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Sustainability Impact Assessment (SIA) in support of an investment protection agreement between the European Union and the Republic of the Union of Myanmar

Prepared by DEVELOPMENT Solutions [Ma – 2016] The views expressed in the report are those of the consultant, and do not present an official view of the European Commission.

Draft Final Report

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EUROPEAN COMMISSION Directorate-General for Trade Directorate B — Investment Unit DG Trade B2 — Investment E-mail: [email protected] European Commission B-1049 Brussels

Sustainability Impact Assessment (SIA) in support of an investment protection agreement between the European Union and the Republic of the Union of Myanmar Draft Final Report

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EUROPEAN COMMISSION

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LEGAL NOTICE This document has been prepared for the European Commission however it reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein. More information on the European Union is available on the Internet (http://www.europa.eu). Luxembourg: Publications Office of the European Union, 2014

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Abstract This SIA seeks to analyse the extent to which the EU-Myanmar IPA may affect the economy and sustainability issues, including social and labour standards, environment, and human rights, in Myanmar. The SIA finds that the IPA may largely have positive economic impacts, however social and environmental impacts are more difficult to predict, as they will be dependent on how increased EU investment is directed, and the practices of related EU firms. The project team have proposed policy recommendations to increase potential positive impacts of the agreement and address negative externalities that could arise from increased investment by European investors as a result of the IPA. [Burmese translation to be added] [French translation to be added]

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EUROPEAN COMMISSION EXECUTIVE SUMMARY The European Union (EU) and Myanmar began negotiating a bilateral investment protection agreement (IPA) in March 2014. The proposed EU-Myanmar IPA represents an ambitious step for both parties, as there are currently no bilateral investment treaties between Myanmar and any EU Member State. Negotiations for an EU-Myanmar IPA aim to encourage investment and to secure core protections against discrimination, uncompensated expropriation, and unfair and inequitable treatment. The Directorate General for Trade (DG Trade) of the European Commission (EC) has mandated this Sustainability Impact Assessment (SIA) on the IPA to be carried out by DEVELOPMENT Solutions Europe Limited (DS). The project consists of two complementary components of equal importance: first, an assessment of how this investment agreement will impact a range of economic, social, environmental and human rights factors, conducted through desk research, including qualitative and quantitative analysis. Second, a thorough consultation process, involving a diverse range of relevant stakeholders, aimed to generate genuine and reflective feedback and provide further opportunities for information gathering on the potential impacts of the agreement. Stakeholder outreach included 50 face-to-face interviews with relevant stakeholders on the ground in Myanmar, a stakeholder workshop held in Yangon on December 17 th 2015,1 a website, two civil society dialogues in Brussels and an online questionnaire. A summary of our stakeholder outreach activities is presented in the methodology section of the report. Inputs from stakeholders have been incorporated throughout the analysis. Trade and investment between the EU and Myanmar have grown more than 100 percent since the latter had trade restrictions lifted and was reinstated to the Generalised Scheme of Preferences (GSP) in 2013. Commercial engagement is seen as a capable instrument for ensuring that political and economic reforms stay the course as the EU develops relations with Myanmar. However, after more than a decade of limited economic engagement, and given Myanmar’s existing bilateral investment treaties (BITs) with China, India, Japan, Korea the Philippines and Thailand, and investment agreements concluded at the ASEAN level, EU investors are currently at a comparative disadvantage in terms of legal protection for their investments in Myanmar. The aim of the negotiation process is to conclude a standalone investment protection agreement, which would provide EU investors in Myanmar and Myanmar investors in the EU with a predictable and secure investment environment, reflecting:     

non-discrimination; protection against uncompensated expropriation and unfair treatment while preserving the right to regulate; transfer of returns; investment dispute settlement; and a level-playing field with other foreign investors currently benefitting from bilateral investment protection agreements.

The agreement is also expected to help Myanmar to move up value chains and promote transparency and sustainable development (including environmental protection, core labour standards, and corporate social responsibility). The objective is to increase bilateral investment flows and, ultimately, trade activity and economic development. This Draft Final Report presents the key findings of the research and analysis of key sustainability issues concerning the specific provisions of the IPA. This includes an analysis of the economic, social, environmental and human rights impacts which have been

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Workshop report available in Annex II SIA on the EU-Myanmar Investment Protection Agreement EN

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assessed by drawing on a tailored modelling approach and carefully selected qualitative indicators. The below sections present the key conclusions, identified opportunities and challenges, and the policy recommendations that have resulted from this Trade SIA analysis and accompanying stakeholder outreach process. Key conclusions 

The economic impact assessment assumes that the successful conclusion of the IPA could potentially double the share of EU-sourced FDI into Myanmar by 2025, compared to the baseline (approximately 99.5 per cent greater in 2025). 

It is difficult to accurately predict the quantitative effects of IPAs on FDI, and there remains considerable disagreement in the literature as to whether IPAs result in FDI growth2. The lack of reliable available data in the case of EU-Myanmar trade and investment compounds the difficulties. To compensate for this the project team has made reference to some of the findings of the 50 interviews conducted with relevant stakeholders under this SIA, which included interviews with EU business. Numerous EU company respondents expressed the view that increased investment protection would incentivise greater EU investment in Myanmar.



Based on this qualitative research and the EU’s current FDI volume and share in Myanmar (approx. 10 per cent), the economic impact assessment of the EUMyanmar IPA considers a descriptive scenario wherein this amount would increases by 0.5% when compared to the baseline, over the course of a decade. This does not factor in additional increases in FDI which would likely result from underlying market opening. Given the level of uncertainty about such estimations, the economic impact assessment does not aim to predict a particular % increase, rather it highlights that an increase is likely against the baseline. Any increases against the baseline would offer a reference point for how selected sustainability indicators might be affected in a scenario where the EU’s share of FDI in Myanmar increases towards 2025.



The baseline is derived from current political and economic trends in Myanmar including recent reforms and existing trade and investment relations - which are surveyed in Section 4.1 and applied in Section 4.2.4.1. In this IPA scenario, total gross value added (GVA) per capita and labour productivity are each projected to increase by 0.5 percent per annum.



Based on the sectoral analysis, the largest output gains in EU-sourced FDI into Myanmar are expected in the ‘trade and repairs’, ‘mining and quarrying’, and ‘transport equipment’ sectors.



The social impact assessment finds that an increase in FDI from the EU could promote economic stability and growth, increase employment and as a result lead to better living standards and reduced poverty.

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Cf. Neumayer, E. and Spess, L. (2005). Do Bilateral investment treaties increase foreign direct investment to developing countries? London, UK: LSE. Available: http://eprints.lse.ac.uk/627/1/World_Dev_%28BITs%29.pdf; Hallward-Driemeier, M. (2003). Do Bilateral Investment Treaties Attract FDI? Only a bit…and they could bite. Washington, DC: World Bank. Available: http://elibrary.worldbank.org/doi/pdf/10.1596/1813-9450-3121; Franck, S. (2007). Foreign Direct Investment, Investment Treaty Arbitration, and Rule of Law. Lincoln, NE: UNL. Available; file:///C:/Users/M%20Langdon/Downloads/judind_frank_master.pdf. 8

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The cumulative effects of increased total EU FDI flowing into Myanmar are expected to have moderately positive effects on labour demand.



EU companies are more likely to apply codes of conduct, which integrate corporate social responsibility (CSR) and responsible business conduct (RBC) practices, including for labour standards. As a result a net improvement in labour standards could be expected.

Due to weak governance structures and poor implementation and enforcement capacity in Myanmar, labour standards and social protection are generally inadequate to offer full protection to all of the labour force. Myanmar  Possible measures to address any risks that EU companies might cooperate with local enterprises with poor labour standards could be addressed by a robust chapter on labour standards in the IPA. This could be reinforced with reference to appropriate implementation measures facilitated though the Myanmar Labour Rights Initiative and/or the grievance mechanism facilitated through the OECD Guidelines for Multinational Enterprises. 3 Furthermore, future EU cooperation projects in Myanmar could address the importance of enforcement of labour standards. 

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The environmental impact assessment concluded that reliable estimation of potential impacts was not feasible, as increased EU investment could be positive or negative for the environment of Myanmar depending upon how it is directed. 

A key uncertainty in terms of environmental management will be the extent to which environmental legislation and governance will improve. It is expected that legislation and governance will improve, both due to domestic efforts and international support (e.g. from UN agencies, EU policy support and bilateral assistance); however, progress will likely depend on the outcomes of the broader reform process underway in Myanmar, including efforts to tackle corruption and mismanagement in areas such as illegal logging and mining.



With regard to environmental management, EU companies may bring high internal environmental standards to their overseas operations and moreover call on their local suppliers to provide good environmental management as a precondition for commercial engagement.4 Due diligence on the part of EU investors will be key in ensuring that investment is not directed to companies engaging in unsustainable practices.



In several sectors, such as textiles, food and beverages, it may be the case that the scale effect leading to greater environmental pressures will outweigh improvements from better environmental management by individual operators. Overall, however, it is difficult to predict the outcomes clearly.



This result underlines the importance that complementary measures can play: these could include, notably, direct technical assistance to the Myanmar

More information on the EU’s participation in the Myanmar labour rights initiative is available here: http://trade.ec.europa.eu/doclib/press/index.cfm?id=1304 UNCTAD and the European Business School, Making FDI Work for Sustainable Development, UN, 2004. The study focused on case studies of EU companies investing abroad. See also: Liang, F.H., Does Foreign Direct Investment Harm the Host Country’s Environment? Evidence from China, 2006 SIA on the EU-Myanmar Investment Protection Agreement EN

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government to support better environmental governance, as well as support for multilateral efforts via the UN and other international bodies. 

The human rights impact assessment projects that increased EU investment as a result of the IPA could be positive or negative for human rights in Myanmar. 

An increase in FDI from the EU could promote economic stability and growth, increase employment and as a result lead to better living standards and reduced poverty.



Furthermore, EU companies often have a human rights approach in their codes of conduct, which integrate CSR and RBC practices. As a result, better protection for labour standards and human rights could be introduced in Myanmar.



A greater commitment to, and reinforced performance of, due diligence from EU investors should be encouraged, including (for example) analysis of potential human rights issues in supply chains, so as to ensure that land for investment is made available through legal means.



Investors in sectors where the risk of human rights violations is higher, particularly the energy, agriculture and telecommunications sectors, should be especially diligent. The energy industry is linked to risks regarding violation of property rights, livelihood and minority rights. The telecommunications industry could be a driver of important process like democracy and passing of information with the potential to open up society, but could also raise concerns about surveillance and censorship.

Through stakeholder consultation and general research, the project team has identified a number of opportunities and challenges for the IPA, summarised below. These are expanded in section 8 of the Draft Final Report. Opportunities   





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The IPA, by strengthening the rights of investors is likely to lead to increased outward investment by both the EU and Myanmar, particularly investment from the EU into Myanmar. Increased investment could promote economic stability and growth, increase employment and as a result lead to better living standards and a reduction in poverty in Myanmar. Increased investment could have the dual effect of exporting capital and CSR and RBC practices. This would contribute to an improvement of labour standards and of the social environment in Myanmar by providing better and safer jobs, reducing child labour and increasing female labour market participation within the overall increase in employment. These are considered as positive impacts with respect to the baseline scenario. Access to healthcare for local workers could be improved through the presence of foreign companies following CSR and RBC guidelines in Myanmar. 5 Medical insurance and healthcare for job-related injuries or health issues have been covered by certain foreign companies investing in Myanmar. Greater investment by companies with strong CSR and RBC practices could enhance the levels of inclusion and of equal treatment of women or minorities by abiding by international standards regulating the labour or education sectors, where the inequalities are the most striking.

Myanmar Centre for Responsible Business. (2015). Human rights and business country guide: Myanmar. Available: http://hrbcountryguide.org/wp-content/uploads/2014/06/Human-Rightsand-Business-Country-Guide-Myanmar-Final-08.04.15.pdf. 10

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EU companies may bring corporate environmental standards to their Myanmar operations and may call on their local suppliers to provide good environmental management as a precondition for commercial engagement Provide investors from both countries with easier access to investment dispute resolution while protecting Myanmar’s interests by setting guidelines on this issue. Ensure a level playing field for EU investors (given the existing BITs that Myanmar has already concluded with China, India, Japan, Korea, the Philippines and Thailand, and the investment protection provisions agreed to in the framework of ASEAN). Provisions supporting sustainable and responsible investment are likely to be included, in line with the EU’s practice of including such provisions. This could encourage sustainable development while promoting environmental protection and core labour/human rights. The IPA could support the policy reform process currently under way in Myanmar, in the following ways: o Ongoing reforms on labour and human rights issues could be supported through the transfer of EU good practices, particularly with regards to CSR and RBC. o Reforms to protect the environment could be supported by technology and best practices transfer in multiple sectors including sewage and waste management. o A transparency provision could support positive developments concerning sustainability and responsible business conduct in Myanmar via a commitment to transparency in law-making.

Challenges 





 

While economic impacts are likely to be positive, all of the related aspects of social, human rights and environmental impacts are difficult to predict as they very much depend on the sectors to which EU investment may be directed. For example although EU companies may bring (high) corporate environmental standards within their overseas operations, there is a risk that when partnering with local enterprises which do not operate to such standards, this could lead to a potential increase in human rights, social and environmental problems. As part of the ongoing reform process the regulatory framework for this agreement is under revision. The agreement needs to avoid placing restraints on Myanmar’s government by giving investors protection from future laws and regulations on the basis of ‘indirect expropriation’, particularly laws and regulations related to labour, human rights and environmental standards. Dispute settlement mechanisms such as Investor State Dispute Settlement (ISDS), which aims to provide direct access to international arbitration for investors as an alternative to national courts of host countries, have been criticised due to what are seen as inconsistencies and unintended interpretations of clauses, unanticipated uses of the system by investors including challenges against policy measures taken in the public interest, costly and lengthy procedures, with limited or no transparency. The threat of foreign investors' recourse to such dispute settlement mechanisms might restrain Myanmar’s government from implementing domestic policy measures to promote social inclusion and labour rights, if the domestic measures envisaged may pose a risk to the value of a foreign investment. As a result, the EU is proposing an alternative mechanism, Investment Court System (ICS) which addresses a number of these issues and encourages recourse in domestic courts. External factors such as instances of abuse of labour rights in Myanmar by EU companies or of abuses occurring within their supply chains could erode the reputation for integrity of EU companies. Myanmar at present has limited institutional capacity to implement stringent commitments; therefore it may fall short of effective enforcement of the IPA measures. SIA on the EU-Myanmar Investment Protection Agreement EN

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Policy recommendations Recommendations aimed at maximising the potential benefits of the agreement and at mitigating of potential negative externalities are summarised in the following section. 1. Chapters should be included in the IPA which encourage the adoption of international labour, environmental and human rights standards by EU and Myanmar investors. The Myanmar government’s ability to effectively promote and enforce international labour standards should be protected, following similar provisions in CETA and TTIP. The inclusion of sustainable development provisions, including labour aspects, within the EU-Myanmar IPA could encourage the government of Myanmar to further undertake capacity development efforts to fully implement and enforce labour standards. The principles and text of the agreement could draw inspiration from other relevant instruments such as the ILO Better Factories programme that can be useful to monitor a particular sector and the US-Burma investors reporting requirements. 1.1.

The scope of the investment dispute resolution mechanism should be carefully limited and the right to regulate clause should be designed to give Myanmar freedom to engage in legitimate regulatory actions without facing claims for ‘indirect expropriation’. This is especially important given that Myanmar is currently engaged in an active reform process.

1.2.

To address the concerns about the lack of transparency and legitimacy within some ISDS mechanisms and in order to give governments sufficient space to regulate in the public interest, the European Commission could extend the Investment Court System (ICS) to the EU-Myanmar IPA, as was included for investment dispute resolution mechanisms in the most recent EU FTAs.

1.3.

‘Fair and equitable treatment’ (FET) should be clearly defined in the agreement to exclude nationally imposed legal protections. This has been the EU's approach as can be seen from the closed list of elements constituting a breach of FET in CETA, EU-Singapore FTA, EU-Vietnam FTA, and the TTIP proposal.

1.4.

An article expressly excluding the right of companies to claim that Most Favoured Nation (MFN) status entitles them to use the same provisions as IPAs in place with other countries should be included. This is especially important due to the lack of human rights and environmental protections included in Myanmar’s BITs with other countries. Examples of articles addressing this issue can be found in other agreements such as the EU-Canada Comprehensive Economic and Trade Agreement (CETA), article 8.7(4) and the EU-Vietnam Free Trade Agreement (FTA) article 4(6).

1.5.

Provisions on sustainable development, including labour and human rights, should not take a selective approach but rather encompass all related issues.

1.6.

Objectives of CSR/RBC for European companies operating in Myanmar should be included in the text of the agreement, encouraging companies to hold to similar CSR/RBC practices as are upheld in the EU, tailored to local conditions.

2. Considering the weakness of Myanmar’s implementation and enforcement systems with respect to labour and environmental standards, and human rights, the parties to the agreement should consider what existing mechanisms can be utilised to strengthen implementation and enforcement of such standards.

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EUROPEAN COMMISSION The complimentary mechanism such as the OECD National Contact Points (NCP) under the OECD Guidelines for Multinational Enterprises could be considered in reinforcing Myanmar’s enforcement system. The NCPs provide a grievance mechanism for investigating complaints about a company operating in or headquartered in a particular country. They provide non-judicial assessments on violations which result in settlements/agreements. As such the parties to the IPA agreement could discuss how existing NCPs in EU MS could be asked to look into issues concerning the behavior of EU companies in Myanmar when such occurrences are documented. 3. Planned EC funded ex-post social, labour and human rights impact assessments conducted with regard this IPA should focus on sensitivities identified by the SIA team. The EC is committed to conducting ex post evaluation of its trade and investment agreements; including of their human rights and related impacts. When conducting these assessments, the analysts should remain vigilant in chapters of the assessment which focus on sectors where investment projects involve land acquisition, due to a history of land-grabbing and the customary nature of land-holding that is prevalent in Myanmar. Sensitivities in this regard lie in ensuring that land acquired has been transferred from its owner on a voluntary basis, and with regards to ensuring enforcement of adequate compensation according to the market value of the land. Should there be any documented cases of the occurrence of abuses tied to EU company investment, the ex-post evaluation team should consider them. 4. An EU-Myanmar IPA should work in tandem with EU technical cooperation and capacity development initiatives. This would contribute to a strengthening of Myanmar’s implementation and enforcement systems with respect to ensuring international labour and environmental standards, and social inclusion. Synergies should be built between the above recommendations and the mechanisms already in place at the EU-Myanmar bilateral level. As a result of current weak governance structures and poor domestic implementation and enforcement capacity, the Myanmar government may fall short of effective enforcement of the IPA measures. This may include the sustainable development provisions which could lead to negative impacts for labour rights, the environment and social inclusion. In addition, lack of enforcement and the resulting lack of legal certainty required to protect their reputation or investments might prevent EU companies from investing. There are many EU funded projects currently underway to support institutional capacity building and ensure adherence to international labour and environmental standards in Myanmar, such as a €10 million trade and private sector development programme, the multi-partner Myanmar Labour Rights Initiative, and sector specific projects which currently include: SMART (support to sustainable garment sector), a project in the Aquaculture sector and a Civil Society Roadmap. Other mechanisms or resources include political dialogues, including the EU-Myanmar Human Rights Dialogue, (meeting annually since 2014). The project team welcome feedback on this draft final report, which will be presented at a civil society meeting in Brussels on April 5 th 2016. Feedback can be submitted via the following e-mail address: [email protected].

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EUROPEAN COMMISSION Table of contents EXECUTIVE SUMMARY ...................................................................................... 7 1.

INTRODUCTION ...................................................................................... 20 1.1. Trade SIA on the IPA between the EU and the Republic of the Union of Myanmar .............................................. Error! Bookmark not defined.

2.

BACKGROUND ......................................................................................... 22 2.1. EU – Myanmar trade and investment relations .................................... 22 2.2. Developments at a regional level ....................................................... 24 2.3. Content and likely provisions of an IPA between the EU and the Republic of the Union of Myanmar .................................................................. 25 2.3.1.

Protection against expropriation ............................................ 26

2.3.2.

Fair and Equitable Treatment (FET) and non-discrimination ...... 27

2.3.3.

Transfer of capital (returns related to an investment) ............... 27

2.3.4.

Investment dispute resolution ............................................... 27

2.3.5.

Transparency ...................................................................... 28

2.3.6.

Right to regulate ................................................................. 29

2.3.7.

Sustainable Development ..................................................... 29

2.4. Status of the IPA negotiations and next steps ..................................... 29 3.

METHODOLOGY ....................................................................................... 30 3.1. Presentation of the conceptual framework of the sustainability assessment analysis ........................................................................ 30 3.2. Stakeholder consultation .................................................................. 32

4.

3.2.1.

Stakeholder Interviews ......................................................... 37

3.2.2.

Meetings and Workshop ....................................................... 40

3.2.3.

Other activities .................................................................... 41

ECONOMIC IMPACTS ................................................................................ 43 4.1. Current state of economic development and FDI in Myanmar ................ 44 4.1.1.

Political and economic state of play ........................................ 45

4.1.2.

Myanmar FDI regulatory framework and trends ....................... 46

4.1.3.

Regional comparison of selected macroeconomic indicators....... 52

4.2. Modelling ....................................................................................... 55 4.2.1.

FDI and Logic Chain Theory Analysis ...................................... 55

4.2.2.

Modelling data selection ....................................................... 59

4.2.3.

Econometric modelling design ............................................... 63

4.2.4.

Quantitative results ............................................................. 65

4.3. Potential impacts of the IPA for EU investors ...................................... 70 4.3.1.

Potential impact of the IPA for EU SMEs.................................. 71

4.4. Potential Impacts on the Myanmar Government .................................. 72 4.5. Sectoral analysis, economic impacts .................................................. 73 4.5.1.

Agriculture and Fisheries ...................................................... 74

4.5.2.

Extraction ........................................................................... 75

4.5.3.

Manufacturing ..................................................................... 75

4.5.4.

Tourism 76

4.5.5.

Finance and Business Services .............................................. 76

4.5.6.

Energy

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4.5.7.

Garment 77

4.5.8.

Automobile and Electronic Consumer Goods ............................ 78

4.5.9.

Food and beverages (F&B) .................................................... 79

4.5.10. Information and Communication Technologies (ICT) ................ 80 5.

SOCIAL IMPACTS ..................................................................................... 43 5.1. Current state of social welfare in Myanmar and development in absence of the investment protection agreement between the EU and Myanmar.. 82 5.1.1.

Social dimension in Myanmar’s existing investment agreements 82

5.1.2.

Effects on labour induced by foreign investments .................... 84

5.1.3.

Effects on education induced by foreign investments ................ 87

5.1.4.

Effects on public health induced by foreign investments ........... 90

5.1.5.

Effects on inclusion induced by foreign investments ................. 91

5.2. Sector Specific: Development without an EU-Myanmar IPA ................... 93 5.2.1.

Energy and mining ............................................................... 93

5.2.2.

Textiles 94

5.2.3.

Agriculture .......................................................................... 96

5.2.4.

Automobile and Electronic Consumer Goods ............................ 97

5.2.5.

Manufacturing ..................................................................... 98

5.2.6.

ICT

98

5.3. Potential social impacts of the IPA on Myanmar ................................... 99 5.3.1.

Labour rights, social inclusion and sustainable development ...... 99

5.3.2.

Potential Labour and Social Impact of the IPA for Myanmar .... 100

5.4. Sector-specific analysis of the EU-Myanmar IPA and the social impacts of its provisions............................................................................. 103 5.4.1.

Energy and mining ............................................................. 103

5.4.2.

Textiles 104

5.4.3.

Agriculture ........................................................................ 104

5.4.4.

Automobiles and electronics ................................................ 104

5.4.5.

ICT

5.4.6.

Food and beverage ............................................................ 104

104

5.5. Corporate social responsibility......................................................... 105

6.

5.5.1.

Consultation responses on CSR ........................................... 105

5.5.2.

Key issues for CSR in Myanmar ........................................... 106

ENVIRONMENTAL IMPACTS ..................................................................... 108 6.1. Specific IPA provisions and the environment ..................................... 109 6.2. Consultation responses on environmental impacts ............................. 112 6.3. Impacts on key areas of environmental management ........................ 112 6.3.1.

Forest resources ................................................................ 112

6.3.2.

Biodiversity ....................................................................... 114

6.3.3.

Land degradation............................................................... 115

6.3.4.

Water resources ................................................................ 116

6.3.5.

Solid and hazardous waste management .............................. 118

6.3.6.

Air pollution ...................................................................... 119

6.3.7.

Climate change ................................................................. 120

6.4. Sectoral analysis, environmental impacts ......................................... 121 6.4.1.

Energy

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7.

6.4.2.

Textile industry ................................................................. 122

6.4.3.

Automobile and Electronic Consumer Goods .......................... 123

6.4.4.

Food and Beverages ........................................................... 123

6.4.5.

Fisheries 124

6.4.6.

Agriculture ........................................................................ 126

6.4.7.

ICT

127

HUMAN RIGHTS .................................................................................... 128 7.1. Current state of human rights in Myanmar and development in absence of the investment protection agreement between the European Union and Myanmar ............................................................................... 129 7.1.1.

Myanmar’s judicial system .................................................. 132

7.1.2.

Property rights .................................................................. 132

7.1.3.

Minority rights and conflict areas ......................................... 134

7.1.4.

Freedom of expression, assembly and association.................. 136

7.1.5.

Data protection ................................................................. 138

7.1.6.

Right to livelihood .............................................................. 138

7.1.7.

Right to an adequate standard of living ................................ 139

7.1.8.

Lack of access to remedy .................................................... 139

7.1.9.

Gender equality ................................................................. 140

7.1.10. Laws and commitments to responsible business conduct ........ 140 7.2. Sectoral analysis of Human Rights Impacts without IPA ..................... 144 7.2.1.

Energy

144

7.2.2.

Telecommunications .......................................................... 145

7.3. Potential human rights impacts of the IPA on Myanmar ...................... 146 7.3.1. 8.

Impact of specific IPA clauses on human rights ..................... 148

CONCLUSIONS AND POLICY RECOMMENDATIONS ..................................... 128

ANNEX I. Civil Society Dialogue I Minutes (November 2015) ANNEX II. Myanmar Local Workshop Minutes (December 2015) ANNEX III. Civil Society Dialogue II Minutes (April 2016)

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Acronyms ACIA

ASEAN Comprehensive Investment Agreement

ADB

Asian Development Bank

ASEAN

Association of South East Asian Nation

BIT

Bilateral Investment Treaty

CETA

Convention on the Elimination of all forms of Discrimination Against Women Comprehensive Economic and Trade Agreement

CMP

Cut, Make, Pack

CSR

Corporate Social Responsibility

CTMU

Confederation of Trade Unions of Myanmar

DAE

Digital Agenda for Europe

CEDAW

EC

Directorate of Investment and Company Administration of the Myanmar Government European Commission

EEA

European Environment Agency

EEA

European Energy Agency

EIB

European Investment Bank

EU

European Union

F&B

Food and Beverages

FAO

Food and Agricultural Organisation of the United Nations

FDI

Foreign Direct Investment

FET FIDH

Fair and equitable treatment

FIL

Foreign Investment Law

FTA

Free Trade Agreement

GDP

Gross Domestic Product

GIZ

Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH

GSP

Generalised Scheme of Preferences

GVA

Gross Value Added

GVC

Global Value Chain

HIV

Human Immunodeficiency Virus

HR

Human Rights

IA

Impact Assessment

ICCPR

International Covenant on Civil and Political Rights

ICT

Information and Communication Technology

ICJ

The International Commission of Jurists

IFC

International Finance Corporation

ILO

International Labour Organisation

IMF

International Monetary Fund

IPA

Investment Protection Agreement

IPR

Intellectual Property Rights

ISDS

Investor-State Dispute Settlement

ISSG

Inter-Service Steering Group

IT

Information Technology

ITUC

The International Trade Union Confederation

IUU

EU regulation on illegal, unreported and unregulated fishing

DICA

The International Federation for Human Rights

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EUROPEAN COMMISSION LCTA

Logic Chain Theory Analysis

LDCs

Least Developed Countries

MCRB MDGs

The Myanmar Centre for Responsible Business

MFPEA

Myanmar Food Processors and Exporters Association

MIC

Myanmar Investment Commission

MNE

Multinational Enterprise

MS

Member States

MSY

Myanmar Maximum Sustainable Yield

MtCO2

Million metric tonnes of CO2

MtCO2e

Million metric tonnes of CO2 equivalent

NCEA

National Commission for Environmental Affairs

NGO

Non-Governmental Organisation

OECD

Organization for Economic Cooperation and Development

PRIA

Principles for Responsible Investment in Agriculture

RBC

Risk based capital

SEZ

Special Economic Zone

SIA

Sustainability Impact Assessment

SMEs

Small and Medium Enterprises

SPS

Sanitary and Phytosanitary

SWIA

Sector-wide Impact Assessment

S&D

Special and differential treatment

TTIP

Trans-Atlantic Trade and Investment Partnership

UK

United Kingdom

Millennium Development Goals

UN

Union of Myanmar Federation of Chambers of Commerce and Industry United Nations

UNCHR

United Nations Convention on Human Rights

UNCTAD

United Nations Conference on Trade and Development

UNDP

United Nations Development Programme

UNEP

United Nations Environment Programme

UNESCO

United Nations Educational, Scientific and Cultural Organization

UNFCCC

United Nations Framework Convention on Climate Change

UNG

United Nations Global Compact

UNHRC

United Nations Human Rights Council

UNICEF

United Nations Children’s Fund

UNWTO

United Nations World Tourism Organization

US

United States

USAID

US Agency for International Development

USD

US Dollar

VPA

FLEGT Voluntary Partnership Agreement (VPA)

WB

World Bank

WTO

World Trade Organisation

UMFCCI

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1.

