textiles – Myanmar’s biggest potential export product to the United States – on its Generalized System of Preferences, a scheme that eliminates tariffs for goods imported from developing countries. The specter of targeted sanctions against perpetrators of the Rohingya crisis, despite not being fully enforced, poses a reputational risk to U.S. investors.

Furthermore, the United States has not lifted Section 312 of the USA Patriot Act, placing burdensome due diligence requirements on the movement of trade or investment finance in or out of Myanmar. Other than Myanmar, only North Korea, Iran, and Cuba also have this restriction placed upon them, resulting in the absence of American financial institutions there. With the United States unable to freely trade with and invest in Myanmar, economic cooperation with Japan is a non-starter.

The United States places primary importance to human rights – Japan gives primacy to rule of law and development

This is not just a practical matter but points to a wider foreign policy divergence. The United States places primary importance on the human rights agenda as a prerequisite to economic ties. Japan, however, gives primacy to the rule of law and economic development, viewing them as the basis from which to solve human rights problems. Disengagement means no leverage. Japanese ambassador to Myanmar Ichiro Maruyama recently reiterated strong disagreement with international pressure and sanctions on Myanmar – previously condemning it in strong language (for a diplomat) as “utter nonsense”. A Japanese business leader in Myanmar expressed to me his lack of faith in U.S. companies’ commitment to the country.

Japan, by contrast, has a robust presence in Myanmar, with a 3.5 percent share of investment into the country and strong trading ties. It led the establishment of the enormously successful Thilawa SEZ near Yangon, which acts as a “laboratory” to test regulatory reforms to then be rolled out across the rest of the country. Toyota recently announced that it will assemble pick-up trucks there, likely bringing auxiliary industries with it. Japan’s development bank has strategically taken a stake in the Dawei SEZ, the ocean outlet which lies west of the Thai capital Bangkok. Japanese investments, particularly in transportation infrastructure, are beginning to spread north from Yangon to Mandalay, where Chinese influence is stronger.

Japan’s influence goes beyond commerce. Along with 57 staff deployed in Myanmar’s ministries, Japan has established the Myanmar-Japan Joint Initiative (MJJI), an exclusively bilateral dialogue that aims to provide technical assistance to promote a favorable business environment. Japan has established these dialogues across Southeast Asia, focusing on detailed regulations and rule-making for areas such as visas, imports and exports, tax, industrial policy and insurance – a purportedly tedious task that distinguishes Japan from China in its economic offering.

It makes sense for the United States to reinforce and complement Japan’s economic and diplomatic efforts

The United States and Japan share deep strategic interests in promoting responsible economic development in Myanmar, a gateway to the Indian Ocean sandwiched between China and India, to ensure that it does not become economically over-dependent on China. Therefore, it makes much sense for the United States to reinforce and complement Japan’s economic and diplomatic efforts, following its lead.

Steps towards improving economic cooperation – and ultimately building Myanmar’s economic resilience – are not untenable. First, each country has actions that they can individually take to make collaboration more feasible. The United States should place Myanmar as centrally important to its Asia strategy, and promote deeper business ties, as encouraged by the top Asia official in the National Security Council. This should be achieved via the removal of restrictions where politically possible and by the American Chamber of Commerce doubling down to systematically explain troubles faced by its businesses to relevant Myanmar government agencies. Despite strong resistance, Japan should be more open to exploratory dialogue and should improve information sharing with other embassies and chambers of commerce.

A second lesson is that to tackle BRI regionally, the United States and Japan have to find creative ways to collaborate on the country level in a manner that benefits development, not merely blocking or out-doing China. In Myanmar, there are four good places to begin. First, search for opportunities to collaborate on Myanmar’s agriculture industry, including construction of transportation infrastructure to reach markets. Second, look for synergies to build capacity in banking, infrastructure finance, procurement and so on. Third, encourage U.S, investment into Thilawa and Dawei. Fourth, jointly assist Naypyidaw, its capital, with building policies and regulation that encourage investment.

A major investment by China, perhaps in Kyaupkyu, the terminus for an oil and gas pipeline to Kunming and potential site of a deep-sea port and SEZ, may jolt the United States and Japan into joint action. But after all, the U.S.-Japan alliance treaty mandates them to “encourage economic collaboration” in Article II – before it ever mentions military cooperation or U.S. bases – and China has shown through BRI that a strategic economic vision is best built from the ground up, project by project. Sustained, long-term efforts, rather than reactionary pushbacks, to strengthen economic cooperation from the bottom up would better benefit Myanmar’s development, as well as U.S. and Japanese businesses.

Harry Dempsey
Harry Dempsey is an analyst for Anniversaries, Inc., a new U.S.-Japan relations think tank. He has worked as a research associate at the Asia Pacific Initiative (API) and as a researcher at Shinko Research (part of the Kobe Steel group). He has additional experience at the British Embassy Tokyo and London Research International. He was on the JET Program in 2014-15. He holds a BA in philosophy from Cambridge University.
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