INTRODUCTION

The European Union (EU) and Myanmar launched negotiations for a bilateral investment protection agreement (IPA) in March 2014. The proposed EU-Myanmar IPA represents an ambitious step for both parties, as there are currently no bilateral investment treaties between Myanmar and any EU Member State (MS). Negotiations for an EU-Myanmar IPA aim encourage investment and to secure core protections against discrimination, uncompensated expropriation and unfair and inequitable treatment. 6 Trade and investment between the EU and Myanmar has grown more than 100 per cent since the latter had trade restrictions lifted and was reinstated to the Generalised Scheme of Preferences (GSP) in 2013. Commercial engagement is seen as a capable instrument for ensuring that political and economic reforms stay the course as the EU starts relations anew with Myanmar. However, after more than a decade of relative absence, and given Myanmar’s existing bilateral investment treaties (BITs) with China, India, Philippines and Thailand and through ASEAN, EU investors are currently at a comparative disadvantage in terms legal protections for their property in Myanmar. The SIA for the EU-Myanmar IPA was launched in September 2015, following the start of the negotiation process in February 2015. As the SIA is conducted in parallel with negotiations, its findings are intended to inform and guide policymakers as they devise the agreement itself. The SIA is the second of three assessments required by the European Commission (EC) during the course of all new trade and investment agreements; it is preceded by an internal Impact Assessment (IA) done before the negotiating mandate is proposed and followed by an ex post Integration Assessment wherein the EC details its work to apply the SIA’s results into its policymaking. Launched shortly before the third round of negotiations, the EU-Myanmar IPA SIA combines stakeholder input with independent research to assess how new rules on investment protection are likely to affect economic, social and environmental conditions in both parties. Chapter 2 details the EU-Myanmar IPA SIA process and provides background information on relevant historical developments regarding the EU-Myanmar IPA; chapter 3 presents the conceptual framework and methodological approach underpinning the SIA, including an overview of the stakeholder outreach conducted; chapters 4, 5, 6 and 7 present the results of the projected economic, social, environmental and human rights impact analyses, respectively; finally chapter 8 presents policy recommendations and concluding remarks. The SIA was carried out with the input and engagement of the relevant EC Directorate Generals (DGs). An Inter-Service Steering Group (ISSG) was established by the EC to allow for the range of relevant institutional perspectives to be shared with the implementing project team in one forum. The EU-Myanmar IPA ISSG is comprised of the following EC DGs:       

6

Agriculture and Rural Development (AGRI) Budget (BUDG) Climate Action (CLIMA) Communications Networks, Content and Technology (CNECT) Competition (COMP) International Cooperation and Development (DEVCO) Economic and Financial Affairs (ECFIN)

European Commission. (2014). EU and Myanmar/Burma to negotiate an investment protection agreement. Brussels, BE: EC. Available: http://europa.eu/rapid/press-release_IP-14285_en.htm. 20

EUROPEAN COMMISSION                   

Education and Culture (EAC) Employment, Social Affairs and Inclusion (EMPL) Energy (ENER) Environment (ENV) Eurostat (ESTAT) Financial Stability, Financial Services and Capital Markets Union (FISMA) Health and Food Safety (SANTE) Internal Market, Industry, Entrepreneurship and SMEs (GROW) Justice and Consumers (JUST) Legal Service (SJ) Maritime Affairs and Fisheries (MARE) Migration and Home Affairs (HOME) Mobility and Transport (MOVE) Research and Innovation (RTD) Secretariat-General (SG) Service for Foreign Policy Instruments (FPI) Taxation and Customs Union (TAXUD) Trade (TRADE) European External Action Service (EEAS)

Engagement with the ISSG consisted of the following:      

Kick off meeting providing initial ideas and information to the project team; Determination of materials to be shared on the website; Provision of feedback on the questionnaire used for interviews and surveys; Updating on meetings, dialogues and workshop preparation and outcomes; Timeline adjustments to ensure more civil society engagement and participation; Attendance of ISSG members at: o 1st civil society dialogue meeting in Brussels: A first meeting was held in Brussels on November 5, 2015 to discuss the draft inception report; o Local workshop in Myanmar: the SIA project team organised a day-long local workshop in Yangon, Myanmar on December 17, 2015. During the local workshop, the SIA team leader presented the SIA process and interim findings; o 2nd civil society dialogue meeting in Brussels: A second meeting is scheduled for April 5, 2016 to discuss the draft final report.

A full timeline of the EU-Myanmar IPA SIA is found below:

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2. BACKGROUND Political reforms, democratisation and economic opening of Myanmar since 2011 have allowed the EU to begin a new chapter in its relationship with the country following a long period of estrangement. This section details the process for the EU-Myanmar IPA SIA, providing background information on the history and development of the IPA. This is presented in the context of the developing commercial relationship between the EU and Myanmar. The intention of this section is to provide readers with the necessary background information on the negotiations. Chapter 2.1 provides an overview of recent events leading up to the current negotiations; chapter 2.2 presents relevant regional developments; chapter 2.3 presents the project team's evaluation of the likely provisions of the agreement, based on publically available information including past agreements; and chapter 2.4 provides information on the current status of the negotiations. 2.1.

EU – Myanmar trade and investment relations

The proposed EU-Myanmar IPA represents an ambitious step for both parties, as there are currently no bilateral investment or trade agreements between Myanmar and any of the 28 EU MS. While some European companies have well-established operations in Myanmar, the commercial relationship has remained underdeveloped due to political instability and the Myanmar government’s record regarding treatment of labour and human rights. As a result of serious and systematic violations of core international conventions on forced labour, the EU withdrew Myanmar's status of preferential access to the EU market under the Generalised Scheme of Preferences (GSP) in 1997. In June 2012, the Myanmar government committed to work with the International Labour Organisation (ILO) to eradicate forced labour. In consideration of the internationally recognised progress to this end, the EU reinstated Myanmar’s GSP status in July 2013 under the Everything but Arms (EBA). 7 The EBA is an arrangement under the EU’s GSP that provides least developed countries (LDCs) with duty-free and quota-free access to the EU market on all products, except for arms and ammunitions. By providing access to the EU market, the arrangement aims to create an engine for development through trade, export-led growth and poverty reduction and to facilitate the integration of LDCs into the global economy.8 An EBA country has to ensure that there is no serious and systematic violation of the principles enshrined in the core human rights and labour rights conventions. In 2013, the EU and Myanmar held discussions on investment via the dialogue on trade and investment, also known as the EU-Myanmar Forum, which encompasses a Trade and Investment Working Group. The parties agreed in 2013 to “explore the feasibility of an investment agreement,” in order to assist the political reform process as well as socioeconomic development in Myanmar.9 On July 22, 2013, the Foreign Affairs Council adopted The Comprehensive Framework for the EU’s policy and support to Myanmar, confirming

7 8

9

European Commission. (2013). EU re-opens its market to Myanmar/Burma. Brussels, BE: EC. Available: http://trade.ec.europa.eu/doclib/press/index.cfm?id=946. European Commission. (2013). Revised EU trade scheme to help developing countries applies on 1 January 2014. Brussels, BE: EC. Available: http://trade.ec.europa.eu/doclib/docs/2013/december/tradoc_152015.pdf. European Commission. (2013). Joint statement by the President of the European Council, Herman Von Rompuy, the President of the European Commission, José Manuel Barroso, and the President of the Republic of the Union of Myanmar, U Thein Sein: Building a Lasting EUMyanmar Partnership. Brussels, BE: EC. Available: http://europa.eu/rapid/pressrelease_MEMO-13-176_en.htm. 22

EUROPEAN COMMISSION its commitment to negotiate and conclude a bilateral IPA.10 At the same time, Myanmar stated that it was ready to negotiate an IPA. As illustrated in figure 1, as of 2015, only a few EU member states are among the most significant investors in Myanmar. The most significant source of FDI as of December 2015 was China, followed by Singapore and Thailand. Figure 1. Foreign investment by partner country, as of December 31, 2015 18000 16000

USD (million)

14000 12000 10000 8000 6000 4000 2000 0

Source: DICA Bilateral trade between the EU and Myanmar reached €1.2 billion in 2015, more than doubling from €404 million in 2012. Exports to the EU have quadrupled between 2012 and 2015, from €165 million to €675 million. Garments represent more than 60 per cent of Myanmar exports to the EU. EBA has the potential to encourage EU investments in Myanmar’s garment and manufacturing sectors, subsequently boosting exports to the EU market.11 While this appears as a step towards strengthening trade and investment ties between the EU and Myanmar, several issues continue to deter prospective EU investors in the country. In the context of a workshop organised for this SIA, Filip Lauwerysen, Executive Director of EuroCham Myanmar, emphasised that the insecure investment climate, outdated legislation, copyright issues and the issue of unequal treatment are among prospective investors’ most serious concerns. The EC published its internal IPA Impact Assessment in February 2014.12 This assessment recommended the opening of negotiations for a bilateral IPA between the EU and

10

11 12

Council of the European Union. (2013). Council conclusions on the Comprehensive Framework for the European Union’s policy and support to Myanmar/Burma. Brussels, BE: EC. Available: https://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/EN/foraff/138272.pdf European Commission. (2013). EU re-opens its market to Myanmar/Burma. Brussels, BE: EC. Available: http://trade.ec.europa.eu/doclib/press/index.cfm?id=946. European Commission. (2014). Impact Assessment: Report on the EU-Myanmar/Burma Investment Relations. Brussels, BE: EC. Available: http://ec.europa.eu/smartregulation/impact/ia_carried_out/docs/ia_2014/swd_2014_0041_en.pdf. SIA on the EU-Myanmar Investment Protection Agreement EN

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Myanmar. It found that such an agreement would have a positive overall impact, achieving the specific objectives of the EU. In March 2014, the Council of the European Union granted authorisation to the European Commission to start the negotiations. The outlook from Myanmar is also positive. According to U Aung Naing Oo, Director General of Myanmar’s Directorate of Investment and Company Administration (DICA), the expected increased foreign direct investment (FDI) “creates jobs for [Myanmar] citizens, allows us to export more and will transfer technology to our citizens, but the firms must have quality ethics. We predict we will attract this kind of company. Most EU firms usually match with the local criteria we need.” 13 The agreement will also protect Myanmar investors who wish to enter the EU market.14 With general elections having been held in Myanmar in November 2015, the overall climate is perceived as one promoting democracy with a heightened commitment to economic and developmental reform.15 2.2.

Developments at a regional level

Trade and investment relations between the EU and Myanmar are also shaped by developments at the regional level. Myanmar’s increasing global engagement was most evident in early 2014, when the country took over the rotating chairmanship of the Association of Southeast Asian Nations (ASEAN) for the first time. Myanmar’s economy is strongly focused on Southeast Asia, benefitting from free trade and regional integration under the ASEAN framework. In 2009, the ASEAN MS expanded previous agreements by concluding a modern investment treaty, the ASEAN Comprehensive Investment Agreement (ACIA), which entered into force in March 2012. 16 Besides benefitting from the ASEAN+1 free trade agreements (FTA) that includes investment provisions, inter alia with China, Korea, Australia and New Zealand, Myanmar also signed BITs to ensure investment protection for foreign investors and further attract FDI. However, only five BITs are in force to this date, namely with China, India, Japan, the Philippines and Thailand.17

13

14

15 16 17

Lynn Aung, H. (2015). Myanmar-EU investment treaty talks to spill into next year. Available: http://www.mmtimes.com/index.php/business/16767-myanmar-eu-investment-treaty-talks-tospill-into-next-year.html Barbour-Lacey, E. (2015). Myanmar Investment Update: Financial Incentives, Myanmar-EU Investment Protection Agreement, and a New Stock Exchange. Available: http://www.aseanbriefing.com/news/2015/10/05/myanmar-investment-update-financialincentives-myanmar-eu-investment-protection-agreement-and-a-new-stock-exchange.html. BBC. (2015). Myanmar election: Suu Kyi’s NLD wins landslide victory. Available: http://www.bbc.com/news/world-asia-34805806. Association of Southeast Asian Nations. (2009). ASEAN Comprehensive Investment Agreement. Available: http://agreement.asean.org/media/download/20140119035519.pdf. United Nations Conference on Trade and Development. (2016). International Investment Agreements Navigator: Myanmar. Available: http://investmentpolicyhub.unctad.org/IIA/CountryBits/144#iiaInnerMenu. 24

EUROPEAN COMMISSION Regionally, the EU has concluded FTA negotiations with Singapore 18 and Vietnam. 19 Negotiations are also under way with Malaysia, Thailand and the Philippines 20 , while preparatory talks are ongoing with Indonesia. A regional agreement with ASEAN as a whole remains the EU’s long-term ambition. Discussions on the feasibility and added value of resuming region-to-region negotiations began in January 2016 and are expected to continue in the future. 21 2.3.

Content and likely provisions of an IPA between the EU and the Republic of the Union of Myanmar

The aim of the negotiation process is to conclude a standalone IPA, which would provide EU investors in Myanmar and Myanmar investors in the EU with a predictable and secure investment environment, including:     

protection against uncompensated expropriation and unfair treatment while safeguarding the right to regulate; non-discrimination; transfer of returns; investment dispute resolution; and a level-playing field with other foreign investors currently benefitting from bilateral IPAs.

The agreement is also expected to help Myanmar to move up value chains, promote transparency and sustainable development (including environmental protection, core labour standards, and corporate social responsibility). The objective is to increase bilateral investment flows and, ultimately, trade activity and economic development. This section presents an analysis of provisions likely to be included in the IPA. As EU negotiating texts and proposals have not been made public at this stage, the project team has used publically available investment and sustainable development chapters from contemporary agreements as a benchmark. These reference agreements include the EUCanada Comprehensive Economic and Trade Agreement (CETA), the EU-Singapore FTA, the EU-Vietnam FTA and the EU’s reform proposals in the framework of the Transatlantic Trade and Investment Partnership (TTIP) negotiations with the United States (US). It must be noted that the investment chapters of the aforementioned trade agreements do not explicitly mention sustainable development. Rather, CETA and TTIP are systematically supported by chapters on sustainable development, labour and environment, while the EU-Singapore and EU-Vietnam FTAs are supported by a chapter on sustainable development which makes reference to labour and environment. The investment chapters focus on investment liberalisation, investment protection and a comprehensive dispute settlement system, referring to the ICSID Convention, UNCITRAL

18

19

20 21

European Commission. (2015). Countries and regions: Singapore. Available: http://ec.europa.eu/trade/policy/countries-and-regions/countries/singapore/: The negotiations for a comprehensive FTA with Singapore were completed on October 17 2014. However, on October 16, 2015, the EC requested the opinion of the European Court of Justice to clarify whether the Union has the requisite competence to sign and conclude alone the Free Trade Agreement with Singapore. On December 2 2015, EC President Juncker and Vietnamese Prime Minister Dung announced the formal conclusion of the negotiations for an EU-Vietnam FTA. See: European Commission and the Socialist Republic of Viet Nam. (2015). Declaration: A new era in EU-Viet Nam relations. Available: http://trade.ec.europa.eu/doclib/docs/2015/december/tradoc_154012.pdf. European Commission. (2015). EU and the Philippines launch negotiations for a free trade agreement. Available: http://trade.ec.europa.eu/doclib/press/index.cfm?id=1429. European Commission. (2016). Overview of FTA and Other Trade Negotiations. Available: http://trade.ec.europa.eu/doclib/docs/2006/december/tradoc_118238.pdf. SIA on the EU-Myanmar Investment Protection Agreement EN

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Arbitration Rules and the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The scope of CETA applies narrowly to covered investments, which is defined, with respect to a Party, as an investment “(a) in its territory; (b) made in accordance with the applicable law at the time the investment is made; (c) directly or indirectly owned or controlled by an investor of the other Party; and (d) existing on the date of entry into force of this Agreement, or made or acquired thereafter.”22 However, the performance requirements included in CETA relate to all investments, with a few sectoral exclusions. CETA follows a negative list approach to investment liberalisation. In the case of the EU-Singapore and EU-Vietnam FTAs, a positive list approach was used. 2.3.1.

Protection against uncompensated expropriation

An expropriation provision protects foreign investors and investments against dispossession or confiscation of their property by the host country without compensation. This usually includes indirect expropriation and applies to changes in regulation. The expropriation clause should clarify the notion of indirect expropriation and introduce criteria to distinguish between indirect expropriation and legitimate regulation that does not constitute expropriation. CETA, the EU-Singapore FTA and the EU-Vietnam FTA have clarified this, where they establish that neither Party may nationalise or expropriate a covered investment either directly or indirectly through measures having an effect equivalent to nationalisation or expropriation unless they are for a public purpose and taken under due process of law in a non-discriminatory manner and, significantly, against payment of prompt, adequate and effective compensation.23 As highlighted by the Organisation for Economic Co-operation and Development (OECD) in its Investment Policy Review for Myanmar, protection against expropriation without fair compensation is among the most crucial rights of investors and must be granted in the regulatory framework for investment through provisions for transparent and predictable procedures.24 Although Article 36 (d) of Myanmar’s Constitution provides that the Union shall not nationalise economic enterprises, there is no specific provision in Myanmar’s legislation against expropriation without compensation (except certain chapters in the Foreign Investment Law [FIL] and the Special Economic Zone Law).25 Private sector and civil society representatives have expressed concerns over current nationalisation provisions and the lack of protection against expropriation risks.26 It can therefore be expected that the inclusion of robust provisions ensuring protection for EU investors against expropriation, both direct and indirect, will play a major role in fostering increased FDI into Myanmar. Although it imposes a constraint on the Myanmar authorities’ discretionary power, Myanmar has already agreed to rules against expropriation with several counterparts in its existing IPAs. However, concerns have been raised that this provision, if not qualified, could empower investors to claim compensation for legitimate public policies. For example, if an investors were to have their assets confiscated for breach of national law, they could

22 23 24

25 26

CETA Article 8.1 See Articles 8.12, 9.6, and 16 of the CETA, EU-Singapore FTA and EU-Vietnam FTA, respectively. Organisation for Economic Co-operation and Development (2014) Investment Policy Reviews: Myanmar 2014. Available: http://www.oecd.org/daf/inv/investment-policy/Myanmar-IPR2014.pdf Ibid. Ibid. 26

EUROPEAN COMMISSION seek compensation from the government of Myanmar through an IPA’s expropriation provisions, thus multiplying the host country’s risk of costly lawsuits.27 2.3.2.

Fair and equitable treatment (FET) and non-discrimination

Non-discrimination can also be embodied within a FET clause. The FET provision assures due process of law when discrimination is claimed and can help “protect legitimate expectations of foreign investors and incorporates principles of transparency, good faith and guarantees against denials of justice.” 28 This suggests that the inclusion of these provisions in an IPA would be perceived as a guarantee by EU investors, who may in turn be willing to consider (further) investments in Myanmar. In Vietnam, for example, the introduction of non-discrimination provisions during the mid-2000s is considered to have increased the amount and quality of FDI inflows into the country.29 The OECD does emphasise, however, the risks associated with this provision, noting that, “there is no clear definition in customary international law and in arbitral jurisprudence of what the FET standard encompasses,” and recommending that governments wishing to include a reference to this principle in their investment legislation “should define clearly its scope and content so as to avoid giving excessive leeway to arbitral interpretations of its legal provisions and to protect against potentially costly arbitral awards”. 30 2.3.3.

Transfer of capital (returns related to an investment)

This provision is conceived to guarantee the “free transfer of funds of capital and payments by investors”.31 As such, its inclusion in an IPA will be important to ensure the viability of EU investments in the long run and thus to secure support from shareholders regarding prospective FDI by EU companies in Myanmar. Inclusion of this provision could entail particularly risks for a capital importing country like Myanmar, as it “would allow the investor to always withdraw all investment-related monies”, thus reducing its ability to deal “with sudden and massive outflows and inflows of capital, balance of payments and other macroeconomic crises”.32 In the EU-Singapore and CETA agreements, this risk has been averted by allowing either Party to temporarily take safeguard measures in case “capital movements cause or threaten to cause serious difficulties for the operation of monetary policy or exchange rate policy”.33 2.3.4.

Investment dispute resolution

As highlighted by the OECD in its Investment Policy Review for Myanmar, there is currently no provision in Myanmar’s legal framework for investment that provides for a unilateral consent to go through arbitration to resolve investor-state disputes. This provision would,

The Transnational Institute. (2014). Briefing: EU – Myanmar Bilateral Investment Treaty. Available; https://www.tni.org/files/download/eu-myanmar_bit.pdf. 28 Organisation for Economic Co-operation and Development. (2004). Fair and Equitable Treatment Standard in International Investment Law. Available: www.oecd.org/daf/inv/investmentpolicy/WP-2004_3.pdf. 29 Ibid. 30 Organisation for Economic Co-operation and Development. (2014). Investment Policy Reviews: Myanmar 2014. Available: http://www.oecd.org/daf/inv/investment-policy/Myanmar-IPR2014.pdf 31 The Transnational Institute, Paung Ku. (2014). Briefing: EU – Myanmar Bilateral Investment Treaty. Available; https://www.tni.org/files/download/eu-myanmar_bit.pdf. 32 Ibid. 33 EU-Singapore Article 9.7 (3). Available: http://trade.ec.europa.eu/doclib/press/index.cfm?id=961; see also CETA Article 28.5. Available: http://trade.ec.europa.eu/doclib/docs/2014/september/tradoc_152806.pdf. 27

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according to some of the stakeholders consulted for this SIA, contribute to a neutral and more transparent resolution of potential conflicts - all the more since, according to the OECD, “legal and procedural requirements for enforcing contracts remain complex and uncertain” in Myanmar. Access to justice is reported to remain rather inefficient despite recent improvements, and there seems to be “a structural issue of corrupt courts.”34 The OECD also highlights that, by referring cases to international arbitrators, the provision of Investor-State Dispute Settlement (ISDS) may achieve somewhat fairer competitive conditions between certain groups of enterprises, such as among different enterprises from a given country, or among enterprises from countries with differing levels of influence.35 The success of this effect, however, depends on the quality of arbitration rules. ISDS was originally expected to provide finality and enforceability, while de-politicising disputes. However, serious criticisms have been directed at how ISDS sometimes operates: inconsistent and unintended interpretations of clauses, unanticipated uses of the system by investors including challenges against policy measures taken in the public interest, along with costly and lengthy procedures offering limited or no transparency. Such abusive and wrongful functioning of ISDS could detract the government from implementing domestic instruments to promote social inclusion and labour rights not to risk any ISDS claims due to negative impact on a foreign investment caused by the legislation. To address this, the EC has recently adopted a new approach to investment dispute resolution. Instead of relying on the ISDS mechanism, the Commission is proposing an Investment Court System (ICS). This new system seeks to address concerns about the lack of transparency and legitimacy in ISDS. The EU's approach also reaffirms the right of governments to regulate in the public interest. This new approach has been included in CETA, the EU-Vietnam FTA and has been proposed for TTIP; it is likely to be proposed by the EU for inclusion in the IPA with Myanmar. 36 2.3.5.

Transparency

According to the Myanmar Centre for Responsible Business (MCRB), the transparency provision could support positive developments concerning sustainability and responsible business conduct in Myanmar. Particular benefits are likely to be derived from increased transparency in the legislative process. However, similar requirements in the MyanmarJapan Investment Agreement (Article 8) have not yet significantly contributed to increased transparency in Myanmar law-making.37 Contemporary agreements like the EU-Singapore FTA, CETA and the EU-Vietnam FTA include provisions on transparent law-making. This mainly entails the requirement that measures affecting trade and investment between the parties must be developed and

34 35

36 37

OECD (2014) Investment Policy Reviews: Myanmar 2014. http://www.oecd.org/daf/inv/investment-policy/Myanmar-IPR-2014.pdf Gordon, K. and Pohl, J. (2015). Investment Treaties over Time – Treaty Practice and Interpretation in a Changing World. OECD. Available: http://www.oecd.org/investment/investment-policy/WP2015-02.pdf. European Commission. (2016). CETA: EU and Canada agree on new approach on investment in trade agreement. Available: http://trade.ec.europa.eu/doclib/press/index.cfm?id=1468 Myanmar Centre for Responsible Business. (2015). Transparency in Myanmar Enterprises: Second Report 2015. Yangon, MM: MCRB. Available: http://www.myanmarresponsiblebusiness.org/pdf/TiME/2015-2nd-Pwint-Thit-Sa-Report.pdf. 28

EUROPEAN COMMISSION administered in a transparent manner, with due notice and opportunities for interested persons to submit their views before enactment.38 2.3.6.

Right to regulate

Because several facets of Myanmar’s public policy framework are still in the nascent stages of development, there is particular concern for the protection of its right to regulate. According to the MCRB, provisions on the right to regulate are particularly important as a means to allow coupling of local content or employment requirements with FDI. Therefore, the MCRB recommends that, before completing the negotiations, the Myanmar Government should ensure it undertakes a cross-government assessment of the risk of litigation and ‘regulatory chill’ posed by an EU-Myanmar IPA. This should include examining, in consultation with existing investors, the effect on existing laws, contracts and licences. 2.3.7.

Sustainable Development

The EU agreements with Singapore, Vietnam and Canada all include articles on promoting sustainable development, especially in the area of environmental and labour protection. These agreements include provisions that renounce reducing environmental protection and labour standards in order to attract investment and trade. Furthermore, the provisions in these agreements provide the Parties with the right to regulate their levels of environmental and labour protection in line with internationally recognised standards or agreements. Lastly, the agreements also include cooperation on labour standards and environmental protection, for example in the form of exchanging best practices. 39 2.4.

Status of the IPA negotiations and next steps

The first round of negotiations took place on February 9-12, 2015; the second round between May 25-29, 2015; and the third round between September 21-23, 2015. All negotiating rounds to date have taken place in Yangon, Myanmar. As of publication, no date has been set for the next round of negotiations.40 The EU expects the next round to take place once the new Myanmar government takes office on April 1, 2016.

38 39 40

See EU-Singapore FTA Article 13.13 and Chapter 14; EU-Vietnam Chapter 18; CETA Chapter 27. See EU-Singapore Chapter 13; CETA Chapter 22, Chapter 23 and Chapter 24; EU-Vietnam Chapter 15. European Commission. (2016). Overview of FTA and other trade negotiations. Available: http://trade.ec.europa.eu/doclib/docs/2006/december/tradoc_118238.pdf SIA on the EU-Myanmar Investment Protection Agreement EN

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3. METHODOLOGY 3.1.

Presentation of the assessment analysis

conceptual

framework

of

the

sustainability

Building upon the EC’s 2014 Impact Assessment, the assessment of potential impacts of the EU-Myanmar IPA has been based on both quantitative and qualitative analysis. The quantitative analysis has drawn on available and reliable statistical data and corresponding sources to project the potential socio-economic impacts of the IPA on Myanmar for a given timeframe. Given the lack of reliable data and the challenges for a full-scale economic model, the qualitative analysis has played an important part in this SIA. This qualitative analysis has been based on research and review of the most relevant and up to date sources to identify selected economic, social, environmental and human rights indicators and issues. To ensure analytical rigor and academic objectivity, the qualitative assessment has been based on identified indicators which have served as the main analytical framework to conduct the analysis of potential economic, social, environmental and human rights impacts. In line with EC requirements, the indicators for the assessment of impacts in the respective areas have drawn on the most accurate and reliable indicators as found in official EC guidelines and rely on in-depth literature review. In addition, the analysis has incorporated information generated by the extensive and continuous stakeholder consultation in Myanmar, both through the 50 face-to-face interviews and the completion of an online questionnaire which closed on 25 February 2016. This has allowed for a more genuine picture of the economic, social, environmental and human rights impacts of the IPA, given the lack of adequate data in various areas and sectors. Based on quantitative and qualitative considerations as well as stakeholder inputs, the analysis of direct and indirect potential economic, social, environmental and human rights impacts of the EU-Myanmar IPA have followed a two-step approach of establishing a baseline scenario, as well as constructing an investment protection agreement scenario. The analysis itself has allowed for recommendations and proposals for flanking measures to maximise the benefits of the proposed agreement and prevent or minimise potential negative impacts, including an analysis of the feasibility and possible impact of those recommendations and proposals. Baseline scenario The baseline scenario contained an overview of the current overall state of affairs and recent economic, social, environmental and human rights developments in Myanmar, with particular regard to specific affected groups and sectors. This initial assessment drew on the main findings of quantitative and qualitative analysis, particularly taking into account existing commitments by the EU and Myanmar, which have determined the legal framework. Subsequently, the likely economic, social, environmental and human rights effects on Myanmar in the absence of the EU-Myanmar IPA were then examined. Relevant information gathered through the stakeholder consultation has been valuable in feeding into this analysis. Investment protection agreement scenario The investment protection agreement scenario has taken into account a number of potential measures and provisions of the IPA, including non-discrimination, guarantees against expropriation without compensation, fair and equitable treatment, investment dispute resolution, sustainable development and transparency. As regards the analysis of provisions of the IPA; they are drawn from texts and proposals of agreements that are 30

EUROPEAN COMMISSION similar to the on-going negotiations of the EU-Myanmar Investment Protection Agreement. Key among them is the EU-Canada Comprehensive Economic and Trade Agreement (CETA). One of its important provisions represents a clear break from the old Investor to State Dispute Settlement (ISDS) approach and moves towards establishing a permanent multilateral investment court. This revised CETA text is also a clear signal of the EU’s intent to include this new proposal on investment in its negotiations with all partners.41 The other reference text is that of the EU-Singapore FTA. The agreement’s investment provision clauses are closely reflective of the stance being proposed as part of the EUMyanmar Investment Protection Agreement negotiations, of particular interest are the new and precise standards on investment specifically with regard to provisions on ‘right to regulate’, ‘fair and equitable treatment’ and ‘indirect expropriation’ to name a few. 42 Similar provisions are also enshrined in the recently concluded EU-Vietnam Free Trade Agreement43 and in the EU's proposal for the ongoing Transatlantic Trade and Investment Partnership 44 negotiation - particularly with regard to ‘multilateral dispute settlement mechanisms’, ‘treatment of investors’ and ‘expropriation’ are relevant to this analysis. The potential economic, social, environmental, and human rights impacts of the provisions have been individually assessed utilising causal chain analysis based on the most relevant indicators. Quantitative and qualitative analysis have looked at both the overall and sectorspecific situation. Cross-sectoral linkages and spill-over effects have also be examined where significant.

41

The above provisions were included in the recently concluded EU investment-related agreements with Canada: 1. (CETA - Summary of final negotationg results, 2016) 2. (Press Release: CETA: EU and Canada agree on new approach on investment in trade agreement, 2016)

(Investment Provisions in the EU-Singapore Free Trade Agreement, 2014) (EU-Vietnam Free Trade Agreement, 2016) 44 (Transatlantic Trade and Investment Partnership Negotiation Text ) 42 43

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Table 1: Potential provisions of the IPA45

1

Provisions Non-discrimination most-favoured nation

2

Expropriation

Protects against uncompensated indirect expropriation

3

Fair and equitable treatment

Protects against denial of justice, breach of due process, arbitrary conduct, coercion, harassment, breach of legitimate expectations, targeted discrimination

4

Transfer of capital

Protects the right to transfer investment-related capital

5

Sustainable development

Encourages enforcement of domestic legislative framework related to sustainable development, with international commitments as floor, as well as encourages responsible business conduct

6

Transparency

Promotes knowledge of and participation in investment-related measures of general application

7

Investment resolution

8

Right to regulate

and

dispute

Direct effect Ensures level-playing field with domestic and foreign investors direct

and

Allows foreign investors to seek compensation from the State for breaches of the investment protection provisions; ensures greater transparency of arbitration system and proceedings; permits Parties to correct any potential erroneous interpretations; obliges losing party to pay all litigation costs Reaffirms the Parties’ right to regulate and pursue legitimate public policy objectives. Nonstabilisation clause.

This investment protection agreement scenario has been complemented by the results of the stakeholder consultation, including inputs from interviews, questionnaires and meetings with civil society. Particular focus has been on including all relevant and representative stakeholders including disadvantaged persons, ethnic minorities, women, children, unskilled workers. 3.2.

Stakeholder consultation

During the delivery of this SIA, alongside a process of literature review and analysis, a continuous and wide-ranging consultation process has been undertaken which ensures a high degree of transparency and the engagement of all relevant stakeholders. The effective delivery of the stakeholder consultation has been based on the common

These provisions are drawn from (CETA - Summary of final negotationg results, 2016), (EUVietnam Free Trade Agreement, 2016), (Investment Provisions in the EU-Singapore Free Trade Agreement, 2014), (Transatlantic Trade and Investment Partnership Negotiation Text ) and (EC Investment Protection and Investor-to-State Dispute Settlement in EU agreements Fact sheet, 2013) 45

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EUROPEAN COMMISSION methodological framework outlined in Tool #50 of the EC’s Better Regulation Toolbox 46 and Better Regulation Guidelines47, as well as in the formulation of a solid methodological approach in response to the specific requirements of this SIA as highlighted in the SIA Handbook.48

With the establishment of a dynamic framework for consultation, comprehensive engagement was undertaken with relevant and representative stakeholders with regard to the EU-Myanmar IPA. The following principles were followed, to the best possible extent, while conducting the stakeholder consultation: 1. Comprehensive, so as to engage all relevant stakeholders in the SIA; 2. Timely, so as to give the stakeholders sufficient time for participation; 3. Incorporated, so as to assess the stakeholders’ inputs and take them into account; 4. Balanced, so as to ensure representativeness through wider participation; and 5. Tailored, so as to adjust activities to the needs of the project and stakeholder requirements. Effective delivery of stakeholder consultation is vital to understanding impact assessment, and formed an integral part of this SIA. The design of the consultation approach aimed to identify the priority areas and key issues in the negotiations on the investment proposal by providing a voice to the affected constituents. The aim was to ensure a balanced approach by including a wide range of stakeholder representatives from diverse backgrounds and various regions in Myanmar, including local businesses, NGOs, social partners, government and academic institutions. With a local expert (based in Yangon) from the SIA team interviewing stakeholders from different regions of Myanmar representing varied groups ranging from trade unions, university researchers, local businesses, government functionaries and civil society, the consultative process for the SIA has drawn observations and conclusions from the ground. As regards the stakeholder outreach in the EU; civil society groups have been very actively engaged as part of the civil society dialogues. Their feedback has been solicited as part of the questionnaires and letters and reports published regarding concerns and potential impacts of the IPA on labour rights, human rights and environment conservation. These have been made available on the SIA website. The consultation process has been robust and from the time of launch of the SIA till the compilation of this final report, the interest and awareness from various stakeholder groups has only grown exponentially. The start was slow with stakeholders citing a lack of awareness regarding the IPA as a major constraint in being able to voice their opinions regarding the same. But with the dissemination of information through face-to-face interactions, website updates and consultations and the local workshop, there has emerged a better understanding among stakeholder groups as well as interest in the IPA. Associated consultation work has included but has not been limited to:   

Discussing the timeframe of face-to-face interviews; Prioritising the identification of a diverse and representative range of stakeholders; Drafting and adapting the questionnaire used in the face-to-face interviews so as to fit with the local survey style and allow for the solicitation of relevant opinions;

European Commission. (2015). Better Regulation Toolbox: Tool #50 Stakeholder Consultation Tools. Available: http://ec.europa.eu/smart-regulation/guidelines/tool_50_en.htm 47 European Commission. (2015). Better Regulation Guidelines. Available: http://ec.europa.eu/smart-regulation/guidelines/toc_guide_en.htm 48 European Commission. (2015). Handbook for SIA, 2 nd edition. 46

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Identifying the most relevant stakeholders and creating a stakeholder database which includes: o Name; o organisation; o background information; o categorisation; o relevance for SIA; o consultation; and o contact details. Mitigating the potential impacts of the national elections, scheduled for early November 2015, by preparing at an early stage all relevant documents, communication tools and methods as well as a realistic work plan for the conduct of the face-to-face interviews.

Non-exhaustive list of relevant stakeholders With the help of the SIA Project Team’s experts based in Myanmar, an initial list of stakeholders has been established. Stakeholders were approached on the basis of the relevance of agreement to them. To ensure their representativeness, the stakeholders have been divided evenly between the 5 categories of stakeholders namely: academia, government, social partners, civil society, and business (both local and European businesses); geographical scope has also been factored into the stakeholder identification with this scope being as extensive as possible. It should be noted, however, that the main economic, political and academic stakeholders are more concentrated in the bigger cities such as Yangon, due to its role as the economic hub of Myanmar, and Nay Pyi Taw, due to its status as the official political center. The stakeholders presented in the following list have been targeted by the SIA Project Team in line with the following criteria:    

Potential stake within the process and likely level of being affected; Level of interest in the outcome of the IPA and willingness to engage; Background and profile; and Geographical location.

Below are relevant local stakeholders that were identified in Myanmar: 

Academia: Contact persons have been provided in academic institutions experienced with public consultations. The relevance of these stakeholders comes primarily from their experience with and understanding of Myanmar’s social context and public expectations in terms of policy reforms. Similarly, think tanks represented independent analysis on key issues likely to be impacted by an IPA. Examples of relevant think tanks include the Myanmar Institute for Strategic and International Studies, which has been involved in EU-Myanmar dialogues on a number of issues. This economic think tank founded by the advisers of the current President also brought experience from EU Myanmar dialogues but with a focus on economic issues.



Businesses: Due to their specific business interest in the IPA, local as well as EU businesses played a key role in identifying the potential impacts of the IPA on Myanmar’s economy, both overall and at the sectoral level. In particular Myanmar businesses in key industries which have already benefited from EU investments in the past and were likely to benefit from further investment in the future have been included in the stakeholder consultation. Their contributions and inputs to

34

EUROPEAN COMMISSION understanding the economic and trade opportunities, challenges and impacts related to EU investments are highly relevant to the outcomes of this SIA. 

Government/Ministries: Contact points were provided for the Ministries with the most direct relationship to the SIA’s four fields of focus: the economy, the environment, social issues, and human rights. For economic impacts, the Ministry of Commerce has been a key target for its involvement and influence in trade related negotiations, more specifically regarding the issues of import and export licenses. The Myanmar Investment Commission (MIC) was also highly relevant due to its mandate to advise the government regarding investment prospects. Other relevant ministries included the Ministry of National Planning and Economic Development, which is responsible for the registration of local and foreign investments, and the Ministry of Finance, which is directly concerned with the issues of market stability and the potential entry of capital into the Myanmar market. For social impacts (and to some extent the human rights impacts), the Ministry of Employment and Social welfare was an important stakeholder in terms of its possible inputs regarding labour and social issues. For environmental impacts, the Ministry of Environment, Conservation and Forestry acted as the most relevant ministry due to its work regarding environmental quality, environmental standards, environmental conservation, and urbanisation.



Civil society (including Non-Governmental Organisations): Stakeholders in civil society identified were those that advocate in the social, environmental and human rights fields on issues such as respect of human rights, protection of vulnerable populations, good governance, and environment protection at the civil society level. With an extensive number of advocacy initiatives, they raise issues that may not have been addressed adequately at the governmental level. They were also considered representative of the civil society because of the consultancy meetings they regularly organise. The Myanmar Environmental Institute and the Sandhi Governance Institute were considered of particular importance for the consultation phase, as they are recognised interlocutors by the government, civil society groups and think tanks, and both institutes have participated in public consultations regarding trade policies, and notably FDI.



Social Partners: The social partners’ representatives selected for the contact list are divided into two categories of relevance for the stakeholders’ consultation, namely business organisations and trade unions including their associations. Business organisations and associations were highly relevant due to their potential role for economic reinforcement purposes. Stakeholders include local organisations that already have access to EU markets or investment as well as the Chambers of Commerce and Industry, which could provide important inputs for the policymaking process, due to their interest in international business cooperation in general for the promotion of trade and investment worldwide. Trade Unions have an increasingly important role in the Myanmar policy making with their opinions increasingly being recognised by the government and their inputs gradually being taken into account in labour-related negotiations. Input from trade unions were therefore highly relevant for labour issues likely to be impacted by any IPA. Associations have been be able to provide precise and issue-specific inputs, very valuable for the understanding on the IPA's expected effects on specific indicators.

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Figure 2 provides a visualisation of the most relevant stakeholder categories included in the consultative process

NGOs, International Organisations and Social Partners

Academia and Think Tanks

Stakeholders Government

Business & Chambers of Commerce & Industry (both EU and Local)

The methodologies and tools which the SIA Project Team employed while conducting the consultation process of the SIA included:  Interviews: Face to face and by telephone: Stakeholders, both EU and local were identified and interviewed to ascertain their understanding, expectations, opinions and recommendations for the EU-Myanmar Investment Protection Agreement.  Web and paper questionnaire (made available in both English and Myanmar languages): This was disseminated through the website, email and at the local workshop.  A website was utilised as a key information resource on the SIA, sharing latest updates regarding meetings and workshops, announcements about questionnaire and reports and resources related to the IPA have been provided here.  Workshops and Meetings: Two civil society dialogues in Brussels and one local workshop in Myanmar were part of direct stakeholder engagement as part of the SIA.

36

EUROPEAN COMMISSION Figure 3 Tools used for stakeholder consultation

European Commission Ongoing dialogue

Face-to-Face Interviews

Online Questionnaire

SIA Project Team Meetings

Website

Local workshop

The content and methodology of each tool are explained in the following section: 3.2.1.

Stakeholder Interviews49

A concerted effort was made to gather feedback from direct face-to-face interviews with multiple stakeholders in Myanmar. These inputs were gathered between November 2015 and January 2016. With a local Myanmar-speaking expert on the ground, interviews were conducted in the Myanmar language wherever feasible. This also paved the way for a more diverse and inclusive approach and ensured greater participation of local stakeholders. Citing their lack of knowledge regarding the IPA and the general lack of information available on the subject, many respondents initially responded with scepticism and chose to remain anonymous. This feedback was unanimous in requesting as much information as possible from the authorities about the nature of the IPA and its detailed terms rather than concepts. Some respondents chose to have a face-to-face discussion to understand the IPA and followed up with sharing responses via telephone or via filling the questionnaire. The interview process allowed the stakeholders to express their views on

49

Refer to Annex 3 SIA on the EU-Myanmar Investment Protection Agreement EN

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key sustainability issues and on potential impacts related to the agreement under negotation. The SIA Project Team conducted 50 face-to-face interviews to interact directly with the stakeholder groups and obtain detailed information. A key observation has been that, there was better clarity in responses gathered from interviewees who had attended the local workshop in Yangon, which had focused on providing a detailed discussion with speakers and panelists representing multiple stakeholder groups within Myanmar and covering the potential social, economic, human rights and environmental impacts of the IPA. In terms of stakeholder outreach (including both interviews and questionnaires), care was taken to ensure that there was adequate representation from all groups. In terms of the make-up of these groups, the following is the numeric distribution of respondent categories: Stakeholder Group Businesses Civil Society International Organisations Academia/Think Tanks Chambers of Commerce Government Trade Unions Independent Respondent/s

Number of Respondents 18 10 2 8 7 2 2 1

The process: The SIA Project Team contacted a broad range of stakeholders and tailored the consultation approach as a function of the responsiveness and the technical availability of stakeholders. It is understood that stakeholders located outside of Yangon might only have very limited access to internet or reliable mobile phone network services. The first part of the questionnaire, containing mostly closed questions, allowed the stakeholders to become familiar with the topic and was designed for completion within a short period of time. This questionnaire was made available online via the project website and was actively disseminated to targeted stakeholders via email and where possible in hardcopy. These questions lay the ground work not only for a robust quantitative analysis of the same set of questions, regardless of the background of the stakeholders, but also allowed the interviewer to ask more substantial follow up questions during the face-to-face interview. The format for questions in the face-to-face interview tended to be more open and designed to give the interviewee the possibility to talk about professional or personal experiences or opinions, usually specifying answers given in the first part of the questionnaire. Questions in the face-to-face interviews used the following two techniques, which were generally used in a complimentary way: o

The first technique lets the interviewee begin the interview by using a set of predefined topics related to economic, social, environmental and human rights or sectoral impacts. The questions and answers were not shown to the interviewee. Over the course of the open conversation, the interviewee was then invited to write down the answers in key words and tick relevant answers so as to mark the line of thought the interviewee made between the topic or question and the answer. For example, when speaking about positive social impacts of the investment agreement, one interviewee spoke about the increasing economic opportunities for unskilled workers and the potential of lifting elements of the population out of poverty. This method had the advantage of not revealing any predefined answers 38

EUROPEAN COMMISSION which might influence or direct the interviewees’ answers, leading to an answer which might not have been his/her first choice had he/she not seen the questionnaire. o

The second technique, in case any of the interviewees had trouble understanding the language (Myanmar has many different local dialects) or tended to be less talkative, lets the interviewee see the questionnaire to make him/her feel more comfortable and let him/her read the questions/topics and given answers (usually the indicators for social, economic, environmental, human rights in the methodology; this was a good way to understand what the perception of stakeholders was towards these indicators). One problem that can arise is from random answers which interviewees tend to give when they do not initially have an opinion on or awareness of an issue. A good way to avoid this is to ask the interviewees to read all of the answers of a question/topic and rank the three most important answers (out of a set of 5 to 7 answers) according to the question. This approach allows the interviewee to think more carefully about the question and subsequently create an order of importance instead of giving a random answer, while allowing a certain degree of quantitative analysis afterwards.

Please see Annex II for the official stakeholder questionnaire, used both for face-to-face interviews and for the online stakeholder consultation. 1.2.2 Questionnaire Based upon the questionnaire model used for face-to-face interviews, the SIA Project Team developed an online questionnaire open to all relevant stakeholders. Two envisaged disadvantages of online questionnaires in this project context was the general low expected response rate due to the low level of availability of internet in Myanmar and the fact that the questions were not targeted to the specific stakeholder. Thus, the online questionnaire developed by the SIA Project Team and displayed below mitigated both problems in the following ways: First, in order to minimise the risks and aim for a high rate of responses, the SIA Project Team followed up on survey recipients with telephone calls where feasible. The questionnaire was also promoted and disseminated during meetings with civil society dialogues in Brussels and the local workshop in Myanmar. Secondly, experts familiar with questionnaire techniques and methodologies shaped the development of the questionnaire based upon the expected audience for these questionnaires. EU business and EU-based NGOs were considered to be the most likely among the most relevant stakeholders interested in providing input via the online questionnaire. Thus, the SIA Project Team drafted a basic online questionnaire which put particular emphasis on the EU businesses with a high interest in the IPA, both in the EU and in Myanmar, as well as on EU or international NGOs which are specialised in Southeast Asia and/or in social, environmental and human rights issues related to investments. Nonetheless, all relevant questions were covered in order to ensure comparability among the given answers. Similar to the nature of responses gathered as part of the interviews, many respondents impressed upon the need for more information on the IPA in detailed terms. The questionnaire has served as a very important data-gathering tool as some interview respondents further chose to fill in the questionnaire after attending the workshop and send it via email or fill it online. With the additional extended deadline till February 25 th, 2016 for the questionnaire submission, interested stakeholders received time to submit their filled-in questionnaires. The total no of filled-in questionnaires received including the ones that came as follow-ups from interviews are 12. SIA on the EU-Myanmar Investment Protection Agreement EN

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3.2.2.

Meetings and Workshop

Civil Society Dialogue Meeting 1: Held on November 5th, 2015 in Brussels, Belgium; this meeting provided an opportunity for civil society and NGOs in the EU to highlight their feedback, concerns and provide recommendations for the IPA negotiations. The meeting also elicited constructive suggestions regarding the methodology of the SIA with a stronger impetus placed on the need for open consultative processes to be adopted (as is part of this SIA’s approach) and for multiple-stakeholder inputs to be represented in a balanced manner.50 Local Workshop in Myanmar: Held on December 17th, 2015 in Yangon, Myanmar, this workshop gathered relevant government, social partners, non-governmental organisations (NGOs), academic partners and private sector stakeholders active in Myanmar to engage in a discussion on the likely economic, social and environmental and human rights impacts of the EU-Myanmar Investment Protection Agreement. The workshop provided local stakeholders an opportunity to learn more about the agreement and served as a platform for civil society in Myanmar to provide feedback on the potential impacts of the agreement.51

o

Overview: An integral part of the delivery of the SIA on the EU-Myanmar Investment Protection Agreement was the organisation of a full day workshop held in Myanmar. The workshop was designed to promote a genuine and comprehensive dialogue between the 80 plus participants and gather perspectives of relevant stakeholders on the work delivered during the interim project phase.

o

SIA Project Team in Myanmar: In order to ensure efficient management and organisation of the preparation of the local workshop, the SIA Project Team relied on a strong presence in Myanmar. The Team included two local experts with relevant stakeholder and administrative networks as well as linguistic and cultural knowledge to provide valuable input. In addition, the Team also included a foreign Yangon-based expert associated with a local NGO with a strong focus on identifying and communicating with relevant EU businesses and international organisations.

o

Administrative progress: In order to anticipate administrative procedures potentially required for the organisation of a local workshop, the SIA Project Team made and maintained contact with relevant Myanmar authorities including the Head of the Directorate of Investment and Company Administration of the Myanmar Government (DICA) in Myanmar. This contact helped to ensure that relevant stakeholders from government were informed of the workshop in a timely manner and that buy-in from relevant local institutions was maximised.

o

Logistical progress: The logistical preparation required identification and communication with potential venues as well as translation and transportation companies. Invitations were sent 4 weeks in advance of the workshop.

Civil Society Dialogue Meeting 2: To be held on April 5th, 2016 in Brussels, Belgium. This meeting seeks to obtain detailed and constructive feedback on the SIA as well as take in further recommendations for the EU-Myanmar Investment Protection Agreement.

50 51

See Annex I Please see Annex II 40

EUROPEAN COMMISSION 3.2.3.

Other activities

Website A dedicated Trade SIA website was launched by the SIA Project Team and was updated regularly throughout the project implementation. The website served as the team's main link with external stakeholders to conduct online consultation. The consultation took the form of an online questionnaire, to which all relevant stakeholders could contribute. The website also served as the SIA Project Team’s main tool to inform the public about all updates and news related to the project. The website was produced in line with Tool #50 of the EC Better Regulation Toolbox: Stakeholder Consultation Tools, 5.3. Open Public Consultations52. The domain name eu-myanmarsia.com was secured for 3 years, to ensure the availability of resources and information regarding the Trade SIA for 2 years following the delivery of the final report for the project; o

Home: the “Home” page contained a brief general description of the EU’s SIA initiative and its objective with regard to the EU-Myanmar IPA. To ensure the visibility of the consultation, the Homepage featured a “Have your Say” button, redirecting visitors to the online questionnaire.

o

About: the “About” page provided general and specific information about EU SIAs and IPAs. The general information on SIAs and IPAs was complemented by very specific information related to the projects’ implementation. The page also provided information about the SIA Project Team.

o

News: the “News” page was updated most regularly. It aimed at providing visitors with the most recent publicly available information on the EU-Myanmar negotiations of the IPA, as well as about all events or updates relating to it. The “Upcoming events” section provided updated information about the progress of the SIA in terms of project implementation, particularly regarding the stakeholder consultations, the local workshop and the meetings with civil society.

o

Resources: the Resources page contained all publicly available content related to the EU-Myanmar negotiations of the IPA as well as to the SIA. The SIA Project Team reporting activities (draft and revised Inception Reports, draft and revised Final Reports, official meeting minutes, power point presentations) were also made available to the public after approval by the EC.

o

Consultation: the “Consultation” page featured all of the information related to the public consultations organised under this SIA. Information about the Civil Society Dialogues which took place in Brussels on 5 November 2015 and is planned for 5 April 2016, and information on the full-day local workshop taking place in Yangon which took place on 17 December 2015 was uploaded in two phases: (i) prior to the events, details of the venue, date, registration procedures etc.; and (ii) following the events, with activity reports uploaded and accessible. The online questionnaires were also made available under this section.

o

Contact: the “Contact” page included a blank form from which visitors were able to send feedback or inquiries to the SIA Project Team.

The website ensures long-term visibility for the project through its continued maintenance for 24 months following the date of the upload of the Final Report for the project. As

52

European Commission. (2015). Better Regulation Toolbox: Tool #50 Stakeholder

Consultation Tools. SIA on the EU-Myanmar Investment Protection Agreement EN

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internet penetration within Myanmar is limited, both in terms of low user rates and the geographical coverage and availability of internet services, it was anticipated that for local stakeholders in Myanmar other consultation tools would also be important in generating inputs from this SIA. Additionally, the SIA Project Team established and maintained contact with relevant stakeholders through various other electronic tools, such as email newsletter, Twitter, and LinkedIn. These platforms were used to inform stakeholders regularly and pro-actively regarding the SIA process, including consultation activities and the main findings. The website received feedback on the nature of resources that could bolster the information needed on the Investment Protection Agreement. Especially on the civil society front, there were comments and concerns flagged about updating the website with reports and publications that voiced both support and concern regarding the Agreement negotiations, making it a transparent space for information dissemination relating the SIA.

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EUROPEAN COMMISSION 4. ECONOMIC IMPACTS The primary purpose of the EU-Myanmar IPA is to provide investors from each Party with stable legal assurances of their property rights and protections in the other. As the current proposal for an EU-Myanmar IPA does not include market access or other trade and investment preferences beyond protection, this economic impact assessment focuses on the fundamental relationship between perceived risk, which an IPA would mitigate, and FDI. The analysis herein is descriptive in nature and based on a selection of the literature surrounding the effects of IPAs, available data on investment in Myanmar and precedents observed in countries with similar characteristics. The relationship between key variables and indicators affected by FDI are organised in the Logic Chain Theory Analysis (LCTA), found below in Section 4.2.1, and from which functional linkages between FDI, economic output, labour productivity, employment, and dependency rates are derived. These linkages guide the qualitative model and sectoral analysis contained in Sections 4.2 and 4.5. It is difficult to accurately predict the quantitative effects of IPAs on FDI. There even remains considerable discord in the literature as to whether IPAs cause FDI growth. 53 Specific to Myanmar’s investment relations, there is no pattern for FDI increase following conclusion of an investment agreement with a partner country. For example, available data indicates that FDI from Japan increased 142.7 per cent the year after entry into force of the Japan-Myanmar BIT in 2014 and, from Thailand, by over 40,000 per cent for the year following entry into force of the Myanmar-Thailand BIT in 2012. In terms of total FDI share growth, Japan’s grew by 2.5 percent whereas Thailand’s grew by nearly 12.0 percent.54 The lack of available data in the case of EU-Myanmar trade and investment compounds the exercise. To compensate for this the project team has made reference to some of the findings of the 50 interviews conducted with relevant stakeholders under this SIA, which included interviews with EU business. Multiple EU company respondents expressed the view that increased investment protection would incentivise greater EU investment in Myanmar. Based on this qualitative research and the EU’s current FDI volume and share in Myanmar (approx. 10 per cent), the economic impact assessment of the EU-Myanmar IPA considers a descriptive scenario wherein this amount would increases by 0.5% when compared to the baseline, over the course of a decade. This does not factor in additional increases in FDI which would likely result from underlying market opening which are assumed to increase 100% compared to current figures. Given the level of uncertainty about such estimations, the economic impact assessment does not aim to predict a particular % increase, rather it highlights that an increase is likely against the baseline. Any increases against the baseline would offer a reference point for how selected sustainability indicators might be affected in a scenario where the EU’s share of FDI in Myanmar increases towards 2025. The baseline is derived from current political and economic trends in Myanmar - including recent reforms and existing trade and investment relations - which are surveyed in Section 4.1 and applied in Section 4.2.4.1. In this IPA scenario, total gross value added (GVA) per capita and labour productivity are each projected to increase by 0.5 percent per annum if

53

54

Cf. Neumayer, E. and Spess, L. (2005). Do Bilateral investment treaties increase foreign direct investment to developing countries? London, UK: LSE. Available: http://eprints.lse.ac.uk/627/1/World_Dev_%28BITs%29.pdf; Hallward-Driemeier, M. (2003). Do Bilateral Investment Treaties Attract FDI? Only a bit…and they could bite. Washington, DC: World Bank. Available: http://elibrary.worldbank.org/doi/pdf/10.1596/1813-9450-3121; Franck, S. (2007). Foreign Direct Investment, Investment Treaty Arbitration, and Rule of Law. Lincoln, NE: UNL. Available; file:///C:/Users/M%20Langdon/Downloads/judind_frank_master.pdf. Calculations made using DICA data, available: http://www.dica.gov.mm/sites/dica.gov.mm/files/documentfiles/approved_country_feb_2016_0.pdf. SIA on the EU-Myanmar Investment Protection Agreement EN

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compared with the baseline, while Myanmar’s employment and dependency rates will remain mostly unchanged. In addition to national macroeconomic indicators, the same projections are calculated by sector, based upon quantitative literature finding that effect on national growth per unit of FDI varies depending on its sectoral destination. 55 Based on this sectoral analysis, the largest output gains from a scenario where EU-sourced FDI is doubled are expected in the ‘trade and repairs’, ‘mining and quarrying’, and ‘transport equipment’ sectors. Only Myanmar’s ‘financial intermediation’ sector will be adversely affected by the IPA scenario, at a marginally negative rate. This may be a result of decreased need for related services due to increasing ease of business in the financial sector. Full projections can be found in Section 4.5. Sections 4.3 and 4.4 conceptualise the costs and benefits to each party of an EU-Myanmar IPA. The primary effect of the IPA will be to reduce the comparative disadvantage that EU investors face against Myanmar nationals, as well as those from China, India, Japan, the Philippines, Thailand, and ASEAN, and other capital exporters with whom Myanmar has IPAs in effect. The government of Myanmar can reasonably expect a diversified FDI import stream - with a greater share sourced from the EU - and revenue gains from an expanding tax base and licensing demand. At the same time, several stakeholders in the EU and Myanmar express wariness over the potential influence that international investment rules might have in binding domestic policy options. Furthermore, the IPA is certain to include some form of investor-state dispute settlement - perhaps in the form of the EU’s new Investment Court System - that will incur administrative costs and, subject to use, legal damages. Assuming these to be constant across both parties, they will pose a larger, regressive taxation effect on Myanmar’s smaller, capital-receiving economy than on the EU’s. 4.1.

Current state of economic development and FDI in Myanmar

Myanmar’s GDP has grown steadily over the past two decades: the economy registered an annual growth rate of 14 per cent per year between 2000 and 2013 and has benefitted from an expanding population. According to IMF estimates, Myanmar’s real GDP will grow at a yearly average rate of 8 per cent between 2014 and 2019, more than the ASEAN yearly average of 5.9 per cent. Myanmar is projected to comprise about 3 per cent of ASEAN’s GDP by 2019, or € 102 billion. 56 Myanmar has one of the lowest GDP per capita levels in ASEAN (€ 999.45 in 2012), ranking only ahead of Cambodia.57 Myanmar is a low-income country according to the World Bank’s classification, but is expected to become a low-middle-income economy by the end of the decade according to IMF projections. Having just recently opened up to regional and global commerce, Myanmar is still among the least integrated countries in terms of global value chains (GVCs). Malaysia and Vietnam were in a similar position in the 1980s and have successfully diversified their respective export profiles since then.58 In this regard, relevant

55

56 57

58

Alfaro, L. et al. (2003). FDI and Economic Growth: The Role of Local Financial Markets. Journal of International Economics. Available: http://econweb.umd.edu/~kalemli/jiefinal.pdf; Nunnenkamp, P. and Spatz, J. (2004). FDI and economic growth in developing economies: how relevant are host-economy and industry characteristics. New York, NY: UNCTAD. Available: http://unctad.org/en/Docs/iteiit20049a3_en.pdf. International Monetary Fund. (2014). World Economic Outlook 2014.Washington, DC: IMF. Available: http://www.imf.org/external/Pubs/ft/weo/2014/01/. McKinsey Global Institute. (2013). Myanmar’s moment – Unique Opportunities, major challenges. Available: http://www.mckinsey.com/global-themes/asia-pacific/myanmars-moment: A worker in Myanmar adds approximately € 1,363 of economic value in a year of work (data from 2010), which is considerably below the estimated labour productivity of workers in other ASEAN countries such as Thailand (€ 7,632), Indonesia (€ 5,906), the Philippines (€ 4,997) and Vietnam (€ 1,999). International Monetary Fund. (2014). World Economic Outlook 2014.Washington, DC: IMF. Available: http://www.imf.org/external/Pubs/ft/weo/2014/01/. 44

EUROPEAN COMMISSION studies underline Myanmar’s economic potential to develop growth from moving to more capital-intensive and value-added industries—in particular in mineral-based products, food and communications equipment—similar to Thailand and Vietnam.59 Myanmar could quadruple the size of its economy from € 41 billion in 2010 to more than € 270 billion in 2030, creating 10 million non-agricultural jobs–inter alia in manufacturing, infrastructure, energy, telecoms, and tourism – lifting some 18 million people out of poverty.60 As investment continues to flow into Myanmar, it is anticipated that its sectoral labour distribution and productivity levels will slowly converge towards levels similar to its neighbours, resulting in nearly doubled productivity growth than that experienced over its recent history. Myanmar is home to more than 53 million people. The country accounted for around 9 per cent of ASEAN’s population in 2014. Its population is expected to increase at an average rate of 0.3 per cent per year (below the regional average population growth of 0.6 per cent per year), from 53 million in 2013 to around 59 million in 2050. 61 Although in 2014 only 34 per cent of the population lived in urban areas (one of the lowest rates within ASEAN), this share is expected to reach 55 per cent (around 32 million people) by 2050.62 According to these estimates, more than 32 million people will live in Myanmar’s urban areas by 2050. Myanmar’s economic growth projected over the coming years is expected to trigger an expansion in the size and purchasing power of Myanmar’s middle class. An estimated 16.5 million people living in Myanmar could join this category by 2030, compared to a baseline size of only 2.5 million in 2010.63 Consequently, domestic consumption could potentially triple from € 31.8 billion in 2010 to around € 89.4 billion by 2030.64 The middle class is expected to remain geographically concentrated in urban areas, particularly in three regions: Yangon, Mandalay and Ayeyarwady.65 Despite the relatively bright macroeconomic outlook for Myanmar, there are a number of risks that might hamper growth. The Kyat, Myanmar’s national currency, has significantly depreciated against the euro since late 2014, depleting foreign currency reserves to excessively low levels. Moreover, “declining natural gas prices and slowing growth in China could impact Myanmar’s economy given the importance of this commodity and the role of the world’s second largest economy to Myanmar’s external trade.” 66 4.1.1.

Political and economic state of play

Recent political developments in Myanmar have catalysed dramatic changes to the country’s economy. Real gross domestic product (GDP) has grown at an average rate of

59

60 61 62 63 64 65

66

McKinsey Global Institute. (2013). Myanmar’s moment – Unique Opportunities, major challenges. Available: http://www.mckinsey.com/global-themes/asia-pacific/myanmarsmoment. Ibid. World Bank Population growth (percent per annum) database. Available: http://data.worldbank.org/indicator/SP.POP.GROW/countries/MM?display=graph. United Nations (2014) World Urbanisation Prospects: the 2014 Revision. Available: http://esa.un.org/unpd/wup/highlights/wup2014-highlights.pdf. McKinsey Global Institute. (2013). Myanmar’s moment – Unique Opportunities, major challenges. Available: Available: http://www.mckinsey.com/global-themes/asia-pacific/myanmars-moment. Ibid. Boston Consulting Group. (2013). Vietnam and Myanmar: Southeast Asia’s New Growth Frontiers. Available: https://www.bcgperspectives.com/content/articles/consumer_insight_growth_vietnam_myanm ar_southeast_asia_new_growth_frontier/ International Monetary Fund. (2015). Myanmar’s Growth Momentum Strong, but Maintaining Stability Is Key. Available: http://www.imf.org/external/pubs/ft/survey/so/2015/CAR091815A.htm. SIA on the EU-Myanmar Investment Protection Agreement EN

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over 8 per cent since 2010, when the first general election in two decades was held by the military government. Prior to this, real GDP growth averaged only 2.3 per cent during the three years preceding 2010. The new government actively pursued foreign investments, including anti-corruption, monetary, and legal policy reforms. The Myanmar economy was on target to record 9.3 per cent GDP growth during 2015, more than one percentage point ahead of World Bank and Asian Development Bank estimates. This figure was, however, revised downward after lost output during atypically severe monsoon floods. Myanmar is now expected to record 6.5 per cent GDP growth for 2015. Key drivers behind this rapid development are cross-sectoral FDI and progress in political and economic reforms. The telecommunication sector plays a particularly important role in the recent economic growth due to its cross-sectoral impacts. The mobile penetration rate, for instance, has soared from just a few per cent to over 50 per cent within one year.67 Nonetheless, vulnerability to external shocks remains an important barrier to sustainable economic growth in Myanmar. Equally, managing inflation has been a persistent challenge for Burmese economic planners. The World Bank reports that Myanmar’s rate of inflation reached 10 per cent in mid-2015 due to rapid growth in the availability of private credit. Therefore, continued and macroeconomically tenable growth will require, notably, an improved business environment, further structural reforms, and new rules on access to finance. In November 2015, the National League for Democracy was elected by large majority with a mandate to implement democratic reforms, increase international engagement, and liberalise Myanmar’s dominant agricultural sector. Primary production remains the largest sector in Myanmar, with agriculture leading this total and comprising around 40 per cent of GDP. 60 per cent of cultivated land area in Myanmar is devoted to rice production; poppy farming is also present in Myanmar and significant for its role in Southeast Asia’s illicit drug trade. Outside of agriculture and light industry, the legacy of state interventionism under the socialist government of General Ne Win in the 1960s and limited privatisations of the junta government during the 1980s is particularly visible in the current ownership structure of heavy, extractive, and other capital-intensive industries. Myanmar’s industrial sector is characterized by the near unanimity of small and medium sized enterprises (SMEs) and a handful of large, underperforming state-owned enterprises (SOEs). 4.1.2.

Myanmar FDI regulatory framework and trends

According to the Myanmar Investment Commission (MIC), FDI levels rose to unprecedented levels in 2015. Whereas Myanmar received about € 300 million in 2010, it recorded FDI inflows of € 7.4 billion in the fiscal year 2014-2015. During this period, FDI was largely concentrated in three sectors: oil and gas, power production and manufacturing. Furthermore, Myanmar’s total investments tend to be grouped in a handful of large projects, as illustrated by the large spike in FDI between 2010-2011 when several

67

Petty, M. (2015). Insight: Disconnected for decades, Myanmar poised for telecoms boom. Reuters. Available: http://www.reuters.com/article/us-myanmar-telecomsidUSBRE88C03K20120913. 46

EUROPEAN COMMISSION large hydropower and energy extraction projects were announced. 68 Altogether, these sectors accounted for almost 90 per cent of total inflows.69 Myanmar’s FDI landscape looked to be subject to change in early 2015, however, as the telecommunications sector had grown to 31 per cent of incoming investment totals—up from about 6 per cent in the previous year. This made telecommunications the largest single component in direct capital inflows.70 This is mainly due to the arrival of two foreign service operators, Qatar-based Ooredoo and Telenor from Norway, after having received operating licenses from the government. Foreign investment into Myanmar is administered locally by the DICA, which oversees company registration and permitting. DICA is also responsible for leading negotiations on bi- and pluri-lateral investment protection and promotion agreements, including the EUMyanmar IPA. Finally, DICA collects and publishes investment figures and statistics for Myanmar on an annual basis. The Director General of the DICA serves as secretary of the MIC, a 16-member board that appraises new investment and economic proposals in the country. According to the MIC, FDI levels rose to unprecedented levels in 2015. FDI is highly concentrated in two sectors; hydrocarbon extraction and power utility investments combined account for 80 per cent of all FDI in Myanmar. Neither the oil, gas, or power sectors employ large portions of the Myanmar labour force.

68

69 70

Organisation for Economic Co-operation and Development. (2015). Multi-dimensional Review of Myanmar: Volume 2 In-depth Analysis and recommendations. Paris, FR: OECD. Available: http://www.oecd.org/countries/myanmar/multi-dimensional-review-of-myanmar9789264220577-en.htm. Petty, M. (2015). Myanmar 2014/15 FDI swells to $8.1 bln – govt agency. Reuters. Available: http://www.reuters.com/article/myanmar-investment-idUSL3N0WR25Q20150325. Oxford Business Group. (2015). Myanmar sees surge in telecoms investment. Available: http://www.oxfordbusinessgroup.com/news/myanmar-sees-surge-telecoms-investment. SIA on the EU-Myanmar Investment Protection Agreement EN

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Table 2: Existing and permitted enterprises by sector, 2014

Permitted enterprises (approved), USD millions

(%)

Existing enterprises (realised), USD millions

(%)

Oil and gas

14,372

33

13,630

41

Power

19,284

44

13,254

39

Mining

2,838

6

2,309

7

Hotel and tourism

1,600

4

1,349

4

Manufacturing

3,456

8

2,254

7

Real estate

1,129

3

448

1

Industrial estate

193

0

179

1

Agriculture

192

0

163

0

Transport and communication

314

1

138

0

Livestock and fisheries

347

1

88

0

Construction

38

0

Other Services

42

0

25

0

Total

43,805

33,837

Source: OECD Investment Policy Reviews – Myanmar Year over year change in recorded investments has varied widely over the last decade. Based on available data, EU investors have constituted between zero and one-quarter of these totals since 2003. China, Singapore, and Thailand are the largest capital exporters to Myanmar and, together, supply over 50 per cent of its total approved investments.

48

EUROPEAN COMMISSION Figure 4: Yearly approved amount of FDI, 2003-2014 25,000

30%

25%

20,000

(USD, millions)

20% 15,000 15% 10,000 10% 5,000

0

5%

2003

2004

2005

2006

EU FDI Share 17.06% Global FDI

2007

2008

0.11%

2009

2010

2011

2012

2013

2014

0%

17.20% 7.03% 5.92% 2.09% 24.43%

91.170 158.28 6065.6 719.70 205.72 984.76 329.58 19998. 4644.4 1419.4 4107.0 8010.5

Source: DICA 01/2016 FDI by Country 4.1.2.1.

Reforms

According to the IMF, Myanmar has made “impressive strides” in economic reform. Progress in this area, combined with the country’s strategic location in a dynamic economic region, a relatively young and low-cost labour force and a large domestic market, suggests that the country “stands to benefit from an ongoing relocation of foreign direct investment, which is being accelerated by the ASEAN Economic Community Initiative”.71 Myanmar has undertaken a number of relevant economic reforms since 2013. 72 The Myanmar government has repeatedly stated the need for foreign investment to diversify the economy beyond primary sector activities, such as natural resource extraction and agriculture. High potential is cited for labour-intensive sectors, such as garments and tourism. According to the OECD, the Myanmar government has developed initiatives to strengthen the role of the private sector in the economy and is working closely with institutions such as the World Bank and the International Finance Corporation (IFC) to improve the investment climate, including by strengthening public-private dialogue. The IFC has been working with the government and the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI) to establish a business forum. In addition, ongoing work by the World Bank and the Asian Development Bank (ADB) on a survey-based investment climate assessment will increase information availability.73

71

72 73

International Monetary Fund. (2015). Myanmar’s Growth Momentum Strong, but Maintaining Stability Is Key. Available: http://www.imf.org/external/pubs/ft/survey/so/2015/CAR091815A.htm Focus will be put on areas the EC’s 2014 IA has not analysed extensively, and on new economic trends and developments since 2013. Organisation for Economic Co-operation and Development. (2014). OECD Investment Policy Reviews: Myanmar 2014. Available: http://www.oecd.org/daf/inv/investment-policy/MyanmarIPR-2014.pdf. SIA on the EU-Myanmar Investment Protection Agreement EN

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In the April 2013, the DICA launched a service centre in Yangon to facilitate company registration for foreign investors. This centre follows the model of Thailand’s One Start One Stop Shop Investment Centre, hosting representatives from involved ministries.74 The OECD also foresees that this bureaucratic decentralisation “should greatly contribute to easing procedures for investors, particularly SMEs.” Different studies highlight the progress made in reforms to improve the ease of doing business in the country, especially those that reduce corporate income taxes (now lower than those in its neighbour China for example) and document requirements for import and export activities. Several important initiatives have likewise been undertaken on a sectoral level. In January 2014, the Myanmar government finalised a landmark agreement to open up its telecommunications network to FDI, breaking the former monopoly of state-owned Myanmar Post and Telecommunications.75 In October 2014, licenses were awarded to nine foreign banks in order to be able to accompany foreign clients’ business operations. 76 In addition, new laws related to mining, intellectual property and special economic zones (SEZs) have been introduced to offer more incentives to foreign investors. In January 2016, Myanmar enacted the Arbitration Law which transposes its 2013 accession to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards into domestic law. This will facilitate the payment of awards arising from investorstate disputes in the EU-Myanmar IPA, as well as with other signatories of the New York Convention, although it remains to seen how Myanmar’s domestic courts will interpret the legislation.77 4.1.2.2.

Areas for Improvement

Despite a considerable pace of progress, Myanmar’s economic reform process slowed in 2015. Many reforms remain incomplete. For example, and despite several initiatives to streamline business registration and procedures, there has been criticism that the current system remains cumbersome; for example, investors still need to contact a number of different ministries and local authorities before realising their projects. 78 In its 2014 Investment Policy Review, the OECD also criticised the 2012 FIL by stating that it left many questions unanswered with respect to investor protection and the criteria for admitting foreign investors. It also highlighted that the mechanisms for dispute settlement and enforcement of contracts and property rights remained weak. Furthermore, it found that the regulatory framework was needlessly complex and lacked transparency with respect to the entry of investors. The modalities of the approval process remain an unresolved investment obstacle. Similarly, the OECD highlighted that the principle of nondiscrimination had not been incorporated into the investment framework and that foreign

74

75

76

77

78

Organisation for Economic Co-operation and Development. (2014). OECD Investment Policy Reviews: Myanmar 2014. Paris, FR: OECD. Available: http://www.oecd.org/daf/inv/investmentpolicy/Myanmar-IPR-2014.pdf. World Bank. (2015). Myanmar: Telecommunications reform. Available: http://wwwwds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2015/06/08/090224b082f07 490/1_0/Rendered/PDF/Myanmar000telecommunications0reform.pdf. The Economist. (2014). Twinned with South Sudan. Available: http://www.economist.com/news/finance-and-economics/21627698-myanmar-has-licensedfew-foreign-banks-its-financial-sector-still. Chan, D. (2016). Myanmar Enacts Modern Arbitration Regime. Singapore, SG: Norton Rose Fulbright. Available: http://www.nortonrosefulbright.com/knowledge/publications/136936/myanmar-enactsmodern-arbitration-regime. Organisation for Economic Co-operation and Development. (2014). OECD Investment Policy Reviews: Myanmar 2014. Paris, FR: OECD. Available: http://www.oecd.org/daf/inv/investmentpolicy/Myanmar-IPR-2014.pdf. 50

EUROPEAN COMMISSION investors were subject to a number of specific restrictions as a result, notably for land ownership and access to some sectors. A revision of the 2012 FIL - a milestone towards more secure legal investment environment according to the OECD - was approved by Myanmar’s legislature, the Pyithu Hluttaw, on December 22, 2015.79 The proposed amendments will provide easier entry to Myanmar markets for both domestic and foreign investors by merging the FIL with the Myanmar Citizens Law. 80 It does not give foreign investors recourse to investor-state dispute mechanisms and includes key provisions to protect the government’s right to regulate in pursuit of legitimate public policy objectives. 81 However, there seems to be a lack of coherence among recently adopted laws, creating legal uncertainty which may negatively impact investors’ decisions.82 4.1.2.3.

Analysis of existing Trade and Investment Relations

A recent IMF study came to the conclusion that Myanmar has an unprecedented opportunity to achieve export diversification, increasing value added of its exports and promoting stronger investment in its key sectors. 83 Its geographical position between South Asia and Southeast Asia, the shifting dynamic in China away from labour-intensive manufacturing and the prospect of benefitting from the EU’s GSP/EBA, ASEAN economic integration and free trade agreements with ASEAN Member States have the potential to contribute to achieving these goals. However, better infrastructure and a suitable business environment are needed. The majority of FDI into Myanmar currently originates from Asia, and investment from this source is anticipated to continue to grow over the next decade, regardless of whether the EU-Myanmar specific IPA is a success. The Myanmar government also commits to “prepare a plan to gradually remove all exchange and other non-tariff restrictions on imports,” in line with ASEAN integration targets launched in November 2015. Moreover, the Ministry of Commerce has started to gradually phase out import and export licencing. Therefore, the baseline predicts a significant expansion of trade and investment in Myanmar; the absence of an IPA between the EU and Myanmar will mean that EU investors continue to be disadvantaged vis-à-vis those from countries having concluded IPAs with Myanmar, notably China, Japan, Thailand, Singapore, and Korea (forthcoming). As a result, FDI from the EU is likely to grow more slowly than that of its main competitors. Part of this EU investment is, moreover, likely to be channelled through companies in Singapore (whose Myanmar-bound investments grew from 5.5 per cent in August 2013 to

79

80

81

82

83

Myanmar Legal Services. (2015). Myanmar Laws enacted in 2015. Available: http://www.myanmarlegalservices.com/wp-content/uploads/pdf/2015-Myanmar-Laws-Enactedin-2015(TD&CCK280116)_(1843059_1).PDF. Linklaters. (2014). Year in Review 2014 and Year to Come 2015. Available: http://www.linklaters.com/Insights/year-review-year-to-come/2014-2015/Pages/Year-ComeThailand-Myanmar-Law-2015.aspx#sthash.Q46FGYkh.dpuf. Aguirre, D. (2015). Public input improves investment law. Yangon, MM: Myanmar Times. Available: http://www.mmtimes.com/index.php/opinion/16636-public-input-improvesinvestment-law.html. Organisation for Economic Co-operation and Development. (2014). OECD Investment Policy Reviews: Myanmar 2014. Paris, FR: OECD. Available: http://www.oecd.org/daf/inv/investmentpolicy/Myanmar-IPR-2014.pdf. International Monetary Fund. (2015). Myanmar – Selected Issues. Available: https://www.imf.org/external/pubs/ft/scr/2015/cr15268.pdf. SIA on the EU-Myanmar Investment Protection Agreement EN

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about 19.2 per cent in March 2015), which can avail themselves of legal protections afforded to Singapore as part of the ACIA..84 A small caveat to the structural disadvantage European investors face relative to Myanmar’s ASEAN and BIT counterparts are the Special Economic Zones (SEZs), of which there are currently three: Dawei, Thilawa, and Kyaukpyu.85 These SEZs confer special tax exemptions and include basic guarantees against nationalisation and recourse to investor dispute settlement mechanisms, as they are defined in individual contracts. 86 FDI import diversification is conceivably a mutual interest for the EU and Myanmar, where the former expands its share relative to other large capital exporters. Dominance by a handful of countries could, ceteris paribus, undermine competition and therefore efficiency in Myanmar’s economy. Excessive dependence on a few countries for FDI would entail downside risks linked to macroeconomic developments in China, which will in turn affect neighbouring countries involved in related value chains. 4.1.3.

Regional comparison of selected macroeconomic indicators

This section briefly reviews Myanmar’s current employment and productivity indicators relative to neighbouring countries sharing similar characteristics. Myanmar’s economy remains largely based in the primary sector, which encompasses raw material extraction and agriculture (Figure 5). The manufacturing and services base is relatively underdeveloped compared to that of neighbouring ASEAN MS, Thailand and Indonesia. Figure 5: Sectoral Employment Shares, 2010 60%

50%

40%

30%

20%

10%

0% Mining

Manufacturing

Transport and communications

Myanmar

Thailand

Construction

Agriculture

Indonesia

Source: ILO, ADB and McKinsey (2013) Myanmar's Moment Figure 6. Sectoral Labour Productivity

84 85

86

Ibid. Association of Southeast Asian Nations. (2013). Special Economic Zones in Myanmar. ASEAN Briefing. Available: http://www.aseanbriefing.com/news/2013/06/28/special-economic-zonesin-myanmar.html. Pyidaungsu Hluttaw. (2014). Myanmar Special Economic Zone Law. Available: http://www.myanmarthilawa.gov.mm/sites/default/files/SEZ_Law.pdf. 52

EUROPEAN COMMISSION 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Total

Manufacturing

Transport and communications

Myanmar

Thailand

Construction

Agriculture

Indonesia

Source: ILO, ADB and McKinsey (2013) Myanmar's Moment Labour productivity in Myanmar (Figure 6) is consistently below that of the same comparators, partly because it has not experienced the same inflow of FDI. The cumulative inflow of FDI between 2004 and 2014 was around € 10 billion; only a fraction of the investment hosted by Thailand and Indonesia over the same reference period (Figure 7). Figure 7. Cumulative FDI between 2004 and 2014

160,000

USD (millions, constnat prices)

140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 Myanmar

Thailand

Indonesia

Source: World Bank Figure 8 shows that the bulk of investment into Myanmar has gone into the extraction and power industries. Although there has been some limited investment into manufacturing and tourism specifically, the secondary and tertiary sectors remain starkly underdeveloped. SIA on the EU-Myanmar Investment Protection Agreement EN

2016 53

Figure 8. Foreign investment by permitted enterprise, as of December 31 2015

Foreign Investment by Permitted Enterprises as of 31/12/2015 25000

USD (million)

20000 15000 10000 5000 0

Source: DICA

54

EUROPEAN COMMISSION 4.2.

Descriptive Model

The economic component of this SIA examines potential impacts of an EU-Myanmar IPA through a combination of Logic Chain Theory Analysis (LCTA), derived from literature tracing the effects of FDI growth, and independent assessment of selected macroeconomic indicators by Cambridge Econometrics. Given that market access liberalisation is not included in the proposed EU-Myanmar IPA, this hybridised approach was developed in order to illustrate the assumption that improved investment protection rules will generate increased FDI. Conceptually, the function of an IPA is to mitigate the risk associated with an investment in the country with which the agreement is being concluded. By providing additional property rights and legal recourse, supplementary to whatever may already be domestically available, the provisions of an IPA are designed to lower the risk premium associated with foreign investments. As perceived risk drops, the expected rate of return for covered investments increases, therefore raising the total number of viable projects. The assumption that increased FDI lends itself to growth and development is widely subscribed to and has been reaffirmed by the two most recent UN Conferences on Financing and Development (2002-Monterrey and 2008-Doha). However, there is some dissent regarding the effect of IPAs on signatories, particularly developing economies. Challenging mainstream thinking on IPAs, some argue that they not only fail to increase FDI flows, but restrict host countries’ policy options in support of sustainable growth.87 4.2.1.

FDI and Logic Chain Theory Analysis

Several studies demonstrate how increased FDI can improve key macroeconomic outcome indicators, such as GDP, employment, wages, and the balance of payments. Often, however, these overlook the intermediate stages.88 Additional literature investigates the transition mechanisms and intermediate indicators that link FDI to GDP growth These studies identify mechanisms including secondary investments, increased foreign currency reserves, skill transfer and diffusion of managerial talent, productivity gains, increased tax revenues and development of infrastructure as significant intermediaries between FDI and GDP growth.89 The LCTA collates relationships between FDI input, intermediate variables, and GDP output observed through the literature. It demonstrates how an increase in FDI can lead to GDP growth, improving several other key macroeconomic indicators along the way. Initially, the LCTA anticipates an increase in foreign currency reserves (euros) and domestic working capital (assets minus liabilities). Similarly, improved labour productivity

87 88

89

Berger, A. (2014). Attracting FDI through BITs and RTAs: Does treaty content matter? New York, NY: Colombia University. Available: http://ccsi.columbia.edu/files/2014/01/FDI_75.pdf. Cf. Taguchi, H. and Lar, N. (2015). FDI, Industrial Upgrading and Economic Corridor in Myanmar. Munich, DE: MPRA. Available: http://mpra.ub.uni-muenchen.de/64411/; Nunnenkamp, P. and Spatz, J. (2004). FDI and Economic Growth in Developing Economies: How Relevant Are HostEconomy and Industry Characteristics. New York, NY: UNCTAD. Available: http://unctad.org/en/Docs/iteiit20049a3_en.pdf; Hsiao, F.S.T. and Hsiao, M. (2006). FDI, Exports, and Growth in East and Southeast Asia--Evidence from Time-Series and Panel Data Causality Analyses Seoul, KR: International Conference on Korea and the World Economy V. Available: http://faculty.washington.edu/karyiu/confer/seoul06/papers/hsiao-hsiao.pdf. Cf. Ma. Y et al. (2014). Factor Intensity, product switching, and productivity: Evidence from Chinese exporters. London, UK: Journal of International Economics. Available: http://www.sciencedirect.com/science/article/pii/S0022199613001116; Banga, R. (2004). Impact of Japanese and US FDI on Productivity Growth: A Firm-Level Analysis. Mumbai, IN: Economic and Political Weekly. Available: http://www.jstor.org/stable/4414579. SIA on the EU-Myanmar Investment Protection Agreement EN

2016 55

is expected as a result of increased capital intensity, both human and physical, as FDI facilitates skill and technology transfers. 90 Moreover, FDI will also flow into infrastructure projects with high multiplier effects, including telecommunications, transport, energy supply and banking services.91 Gains will translate into improved efficiency for enterprises at the small, medium, large, and multinational levels. In terms of aggregate labour demand, increased manufacturing activity in Myanmar - both foreign- and domestically-owned - should increase its sectoral employment share. 92 Furthermore, assuming continued liberalisation of Myanmar’s agricultural sector and new investment flows under an IPA scenario, unit productivity can be expected to increase freeing up additional labour for the manufacturing sectors - particularly those in which Myanmar holds a comparative advantage such as apparel.93 Increased labour productivity can contribute to wage growth. Finally, FDI in the telecommunications sector can increase government revenue as it auctions new licenses, and can generate long term gains as international operators transfer expertise in these areas. Although it is relatively easy for the Myanmar government to generate revenues through license auctions, the tax system would have to be reformed to ensure the government is fully capturing the increase in tax receipts caused by wage and consumption growth. Currently, Myanmar has a large informal economy and one of the lowest tax collection rates in the world.94

90 91

92

93

94

Kudo, T. and Kumagai, S. (2013). An Export-oriented and FDI-driven Growth Strategy for Myanmar. Available: http://www.ide.go.jp/English/Publish/Download/Brc/pdf/13_02.pdf. Abe, M and Dutta, M.K. (2014). A new policy framework for Myanmar’s SME development. ARTNeT Working Paper Series, Asia-Pacific Research and Training Network on Trade. Available: https://www.econstor.eu/dspace/bitstream/10419/103856/1/779742370.pdf. Kudo, T. et al. (2014). Five Growth Strategies for Myanmar: Re-engagement with the Global Economy. Singapore, SG: Journal of Southeast Asian Economies. Available: http://muse.jhu.edu/login?auth=0&type=summary&url=/journals/asean_economic_bulletin/v0 31/31.2.kudo.html. Asian Development Bank et al. (2014). ASEAN Community 2015: Managing Integration for Better Jobs and Shared Prosperity. Bangkok, TH: International Labour Organization and Asian Development Bank. Available: http://www.adb.org/sites/default/files/publication/42818/aseancommunity-2015-managing-integration.pdf. Organisation for Economic Co-operation and Development. (2014). OECD Investment Policy Reviews: Myanmar 2014. Paris, FR: OECD. Available: http://www.oecd-ilibrary.org/finance-andinvestment/oecd-investment-policy-reviews-myanmar-2014_9789264206441-en. 56

EUROPEAN COMMISSION Figure 9: a visual representation of the LCTA.

Source: Cambridge Econometrics There is a caveat that, while the benefits of increased FDI seem abundant, research conducted by the United Nations Conference on Trade and Development (UNCTAD) emphasises that the scale of benefits is highly dependent on the sectoral destination of FDI.95 More specifically, UNCTAD finds that increased FDI can lead to stifled competition and foreign investors crowding out host markets. Additional literature finds that increasing levels of FDI can lead to “Dutch Disease”, whereby a sudden inflow of foreign currency precipitated by increased FDI - creates host currency appreciation to the detriment of export competitiveness. 96 Finally, for sectors wherein Myanmar holds a comparative

95 96

United Nations Conference on Trade and Development. (1999). Foreign Direction Investment and Development. New York: UNCTAD. Available: http://unctad.org/en/Docs/psiteiitd10v1.en.pdf. Roemer, M. (2015). Dutch Disease in developing Countries: Swallowing Bitter Medicine. Frostavallen, SE: The Primary Sector in Economic Development. Available: https://books.google.be/books?hl=en&lr=&id=FPAjCQAAQBAJ&oi=fnd&pg=PT260&dq=findlay+ 2015,+currency&ots=9BpZ3EAFWp&sig=IuXFjUA7ioiFMVmRrNNrhdM2Yfc#v=onepage&q&f=fal se. SIA on the EU-Myanmar Investment Protection Agreement EN

2016 57

advantage, such as extraction and power, new FDI is less likely to generate large increases in employment and other secondary impacts.97

97

Kudo, T. et al. (2014). Five Growth Strategies for Myanmar: Re-engagement with the Global Economy. Singapore, SG: Journal of Southeast Asian Economies. Available: http://muse.jhu.edu/login?auth=0&type=summary&url=/journals/asean_economic_bulletin/v0 31/31.2.kudo.html. 58

EUROPEAN COMMISSION 4.2.2.

Data selection

Data relating to Myanmar are limited, with many that are internally produced being criticised for inaccuracy and unreliability. The table introduces the data used to quantify the variables in the LCTA model framework It includes: (1) selected indicator; (2) data used to represent the indicator; (3) comments on the availability, accuracy, composition, and coverage of the data; and (4) data source. Indicator

Data Used (Proxy)

Comments

Source

FDI

Myanmar’s government approved FDI98

FDI by sector. Annual data between 2003 and 2015

Directorate of Investment and Company Administration (DICA)

Foreign Currency Holdings

No data available

N/A

N/A

Capital

Capital Formation

Net additions to the capital stock, to demonstrate the rate at which capital stocks are growing over the period 1996-2013

Central Statistics Organisation (CSO)

Macroeconomic Stability

World Bank Governance Indicators

Focusing on the: Government effectiveness, Regulatory Quality, and Control of Corruption indicators. Annual index ranging from 2000 to 2014

World Bank

Banking system confidence

Domestic Credit and deposits

Deposits consist of savings deposits, time deposits and certificates of savings. Annual data from 1996 to 2013.

Ministry of National Planning and Economic Development (MNPED).

Sectoral employment and

Agriculture employment or GVA compared to other sector’s performance

Agricultural employment is reported as a percentage of total employment. Annual data from 1990 to 199799 and 2010.

CSO, Food and Agriculture Organization (FAO) at FAOSTAT, MNPED, ILO at

98 99

Foreign investment of established enterprises might also be used, not just new FDI. The Ministry of Labour in Myanmar cite international sanctions as restricting their ability to carry out detailed Labour Force Surveys since the 1990s, which meant that while data on total employment exist, levels for individual sectors is lacking. 2016

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Indicator

Data Used (Proxy)

Comments

Source

Gross Value Added (GVA)

LABORSTAT and McKinsey (2013)100

Labour Productivity

GVA divided by number of employees.

To assess the total labour productivity of the country as a whole and by sector. Data regarding total labour productivity is available from 1996 to 2012, labour productivity by sector is available for 1990 to 1997 and 2010.

CSO and McKinsey (2013)

Wages

Average nominal earnings

Annual wage data, from 1999 to 2007 segregated by Sector, externally created by the ILO.

ILO101

Government Revenue

Tax Revenue as a per cent of GDP

Total government revenue as well as government tax revenue data is available. Annual data from 1990 to 2000 and 2006 to 2013 for both tax and total government revenue.

ADB and CSO

Infrastructure

Telephone subscribers per 100 population

Using telecommunication subscriptions as a proxy for the telecommunication infrastructure. All telecoms data is annual, with data on telephone and mobile subscriptions ranging from 1990 to 2014 and data on Internet (broadband users) ranging from 2005 to 2014.

Millennium Development Goals Indicators (MDGI) via the ADB

Cellular subscribers per 100 population Internet Users per 100 Population

The McKinsey Global Institute was able to create data on the sectoral labour market for 2010 in its paper ‘Myanmar’s Moment: Unique opportunities, major challenges’ (2013). 101 The ILO is conducting a new labour force survey in Myanmar in order to address data gaps, results for which are due for public release in April 2016. 100

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EUROPEAN COMMISSION

Indicator

Data Used (Proxy)

Comments

Source

Air transport (passenger, goods, and general registered departures)

Air transport services as a proxy for the air infrastructure of Myanmar. Annual data from 1990 to 2014.

World Bank

Percentage of population with electricity access.

Access to electricity provides an indication of the infrastructural quality of utilities in Myanmar. Annual data for the years 1990,2000,2010 and 2012

World Bank

Railways passenger and freight ton miles

Each unit is one passengers or freight ton transported one mile by train. These provide a proxy for infrastructural quality of the rail networks. Annual data 2012 to 2015.

Ministry of Transport (Myanmar Railways)

Balance of Payments

Balance of Payment data

Exports of goods and services less Imports of goods and services. Annual data from 2007 to 2012. Note there is no data on the capital account.

CSO, ADB

GDP

GDP and/or GDP per capita

Gross domestic product of Myanmar GDP by sector. Annual data, from 1996 to 2012

CSO, ADB

2016

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Sectoral disaggregation Indicator

Data Used (Proxy)

Sectors available

FDI

Myanmar’s government approved FDI

Wages

Average nominal earnings

GVA and Employment

Output and employment

              

Agriculture Fisheries Manufacturing Transport and communications Mining Agriculture Fisheries Manufacturing Transport and communications Mining Agriculture Mining Manufacturing Electricity, Gas, and Water Construction

62

              

Hotels and Tours Power Oil and Gas Real Estate Development Other Hotels and Tours Power Oil and Gas Construction Other Trade Transport and Communication Finance Public Administration Others

EUROPEAN COMMISSION 4.2.3.

Descriptive analysis

In the absence of sufficient data to fully establish all linkages in the LCTA, the GDP per capita indicator was selected as the most important outcome for analysis. GDP per capita can be broken down using the following identity, which links productivity, the employment rate and the dependency rate:102 𝐺𝐷𝑃 𝐺𝐷𝑃 (𝐺𝑉𝐴) 𝐸𝑚𝑝𝑙𝑜𝑦𝑚𝑒𝑛𝑡 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝑃𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 = 𝑥 𝑥 𝑃𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 𝐸𝑚𝑝𝑙𝑜𝑦𝑚𝑒𝑛𝑡 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝑃𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 𝑃𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 In essence, the identity assumes that: 𝐺𝐷𝑃 𝑝𝑒𝑟 𝑐𝑎𝑝𝑖𝑡𝑎 = 𝐿𝑎𝑏𝑜𝑢𝑟 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 𝑥 𝐸𝑚𝑝𝑙𝑜𝑦𝑚𝑒𝑛𝑡 𝑅𝑎𝑡𝑒 𝑥 𝐷𝑒𝑝𝑒𝑛𝑑𝑒𝑛𝑐𝑦 𝑅𝑎𝑡𝑒 This approach allows for certain elements such as productivity, employment and hours worked to be analysed on a disaggregated sectoral level. This enables both a tight focus on the impact that increased FDI has on individual sectors and differentiated scenario projections based on alternative sector FDI profiles—particularly useful given the risks associated with some FDI trends in Section 4.2.1. The LCTA-derived model therefore has a greater scope in its descriptive abilities, and covers more possible implications of increased FDI on Myanmar. Data availability restricts primary research on the likely effect of higher levels of FDI on the Myanmar economy. However, there is an evidence base to draw on from the economic literature, and the results from these studies can be used to relate to Myanmar’s current situation. In terms of productivity growth, the qualitative analysis can be backed by previous quantitative analysis such as the seminal work of Aitken and Harrison (1999) that assesses the impact of FDI firm level data from Venezuela.103 They looked at how FDI into a specific firm affected that firm’s productivity and the productivity of other firms in that sector. The baseline results indicated that if a firm went from 0 per cent to 100 per cent foreign ownership, its output, ceteris paribus, would increase between 10.5 per cent and by 15.8 per cent when different industry productivity levels were taken into consideration. However, the baseline results also indicated that negative spill-over and crowding out effects exist, as output for other firms fell by 26.7 per cent (and only rose by 5.8 per cent when industrial difference are accounted for). Similar effects were demonstrated in a study on the Chinese context. Researchers assessed the impact of FDI and the subsequent spill-over effects on the Chinese textile and electronics industries. They found that if a firm’s foreign ownership increased by 10 per cent, the output (once labour and capital inputs are taken into consideration) would increase by 7.2 per cent and 3.1 per cent in the electronic and textiles industry, respectively. Conversely if the level of foreign ownership increased in the sector by 10 per cent, companies which did not receive direct FDI would experience a fall in output of 0.4

Even with the proposed methodology, there will be gaps in the data. National accounts data (and more generally sources identified in the data review table) for Myanmar will be used where possible, but in the absence of reliable data, other country estimates will be used. 103 Aitken, B.J. and Harrison, A.E. (1999). Do Domestic Firms Benefit from Foreign Direct Investment? Evidence from Venezuela. American Economic Review. Available: https://ideas.repec.org/a/aea/aecrev/v89y1999i3p605-618.html. 102

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per cent in the electronics industry and 1 per cent in the textiles industry once labour and capital were controlled for.104 Finally, there is evidence that FDI has specific value-added effects. In Myanmar, this is evidenced in the 12 main sectors including (inter alia): agriculture, mining and quarrying, machinery, construction, hotels and tourism and transport equipment. The expectation is that, once one controls for fixed effects, most of the sectors had positive effects, and the results can be seen in Section 4.2.4.2. 105 However, these expectations are based on developed country literature which acknowledgement that, although the trend direction is likely to be the same for developing countries, growth effects from FDI are likely to be smaller as significant benefits are derived from technology and infrastructure spill overs. 106 Using previous studies on Myanmar and third countries, estimates were made of the effect of FDI on each of the GDP per capita components: labour productivity; employment rate and dependency rate.107 4.2.3.1

Labour Productivity

Labour productivity is conceptually defined as volume of output that a worker creates per unit of input. In this model, productivity is determined as the gross value added (GVA) divided by employment numbers. Labour productivity is the indicator most likely to be affected by increased FDI. Increases in productivity are driven by efficiency gains from improved access to capital equipment and capital intensive output methods.108 Additionally, productivity should further increase as the Myanmar economy shifts to higher value-added sectors, which were not feasible before improved access to capital investment.109 Finally, the increased FDI should lead to general improvement in economic conditions, generating positive externalities for labour and capital efficiency.110 Labour is Myanmar’s largest factor of production, so gains in unit productivity will improve competitiveness and trade balance, thus leading to greater GDP per capita.

Hu, A.G.Z and Jefferson, G.H. (2002). FDI Impacts and Spillover: Evidence from China’s Electronic and Textile Industries. The World Economy. Available: http://onlinelibrary.wiley.com/doi/10.1111/1467-9701.00481/abstract. 105 Vu, T.B. and Noy, I. (2009). Sectoral analysis of foreign direct investment and growth in the developed countries. Journal of International Financial Markets, Institutions and Money. Available: http://www2.hawaii.edu/~noy/papers/OECD-FDI.pdf. 106 Ibid. 107 Cf. Organisation for Economic Co-operation and Development. (2013). Multi-dimensional Review of Myanmar Volume 1 Initial Assessment. Paris, FR: OECD. Available: http://www.oecdilibrary.org/docserver/download/4113041ec007.pdf?expires=1458234169&id=id&accname=oci d195496&checksum=DAED3DAF7B820391E6FCF6A150DED6FA; Young-Park, C. and RolandHolst, D. (2014). Myanmar – Long Term Scenarios for Sustained Macroeconomic Growth. ADB. Available: https://are.berkeley.edu/~dwrh/Docs/MYA_PRH14.pdf; Than, M. (2007). Transitional Economy of Myanmar: Present Status, Developmental Divide, and Future Prospects. ASEAN Economic Bulletin. Available: http://muse.jhu.edu/journals/asean_economic_bulletin/v024/24.1than.html. 108 Kudo, T. and Kumagai, S. (2013). An Export-oriented and FDI-driven Growth Strategy for Myanmar. Available: http://www.ide.go.jp/English/Publish/Download/Brc/pdf/13_02.pdf. 109 Myanmar Centre for Responsible Business. (2014). Transparency in Myanmar Enterprises. Yangon: MY: MCRB. Available: http://www.myanmar-responsiblebusiness.org/pdf/2014-07-22Pwint-Thit-Sa-First-Report.pdf. 110 Abe, M and Dutta, M.K. (2014). A new policy framework for Myanmar’s SME development. ARTNeT Working Paper Series, Asia-Pacific Research and Training Network on Trade. Available: https://www.econstor.eu/dspace/bitstream/10419/103856/1/779742370.pdf. 104

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Employment Rate

The employment rate indicates the share of the working population relative to the whole. In this assessment, it is also used to compared sectoral employment relative to the entire economy. Increased FDI can lead to a shift in sectoral composition of the economy, away from agriculture and towards industries with higher value-added, such as manufacturing and services. The LCTA anticipates that as agricultural productivity increases per unit of labour, excess labour supply will relocate to manufacturing roles created by the influx of FDI-derived capital investment. As FDI increases, there should be a decrease in the agricultural sector’s employment share and a corresponding increase in secondary sector industrial employment. As FDI will have little immediate impact on the demographics of a country, employment rate changes are likely to be driven by the number of new jobs created by FDI. Therefore, changing labour intensities will drive this indicator. Increased FDI could also lead the employment rate to increase as more of the unemployed take work in the newly developing manufacturing industries. 4.2.3.3

Dependency Rate

The dependency rate shows the size of the population that is not included in the labour force (children, the elderly, institutionalised, and incapacitated citizens) relative to the whole. In this model, it is calculated using World Bank population projections for Myanmar. The dependency rate is considered to be independent of FDI therefore there should be little to no change in this rate other than that caused by natural demographic changes. In the very long run, increase GDP caused by increased FDI might lead to a more aged population as individuals begin having less children (as has been seen in Thailand), however this change will take generations rather than years. 4.2.4.

Scenario Analysis Results

For comparative purposes, the identity above was used to consider two distinct scenarios, baseline and IPA. The labour productivity and employment rates are calculated from an assessment of the likely cumulative impact of FDI on individual subsectors under each scenario. The dependency rate forecast is calculated directly from World Bank population projections for Myanmar. These three values are then combined together to give a GVA per capital average annual growth rate. The baseline scenario extends Myanmar’s current trajectories and does not apply the conditions of an IPA with the EU. The IPA scenario is based on the assumption that an agreement is successfully concluded and doubles the EU’s figure of FDI in Myanmar after 10 years as a hypothetical figure. Both the baseline and the IPA scenarios would see an increase in FDI and labour productivity by 2025. The assumption is that the IPA will allow for a greater number of investing countries, which will in turn allow for better investments and faster productivity growth than would otherwise have been the case. The EU currently accounts for slightly under 10 per cent of the total FDI into Myanmar, most of which originates in the UK or the Netherlands. In the baseline scenario where no IPA is agreed between the EU and Myanmar, it is highly likely that this distribution would remain the same. In the case of an IPA being agreed, total investment from Europe is anticipated to increase, although the exact extent of this increase cannot be modelled ex-ante with these tools. In absolute terms, the remaining 90 per cent of non-EU investors are unlikely to be adversely affected, since most are from neighbouring countries with which Myanmar already has investment protections in place like those being negotiated with the EU. However, in relative terms, they will surrender their advantage over EU investors, meaning the latter’s share should increase. SIA on the EU-Myanmar Investment Protection Agreement EN

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One of the main benefits of EU-derived FDI as opposed to FDI from non-EU sources such as the nearby Asian nations is the additional boost to productivity that this is anticipated to bring due to the increase in labour productivity associated with knowledge and technological transfer from the high productivity states in Western Europe. Therefore, it is anticipated that the most significant advantage gained by the additional EU investment will be in the form of high productivity rates in those sectors in which European firms focus their capital. Table 3. Source: Cambridge Econometrics Recent History

Baseline

IPA Scenario

200515

2015-25

2015-25

EU share of FDI

10 %

19.5 %

20 %

Myanmar

Average Growth ( per cent pa)

Total GVA per capita

4.5

7.3

7.8

Labour productivity

2.7

5.8

6.3

Employment rate

0.5

0.5

0.6

Dependency rate111

1.3

1.0

1.0

Source: Cambridge Econometrics Table 3 shows the forecasted average yearly growth rates in the two projected scenarios, Baseline and IPA (for which a doubling of EU FDI is assumed), compared with an estimate of the equivalent rates over the previous 10-year period. The labour productivity and employment rates are calculated from an assessment of the likely cumulative impact of FDI on individual subsectors under each scenario. The dependency rate forecast is calculated directly from World Bank population projections for Myanmar. These three values are then combined together to give a GVA per capita average annual growth rate.

111

Source: Worlds Bank: Health Nutrition and Population Statistics: Population estimates and projections 66

EUROPEAN COMMISSION Table 4.

Sectoral Disaggregation

Sector

Percentage Increase in Sectoral Output Growth Rate When FDI is Doubled

Real Estate

0.044 per cent

Agriculture and fisheries

0.074 per cent

Mining and quarrying

0.082 per cent

Food products

0.072 per cent

Oil and Chemical

0.066 per cent

Machinery

0.071 per cent

Transport equipment

0.075 per cent

Electricity, gas and water

0.074 per cent

Construction

0.072 per cent

Trade and repairs

0.083 per cent

Hotels and restaurants

0.070 per cent

Financial intermediation

-0.000 per cent112

Source: Cambridge Econometrics The results above denote the impact of sector-specific FDI on output growth, thus if FDI in the real estate sector doubled, the output growth rate would increase by 0.04 per cent more per year than would otherwise have been the case. Additionally, the growth rate of output in agriculture and mining – key sectors in Myanmar - increased with FDI, however the results show that financial intermediation output is marginally hampered by increases in FDI. Finally, machinery (which includes computers, radio, television and communications equipment), oil and chemical (petroleum chemical rubber and plastic products) and hotels all experience positive growth affects. 113 This is important for Myanmar when assessing the FDI impact as these are all higher productivity sectors. 4.2.4.1

Baseline scenario

The baseline scenario assumes that no IPA is concluded between the EU and Myanmar. In this case, FDI would still continue to flow into Myanmar from non-EU countries such as China, Thailand and South Korea, but the share of investment from EU companies would not rise any further than its current position. As investment continues to flow into Myanmar, it is anticipated that its sectoral labour distribution and productivity levels would slowly converge towards that of its neighbours, eventually resulting in nearly doubled productivity growth than has been experienced over recent history.

112 113

-0.0006. Vu, T.B. and Noy, I. (2009). Sectoral analysis of foreign direct investment and growth in the developed countries. Journal of International Financial Markets, Institutions and Money. Available: http://www2.hawaii.edu/~noy/papers/OECD-FDI.pdf. SIA on the EU-Myanmar Investment Protection Agreement EN

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It is widely anticipated that as Myanmar becomes more open to the outside world and investment continues to flow in from external sources, the currently low rate of labour productivity will converge with its nearest comparators. In the baseline scenario, strong annual labour productivity growth rates across the different sectors of between 4 and 8 per cent per annum can be expected, with the strongest growth coming in underdeveloped sectors like finance and telecommunications. Similarly, a shift in labour demand away from agriculture and into other industries is also anticipated. A 1 per cent annual decrease in agricultural employment allows for significant increases in other sectors without significant increases to the overall labour supply. Annual increases to labour demand are projected between 1-3 per cent for relatively established sectors whereas—as is the case for labour productivity—the strongest employment increases between 4-8 per cent per annum are expected in currently underdeveloped sectors. 4.2.4.2

IPA scenario with sectoral disaggregation

It is also likely that if that relative risk of EU-derived FDI were to decrease, then the relative share of FDI originating in the EU would increase to some extent. Several stakeholders consulted during the SIA process indicated that they would enter or increase their investments in Myanmar under conditions wherein they were sure of greater legal certainty. Without a full microeconomic analysis of the full variety of investment opportunities in Myanmar, it is impossible to accurately quantify this increase to less than 5-10 per cent. We have presented the IPA scenario as a 10 per cent increase in the EU’s share of FDI in Myanmar, in which the rise is assumed a priori, and the implications thereof examined. Assuming that lower investment risk premiums brought about by an EUMyanmar IPA double the former’s share of FDI, investment is likely to be targeted on the tourism, retail services, and business services sectors. The scenario projects that EU investors will eschew low wage manufacturing and similar activities for sectors with higher value-added potential.

Annual Scenario-based Indicator Change 9 8

Percent, per annum

7 6 5 4 3 2 1 0

Total GVA per capita

Labour Productivity

Employment Rate

Dependency Rate

Recent History

4.5

2.7

0.5

1.3

Baseline

7.3

5.8

0.5

1

IPA

7.8

6.3

0.6

1

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EUROPEAN COMMISSION 4.2.4.3

Analysis and Conclusions

It is widely anticipated that as Myanmar becomes more open to the outside world and investment continues to flow in from external sources, the currently extremely low rate of labour productivity will improve as Myanmar converges towards that of its nearest neighbours and most similar comparators, partly driven by increased FDI as the economy opens further. Although the evidence is often ambiguous, the cumulative effects of increased total FDI flowing into Myanmar are expected to have a moderately positive effect on both labour productivity and labour demand. In the subsequent quantitative analysis, the effects of FDI will be considered on a sector-by-sector level. The majority of FDI into Myanmar currently originates from elsewhere in Asia, and investment from this source is anticipated to continue to grow over the next decade, regardless of whether the EU-Myanmar specific IPA is in place. One factor that must be considered when looking at the possible impact on Myanmar is the source of FDI, as well as the size. More than providing simple access to finance, FDI allows for skills and technology transfers that have substantial multiplier effects. 114 This is somewhat reflected by a study on behalf of the United Nations Industrial Development Organisation in 2015, which found that a 10 per cent increase in FDI received from an EU multinational led firms to pay wages 1.2 per cent higher than domestic companies while the same rise in FDI from a China would lead average wages to fall by 0.9 per cent. 115 This is because, as multinational companies invest in foreign countries they introduce working practices as well as capital. Therefore, increased FDI from EU countries into Myanmar could lead to greater productivity gains and employment as EU enterprises experience far high levels of productivity than their Asian counterparts. Thus EU investment into Myanmar will not only lead to higher wages, through the transfer of business practices, but also lead to higher productivity through the transfer of technology, than would otherwise have been the case.

GDP per capita in 2014 US$

Figure 10: EU-Asia Labour Productivity, 2015 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 2015 EU's average productivity

Asia's average productivity

Source: The Conference Board (2015) Output, Labour and Labour Productivity. 116

Liu, Z. (2008). Foreign direct investment and technology spillovers: Theory and evidence. Buffalo, NY: SUNY Buffalo. Available: http://www.sciencedirect.com/science/article/pii/S030438780600126X. 115 United Nations Industrial Development Organization. (2015). Local innovation and global value chains in developing countries. Vienna: UNIDO. Available: http://www.unido.org//fileadmin/user_media/Services/PSD/WP_2015_05_v2.pdf. 116 The GDP per capita in 2014 US$ was created using updated 2011 purchasing power parity. 114

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Therefore, in the baseline scenario, strong annual labour productivity growth rates across the different sectors of between 4 and 8 per cent per annum might be expected, with the strongest growth coming in currently underdeveloped sectors such as finance and telecommunications. Similarly, a shift in labour demand away from agriculture and into other industries is also anticipated. A 1 per cent annual decrease in agricultural employment allows for significant per cent increases in other sectors without the necessity of a rapidly increased labour supply. Annual increases of labour demand in the region of 1-3 per cent pa are anticipated in relatively established sectors, whereas as with labour productivity, the strongest employment increases of 4-8 per cent per annum are more likely to be seen in currently underdeveloped sectors. The IPA scenario sees a smaller increase in labour demand in the manufacturing sector, but this is off-set by additional investment and corresponding increases in productivity and labour demand in the services sectors, particularly finance, business services, tourism, retail and telecommunications. With high levels of investment, labour demand in these sectors may increase by up to 6 per cent pa, with the potential for labour productivity to increase by 10 per cent pa. The net result of this is a forecast of a small increase in overall labour productivity and ultimately GDP per capita that is attributable to the scale of increase in EU based FDI that may be stimulated by an investment protection agreement. The two scenarios result in an additional 0.2 per cent pa and 0.5 per cent pa increase in Myanmar’s annual growth rate over the coming decade. 4.2.5.

Potential impacts of the IPA for EU investors

The conclusion of an IPA between the EU and Myanmar could prove beneficial to EU investors insofar as it would address the two main impediments they face: the insecure investment environment in Myanmar and lack of property protections that competing investors from countries with investment agreements currently enjoy. Were the IPA to address these, it would result in a reduction of cost and other barriers faced by foreign investors. Holding all other things equal, such a reduction in investmentrelated costs would help increase outward FDI from the EU to Myanmar. Improved investment conditions can allow EU companies already present in Myanmar to expand their operations in the country while also attracting new EU investors. 117 According to stakeholder inputs, this will particularly be the case if the IPA is able to help address problems on the ground such as ease of transactions, infrastructure and land accessibility. FDI growth tends to stimulate exports of other goods or services either from the parent company (intra-firm trade) or from other companies (inter-firm trade), this effect being

117

According to United Nations Development Program representatives consulted for this SIA, the IPA may or may not be relevant for stimulating investment from EU countries into Myanmar. Investors will likely be looking at other factors, for example, the indicators provided by the World Bank's "Doing Business" profile for Myanmar. Representatives of the MCRB also indicated that there is no clear evidence whether or how much IPAs affect company decisions to invest. Factors other than an IPA - e.g. regulatory stability and transparency, costs – are, according to this organisation, more important for companies considering whether to invest in Myanmar. 70

EUROPEAN COMMISSION greater than the substitution of some exports by the additional FDI. 118 An IPA can therefore be expected to help promote trade between the EU and Myanmar. 119 In addition to direct benefits to EU investors, the increase of EU FDI into Myanmar can have welfare-enhancing effects for the EU public. According to the OECD, this could be the case if the increase of the tax base if, for example, an acquisition of an existing enterprise in Myanmar brings revenues of the acquisition target under taxation in one of the EU Member States. Indirect effects are also possible; EU Member States might benefit from the expansion, increased employment, higher dividends and taxes generated by EU investors.120 While theoretically significant, the actual scale of these secondary benefits is likely to be marginal given the imbalance between the size of the EU and Myanmar economies. 4.2.6.

Potential impact of the IPA for EU SMEs

In the below section the project team have explored the potential impacts of the IPA agreement on EU SMEs. Research suggests that SMEs are less likely to engage in outward FDI. As a result, both a baseline and projected impacts on SMEs are low. That said, SMEs receive disproportionate advantages from the removal of administrative barriers as they have less capacity to absorb related costs. Therefore, the IPA could greatly benefit SMEs engaged in investing in Myanmar. The EU has over 20 million SMEs representing more than 99 per cent of EU companies. More than 619,000 SMEs export outside the EU. The project team have come across multiple examples of EU SMEs taking advantage of new opportunities in Myanmar. Important sectors for SME development in Myanmar are the garment industry, and food and beverages. The garment industry has become the third most prevalent SME sector in Myanmar, with 350 garment factories in 2014.121 The EU funded SMART Myanmar project is actively promoting and supporting the sustainable production of garments “made in Myanmar” and striving to increase the international competitiveness of SMEs in this sector.122 EU SMEs in the food and beverage sector are the most prevalent ones active in Myanmar.123 While internationalisation is a key factor in SME growth, only the most robust firms can bear the higher fixed costs of international operations. Since SMEs face higher resource constraints in terms of financing, information, and management capacity as well as external barriers such as market imperfections and regulations – they tend to resort more often to forms of internationalisation that require less commitment. As a result, exporting

Organisation for Economic Co-operation and Development. (1999). Foreign Direct Investment and International Trade. OECD Science, Technology and Industry Working Papers. Available: http://www.oecd-ilibrary.org/science-and-technology/foreign-direct-investment-andinternational-trade_788565713012. 119 Copenhagen Economics. (2012). Impact Assessment Report on the EU-China Investment Relations. Available: http://ec.europa.eu/smartregulation/impact/ia_carried_out/docs/ia_2013/swd_2013_0185_en.pdf. 120 Organisation for Economic Co-operation and Development. (2008) Policy Brief: Tax Effects on Foreign Direct Investment. Paris, FR: OECD. Available: http://www.oecd.org/investment/investment-policy/40152903.pdf. 121 Myanmar Garment Manufacturers Association, http://www.myanmargarments.org/. 122 More information on the initiative is available here: https://ec.europa.eu/europeaid/projects/smart-myanmar-smes-environmental-accountabilityresponsibility-and-transparency_en 123 Kyaw, A. (2008). Financing Small and Medium Enterprises in Myanmar. Institute of Developing Economies. Available: http://www.ide.go.jp/English/Publish/Download/Dp/pdf/148.pdf. 118

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is still the most frequent type of international activity for SMEs. 124 Research has shown that when SMEs do engage in outward FDI, they tend to start to export to countries that are in close proximity to their respective countries of origin. Close proximity can be defined in several ways; in this context, it includes geographical distance; cultural factors, such as a common language or a former colonial relationship; and political and economic factors. It takes some time for SMEs to expand their activities to more distant markets. 125 Therefore, key barriers for SMEs in entering Myanmar’s markets include distance and language. Additional barriers include lack of established customs procedures, lack of infrastructure development and the uncertainty that emanates from political instability in the country. SMEs would disproportionately suffer from the lack of basic infrastructure, which leads to higher costs of doing business. Considering the political changes in the country, there is reason to believe that the political situation may become more steady, thus facilitating an improvement in local business conditions. Furthermore, the government has taken initiatives to streamline administrative and other bureaucratic functions, making them more ‘user friendly’ for business development. The IPA between the EU and Myanmar can be expected to be particularly beneficial for any SMEs seeking to invest in Myanmar, as they typically face disproportionate costs from investment-related obstacles and seldom invest abroad as a result. Similarly, an IPA may also contribute to raising awareness of investment opportunities for EU SMEs in Myanmar. This investment agreement can contribute to the larger framework of EU activities which support EU SMEs investing in Myanmar, including the Southeast Asia IPR Helpdesk and the new European Chamber of Commerce which is being established in Myanmar. 4.3.

Potential Impacts on the Myanmar Government

The most direct benefit to the government of Myanmar from increased EU FDI under an IPA scenario will be increased tax and licensing revenues. To some extent, however, this assumes that Myanmar’s tax collection system improves, as the country is estimated to have a particularly low total tax revenue.126 According to the OECD, the conclusion of “clear and well-drafted” IPAs can help Myanmar’s government address many remaining weaknesses in its domestic regulations. Furthermore, “since Myanmar is still in a consolidation phase of an enabling domestic framework for investment, international investment agreements can play a crucial role to complement domestic rules that are still being reformed, and thus to reassure foreign investors”. 127 Costs for the Myanmar government can also arise from the conclusion of an IPA with the EU.128 According to the OECD, these costs include fixed expenses for the negotiation and administration of the agreement, as well as contributions to the legal infrastructure associated with a treaty. If claims are brought under an international investment

European Commission. (2014). European Competitiveness Report 2014: Helping Firms Grow. Available: http://ec.europa.eu/DocsRoom/documents/6706/attachments/1/translations/en/re nditions/native 125 Ibid. 126 Myanmar does not report its tax collection figures to the World Bank, for example. 127 Organisation for Economic Co-operation and Development. (2014). OECD Investment Policy Reviews: Myanmar 2014. Paris, FR: OECD. Available: http://www.oecd-ilibrary.org/finance-andinvestment/oecd-investment-policy-reviews-myanmar-2014_9789264206441-en. 128 Fiscal costs may be incurred by either party in an IPA. However, this section focuses on potential costs to the Myanmar government. 124

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EUROPEAN COMMISSION agreement, expenses for the defence as well as potentially damages awards may also arise.129 Average award amounts from international arbitration are in the range of € 69 million.130 These costs, and the policy limitations they can impose, did prompt some stakeholders to voice concerns about Myanmar’s readiness to sign an agreement when its own legal system and policy processes are in a state of transition. Concerns centred around the potential for commitments to the IPA to constrain existing and new regulatory legislation, as many are still in their formative stages. 4.4.

Sectoral analysis, economic impacts

When assessing the impact of increased FDI, one must look at sub-sectors as the effects of FDI will differ depending on the strengths of certain sectors. 131 Further research suggests that FDI into the secondary and manufacturing sector leads to higher levels of growth than when it flows into the primary sector. 132 Current FDI flows into Myanmar predominantly target the primary sector, which might limit the impacts as shown in the LCTA. For the LCTA outcomes to be realised, FDI must be focused on developing the manufacturing sector as this will have the widest reaching impact on the economy. It is likely that, regardless of its origin, the majority of initial FDI will come in the form of new or expanded ventures in the primary and secondary sectors as these areas are likely to provide the best competitive advantage, export potential and rates of return. Tertiary sectors are typically more reliant on a combination of domestic demand for services (such as retail or accommodation), or a higher skilled workforce providing professional and knowledge-based services. Both of these factors are more likely to develop in Myanmar over a longer timescale. In the already well-established primary sector, the principal effect of the influx of new FDI is likely to come in the form of capital investment, advanced technology, and skills diffusion, allowing the same workforce to increase their labour productivity and total output. The overall effect of FDI on labour demand in the primary sector is ambiguous, though it could conceivably drop as actors switch to more capital-intensive modes of production. In the secondary sector, additional foreign investment generates significant increases in both labour demand and labour productivity. This sector could be anticipated to grow substantially in terms of GVA. The exact nature of the increases to productivity could depend on the exact manufacturing sub-sectors receiving the most investment.

Organisation for Economic Co-operation and Development. (2014). OECD Investment Policy Reviews: Myanmar 2014. Paris, FR: OECD. Available: http://www.oecd-ilibrary.org/finance-andinvestment/oecd-investment-policy-reviews-myanmar-2014_9789264206441-en. 130 Hodgson, M. (2014). Counting the costs of investment treaty arbitration. International Journal of Commercial and Treaty Arbitration. Available: http://www.allenovery.com/SiteCollectionDocuments/Counting_the_costs_of_investment_treat y.pdf. 131 Nunnenkamp, P. and Spatz, J. (2004). FDI and economic growth in developing economies: how relevant are host-economy and industry characteristics. New York, NY: UNCTAD. Available: http://unctad.org/en/Docs/iteiit20049a3_en.pdf: The authors found that FDI led to greater economic growth for countries with strong locational characteristics (for example GDP per capita, schooling, institutional development and openness to trade), whilst countries with weak locational characteristics saw smaller FDI induced growth. 132 Alfaro, L. et al. (2003). FDI and Economic Growth: the Role of Local Financial Markets. Journal of International Economics. Available: http://econweb.umd.edu/~kalemli/jiefinal.pdf. 129

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The ultimate result of investment in both the primary and secondary sectors is that of increased labour productivity and a sectoral employment shift from the primary to secondary sector is anticipated as Myanmar follows the trajectory of its comparators. 133 4.4.1.

Agriculture and Fisheries

Myanmar’s agricultural sector employs about 70 per cent of the country’s workforce. 134 Despite this largess, lack of access to technology means that the sector only contributes to 38 per cent of the country’s GDP. 28 per cent of Myanmar’s export earnings are derived from the sector and include crops (rice, pulses, cereals, oil seeds), livestock, fisheries, and forestry products. In addition, despite its potential, FDI in the agricultural and fishery sectors only accounts for 1 per cent of total FDI, mainly due to complex land ownership conditions, which are currently under reform.135 FDI in agriculture can facilitate skill transfers in the agricultural sector. 136 Currently the phytosanitary requirements of the US, Japan and EU are restricting Myanmar exports. Many international companies (from the surrounding nations as well as Europe) already have knowledge on how to comply with these requirements meaning FDI could lead to increased exports. However, some observers note that there are very few linkages between agriculture and the rest of the economy in Myanmar. 137 Therefore, FDI into this sector might have limited effect on inducing growth elsewhere in the economy. However, as agriculture remains an extremely large component of the Myanmar economy, even a moderate FDI-driven improvement in productivity in this sector will have a significant effect on both overall economic growth, but also on the median wage of ordinary Myanmar people. As for the fishery sector, Myanmar’s Maximum Sustainable Yield (MSY) is estimated at about 1.05 million metric tons per year. 138 Fishing contributes 8 per cent to Myanmar’s GDP and, in this case, is ranked among the largest fishery productions in the world. 139 Underpinning the sector's growth and investment potential, processing facilities are

Both the increased labour productivity and the increased demand for labour should lead to an increase in real wages. Indirect and induced increases in demand for services due to higher real wages are expected to provide a boost to the tertiary sector. Increased tax revenues may allow the Myanmar government to increase government spending and provide a further fiscal stimulus to the economy. Measuring these effects requires a full-blown model of the economy, however, and are thus beyond the remit of the study. 134Asian Development Bank. (2013). Agriculture, Natural Resources and Environmental Initial Sector Assessment Strategy and Road Map. Available: http://www.themimu.info/sites/themimu.info/files/documents/Report_Myanmar_Agriculture_En vironment_Assement_and_Road_Map_Apr2013.pdf 135 Ministry of Agriculture, Aung H. Investment Opportunities in Agricultural Sector in Myanmar, https://www.google.de/url?sa=t&rct=j&q=&esrc=s&source=web&cd=4&cad=rja&uact=8&ved= 0CDEQFjADahUKEwiYyqulLbIAhUJOIgKHbeEBhk&url=http%3A%2F%2Fwww.oilseedcrops.org%2Fwpcontent%2Fuploads%2F2013%2F06%2FInvestment-Opportunities-in-Agricultural-Sector-ofMyanmar-AungHlaing.ppt&usg=AFQjCNGmVLNjo28sAK9oE2rHDt9DH2s_WQ&bvm=bv.104819420,d.cGU 136 Findlay, R. et al. (2015). Myanmar: Unlocking the Potential, A strategy for high, sustained, and inclusive growth. Manila, PI: Asian Development Bank. Available: http://www.adb.org/sites/default/files/publication/161904/ewp-437.pdf. 137 Alfaro, L. et al. (2003). FDI and Economic Growth: the Role of Local Financial Markets. Journal of International Economics. Available: http://econweb.umd.edu/~kalemli/jiefinal.pdf. 138 FAO, Fishery and Aquaculture Country Profile: Myanmar. Available: http://www.fao.org/fishery/facp/MMR/en 139 FAO, Country Information: Myanmar. Available: http://coin.fao.org/cms/world/myanmar/CountryInformation.html 133

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EUROPEAN COMMISSION underdeveloped, lacking finance and technologies to reduce competitiveness gaps with Bangladesh and Thailand.140 There is particularly good potential to intensify Myanmar’s aquaculture sector. In order to foster sustainable development of the sector, the EU’s forthcoming Myanmar Sustainable Aquaculture Programme (€ 20 million), targets food security, nutrition and sustainable livelihoods and closely involves the private sector.141 Potential competitors to EU companies in these primary sectors include firms from Singapore, Thailand, Japan and Switzerland. In the fish processing sector, only Thai firms have so far announced investment plans.142 4.4.2.

Extraction

The oil and gas industries represent a very lucrative sector in Myanmar. The MCRB illustrates this by estimating that with only 9 days of revenues generated by gas extraction, Myanmar could fund one primary school teacher for each grade in every primary school; 0.87 per cent of revenues from new natural gas projects could fund all vaccines needed in Myanmar for one year.143 Like agriculture, the oil and gas industry also does not create deep linkages with other sectors of the economy, thus limiting the spill-over effects of increased FDI. The OECD finds that current MNE investments in the extractive sector have had ‘little tangible benefit’ for Myanmar’s local population.144 On the other hand, the sector wide impact assessment (SWIA) carried out by the MCRB in 2014 states that oil and gas extraction “will remain a major contributor to the Myanmar economy through significant revenue transfers” as long as tax evasion in Myanmar is controlled. Resource extraction companies are among the few EU investors that retained some economic activities in Myanmar while sanctions and restrictions were in place. They also make up the largest share of EU FDI into Myanmar, and belong to a sector which is most likely to invoke dispute settlement proceedings in investment protection agreements. 145 4.4.3.

Manufacturing

While FDI in mining and energy usually have high and rapid returns on investment, they often do not contribute to sustainable development. The OECD argues that investment in the Myanmar’s underdeveloped manufacturing sector is essential for wage growth and job creation. Additional research has suggested that Myanmar’s current state of development is ideally suited to cultivate a textile-based manufacturing industry. This assessment is

McKinsey, Myanmar’s moment: Unique Opportunities, Major Challenges, 2013, http://www.wsj.com/articles/SB10001424127887323335404578446852865518258 141 European Union Delegation to Myanmar. (2015). The European Union to provide additional EUR 70 million for food and nutrition security, rule of law and peace-building in Myanmar. EEAS. Available: http://eeas.europa.eu/delegations/myanmar/press_corner/all_news/news/2015/20151218_en. htm. 142 Undercurrent News. (2016). Thai seafood firms eye Myanmar processing center. Available: https://www.undercurrentnews.com/2016/03/11/myanmar-processing-center/. 143 Myanmar Centre for Responsible Business. (2014). Transparency in Myanmar Enterprises. Yangon: MY: MCRB. Available: http://www.myanmar-responsiblebusiness.org/pdf/2014-07-22Pwint-Thit-Sa-First-Report.pdf. 144 (2014). OECD Investment Policy Reviews: Myanmar 2014. Paris, FR: OECD. Available: http://blogg.regjeringen.no/ansvarlignaringsliv/files/2014/03/Myanmar-Investment-PolicyReview.pdf 145 Economic Sector and Subsector. UNCTAD Investment Hub. Available: http://investmentpolicyhub.unctad.org/ISDS/FilterByEconomicSector. 140

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based on the small amount of capital investment required, the large labour supply and relatively low wage rates and skill requirements. It may also be the case, that as the dominant agricultural sector becomes more efficient, the supply of excess unskilled and semi-skilled labour will increase and meet demand from the textiles industry. The success of other manufacturing sub-sectors with higher value added potentials is dependent upon the ability of manufacturers to find suitable skilled labour in the Myanmar workforce. In the absence of preferential market access concessions, EU investors might instead capitalise upon a combination of MFN-level investment protection and advantageous conditions industrial conditions found in Myanmar’s developing SEZs. Japanese manufacturing firms have been particularly successful in capitalising upon SEZs, and many automobile parts suppliers are now active in Myanmar—perhaps serving as a model for its potential integration into the EU’s GVCs. 146 4.4.4.

Tourism

Increased FDI creates a means for Myanmar to cope with its burgeoning tourism sector (ADB 2013). FDI in the tourism sector can have wide reaching impacts as the Ministry of Hotels and Tourism’s (MoHT) logic chain analysis demonstrates. 147 This relatively new sector to Myanmar will generate more jobs in both services and construction, having already increased the number of tourism related jobs by 6.5 per cent; the sector could be extremely lucrative for Myanmar, generating up to € 822 million in 2014 according to MoHT estimates. The retail, transport, food and accommodation services sub-sectors are those most likely to receive a positive impact. Presently, 100 per cent foreign ownership of three star-plus hotels in Myanmar is permitted, while other tourist activities are required to register as joint ventures with a domestic shareholder. Because market access is un- or -moderately restricted, there is good growth potential for EU FDI into the Myanmar hotel and tourism sector under an IPA scenario. 4.4.5.

Finance and Business Services

Currently there are no international banks active in Myanmar, which bottlenecks the amount of internally generated growth. Myanmar would benefit from “foreign banks as a means of helping transfer technology and increase integration with financial markets.”148 Thus, FDI in Myanmar’s financial sector will improve access to working capital. Better access to credit can trigger in several other tertiary sectors, creating additional demand for the business services from legal, accounting, consultancy, and insurance providers. The challenge to the Myanmar economy will be to educate and cultivate sufficient skilled labour required to meet this increased demand. Although the modelling suggests that increased EU FDI is unlikely to increase the output of the financial intermediation sector, this is disaggregated from the business and professional service sectors which are likely to gain from increased investment along a similar trajectory as observed in the Philippines, Thailand, or other like comparators.

Aung, K.K. and Aung, H.L. (2015). Eight companies set to begin operations in Thilawa SEZ. Myanmar Times. Available: http://www.mmtimes.com/index.php/business/14178-eightcompanies-set-to-begin-operations-in-thilawa-sez.html. 147 Myanmar: Tourism Master Plan, 2013-2020. MoHT. Available: http://www.harrisoninstitute.org/Myanmar%20Tourism%20Master%20Plan%202013-2020.pdf. 148 Ibid. 146

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Energy

Myanmar’s economy remains largely based in the primary sector. Its manufacturing and services bases are relatively underdeveloped compared to neighbouring ASEAN states. The percent of employment in agriculture is greater than that of its near neighbours, with a correspondingly lower level in other sectors. Foreign Direct Investment entering Myanmar is still strongly concentrated in the oil and gas sector, as well as in the power generation sector including hydropower. In 2014-2015, the overall share of FDI was about 35.6 per cent in the power sector and 31.9 per cent in the oil and gas sector.149 While in the former sector, FDI can be made in the form of Joint Ventures, Build-Operate-Transfer or other suitable Private-Public-Partnership models, the latter requires awarded exploration licenses issued by the Ministry of Energy. Currently only 30 per cent of the population is connected to the central electricity grid while hydropower serves 70 per cent of the energy mix. Myanmar’s is one of the oldest oil producers in the world and has estimated reserves of 5.7 billion barrels of oil and 18 trillion cubic meters of natural gas, thus ranking 16th globally in terms of the value of its resources.150 During the military junta, China, Thailand, Singapore and South Korea established themselves as the largest contributors of FDI in Myanmar, focusing mainly on infrastructure projects as well as the oil and gas sector. Nonetheless, five of the largest oil and gas companies active in Myanmar are European. These include Royal Dutch Shell, BP, Eni, and Total. The latter is the largest foreign oil production company in the country and present in all relevant production processes including extraction, processing, refining, marketing and sales. Indeed, Total has a long history of oil production in Myanmar, starting in 1992. Since building the Yadana Gas Pipeline Project, Total has become the most wellknown oil and gas company in Myanmar and is particularly noted for its CSR contributions, discussed further in the below CSR section.151 4.4.7.

Garment

The manufacturing sector accounts for the largest share of domestic investments. Manufacturing was also the third largest recipient of FDI in 2014-2015, reaching € 1.3 billion.152 Currently, around 100 foreign firms are invested in Myanmar’s manufacturing sector. The sector also represented one-third of the country’s total exports in 2014. In the first half of 2015, manufactured goods accounted for almost 50 per cent at € 1.93 billion out of € 4.13 billion total exports.153 The main manufacturing industries are garment and ready-wear. Advanced production methods are becoming more common with a recently increased international presence. However, most factories can only provide “Cut Make Pack”, as only one of the actors of an

Myanmar Ministry of Information. (2015). Myanmar approves $8 billion worth of foreign investment in 2014-15 FY. Yangon, MM. Available: http://www.moi.gov.mm/moi:eng/?q=news/22/04/2015/id-2877. 150UK Trade and Investment, Opportunities for British Companies in Burma’s oil and gas sector, 2014. Available: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/393763/UKTI_ Burma_-_Oil_and_Gas_Report_-_Jan_2015.pdf. 151Myanmar Times, Ministry reveals CSR history for country’s largest oil and gas firms http://www.mmtimes.com/index.php/business/16163-ministry-reveals-csr-history-for-country-slargest-oil-and-gas-firms.html. 152 The Irrawaddy, Foreign Investment Soars to Record $8B in 2014-15, http://www.irrawaddy.org/business/foreign-investment-soars-to-record-8b-in-2014-15.html. 153 UNESCAP, Myanmar Food Industry, http://www.unescap.org/sites/default/files/07Myanmar%20Food%20Industry-Kyaw%20Nyein%20Aye.pdf. 149

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integrated manufacturing chain. The manufacturing sector is thereby considered as a “premanufacturing” one, in need of investment to shift to a higher-value stage. After the lifting of EU and US sanctions on the country, SMEs from the garment industry flourished to become the third most prevalent SME sector in Myanmar, with 350 garment factories in 2014.154 The sector is characterised by high labour intensity for a low level of investment, with a workforce of around 230,000 workers according to the EU SMART Myanmar project statistics. Clothing averaged 9 per cent of total exports between 20092013. 155 In terms of foreign investments, Myanmar has seen a large number of foreign companies entering the country, notably because of competitive labour costs and the high quality of production. 156 In addition to these benefits, a 5-year tax exemption, custom duty exemptions on imported machinery and equipment are offered by the government in its strategy to attract foreign investment, particularly in SEZs. As of 2012, 19 foreign companies had based at least one factory in Myanmar, and this number has increased markedly since. The garment industry would appear to be a sector in which large EU companies already have a stake in the country. Adidas (Germany), H&M (Sweden), Jack Wolfskin (Germany), Mango (Spain) and Primark (UK) count among the EU companies already investing in Myanmar; indeed H&M is affiliated with the EU’s SMART initiative in Myanmar sustainable garment manufacturing.157 As the EU investments in the garment sector are already extensive, competition is naturally stronger. Gap, which is American, is one of the main multinational enterprises directly competing with EU companies. On a smaller scale, Thai clothing group MC has been a long-time investor in Myanmar, together with Japanese and Korean groups prioritizing production quality over cheap labour costs. 158 4.4.8.

Automobile and Electronic Consumer Goods

Investment in automobile and electronic consumer goods remains marginal compared to other segments of Myanmar’s manufacturing sector. However, the automotive sector is where EU investment is the most visible. Rolls Royce (UK), BMW and Volkswagen (Germany) are currently the biggest European companies already present in Myanmar. In terms of automation and electronics, Philips (Netherlands) and Festo (German) have also built up training facilities and consumer stores. Philips sees growing need for lighting and healthcare equipment as Myanmar urbanises; these lines constitute the main share of its production in the country.159

Myanmar Garment Manufacturers Association, http://www.myanmargarments.org/. SMART Myanmar, http://www.switchasia.eu/fileadmin/user_upload/Project%20news/SMART_Myanmar_news/SMART_Myanmar_Gar ment_Factories_Improvement_Program.pdf. 156 Kudo, T. (2013). Myanmar’s Apparel Industry in the New International Environment: Prospects and Challenges. Chiba, JP: Institute of Developing Economies. Available: http://www.ide.go.jp/English/Publish/Download/Dp/pdf/430.pdf. 157 Smart Myanmar. (2016). Partners and Associates. Available: http://www.smartmyanmar.org/partners/. 158 Business and Human Rights Resource Centre. (2013). Business and human rights in Myanmar: A round-up of recent developments. Available: http://businesshumanrights.org/sites/default/files/media/documents/myanmar-briefing-aug-2013.pdf. 159 Mahtani, S. (2013). Philips reviews increasing investments in Myanmar. New York, NY: Wall Street Journal. Available: http://www.wsj.com/articles/SB10001424127887323335404578446852865518258. 154 155

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EUROPEAN COMMISSION Japan has the longest history of automotive sector FDI in Myanmar, by virtue of the 2013 BIT between the two. Japanese and American manufacturers compete with those from the EU over suppliers in Myanmar; Ford, General Motors, Suzuki, Toyota, Mazda, Mitsubishi, and Nissan all link Myanmar into their GVCs. In terms of electronics, Casio (Japan) and Huawei (China) are the most successful foreign enterprises established in Myanmar. 160 4.4.9.

Food and beverages (F&B)

Given its strong linkage to the agricultural sector, the food and beverage sector benefits from the rich upstream agriculture resource base and has relatively high labour intensity. SMEs in this sector are the most prevalent ones in the country, and the industry employs 67.1 per cent (agriculture and its down-stream sub-sectors) of the total working population.161 Myanmar’s food and beverages industry is almost entirely consumed by the domestic market. Representing 63.5 per cent of Myanmar’s industrial composition, food and beverages account for the largest source of revenue, totalling 59.1 per cent of the country’s GDP.162 Despite high domestic consumption, food products nonetheless comprised 20.7 per cent of the total export value between 2009-2013. Within this period imports were limited to oil products (palm and vegetable oil), ready-made food and alcoholic drinks and rice. 163 As referenced above, the fish processing sector is underdeveloped, lacking investment and newer technologies to reduce competitiveness gap with Bangladesh and Thailand.164 With a 16 per cent market share, the EU is one of the leading players in the global food and beverage sector. 165 Despite this, Tesco (UK) is the only European multinational company to date to have invested in Myanmar. Its chairman Sir Richard Broadbent met with Aung San Suu Kyi prior to concluding an agreement with the country, presenting the advantages of an extensive Tesco presence in the South East Asian region, thereby linking its existing store network in Thailand and Malaysia with a new Myanmar one.166 Asian investors are the main competitors in the country, with Japan and Thailand being the largest investors in the food and beverage sector. Mitsui & Co. (Japan) has invested in the rice and noodle processing sectors, the conglomerate Charoen Pokphand Group

Business and Human Rights Resource Centre. (2013). Business and human rights in Myanmar: A round-up of recent developments. Available: http://businesshumanrights.org/sites/default/files/media/documents/myanmar-briefing-aug-2013.pdf. 161 Asia and Pacific Commission on Agricultural Statistics. (2010). Agricultural Census in Myanmar. Siem Reap, KH: FAO. Available: http://www.fao.org/fileadmin/templates/ess/documents/meetings_and_workshops/APCAS23/d ocuments_OCT10/APCAS-10-24_-Myanmar.pdf. 162 UNESCAP. Myanmar Food Industry. http://www.unescap.org/sites/default/files/07Myanmar%20Food%20Industry-Kyaw%20Nyein%20Aye.pdf. 163 Interview of National Food Institute President Petch Chinabutr, in Invest in Myanmar before AEC, Bangkok Post, 2012, http://www.bangkokpost.com/learning/learning-fromnews/293462/burma-food-industry-time-for-investment 164 McKinsey, Myanmar’s moment: Unique Opportunities, Major Challenges, 2013, http://www.wsj.com/articles/SB10001424127887323335404578446852865518258 165Food and Drink Europe, European Food and Drink Industry 2013-2014, http://www.fooddrinkeurope.eu/uploads/publications_documents/Data__Trends_of_the_Europe an_Food_and_Drink_Industry_2013-20141.pdf 166 Business and Human Rights Resource Centre, Myanmar Foreign Investment Tracking Project Launch, 2015, http://business-humanrights.org/en/myanmar-foreign-investment-trackingproject-launch 160

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(Thailand) has been present in the country since 2014. ThaiBev (Thailand) and Pepsico (US) are the biggest beverages companies operating in Myanmar. 4.4.10.

Information and Communication Technologies (ICT)

The telecommunications sector has played a particularly important role in the recent economic growth in Myanmar due to its cross-sectoral impacts. This sector is currently undergoing a number of structural changes. The Telecommunications Law was promulgated in 2013 and is now in effect. Further reforms foresee the introduction of a fully independent telecommunications regulator. Between 2014-2015, Myanmar’s mobile phone penetration rose sharply from 14 per cent to over 50 percent.167 However, less than 2 per cent of the population had regular access to the internet in 2014.168 The development of basic ICT infrastructure is a high priority for the government, with an overall objective of achieving an 80 per cent mobile penetration rate by 2016. 169 Besides the Joint Venture between state-owned Myanmar Posts and Telecommunications and KDDI/Sumitomo of Japan, two other foreign operators, Norway’s Telenor and Qatar’s Ooredoo, have been granted licenses in order to modernize the sector and attract FDI. The sector’s potential is notably reflected by the fact that the World Bank has offered € 27.6 million for a project aimed at reforming the telecoms sector in Myanmar. 170 EU companies present in the ICT sector in Myanmar are mostly service providers to the two main license operators. Swedish company Ericsson, has re-established its office in Yangon and signed a contract with Telenor to supply and install network equipment. 171 In 2014, UK based SyQic PLC announced its launch of mobile services in Myanmar through the Telenor and Ooredoo networks. As only two foreign companies have received licenses to operate in the telecommunication sector in Myanmar, the feasibility of major EU FDI in ICT infrastructure remains limited. Ooredoo has invested € 1.23 billion into Myanmar, with plans to spend € 13.2 billion over a period of 15 years 172 However, the company has so far only obtained financing for infrastructure development totalling € 138 million. 173 Telenor has committed itself to invest € 877 million, with the objective of reaching 90 per cent access to mobile coverage. Other foreign ICT companies active in Myanmar within the include companies from the US, Japan, China and South Korea.

Myanmar Times, Mobile Penetration reaches half the country, 2015, http://www.mmtimes.com/index.php/business/technology/14815-mobile-penetration-reacheshalf-the-country.html. 168 Internet Live Stats, Internet Users per Country, 2014, http://www.internetlivestats.com/internet-users-by-country/. 169 KPMG, Infrastructure in Myanmar, https://www.kpmg.com/MM/en/IssuesAndInsights/ArticlesPublications/Documents/Infrastructur e-in-Myanmar.pdf. 170 Jones Day, Recent Developments in Myanmar's New Telecommunications Law, 2014, http://www.jonesday.com/recent-developments-in-myanmars-new-telecommunications-law11-11-2014/. 171 Business and Human Rights Resource Center, Response by Ericsson, http://businesshumanrights.org/en/response-by-ericsson-myanmar-foreign-investment-tracking-project 172 Myanmar Business News, Myanmar telecom sector enters the digital age, 2015, http://myanmarbusinessnews.com/myanmar-telecom-sector-enters-the-digitalage/#.Vh4kEuyqqko. 173 Myanmar Times, IFC to loan Ooredoo $150 million for infrastructure, 14 October 2015, http://www.mmtimes.com/index.php/business/technology/16975-ifc-to-loan-ooredoo-150million-for-infrastructure.html. 167

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EUROPEAN COMMISSION 5. SOCIAL IMPACTS In the following chapter we will explore the current social situation in Myanmar, propose a baseline scenario for Myanmar as regards social welfare, and explore the potential impacts of the IPA. Data for quantitative analysis of social impacts is largely unavailable, so the analysis in this section is primarily based on qualitative research inputs and perspectives contributed by stakeholders. The below sections present the project team’s analysis of key areas of social welfare. The first section will examine the legal social frameworks and policy objectives, with a specific focus on education, labour, public health and inclusion; along with any specific population and regions affected. These key areas were selected on the basis of their relevance and potential to be impacted by the IPA. This section will furthermore develop the baseline scenario for future development. The second section will assess the potential impacts of the EU-Myanmar IPA on the social situation in Myanmar and will scrutinise the impact of the IPA on labour, education, public health, gender rights and religion and ethnicity. Given Myanmar’s stage of development, described in more detail in the previous chapter, it is assumed that in the coming years, Myanmar’s economy and levels of FDI, including from the EU, will continue to grow rapidly. This will have an impact on the social situation in Myanmar. In summary, the conclusions of this chapter are that the increased EU investment as a result of the IPA could be positive or negative for social welfare in Myanmar, depending upon how it is directed. The increase in FDI from the EU could have a positive impact for Myanmar. EU companies often have a code of conduct which includes Corporate Social Responsibility (CSR) and Responsible Business Conduct (RBC). Were the IPA to increase the number of EU companies operating in Myanmar, it could have the dual effect of exporting capital and CSR standards. This could improve the labour standards and social environment in Myanmar by providing better and safer jobs, reducing child labour and increasing female labour market participation. The IPA would therefore have a positive impact, especially with respect to the baseline scenario. Myanmar has already opened up to FDI and has signed BITs with China, India, the Philippines and Thailand. However, this cohort neither aims to promote or guarantee social protections, nor incorporate public interest overrides to investor and investment protections. Additionally, Asian companies, contrary to EU companies, often do not have or have less developed codes of conduct regarding CSR and RBC.174 The increase of EU investments in Myanmar could also have a negative impact. The increase in FDI could lead to the exploitation of the unskilled labour force. Furthermore, it could lead to workforce discrimination and increased inequality as the cost of living and inflation go up. Additionally, large firms with a political voice could pressure the government to carry out reforms that might be profitable for them, but not for the work force or economy at-large. Successful conclusion of the EU-Myanmar IPA will depend on the confidence that the latter can implement and enforce the provisions domestically – so-called ‘good governance’ therefore ensuring a standard of legal certainty. Without this legal certainty, EU investors might refrain from investing in Myanmar. Additionally, EU investors might invest in Myanmar without taking into account responsible labour standards. Though the enforcement of labour standards is a domestic matter, the EU should, as a donor,

174

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contribute to ensure effective technical assistance and capacity-building to strengthen Myanmar’s implementation and enforcement of international labour standards. The investment provisions are predominantly focused on investor protection and nondiscrimination requirements, a status quo which means social welfare and labour rights sometimes fall through the cracks. To mitigate this potentially negative social impact, the IPA could, for example, include measures to encourage investors to adhere to international guidelines and labour standards. The IPA cannot be a substitute for domestic policies and a sound national regulatory framework for labour and social protections. This presents a quandary for developing countries and emerging economies like Myanmar. Myanmar’s government has been hesitant to bind itself to international agreements on issues such as labour rights and investment agreements. Therefore, the balance is between international policy guidelines to promote social welfare and economic strategies wherein competitive advantage is based on lower costs for investors and domestic business. 5.1.

Current state of social welfare in Myanmar and development in absence of the investment protection agreement between the EU and Myanmar

According to the United Nations Development Programme (UNDP) 2014 Human Development Report, Myanmar is currently ranked 150 out of the 187 countries investigated in terms of development stages.175 This ranking illustrates the UNDP’s Human Development Index as the summary measure assessing long-term and development progress through 3 basic dimensions: healthy life, with life expectancy as the main indicator; access to knowledge, years of education and expected years of schooling; and decent standard of living, Gross National Income per capita. With an index of 0.524, Myanmar ranks among the Low Human Development category. Notwithstanding the fact that Myanmar’s index is above the LDC average, it is also the lowest of the South East Asian and Pacific Region, where the average is 0.703. Despite an impressive average 1.43 per cent annual increase since 1980 and an ambitious recent reform agenda that lead to notable progress in terms of development, the Millennium Development Goals have not yet been reached by Myanmar. 5.1.1.

Social dimension in Myanmar’s existing investment agreements

In addition to existing bi- and pluri-lateral commitments, investments into Myanmar are regulated by the domestic Investment Law of 2015, which merges the 2012 Foreign Investment Law and the 2013 Myanmar Citizen Investment Law.176 Myanmar will no doubt conclude further BITs with other countries and ratify its existing BITs with South Korea, Israel, Vietnam and Laos. FDI in Myanmar from American investors is regulated by the Reporting Requirements for Responsible Investment in Burma, detailed below. Existing BITs signed between Myanmar and its investment partners vary in terms of their commitment to upholding social and labour standards. Myanmar’s BIT with the Philippines, for example, not only omits mention of labour standards or requirements, but is also relatively weak in its investor protection – for example, it lacks ISDS. Myanmar’s other BITs are largely identical with the exception that they include or foresee stronger enforcement mechanisms through the domestic courts, independent of ISDS and stateto-state dispute settlement mechanisms. The multilateral ACIA and other investment

UNDP. (2014). Human Development Report 2014: Sustaining Human Progress: Reducing Vulnerabilities and Building Resilience, Myanmar. Available: http://hdr.undp.org/sites/default/files/hdr14-report-en-1.pdf 176 Mon, K.S. (2015). After Much Deliberation, Investment Law Approved by Parliament. The Irrawaddy. Available: http://www.irrawaddy.com/burma/after-much-deliberation-investmentlaw-approved-by-parliament.html 175

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EUROPEAN COMMISSION agreements concluded through ASEAN also contain an ISDS mechanism and state-to-state dispute settlement. Myanmar’s BIT with Japan is the only BIT that makes any reference to social and labour standards. In the preamble, there are two clauses recognising that the commercial objectives of the agreement can be achieved without relaxing health, safety and environmental measures of general application. Moreover, it recognises the importance of the cooperative relationship between labour and management in promoting investment between both Contracting Parties. Furthermore, Article 25 on Health, Safety and Environmental Measures and Labour Standards states that no Party is allowed to relax its health, safety or environmental measures or lower its labour standards in order to encourage establishment, acquisition or expansion of investors. 177 Of specific relevance to protecting social rights, and specifically inclusion, the MyanmarJapan BIT also requires transparency and public consultation: “Each Contracting Party shall, in accordance with the laws and regulations of the Contracting Party, endeavour to provide, except in cases of emergency or of purely minor nature, a reasonable opportunity for comments by the public before the adoption, amendment or repeal of regulations of general application that affect any matter covered by this Agreement.”178 Additionally, the treaty provides for the imposition of safeguards not conforming with its obligations relating to cross-border capital transactions in the event of serious balance-ofpayments and external financial difficulties or threat thereof. Thus, if there were a serious economic crisis that was gravely affecting employment or social welfare, non-compliant instruments could be introduced to alleviate any negative impacts from investment covered by this treaty. It is however worth noting that in addition to ensuring national treatment, most favoured nation status, FET and the other common investor protections, the Japan-Myanmar BIT prohibits performance requirements, such as domestic content requirements and most technology transfers. This could prevent government policies to encourage employment and skill of the labour force. Recall from chapter 4 that skill and technology transfers are a significant part of the total value added by new FDI. The Japan-Myanmar BIT - as well as Myanmar’s treaties with South Korea, Israel, India, Thailand and China - clearly set out the limits of expropriation and compensation that are of relevance to inclusion and social rights. Article 13 on Expropriation and Compensation in the Japan-Myanmar BIT states that neither party shall expropriate or nationalise investments of the other Contracting Party except “for a public purpose and in accordance with due process of law". The General and Security Exceptions article also provides a legal avenue to override the investor protections if it is deemed necessary to inter alia, protect human, animal or plant life or health; public morals or public order; the protection of the privacy of the individual in relation to personal data. Finally, Myanmar has not concluded a BIT with the United States, but US investors in Myanmar are subject to the Reporting Requirements for Responsible Investment in Burma, which applies to American individuals with aggregate new investment in Myanmar valued at over € 454,000. While General License No. 17 does not contain any investment protection provisions, it does make reference to social and labour rights. The General

Agreement between the government of Japan and the government of the Republic of the Union of Myanmar for the liberalisation, promotion and protection of investment. Available: http://investmentpolicyhub.unctad.org/Download/TreatyFile/3113. 178 Article 9 Public Comment Procedures 177

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License stipulates that US citizens are required to report on a range of policies and procedures with respect to their investments in Myanmar, including labour rights, land rights, community consultations and stakeholder engagement, risk and impact assessment and mitigation, payments to the government, any investments with the Myanmar Oil and Gas Enterprise (MOGE), and contact with the military or non-state armed groups. The information gathered is used to assist US businesses in developing robust policies and procedures to address a range of impacts resulting from their investments and operations. Furthermore, the public report serves to empower civil society to take an active role in monitoring investment in Myanmar and to work with companies to promote inclusive economic development and contribute to the welfare of the people. 179 5.1.2.

Effects on labour induced by foreign investments

Myanmar has a long history of forced labour, in all sectors and fields including the military. Forced labour has been a particularly common practice in the construction sector, where the Town Act and Village Act (dating back to 1907 and 1908 respectively) have allowed the government to make forced use of its population for public work. This framework persisted and was extended to other sectors under the military rule. This legislation is still in place despite a draft legislation submitted to the Parliament to repeal it. Forced labour is, among others, the main reason for which the EU and US sanctions originated and persisted after the International Labour Organisation (ILO) has raised concerns regarding labour conditions in Myanmar. Reforms were only engaged when then President Thein Sein vowed to eradicate forced labour after his election in 2011. Following the assessment of labour legal reforms and the conclusion according to which the violation of the principles laid down in the ILO Convention No. 29 on forced labour were no longer “serious and systematic”, Myanmar was readmitted as a full ILO Member in 2012. The ILO’s recognition of Myanmar’s improvements in the labour environment has led to the EU’s decision to reinstate the EBA arrangement for Myanmar in 2013.180 Among a series of new labour-related laws adopted from 2012 on, the most important ones are:

US Department of State. (2013). Administration Eases Financial and Investment Sanctions on Burma. Available: http://www.humanrights.gov/dyn/administration-eases-financial-andinvestment-sanctions-on-burma.html 180 European Commission. (2013). EU re-opens its market to Myanmar/Burma. Available: http://trade.ec.europa.eu/doclib/press/index.cfm?id=946 179

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EUROPEAN COMMISSION Table 5: New labour laws New labour-related laws

Year of adoption

Criminalisation of forced labour

2012

Authorisation of labour unions

2012

Settlement law labour disputes fall within a settlement law

2012

Introduction of compensation for work-related injuries

2012

Minimum wage (differing according to the labour category) has been introduced, including an equal pay clause, making the average salary for unskilled workers reach USD 60-70 per month

2013

According to the most recent OECD Investment Policy Review for Myanmar, perpetrators are now effectively prosecuted and punished (through up to one-year imprisonment and/or the payment of a fine), including when they belong to the military. 181 Despite the acknowledgement of the constructive precedent set in recent years, Amnesty International mitigated the success of such reforms, stressing the need to enforce the framework, as well as the need to adequately address the remaining issue of worker discrimination for union activity.182 In terms of child labour, the 2014 Child Labour Index ranked Myanmar as the third country with the highest children employment rate, estimating that 10.6 per cent of children are engaged in light or regular daily work duties, where girls account for 41 per cent of child labour and where they cumulate work and household duties. 183 The main sectors relying on child labour are services, construction, agriculture and light manufacturing. Myanmar’s legislation is in line with the international standards for light work, which set the minimum age of child labour at 13 years: the 1993 Child Law allows “youth” (children between 14 and 17) to engage in light duties and regulates their tasks and working hours. Nevertheless, “light duties” are not defined by the law, and it is very likely that most of the working “youth” are conducting regular work and not limited to light work (i.e. not limited to 4 hours a day and not limited to day-time shifts). According to Woman and Child Rights Project, disregard of the law is indeed common practice, where Myanmar’s child labour conditions thus do not respect the international standards for regular work, in which the minimum age is set at 15 years. 184 In December 2013, Myanmar ratified the ILO Convention on the Worst Forms of Child Labour, following which child labour issues are expected to diminish. The Convention calls for the prohibition and elimination of all forms

OECD. (2014). OECD Investment Policy Reviews: Myanmar. Available: http://www.oecd.org/daf/inv/investment-policy/Myanmar-IPR-2014.pdf, p. 69 182 Amnesty International (2013). Annual Report 2013: Myanmar. Available: http://www.amnesty.org/en/region/myanmar/report92013 183 Maplecroft. (2014). Child Labour Index 2014. Available: https://maplecroft.com/about/news/child9labour9index.html 184Woman and Child Rights Project. (2013). Children for Hire, A Portrait of Child Labor in Mon Areas. Available: http://www.rehmonnya.org/reports/childrenforhire.pdf 181

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of child labour, including slavery, trafficking, and the use of children in armed conflicts or for prostitution or pornography.185 As the above overview of existing investment treaties signed by Myanmar indicates, with the exception of the BIT with Japan and the U.S. reporting requirements, there are no rules promoting labour or social rights in Myanmar’s existing BITs. Furthermore, the BIT with Japan does introduce such policy objectives, but the obligations are not directed towards ensuring and enforcing international labour or social standards. The prohibition of performance requirements such as domestic content requirements could lead to a detrimental impact of foreign investment on labour in Myanmar. This has already been witnessed globally when foreign companies, with the prominent examples among Chinese firms, which brought their own labour force and resources, neither using local companies nor local workers.186 A more likely scenario in the case of an EU-Myanmar IPA would be the importation of managerial talent to complement Myanmar’s labour factor endowment. Nonetheless, labour productivity in Myanmar is particularly low, explaining its relatively weak performance in GDP per capita.187 This is not a reflection on Myanmar labourers themselves, but more likely indicative of capital shortages. Investments can therefore be seen as one of the keys to boost growth in labour productivity, through better labour conditions and more productive practices. As the UN Committee on the Rights of the Child reported, labour inspections are very rare in Myanmar and often announced beforehand.188 Where the law is not enforced or remains unclear regarding the extent of the tasks that can be conducted by children, foreign companies tend to follow the established yet illegal practice of employing children. Absent enforcement, companies could elect to bind themselves to higher social and labour standards. Several examples of foreign companies involved in responsible business practices have illustrated the possibility to relocate children from hard-labour jobs to softlabour jobs, and for children to attend several hours of weekly classes. Following this example, better labour conditions could be a positive consequence of further foreign involvement in the Myanmar economy. According to the International Trade Union Confederation (ITUC), forced labour is still an issue in many sectors and across the country. The formation of trade unions and collective bargaining is growing, yet remains on a relatively low level. 189 According to UNICEF, children living in the countryside or in less developed urban peripheries are more likely to participate to the country’s workforce.190 In rural areas, they work in the agriculture sector, often very young as the extra hands in the households’ fields, thereby being kept away from the schooling system. In touristic areas, children often engage in street vending,

International Labour Organisation. (1999). Worst Forms of Child Labour Convention. Available: http://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:12100:0::NO::P12100_ILO_CODE:C182 186 Branigan, T. (2009). China ‘wants to set up factories in Africa’. London: The Guardian. Available: http://www.theguardian.com/world/2009/dec/04/china-manufacturing-factories-africa 187 Chhor, H. et al. (2013). Myanmar’s moment: Unique opportunities, major challenges. McKinsey Global Institute, p. 3 188 United Nations Committee on the Rights of the Child. (2012). Consideration of reports submitted by States parties under article 44 of the Convention, Concluding observations: Myanmar. Available: http://www2.ohchr.org/english/bodies/crc/docs/co/CRC_C_MMR_CO_34.pdf 189 International Trade Union Confederation. (2015). Foreign Direct Investment in Myanmar: What impact on human rights? Available: http://www.ituc-csi.org/IMG/pdf/ituc-burma.pdf 190 UNICEF. (2012). Situation Analysis of Children in Myanmar. Available: http://www.unicef.org/eapro/Myanmar_Situation_Analysis.pdf 185

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EUROPEAN COMMISSION tourist guiding activities or even begging. Limited access to education and higher poverty rates are at the roots of this high child labour intensive situation in rural areas. Ethnic or religious minorities in borderlands are reportedly particularly vulnerable to the hardest conditions of forced labour, especially in conflict areas. 191 Among the minorities affected by forced labour are the Shan, Karen, Mon, Kachin, Rohingya, Chin and Karenni.192 These civilians are forced to work on small-scale government infrastructure projects, such as building roads and bridges.193 5.1.3.

Effects on education induced by foreign investments

Basic Education Law – 1973 (amended 1989) University Education Law – 1973 (amended 1998) Technical, Agricultural and Vocational Education Law – 1974 (amended 1989) Child Law – July 1993 Article 20: (a) Every child shall: have the opportunity of acquiring education; have the right to acquire free basic education (primary level) at state schools; and (b) the Ministry of Education shall: have the objective of implementing the system of free and compulsory primary education; lay down and carry out measures as may be necessary for regular attendance in schools and the reduction of untimely drop-out rates; make arrangements for children who are unable for various reasons to attend State schools, to become literate Constitution – 2008 Article 366: every citizen, in accordance with the educational policy of the Union, (a) has the right to education; (b) shall be given basic education which the Union prescribes by law as compulsory; and (c) have the right to conduct scientific research, explore science, work with creativity and write to develop the arts and conduct research freely other branches of culture. National Education Law – 2014 Chapter 3 – Education Principles: The principles of education are as follows: (a) Every citizen shall join in the effort to develop and improve education (b) Private sector cooperation in every level of education will be encouraged and private schools will be permitted to be established in accordance with relevant laws (c) Special education programs and services shall be established so that every school-aged child and youth, including those citizens who are disabled or who for whatever reason have not had a chance to study, can access their right to education in line with Education for All. (d) Every citizen shall have the right to education and opportunities for life-long learning shall be created.

Smith, M. (1994). Ethnic Groups in Burma: Development, Democracy and Human Rights. Anti Slavery International. Available: http://www.ibiblio.org/obl/docs3/Ethnic_Groups_in_Burmaocr.pdf 192 Ekeh, C. and Smith, M. (2007). Minorities in Burma. Minority Rights Group International. Available: minorityrights.org/publications/minorities-in-burma-october-2007/ 193 Internal Displacement Monitoring Centre. (2006). Myanmar (Burma): Worst army attacks in years displace thousands. Geneva. Available: http://www.internaldisplacement.org/assets/library/Asia/Myanmar/pdf/Myanmar-Burma-May-2006.pdf, p. 30 191

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In the field of education, official data and figures from international organisations are contradictory. According to official sources, the enrolment rate at primary level is 98.37 per cent, at lower secondary level 47.18 per cent, at upper secondary level 30.01 per cent and at the tertiary (university) level 10.15 per cent. 194 According to United Nations Educational, Scientific and Cultural Organisation (UNESCO), Myanmar presents one of the world’s lowest average schooling rates, and the worst among countries of the South East Asian and Pacific regions. The length of compulsory schooling is four years, though this is often not respected. Only two out of three children enter the primary level and almost half of them do not complete this first cycle; less than half of Myanmar’s children are enrolled in secondary education.195 Together with public health, education was set as one of the priority sectors by former President Thein Sein, promising to raise the public budget allocated to the sector throughout his mandate. In 2012, public spending for education represented 0.6 per cent of the total GDP, according to the Asian Development Bank, the lowest of the entire ASEAN region and has increased by 49 per cent until 2014 in addition to a wide range of reforms and the implementation of new programmes.196 The 2014 National Education Law, drafted in March 2014 passed after 19 accepted amendments out of the 25 proposed ones. Concerns and criticisms were raised from the beginning of the legislative process for the adoption of the new law. The law is considered as being against academic freedom (there is not independence from the Ministry of Education for any of the schooling institutions) as well as against the interests of the people and students (teachers’ and students’ unions are not recognized under the law), notably against the country’s unity and inclusion of minorities (ethnic languages are not taught in institutes of higher education).197 The contestation of the new law gave rise to student protests from May to September 2014, notably in the Mandalay region. These protests ended up in a crackdown lead by the army.198 Education remains a particularly discriminating sector, in terms of social discrimination as well as in terms of non-inclusivity of gender, religion, ethnicity or children with disabilities. Curricula are exclusively designed by the Ministry of Education, in the spirit of “unifying the nation”. According to the Oxford Burma Alliance, this leads to overlooking the ethnic diversity of Burmese society, aggravating ethnic conflicts. Likewise, the Alliance reports that state-controlled schools are often the only alternative to the less and less present Community-based schools, thus leading to the difficulty for ethnic minorities to “preserve their cultures and retain their languages”.199 Although the Constitution guarantees free access to compulsory primary education, Education is not free in practice. Aside from flourishing private school in the most urban areas, public schooling remains a considerable source of expenses hardly possible to meet for low-income families. The purchase of the compulsory uniform and schoolbooks are

Myanmar Ministry of Education. (2016). Education system in Myanmar. Available: http://www.myanmar-education.edu.mm/dhel/education-system-in-myanmar/ 195 UNESCO. (2011). World Data on Education. Available: http://www.ibe.unesco.org/fileadmin/user_upload/Publications/WDE/2010/pdfversions/Myanmar.pdf 196 UNICEF Myanmar. (2016). Education. Available: http://www.unicef.org/myanmar/education_1360.html 197 Oxford Business Group. (2014). Myanmar’s education system geared for growth. Available: http://www.oxfordbusinessgroup.com/news/myanmar%E2%80%99s-education-systemgeared-growth 198 Mann, Z. (2016). Anniversary of Ill-Fated Student Protest Marked in Mandalay. The Irrawaddy. Available: http://www.irrawaddy.com/burma/104937.html 199 The Oxford Burma Alliance. (2016). Education in Burma. Available: http://www.oxfordburmaalliance.org/education-in-burma.html 194

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EUROPEAN COMMISSION already a barrier to the schooling of a vast number of children. Children for lower-income families or from rural areas are more likely to never attend school because of financial reasons. According to the Oxford Business Group, sending one child to school amounts to approximately 90 EUR a year for a Myanmar family, to which transportation fees need to be added when the family lives in a rural area. 200 The insufficiency of public resources has also lead to insufficient number of schools and teachers contributing to overcrowded classrooms. In terms of gender and access to education, females are more likely to complete their education and the boys-to-girl ratio increases proportionally to the level of studies. Although the Constitution guarantees non-discrimination in the access to education as well as within the educational systems, the least advantaged children are less likely to enter the educational system. The Inclusive Education Programme set up by the government with the help of international organisations, enables disadvantaged children and children with disabilities to have access to education, although the latest still tend to enrol in monastic schools offering adapted teaching rather than mainstream schools. 201 According to the 2013 National Millennium Development Goal Report, the educationrelated targets (Millennium Development Goal 2 – Universal Primary Education, and Millennium Development Goal 3 – Gender Equality) are deemed unachievable under the current state of play. This will be particularly harmful to the country’s future development and growth, the lack of skilled labour being a break to further qualitative development of its economy and to its climbing up the global value chain. The MCRB and the Danish Institute for Human Rights have reported several cases where the arrival of foreign companies led to the relocation of local people, or even to land confiscation, affecting their way of living and sometimes the distance separating the household from the school. 202 Inadequate compensation and an adverse impact on economic means may lead to a child dropping out of school to work, and/or a more expensive commute may deter a family from sending a child to school. Nevertheless, it can be expected that the respect of international regulation concerning child labour would decrease the number of working children, and increase their number in public schools. Likewise, increased public incomes due to the presence of higher number of foreign companies would increase the availability and the quality of public education. In rural areas, access to education is still more limited than in urban areas. For logistical reasons, because of the modest number of public schools in the countryside, because of the inaccessibility of school facilities, of poor infrastructures and the absence of public transportation, the commute to school is long and costly. Households also keep their children home because of needs for immediate hands for domestic or family work, or for money to sustain a family’s modest living expenses. The EU provides development cooperation support 203 to reform and develop Myanmar's education system. The aim is to improve access to and quality of education, strengthening the education system through capacity development, provide emergency education,

Oxford Business Group. (2014). Myanmar’s education system geared for growth. Available: http://www.oxfordbusinessgroup.com/news/myanmar%E2%80%99s-education-systemgeared-growth, op. cit. 201 UNESCO. (2011). World Data on Education. Available: http://www.ibe.unesco.org/fileadmin/user_upload/Publications/WDE/2010/pdfversions/Myanmar.pdf, op. cit. 202 Myanmar Centre for Responsible Business. (2015). Land. Available: http://www.myanmarresponsiblebusiness.org/pdf/2015-04-02-LAND-Briefing.pdf. 203 EEAS. (2014). Multiannual Indicative Programme (2014-2020). Available: http://eeas.europa.eu/delegations/myanmar/documents/eu_myanmar/eu-multi-annualindicative-programme-2014-2020_en.pdf 200

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empower effective female participation in education and promote the link between education, employment and poverty reduction. 5.1.4.

Effects on public health induced by foreign investments

Accounting for 0.5 to 2 per cent of the country’s annual GDP since 2012, Myanmar’s government spending on public health is the lowest among World Health Organisation’s members in South East Asia and the Pacific regions.204 Despite the four-fold increase of the Ministry of Health’s share of annual government expenditure in 2012 and the relocation of military expenses for the improvement of the health and medical systems, the Government only accounts for 14 per cent of the country’s total healthcare expenditures.205 As a developing country, Myanmar is still faced with basic health problems and epidemics, mostly related to communicable diseases that have been eradicated in most advanced countries: malaria is the top mortality and morbidity cause, tuberculosis rates are 3 times the world rate. Limited access to safe water is said to be at the roots of the epidemic character of most of the communicable diseases. Myanmar also accounts for one of the highest adult HIV rates in southeast Asia, following only Cambodia and Thailand. On the other hand, despite not having reached the Millennium Development Goals in terms of child and maternal health standards, Myanmar is more advanced than most ASEAN countries in terms of child immunization coverage, infant mortality rate, under 5 months mortality rate and maternal mortality ratio. Following people's aspiration for longer lives and universal health coverage, the government introduced the National Health Policy and National Health Development Plans (2000-2016). In 2012, the Social Security Act introduced general healthcare and maternity benefits. Since then, steps towards the Millennium Development Goals have been dramatic, yet a lot remains to be done. Health, too, is considered discriminatory in respect with income level. Despite being nominally free, user charges were introduced in 1993, putting a term to the governmentfinanced health care in place until then. Informal charges additionally applied to free cares, and the “out-of-pocket” payment are now the main financial sources for the health sector. The underdeveloped national network of public hospitals and clinics are the main causes of the existing yet limited access to healthcare, and reinforces this discriminatory aspect when public hospitals are poorly equipped and lack the basic personnel, facilities and care. Patients therefore regularly have to pay privately for medicine and treatment, particularly regarding traumatology and cardiology.206 Rural areas lack connections to hospitals. The government has given a priority to equity in its current reforms, insisting on the decentralization needed for health services and on the need for close-to-client services as the primary requirements when it comes to health and particularly emergency services. 207

Forbes. (2013). Healthcare in Myanmar. Available: http://www.forbes.com/sites/benjaminshobert/2013/08/19/healthcare-in-myanmar/ 205 Sein, T.T. et al. (2014). The Republic of the Union of Myanmar Health System Review. Asia Pacific Observatory on Health Systems and Policies, Vol. 4, No. 3. Available: http://www.wpro.who.int/asia_pacific_observatory/hits/series/myanmar_health_systems_revie w.pdf 206 Sein, T.T. et al. (2014). The Republic of the Union of Myanmar Health System Review. Asia Pacific Observatory on Health Systems and Policies, Vol. 4, No. 3. Available: http://www.wpro.who.int/asia_pacific_observatory/hits/series/myanmar_health_systems_revie w.pdf 207 Ibid. 204

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EUROPEAN COMMISSION Government spending on public health is very low in Myanmar, which provides opportunities for private health care providers and foreign investors. As part of the revival of the health care system, the government is seeking foreign investments to be able to provide its population with health care. Several leading regional health care companies have already expanded their operations to Myanmar. 208 Myanmar has also received substantial interest from overseas health care providers, which will result in investments in clinics and hospitals.209 Access to healthcare for local workers could be improved through the presence of foreign companies following responsible business guidelines in Myanmar. 210 Medical insurance and healthcare for job-related injuries or health issues have been covered by certain foreign companies investing in Myanmar. Furthermore, Myanmar faces basic health problems and epidemics which are mostly related to communicable diseases as a result of limited access to safe water and bad infrastructure. Furthermore, the national network of public hospitals and clinics is underdeveloped. Foreign investment in Myanmar could improve the infrastructure and access to safe water, which would in turn improve public health in Myanmar. Lastly, access to health care is partly subject to income levels. People with a lower income level are discriminated against in this matter. An increase in foreign investment and economic growth could lead to higher income levels in Myanmar, which would improve access to health care. 5.1.5.

Effects on inclusion induced by foreign investments

Constitution of the Republic of the Union of Myanmar – 2008211 Article 348: the Union shall not discriminate any citizen of the Republic of the Union of Myanmar, based on race, birth, religion, official position, status, culture, sex and wealth. Freedom of religion is recognized and protected by the Constitution of the Republic of Union of Myanmar of 2008, though the State is nevertheless allowed to restrict religious expression for community peace and tranquillity. As mentioned in the Human Rights section, significant de jure and de facto restrictions on religious practice affect the nonTheravada Buddhist communities in Myanmar, in particular the Muslim community. Myanmar recognizes 135 different ethnic groups. About two third of the population belongs to the Burman ethnic group (Bamar), which is dominant in the military and the government. The country’s main minorities include Kachin, Kayah, Kayin, Chin, Mon, Rakhine, and Shan. The dominant religion is Buddhism (89.3 per cent of the population). Christianity (5.6 per cent), Islam (3.8 per cent), Hinduism (0.5 per cent) and Animism (0.2 per cent) are all considered as religious minorities. The discrimination faced by religious and ethnic minorities have been pointed out several times by the UN Human Rights Council, stressing the fact that its continuation would harm

Ferrie, J. (2013). Myanmar looks abroad for investment in healthcare. Reuters. Available: http://www.reuters.com/article/us-myanmar-health-idUSBRE9B10UZ20131202 209 Oxford Business Group. (2015). Health care spending on the rise in Myanmar. Available: http://www.oxfordbusinessgroup.com/news/health-care-spending-rise-myanmar 210 Myanmar Centre for Responsible Business. (2015). Human rights and business country guide: Myanmar. Available: http://hrbcountryguide.org/wp-content/uploads/2014/06/Human-Rightsand-Business-Country-Guide-Myanmar-Final-08.04.15.pdf. 211 Republic of the Union of Myanmar. (2008). Constitution of the Republic of the Union of Myanmar. Available: http://www.burmalibrary.org/docs5/Myanmar_Constitution-2008-en.pdf 208

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the reform and development process. Multiple cases of forced conversions to Buddhism have been reported by the Special Rapporteur for Human Rights in Myanmar. The Rohingyas Muslim minority faces the most harmful forms of discrimination, not being recognized as one of Myanmar’s 135 ethnic groups, making them effectively stateless. The violence and displacement of the Rohingya community in Rakhine State are the most well-known internationally, but anti-Muslim violence also touches other communities notably in the Shan State (Meiktila, Lashio). Arbitrary arrests, torture, forced labour, extrajudicial killings and sexual violence illustrate the persecutions faced by individuals on the ground of their religion or ethnicity.212 Restrictive legislation, such as the “race and religion protection laws” approved by the Parliament in August 2015, have increased the restrictions faced by religious minorities in Myanmar. These laws have been pointed out by the international community, including the European Union, as jeopardizing an already fragile state of play in terms of inclusion of religious minorities and as unacceptably breaking Myanmar’s commitments to Human Rights.213 According to the UNDP, Myanmar’s performances in terms of gender equality surpass the Lao Peoples’ Democratic Republic and Cambodia in its neighbourhood, ranking 83 out of 149 countries investigated. Myanmar is part to the Convention on the Elimination of All Forms of Discrimination against Women (CEDAW) and as part of its commitment to the Millennium Development Goals, its Ministry of Social Welfare and Relief and Resettlement has launched a series of reforms to enhance gender equality and empowerment.214 Although they have to get higher scores than men to get admitted to universities, females are more likely to reach higher levels of education, yet their absence in local administration, governance and politics is striking. Few progresses particularly in the light of the 2015 elections have given more weight to the voice and influence of women in politics. This is mostly explained by the military-ruled patriarchal political system, which reflects the traditional vision of the Myanmar’s society. 215 Gender-based unequal pay is still commonplace, particularly in the agricultural sector, despite the equal pay clause of the minimum wage law of 2012. Despite a good record compared to its ASEAN neighbours, Myanmar is still faced with high maternal mortality rate, and it is one of the most important challenges affecting women’s life expectancy. Maternity leaves are rare. 216 As the exclusion or disrespect of children’s, women’s or minorities’ rights are not specific to one sector of activity, the effects induced by foreign investment on the inclusion of vulnerable populations need to be analysed through their impact on these selected sectors. Generally, foreign investments are expected to enhance the inclusion and equalitarian treatment of women or minorities by abiding by international standards regulating the labour or education sectors, where the inequalities are the most striking.

UN Human Rights Council. (2013). Myanmar must tackle discrimination against ethnic and religious minorities – Pillay. Available: http://www.ohchr.org/EN/NewsEvents/Pages/DisplayNews.aspx?NewsID=13470& 213 Human Rights Watch. (2015). Burma: Discriminatory laws could stoke communal tensions. Available: https://www.hrw.org/news/2015/08/23/burma-discriminatory-laws-could-stokecommunal-tensions 214 World Bank. (2013). Myanmar: Gender Equality and Development. Available: http://www.worldbank.org/en/news/feature/2013/09/19/Myanmar-Gender-Equality-andDevelopment 215 Moe, W. (2015). Burma’s Women are still Fighting for their Rights. Foreign Policy. Available: http://foreignpolicy.com/2015/07/02/burmas-women-are-still-fighting-for-their-rightsmyanmar/ 216 Ibid. 212

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Sector Specific: Development without an EU-Myanmar IPA

This section will assess the likely impact of Myanmar’s domestic developments and the impact of its BITs on a sectoral level. The focus will be on agriculture, energy and mining, manufacturing, textiles, ICT and automobile and electronic consumer goods. 5.2.1.

Energy and mining

Myanmar is also resource rich in oil, gas and precious minerals. Many of these natural resource reserves are largely unexplored despite the availability of new and more efficient technologies, which more FDI could channel if managed carefully. The BIT signed between China and Myanmar omits reference to social welfare or sustainable development, and has had little positive impact on labour, education or public health. For example, after negotiations over the Taping hydropower dam among China Datang Corporation, the Kachin Independence Army (KIA) and the army, China Datang Corporation paid the KIA € 2.2 million to move ahead with the project, and agreed to divert some electricity to KIA territory, but refused to make it official with a contract. Shortly after, the army attacked nearby KIA outposts, breaking the 17-year-long ceasefire. The fighting then spread to northern Shan State, where the army moved in to “secure” territory for the construction of oil and gas pipelines operated by China National Petroleum Corporation (CNPC).217 Of the 43 large dams planned in Myanmar, over half are to be built on rivers in conflictaffected areas in Shan State, including four on the Salween such as the Mong Ton dam in areas under the control of Shan and Wa armies and the Kunlong dam in the Kokang region, where fighting has intensified since February. Activists fear that the dam projects are threatening the tentative ceasefire between the government and the minority groups.218 Myanmar’s natural resources are concentrated in these conflict-afflicted ethnic minority areas, which are rich in minerals and gems, hydropower, natural gas deposits, and hardwoods. Hydropower projects such as the Myitsone and the Salween River dams, extractive project such as the Shwe Gas project and the Monywa copper mine (comprising the Letpadaung mine) have all been associated with tensions between local communities and investors over land confiscations and displacement, with little or no compensation. 219 In May 2015, residents in Rakhine State protested against a Korean-owned coal fired plant, concerned about environmental damage and impact on health.220 In addition, workers in the extractive sectors face a number of problems, including respiratory diseases due to low air quality, poor health and safety conditions, and long working hours for low wages below living wage. Myanmar lacks a modern mining law, which makes the issue of land use by a company unclear.

International Trade Union Confederation. (2015). Foreign Direct Investment in Myanmar: What impact on human rights? Available: http://www.ituc-csi.org/IMG/pdf/ituc-burma.pdf 218 Myanmar Centre for Responsible Business. (2014). Myanmar Oil & Gas Sector Wide Impact Assessment. Available: http://www.myanmar-responsiblebusiness.org/pdf/SWIA/Oil-Gas/00Myanmar-Oil-and-Gas-Sector-Wide-Assessment.pdf 219 International Trade Union Confederation. (2015). Foreign Direct Investment in Myanmar: What impact on human rights? Available: http://www.ituc-csi.org/IMG/pdf/ituc-burma.pdf 220 Myint, W.M. et al. (2015). Villagers Voice Opposition to Coal-Fired Power Plant in Western Myanmar. Available: http://www.rfa.org/english/news/myanmar/villagers-voice-opposition-tocoal-fired-power-plant-in-western-myanmar-05062015161651.html 217

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5.2.2.

Textiles

FDI in Myanmar is concentrated in the export-oriented labour-intensive textile industry, due to the relatively low cost of labour; see Table 6 below comparing the hourly wages in the garment sector in different Asian countries. Table 6: 2004 Hourly wages in the textile sector in Asian countries.

Despite a rise in exports to countries such as Japan, evidence suggests that poor infrastructure have left Myanmar’s workers vulnerable to exploitation. Women experience particularly poor working conditions with very low wages, little exposure to training and transient work. The Myanmar government therefore plays a crucial role in ensuring that investors provide the basic infrastructure and the bargaining power required to leverage improvements in working conditions of workers.221 Garment manufacturing in Myanmar is concentrated in the production stages of cutting, sewing, inspecting, pressing and packaging, which are the lowest value-added in the garment value chain. A few large national firms have penetrated the value chain and large buyers abroad – especially from Japan – have outsourced orders to these few national firms. Foreign firms typically pay more than domestic firms, as the Tables 7 and 8 below indicate. Table 7. Monthly salary: Foreign /Joint Venture Garment Firms, Myanmar 2010 ($US)

Table 8: Monthly salary of private national garment firms, Myanmar 2007-2010

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Low labour standards risk exacerbating existing problems in the industry. Sweatshop labour conditions and health and safety violations are common where no union is present, with little lighting, overcrowded facilities, unsafe machinery, and poor air quality resulting in respiratory diseases. Forced overtime is pervasive. Workers are subject to long working hours beyond legal limits, for seven days a week, for extremely low wages. There are an insufficient number of labour inspectors. 222 Following the wave of strikes by garment workers in the Hlaing Thar Yar industrial zone in 2012, the Ministry of Labour set a temporary minimum wage of 50,000 kyat (€ 45) per month. The Department of Labour recorded 447 strikes in the garment sector between 2012 and 2014. There is a perception among Myanmar government officials and the business community that Western companies are more ethical and ensure the rights of workers. “US garment firms are very concerned with labour rights. Normally, U.S. garment companies check the working environment of factories and other labour suppliers before they give the green light for trade,” said Myint Soe of the Myanmar Garment Manufacturers Association (MGMA). Western companies are saying the right words; they are cautious about Myanmar, and are aware of the reputational risks they face if something goes wrong. Nevertheless, it is clear that without any binding regulation in place, EU investment does not guarantee the rights of the workers in these factories. In June 2015, the government announced a minimum wage of 3,600 kyats (about € 2.90) for all sectors. While local unions called for higher pay, employers say that the proposed minimum wage is unsustainable for business. Several Chinese and South Korean garment manufactures threatened to close down their factories if the proposed minimum wage is set at that rate. The MGMA also signalled its opposition to the proposed wage. On 15 July 2015, Ethical Trade Initiative (ETI) on behalf of its member companies (including Gap, H&M, Marks & Spencer and Primark) and the Fair Labour Association (FLA) and 17 of its affiliated companies (including Adidas) sent a letter to the Myanmar government supporting international calls for the proposed minimum wage to apply to the garment sector. Many top EU apparel brands including Adidas Group (Germany), H&M (Sweden), Marks and Spencer (UK) and Primark (UK) source their products from factories in Myanmar. H&M recently issued a statement on the labour situation in Myanmar, which not only supported the early introduction of the minimum wage but also took the opportunity to highlight the importance of peaceful resolution of worker protests and the need to protect rather than harass workers’ representatives. ‘H&M noted that when violence is used by public or private sector security forces to curtail workers’ peaceful protests, this is likely to be more of a deterrent to companies considering sourcing from Myanmar than the strikes themselves, and will have a significant negative impact on Myanmar’s reputation. Similarly, where workers’ representatives are detained or dismissed for striking, this will

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also have a negative impact on Myanmar’s reputation and will be a factor which investors consider’. In the present climate for trade unionist in Myanmar, a brand highlighting the problems faced by human rights defenders and the need for the government to protect them, is an important step forward. The garment sector also received a cash influx in 2014 from the European Union for EUR 2.8 million through its SMART project “Made in Myanmar,” detailed in chapter 4. 5.2.3.

Agriculture

Myanmar is rich in arable land and permanent crops, yet productivity in the agriculture sector is low with output per worker of only around € 1,181 a year, compared with around € 2,271 per worker in Thailand and Indonesia. The sector’s low productivity and the low level of inputs suggest that there is significant scope to expand. Given that agriculture currently accounts for more than half of the entire workforce employment (52 per cent), centralizing the full potential of agriculture could, if managed carefully, positively improve the conditions of more than half of the workforce. The National Planning Law projected a 2.3 per cent increase in the agricultural sector for 2015-16. However, farmers say they face difficulties in increasing production in rice, beans and other crops. The sector is suffering from the after-effects of reported unlawful landgrabs,223 drought in the dry season and flooding in the wet season. The heavy flooding has had a particularly devastating effect on rice production, since 70 per cent of annual harvesting takes place in the rainy season. The 2014 Law of Protection of Farmers’ Rights and Enhancement of Their Benefits, enacted to help protect growers against climate shifts, is seen as just a first step toward mitigating these effects. Under the new land legislation, customary land rights are not clearly recognized. The OECD notes that shifting cultivation relies on fallow land yet the VFV Land Law provides the possibility for confiscating such land if it is not being cultivated. Rather, the new land legislation seeks to attract large-scale investments that could lead to employment creation and bring the necessary expertise and financing to enhance the competitiveness of agricultural value chains. 224 The legislation states that, if the government approves investment projects, the time and size limits set on land leases can be lifted. The limited data that exists on land investment from the Ministry of Agriculture and Irrigation suggests that large-scale land allocations have increased significantly over the past decade. Yet, without effective governance, large investments can easily result in negative social impacts. Adequate safeguards should thus be developed to ensure that large-scale investments do not have adverse social impacts. As highlighted in the Human Rights section, farmers have suffered because land grabbing has increased as ceasefires have made land more available to commercial interests especially in the conflict-ridden regions inhabited by minorities. Local populations are asking the government and investors to allow Myanmar to resolve its conflicts before rushing in for profit. For example, communities in Shan State urged the Myanmar government and foreign investors to stop plans to build large dams on rivers in Shan State, where conflict is escalating. 225 The ILO has also reported an increased number of forced labour complaints related to land confiscation, where people having traditionally occupied land were forced to work on it

Zaw, M. (2016). NLD compiles land-grab lists. Yangon: Myanmar Times. Available: http://www.mmtimes.com/index.php/national-news/mandalay-upper-myanmar/18557-nldcompiles-land-grab-lists.html 224 OECD. (2014). OECD Investment Policy Reviews: Myanmar 2014. Available: http://www.oecd.org/daf/inv/investment-policy/Myanmar-IPR-2014.pdf, p. 45 225 International Trade Union Confederation. (2015). Foreign Direct Investment in Myanmar: What impact on human rights? Available: http://www.ituc-csi.org/IMG/pdf/ituc-burma.pdf 223

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EUROPEAN COMMISSION after it was expropriated and converted.226 Myanmar's contractors are required to return seized farmland to farmers whose fields have been confiscated for government projects According to the law, once the project is complete, any excess land has to be returned to the original owner. But farmers report that this is not happening. Facilitator Network, an NGO working with the ILO (upper Myanmar), submits that some contractors take advantage of government projects to grab more land than is required – and claim the rest as their own and sell or lease it off. Chapter 11, section 32 of the farmland law states that the authorities must take the minimum amount of land required for government projects, complete the projects as quickly as possible, and restore any surplus seized lands to the original owners after completion of the project. For example, the villagers of Phyut Sake Kone, Amarapura Township, Mandalay Region, complained that they had not been paid compensation or had their land restored in the area of Pyi Gyi Mingalar Truck Terminal Camp at Nat Yay Kan village tract. Eleven acres of farmland and more than 200 houses at Thet Kel Taw, Thapyay Tan and Ka War villages near Shwe Kyat Yat Pagoda in Amarapura Township were confiscated prior to the construction of Yadanar Pone Bridge, but residents said the No 2 Special Construction Team had been leasing out buildings on the leftover lands after the project was finished. 5.2.4.

Automobile and Electronic Consumer Goods

Myanmar has a mixed scorecard on job creation in the automobile and electronic industry because it is not generating it full potential of employment growth. American firm General Electric for instance has five employees in Myanmar, yet “would get an audience any time they come to the government, because they’re GE.”227 Mercedes Benz has sales and service outlet and Tata Motors a showroom, Korea’s Hyundai opened its first sales showroom in August 2013 with plans to open another 13 before 2018. America’s Ford Motor Company entered Yangon with its first dealership in August 2013, and General Motors followed with an outlet exclusively for its Chevrolet brand. Japan’s leading carmaker, Toyota opened in March 2014 in partnership with a local company, Mazda is operating out of a temporary store while entering the market. Mercedes formally opened in May 2014, while Jaguar Land Rover, now owned by India’s Tata Motors, in partnership with local Capital Diamond Star Group. However, high import duties and levels of taxation have resulted in Myanmar being one of the most expensive countries to own cars. Since 2011, import regulations have changed eight times. According to a KPMG report the country’s transport sector is grossly underdeveloped. Foreign car manufacturers note the growing middle class’ unleashing demand. The statistics issued by the road transport administration show that for the twelve-month period ending December 2013 there was a 30 per cent increase over the previous year in the registration of passenger cars. According to the McKinsey Report on Myanmar, automotive parts and assembly figure high on the list of industries with high growth and this will require more skilled labour than is currently present.

Poole, M. (2013). Myanmar Turns a Corner in: World of Work Special 2013 Issue. ILO. Available: http://www.ilo.org/wcmsp5/groups/public/---dgreports/--dcomm/documents/publication/wcms_216068.pdf 227 Mullins, J. and Aung, N.L. (2014). Job creation falling short: U Serge Pun. Yangon: Myanmar Times. Available: http://www.mmtimes.com/index.php/business/11666-job-creation-fallingshort-u-serge-pun.html 226

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5.2.5.

Manufacturing

Myanmar’s labour costs are comparatively low and therefore attractive to investment in labour-intensive manufacturing sectors such as textiles, apparel, leather, furniture, and toys at a time when some of this manufacturing is leaving China. Yet labour productivity is again weak, at for example, 70 per cent the output of a Vietnamese worker in 2010. Without improving labour productivity, Myanmar’s attractive labour costs will be offset by unattractive productivity levels. Given the need for increased labour productivity, it is equally important that there is sufficient domestic legislative push to ensure labour rights are of an international standard. Land confiscations have been linked to the establishment of SEZs, including at Dawei, Kyaukpyu and Thilawa. The ITUC report indicates that there has been a dramatic increase in the number of trade unions forming with the Confederation of Trade Unions of Myanmar (CTMU) holding 630 affiliated unions with nearly 45,000 members. The Confederation notes that in practice poor implementation of the 2012 Settlement of Labour Dispute means that employers discriminate with impunity. Increasingly, temporary workers and contract labour are at risk of exploitation, low wages and working conditions, which increases the risk of civil unrest.228 However, the workers say the law has done little to protect them, as bosses flout the rules with impunity, or at most face small-scale fines.229 The workers allege that they are left with little recourse. Factory workers demanded that the next government institute potential prison penalties in order to effectively stop rampant rights abuses in the sector, while the Myanmar Workers Unions Network note that lax enforcement of the labour laws needs to be addressed. Employers frequently disregard orders to rehire wrongfully terminated workers.230 Most employers don’t care about breaking the rulings or the law because they are rarely penalized and can afford the fine in any case. Labour rights cannot be protected when workers can be fired at the whim of employers ready to pay a fine. The penalty, amended in September 2014, includes a maximum 1 million kyat (approximately EUR 700) fine for offenders. 5.2.6.

ICT

The OECD has noted that Myanmar’s nascent telecommunications market is attractive for investors. Although some regulatory instability continues, the tender for the two new licenses has generated an intense competition among international mobile services providers. In 2013, twelve out of 91 tenders were shortlisted for the final round based on the standards established by Myanmar’s Telecommunications Operator Tender Evaluation and Selection Committee, and in June 2013 the Selection Committee announced Telenor and Ooredoo as winners. The contract standards were designed by Myanmar’s Telecommunications Operator Tender Evaluation and Selection Committee, who also ultimately selected Telenor and Ooredoo as the winners.231

International Trade Union Confederation. (2015). Foreign Direct Investment in Myanmar: What impact on human rights? Available: http://www.ituc-csi.org/IMG/pdf/ituc-burma.pdf 229 Aung, N.L. et al. (2015). Factories told to pay up. Yangon: Myanmar Times. Available: http://www.mmtimes.com/index.php/national-news/16794-factories-told-to-pay-up.html 230 Htwe, Z.Z. (2016). Factory bosses accused of firing labour rleaders, ignoring arbitration rulings. Yangon: Myanmar Times. Available: http://www.mmtimes.com/index.php/nationalnews/yangon/18317-factory-bosses-accused-of-firing-labour-leaders-ignoring-arbitrationrulings.html 231 OECD. (2014). OECD Investment Policy Reviews: Myanmar. Available: http://www.oecd.org/daf/inv/investment-policy/Myanmar-IPR-2014.pdf, p. 45 228

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EUROPEAN COMMISSION Norwegian Telenor is also in a joint venture with Yoma Bank to provide mobile banking and basic financial services for millions of unbanked people in Myanmar. However, delays occur due to lack of clarity concerning the regulatory regime that governs these services and markets. Meanwhile, only about 6 percent of the population has a bank account, and particularly few in very remote areas. As such, mobile banking has to potential to improve financial inclusion for people at the lower end of the pyramid. Myanmar can potentially leverage digital technology as a central platform of its development plans. 232 Digital technology could transform Myanmar’s education, health care, and agriculture. Myanmar has one of the lowest averages of schooling in the world at just four years. Its teacher-to-pupil ratio is more than double that of Malaysia. Myanmar could harness FDI in technology and ICT infrastructure to provide e-education and vocational training to improve the quality of its workforce. 5.3.

Potential social impacts of the IPA on Myanmar

This section will first provide a general analysis of likely provisions in the EU-Myanmar IPA based on related chapters in CETA,233 while also taking into account the EU-Singapore FTA,234 the EU-Vietnam FTA,235 and the EU proposal for an ICS in TTIP.236 Then it will look into the social impacts of the IPA on Myanmar. 5.3.1.

Labour rights, social inclusion and sustainable development

In line with international standards and guidelines on labour, political and social rights, the CETA Chapter 23 Trade and Labour’s Article 23.2 recognises the right to regulate labour and levels of labour protection domestically. Yet somewhat circularly, this domestic policy space must be in a manner compatible with its international labour commitments, which include the CETA labour chapter. Thus ultimately, the right to regulate is conditioned in part by these CETA obligations. These obligations are very much based on international standards and guidelines. Article 23.3 seeks to ensure that each party’s labour law and practices embody and provide protection for the fundamental principles and rights at work, and reaffirm its commitment to respecting, promoting and realising such principles and rights in accordance with its obligations as member of the ILO and its commitments under the ILO Declaration on Fundamental Principles and Rights at Work and its Follow-up, adopted by the International Labour Conference at its 86th Session in 1998, the Decent Work Agenda, and in accordance with the 2008 ILO Declaration on Social Justice for a Fair Globalisation. While positive for the promotion of social inclusion and labour protections, the Chapter does impose obligations on the parties which Myanmar might feel is too onerous in the short time, and therefore might require special and differential treatment (S&D), for example a longer time period to implement the IPA. It requires that the parties ensure that its labour law and practices promote the following objectives: health and safety at work, including the prevention of occupational injuries and illnesses and compensation in

In January 2012, the McKinsey High Tech Practice estimated that the Internet had accounted for
as much as 12 percent of cumulative GDP growth over the past five years in a group of aspiring countries. 233 Chapter 8 Investment, Chapter 22 Trade and Sustainable Development, Chapter 23 Trade and Labour and Chapter 27 Transparency 234 Chapter 9 Investment and Chapter 13 Trade and Sustainable Development 235 Chapter 8 Trade in Services, Investment and E-Commerce and Chapter 15 Trade and Sustainable Development 236 European Commission. (2015). European Union’s proposal for Investment Protection and Resolution of Investment Disputes. Available: http://trade.ec.europa.eu/doclib/docs/2015/november/tradoc_153955.pdf 232

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cases of such injuries or illnesses, establishment of acceptable minimum employment standards for wage earners, including those not covered by collective agreements; and non-discrimination in respect of working conditions, including for migrant workers. Furthermore, Article 23.4 prohibits a party from waiving or otherwise derogating from its labour law, as an encouragement for trade or the establishment, acquisition, expansion or retention of an investment or an investor in its territory. Article 23.5 also obliges the parties to effectively enforce its labour law, including regular inspections and ensuring administrative and judicial proceedings are available, including remedies. The Chapter’s obligations are binding and enforceable, although Article 23.11 clarifies that for any matter arising under this Chapter where there is disagreement the Parties shall not have recourse to the CETA dispute settlement chapter, rather only the rules and procedures provided for in this chapter. Article 23.10 states that for any matter that has not been satisfactorily addressed through government consultations, either party can request that a Panel of Experts examines that matter and issues an interim and a final report setting out the findings of facts and its determinations. The Chapter is supported by institutional requirements to establish a contact point and interface with those of the Trade and Sustainable Development contact point on matters of common interest. The Trade and Sustainable Development Chapter further notes that the Parties agree that the chapter’s rights and obligations and the Trade and Labour Chapters obligations are to be considered in the context of the CETA Agreement. It underlines that the Parties aim to promote sustainable development through the enhanced coordination and integration of their respective labour, environmental and trade policies and measures and to enhance the enforcement of domestic labour and environmental laws and respect for labour and environmental international agreements. It states that the designated Trade and Sustainable Development body shall meet within the first year of the entry into force of this Agreement, although after this, it is left to the discretion of the parties. And again, unless the Parties refuse, each regular or dedicated meeting shall include a session with the public to discuss matters relating to the implementation of these two Chapters. The desire for social inclusion is supplemented in Article 22.5 which requires the parties to facilitate an annual joint Civil Society Forum comprising representatives of civil society organisations established in their territories, including participants in the domestic consultative mechanisms referred to in Trade and Labour. 5.3.2.

Potential Labour and Social Impact of the IPA for Myanmar

FDI inflows can have a range of welfare-enhancing as well as detrimental effects on the host economy, as the actual impacts of an individual investment depend on its nature and purpose. These impacts also depend on several factors related to the host economy, such as human resources, competition and policies towards trade and investment.237 Based on the evidence gathered for this SIA, and as stated in the European Commission’s 2014 Impact Assessment, it can however be assumed that, all other things being equal, a bilateral IPA could “support Myanmar’s capacity to attract EU skilled labour in the economic sectors its government seeks to develop.”238 The survey results (see Figure 11 below) on the impact of an EU-Myanmar IPA, indicate that a quarter of respondents thought there would be both negative and positive impacts from the IPA on social development. Half the respondents held that the IPA would be

237 238

OECD 2015 European Commission. (2014). Impact Assessment: Report on the EU-Myanmar/Burma Investment Relations. Available: http://ec.europa.eu/smartregulation/impact/ia_carried_out/docs/ia_2014/swd_2014_0041_en.pdf, op.cit 100

EUROPEAN COMMISSION negative for social development, while the remaining quarter was very positive by the prospects of such an agreement. The EU in 2015 joined the Myanmar labour rights initiative launched by the Government of Myanmar, the United States, Japan, Denmark and the International Labour Organisation (ILO) in November 2014, aiming to contribute to the promotion of fundamental rights for Myanmar workers, create opportunities for Myanmar businesses and help transform the country into an attractive trading and investment partner. This initiative is a scheme through which negative externalities of the IPA could be addressed. Figure 11: Civil Society response: the nature of the social impact of an EUMyanmar IPA

It can thus be concluded that not only is EU FDI into Myanmar likely to lead to higher wages but also to the transfer of good business practices, and higher productivity through the transfer of technology than would otherwise have been the case. A number of stakeholders consulted for this SIA provided additional arguments in this respect. They claimed that an EU-Myanmar IPA could ensure capacity-building and introduce international standards and transfer of technology; facilitate the production and commercialisation of innovative products; bring in detailed and high-quality business models and increase competitiveness increases through skills development and competition in context of ASEAN (Audier). Furthermore, it was mentioned during the workshop239 that with adequate safeguards and protective measures, the agreement could lead to increased female labour market participation and equal opportunities; better and safer jobs for local people; transfer of good technology by EU businesses; build-up of effective and sustainable capacities by EU companies; reduction and subsequent eradication of child labour; better occupational safety and good working conditions; and due importance to corporate social responsibility and business practices. Similarly, some stakeholders expressed their concerns about whether the IPA could effectively address a wide range of existing risks including ensuring minimum standards, stakeholder inclusion, improving accountability to communities and community consent. Distributional effects were also among the concerns expressed by stakeholders; e.g. UNDP indicated that and IPA might alter the terms of competition among various market participants, rather than increase or decrease competition.

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Ko Thurein Aung of Action Labour Rights, a civil society organisation in Myanmar that works on labour rights and labour policies and their implementation. SIA on the EU-Myanmar Investment Protection Agreement EN

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During the workshop240 it was mentioned that in the absence of clear regulations and protective measures in the IPA, certain negative impacts might remain: companies might utilise unskilled labour within the informal sector(s) and not compensate fairly; there could be an increase in workforce discrimination; large firms with a political voice might push for reforms favourable and profitable to them; and the costs of living and inflation would increase and inequality will rise in the absence of adequate checks and balances. Some stakeholders made recommendations for measures to mitigate potential negative impacts of an EU-Myanmar IPA. UNDP have put forward several measures to ensure positive outcomes from an IPA. Below the UNDP proposals are listed, and below each, the project team have provided comments. 1. UNDP measure: Taking more time to conduct the negotiation, and supporting the development of national policy in Myanmar to engage in negotiation on a more level playing field Project team comments: In multiple sectors, including labour standards, that legislation is still under development. This process may be further delayed by a transition to new government on April 1, 2016. As such the EU and Myanmar may wish to slow down the pace of negotiations so that the institutional framework to support the agreement can be put in place, and to avoid negative externalities. This said the increase of EU investment and involvement in the region may expedite the transition to better practices. 2. UNDP measure: Applying general exceptions for measures taken to protect public health, environment, etc. to all the substantive provisions of the agreement Project team comments: It has been the practice of the EC to include such provisions in FTAs. Provisions to protect public health labour rights and the environment are very important in this case and can be based upon similar provisions in agreements, such as CETA (Article 28.3). 3. UNDP measure: Reconsidering the strict limits on the use of performance requirements Project team comments: If this treaty prohibits performance requirements, such as domestic content requirements, this could serve to prevent government policies to encourage employment and skilling the labour force and therefore negatively impact on domestic labour employment, and domestic labour skills/education. CETA (Article 8.15) addresses this concern by providing for exceptions to the prohibition of performance requirements. Furthermore, CETA (Article 8.5(3)) provides an exception to the prohibition of performance requirements concerning training workers. However, local content requirement could discourage inward trade and investment, thus negatively impacting economic development as a whole.

4. UNDP measure: Reconsidering the use of umbrella clauses Project team comments: Provisions in the ‘right to regulate’ clause, described in more detail in the background section (Chapter 2), need to be strong enough to allow the Myanmar government to enact legitimate legislation without facing law suits.

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Ko Thurein Aung of Action Labour Rights, a civil society organisation in Myanmar that works on labour rights and labour policies and their implementation. 102

EUROPEAN COMMISSION 5. An umbrella clause imposes a requirement on a party to observe all investment obligations entered into with investors from the other party under the IPA ‘umbrella’. A breach of an investment contract would then be deemed a breach of the umbrella clause, allowing an investor to resort to international arbitration. For example, from a certain, investor-friendly viewpoint, almost any law or regulatory measure can be considered an ‘indirect expropriation’ when it has the effect of lowering future expected profits. This would allow investors to claim compensation on the basis of reduced profitmaking opportunities as a result of the government measure. Almost any government measure could fit that definition, which multiplies the risk of costly investor-state lawsuits. 241 UNDP measure: Consider including responsible investment obligations for government and investors Project team comments: It has been the practice of the EC to include such provisions in EU FTAs. Provisions to protect human rights and the environment are very important in this case and can be based upon similar provisions in agreement such as the EU-Vietnam FTA. Furthermore, UNDP stated that the impact of the IPA in supporting social rights and labour standards depends on whether investors, and not only the government, are subject to obligations to behave responsibly in the absence of a strong supporting regulatory framework. UNDP would be concerned by the suggestion that investors’ obligations to meet internationally accepted minimum standards of responsible conduct are “voluntary”, rather than drafted in mandatory language. Additionally, UNDP argued that government policies should protect children’s rights from adverse impact by business activity. The Myanmar government must protect children’s rights by stopping investors from abusing children’s rights or making violations of children’s rights worse. The International Commission of Jurists (ICJ) noted that foreign commercial actors are important constituencies for legal reform. Responsible investors demand a functioning judiciary to protect their interests. Creating a two-tier system (arbitration in the first instance for investors, courts for everyone else) removes a powerful force for the development of an effective and independent judiciary, in which judges become accustomed to dealing with the disputes to which the government is a party. Establishing arbitration as the default option for all investment disputes would be a regressive step for the development of the judicial system in Myanmar. The EU aims to encourage recourse to domestic courts (e.g. no "fork-in-the-road" which would force the investor to choose once and for all whether to enforce in domestic courts or through ICS/ISDS). The ICJ recommends that the EU-Myanmar IPA does not extend Myanmar’s international arbitration responsibility to areas of public policy. 5.4. 5.4.1.

Sector-specific analysis of the EU-Myanmar IPA and the social impacts of its provisions Energy and mining

Labour laws are important to promote social inclusion and sustainable development provisions. They also protect the reputation of investors abroad. The CETA model of investment protection could either exempt energy and mining, but lose the necessary FDI to modernise this sector. Or it could cover energy and mining but impose CSR performance requirements on investments and technical assistance and S&D from the EU. These requirements could include full disclosure from investors, following the US- Burma Responsible Investment Reporting Requirements approach. However, the US system has

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The Transnational Institute, Paung Ku (2014) EU - Myanmar Bilateral Investment Treaty. Available: https://www.tni.org/files/download/eu-myanmar_bit.pdf SIA on the EU-Myanmar Investment Protection Agreement EN

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key problems, as they only apply to large companies with returns of over half a million USD. Another tool could be the ILO Better Factories programme, which would allow monitoring of working conditions in the energy and mining sector. This would provide an incremental and international effort to promoting good practices in this sector. 5.4.2.

Textiles

Labour provisions are of significant relevance here, particularly child labour and migrant labour protections. A CETA style investment framework could usefully promote good business practices in the garment industry, as with the SMART project discussed above. However, again imposing CSR performance and reporting requirements on EU investors and investments and technical assistance and obligatory S&D from the EU would operate to avoid over-ambitious expectations regarding the domestic administrative and judicial system. 5.4.3.

Agriculture

Various provisions protecting land and indigenous communities are of importance here, in addition to labour protections for children, women and temporary labour. For example, concerns about possible land grabs and the crowding out of local farmers by foreign investors have resulted in the development by the FAO, UNCTAD, the World Bank and IFAD of Principles for Responsible Investment in Agriculture (PRAI). Attracting FDI is important due to lack of domestic credit available. Excluding agriculture from the EUMyanmar IPA would therefore operate against this objective. 5.4.4.

Automobiles and electronics

ILO principles on labour and sustainable development are included in the CETA model, along with an institutional mechanism for discussing labour and sustainable development issues on particular sectors. This could be complemented by performance requirements on the part of EU investors and investments to ensure international standards on social, labour and sustainable development issues are observed, and promoted in Myanmar. This would take the immediate burden domestically and provide a positive demonstration effect, as with the US- Myanmar Responsible Investment Reporting Requirements. 5.4.5.

ICT

Sustainable development policies are particularly important in the ICT sector due to its growing importance and regulatory lag with new technology. The CETA model could usefully protect and uphold ILO and other sustainable development standards. Again, taking into account the stage of development that Myanmar is at, it would be prudent to ensure that any ICT related investment includes performance requirements to ensure that the investment promotes education and vocational training among its labour force and ensure that technology is able to enter the domestic market to improve national ICT infrastructure and allow for a leap-frog approach to the digital economy in Myanmar. Such a provision could be based on relevant articles in CETA. 242 5.4.6.

Food and beverage

Food and beverage markets are often linked to agriculture as well as processing. Here the relevant provisions would apply to farmers, land grabbing and labour rights, in addition to general sustainable development policies outlined in the CETA Trade and Sustainable

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EUROPEAN COMMISSION Development Chapter. Again, S&D should be incorporated including technical assistance and phasing in of investor protection obligations such as performance requirements prohibiting domestic content requirements. 5.5.

Corporate social responsibility

The EU defines CSR as “companies taking responsibility for their impact on society”. By this definition, CSR is not philanthropy but rather companies taking ownership of the social and environmental impacts of their operations. As discussed in the above sections on social, labour, environmental and human rights impacts, there is potential for increased EU investment to lead to either positive or negative consequences for Myanmar, depending on how it is directed. CSR may be key in ensuring net impacts are positive. The following section gives an overview of available information on EU CSR activities in Myanmar; considers what aspects of CSR are most important in the context of Myanmar; and how CSR activities should be encouraged through the IPA. It is very difficult given available evidence to determine if current CSR initiatives are sufficient, although there are very positive examples. Projecting a future baseline scenario and impacts of the IPA is equally challenging. This section bases its analysis on existing literature and on stakeholder feedback. The project team present below an overview of potential CSR impacts in Myanmar. While there are clearly opportunities for Myanmar to benefit from increased EU CSR activities as a result of increased investment, it is the conclusion of the project team that it is vital that the text of the IPA offer adequate protections for human rights and the environment. Protections recommended for inclusion in the EU-Myanmar IPA are summarised in chapter 8. 5.5.1.

Consultation responses on CSR

Input from related research organisations and NGOs highlight the potential opportunities for EU investment, tied to adherence to social and environmental sustainability issues, to have a positive impact in Myanmar. EU companies have strong CSR commitments and also risk based capital (RBC) commitments. In addition, EU companies could produce goods in line with high European quality and safety standards which would benefit Myanmar consumers.243 The MCRB reports that of the large number of EU MNCs already invested in Myanmar 244 their presence has been positive not only for economic growth, but also for other issues. This results from the fact that the environmental and social standards they follow are higher than other companies investing in Myanmar. However, respondents, including the MCRB, have qualified this positive input, saying that effects will only be positive if European companies invest responsibly and in line with international standards.245 It was suggested that the agreement should have mechanisms in place that will ensure that the agreement does not adversely affect social, environmental or human rights issues in the country. Therefore, platforms such as oversight committees should be put in place in order to quickly point out and suggest remedies on the potential adverse effects of the agreement. In addition, respondents have also commented that

The Foreign Trade Association consultation response. Examples include e.g. TOTAL, Shell, ENI, BP, Unilever, Carlsberg, Heineken, BAT, De Heus, Lafarge, Ericsson. 245 MCRB consultation response. 243 244

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Myanmar needs to strengthen its national law to better protect its labour force and environment. FIDH suggests that the EU has yet to give effect to their statements on upholding the highest standards of CSR in investing in Myanmar, and that such voluntary initiatives have a bad track record internationally.246 5.5.2.

Key issues for CSR in Myanmar

Myanmar’s government attaches importance to promoting CSR practices among national and international investors.247 President Thein Sein has said that his government (which will be replaced on April 1, 2016) has been ‘taking steps to … promote responsible investment in Myanmar’ in response to growing widespread public opposition to controversial and non-transparent investments of the previous regime, such as the Myitsone dam and the Letpadaung copper mine. 248 It has been seeking to address those concerns and strike a new tone for foreign investment in the country.249 We can reasonably assume that such progressive initiatives may be continued by the new democratically elected government of Htin Kyaw. The MIC now asks for information about CSR, and in some sectors makes an environmental and social impact assessment (ESIA) - a prerequisite for obtaining MIC approval. The recent renegotiation of the Letpadaung copper mine investment resulted in the inclusion of a legally binding clause of 2 per cent of net profits going towards CSR with a focus on immediate communities.250 Such provisions may be extended beyond this single case. The importance of brand names and reputation abroad to EU MNCs would be key in ensuring that European companies behave responsibly. EU civil society is very active in reporting to the public if companies are behaving irresponsibly in international markets, which can lead to strong consumer responses as well and civil society actions against corporations. From their experience in the EU market, EU companies may also have a greater understanding that companies that can demonstrate responsible business practices and inclusive development will gain loyal customers. In 2014 a coalition of businesses in Myanmar created a countrywide network called the ‘Myanmar Business Coalition on CSR.’ The goal of the office is to build awareness of responsible business practices and CSR

FIDH. (2015). Open letter: EU-Myanmar/Burma Investment Agreement and its Sustainability Impact Assessment. Available: https://www.fidh.org/en/international-advocacy/europeanunion/eu-myanmar-burma-investment-agreement-and-its-sustainability-impact 247 European Commission. (2014). Impact Assessment - Report on the EU-Myanmar Investment Relations. Available, http://ec.europa.eu/smartregulation/impact/ia_carried_out/docs/ia_2014/swd_2014_0041_en.pdf. 248 The Myitsone Dam is a large dam and hydroelectric power development project at the confluence of the Mali and N’mai rivers and the source of the Irawaddy River (Ayeyawady River) in Myanmar. The dam project has been controversial in Myanmar due to its enormous flooding area, environmental impacts, location 60 miles from the Sagaing fault line, and uneven share of electricity output between Myanmar and China; The Letpadaung Copper Mine is a large surface mine in the Salingyi Township of Sagaing Region of Myanmar. Since Myanmar began liberalizing in 2011 the mine has been the site of contentious protest and come to symbolize the shortcomings of political reform. Villagers displaced by the Chinese-operated mine contend that they have not received fair compensation while the company claims that it has been socially responsible throughout the process. 249 Bowman, V. (2014). Myanmar and CSR: Creating and Implementing Successful Strategy. MCRB. Available: http://www.myanmar-responsiblebusiness.org/news/myanmar-and-csr-creating-andimplementing-successful-strategy.html 250 Ibid. 246

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EUROPEAN COMMISSION adoption mechanisms. 251 Such initiatives give domestic visibility to the companies engaging in CSR initiatives and to the importance of CSR. In August 2015, the Myanmar government reported that one EU MNC operating in Myanmar, in the oil and.gas sector had spent € 32.4 million on education, health and social development programs.252 The company’s general manager confirmed that 40,000 people and 33 villages in the area surrounding their pipeline have benefitted from the company’s CSR activities since 1995. “At a national level we also have health, orphanage, vocational training, extractive industries transparency initiative (EITI) and voluntary principles on security and human rights programs,” he added.253 Other positive examples include an EU SME in the tourism sector, which is applying EU practice as regards competitive salary provision and an inclusive management style to its tourism operations in Yangon. 254 An EU MNC has been operating container business activities in Myanmar and is passing on best practices as regards safety equipment and handling of containers. The company carefully screens its business partners to ensure that it is not indirectly propagating bad practices. 255 An EU alcoholic beverage provider constructed its brewery using the newest water and energy efficiency technology. The company applied international safety standards in construction. They are currently developing their own academy to train young Myanmar people for jobs in their international business.256 As a baseline scenario, we can expect CSR activities to increase, due to the increasing attention of both government and industry. We can also expect local legislation and enforcement to increase as the new democratic government continues to establish new institutions. The provisions applied in the renegotiation of the Letpadaung copper mine investment demonstrate that additional actions are being considered to increase CSR. Increasing investment by EU companies can be reasonably expected to lead to more beneficial CSR initiatives, though it is less clear if the initiatives will fully compensate for all negative social externalities of a given enterprise. Myanmar has signed BITs with China, India, Philippines and Thailand that neither aim to promote or guarantee social protections, nor incorporate public interest overrides to investor and investment protections. This may have contributed to controversial investment decisions such as the Myitsone dam and the Letpadaung copper mine. While there are clearly positive examples of EU CSR activities in the country, the IPA can provide added protection against misuse by inclusion of provisions regarding social and environmental protections. It has been the EU’s practice to include such provisions in FTAs and investment agreements. Detailed suggested provisions can be found in the final chapter containing policy recommendations.

Myanmar Responsible Business, http://www.myanmar-responsiblebusiness.org/news/myanmarbusiness-coalition-on-csr.html. 252 Myanmar Times, Ministry reveals CSR history for country’s largest oil and gas firms http://www.mmtimes.com/index.php/business/16163-ministry-reveals-csr-history-for-country-slargest-oil-and-gas-firms.html 253 Myanmar Times, Ministry reveals CSR history for country’s largest oil and gas firms http://www.mmtimes.com/index.php/business/16163-ministry-reveals-csr-history-for-country-slargest-oil-and-gas-firms.html 254 Danish Business Authority. Signature Myanmar. Available: http://csrgov.dk/signature_myanmar 255 Danish Business Authority. A.P. Moller-Maersk Group. Available: http://csrgov.dk/file/506661/maersk_in_myanmar.pdf 256 Danish Business Authority. Myanmar Carlsberg Co Ltd. Available: http://csrgov.dk/file/552149/Carlsberg-full-case-study-english.pdf 251

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6. ENVIRONMENTAL IMPACTS This chapter explores the current environmental situation in Myanmar, proposes a baseline scenario for Myanmar’s environmental development over the next 10 years, and explores the potential impacts of the IPA. Data for quantitative analysis of environmental impacts is largely unavailable, so the analysis in this section is primarily based on qualitative research inputs and perspectives contributed by stakeholders. The below sections present the project team’s analysis of key areas of environmental management. In each section, the current situation, the baseline scenario for future development and potential impacts of the IPA are analysed. These key areas were selected on the basis of their relevance in Myanmar and their potential to be impacted by the IPA. Following this, we examine the potential impacts of investment on the sectors which have been discussed in our economic and social impacts sections. The assessment in this and the following sections considers the three dimensions in which the IPA could influence environmental impacts:257   

scale effects: with the growth of different economic sectors, including via FDI; composition effects, related to changes in the type of investments made and production methods used in different sectors; and changes in the quality of environmental management in the sectors.

Given Myanmar’s stage of development, described in more detail in the sections above, as a baseline scenario, it is assumed that in the coming years, Myanmar’s economy and levels of FDI, including from the EU, will continue to grow rapidly. As a result of the expected rapid economic development, we can expect C02 emissions to increase and potentially other negative environmental consequences. Myanmar is one of the world’s biodiversity hot spots, with extensive mainland forests and relatively undisturbed coastal areas, along with abundant freshwater resources. The country scores low, however, on the global Environmental Performance Index – 153 out of 180 countries – due to rising air pollution, poor waste water treatment and weak biodiversity protection.258 The outgoing government has launched a series of policy reforms aiming at greener growth, resource efficiency, sustainable consumption and production, and climate change resiliency.259 The 2008 Constitution and the 2012 Environmental Conservation Law provide a framework regulating activities of potential harm to the environment. The current legal framework nevertheless is incomplete and environmental governance is weak: an Environmental Conservation Department was only recently created within the Ministry of Environmental Conservation and Forestry, and Myanmar lacks the administrative capacity for the enforcement of its environmental policies. 260 The legal framework and

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258 259

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This breakdown is based on: Grossman, G.M. and Krueger, A.B. (1991). Environmental Impacts of a North American Free Trade Agreement, NBER Working Paper No. 3914. Cambridge: National Bureau of Economic Research Hsu, A. et al. (2016). 2016 Environmental Performance Index. New Haven, CT: Yale University. Available: https://issuu.com/2016yaleepi/docs/epi2016_final UNEP Resources Center for Asia and the Pacific. (2008). Myanmar National Environmental Performance Assessment (EPA) Report. Available: http://www.gmseoc.org/uploads/resources/22/attachment/Myanmar%20EPA%20Report.pdf Asian Development Bank. (2014). Myanmar - Unlocking the Potential - Country Diagnostic Study. Mandaluyong City, Philippines: Asian Development Bank. Available: http://adb.org/sites/default/files/pub/2014/myanmar-unlocking-potential.pdf; and Asian Development Bank. (2014).Myanmar Environment Portal (2014-2015). Available:: http://www.gms-eoc.org/resources/myanmar-environment-information-portal-2014108

EUROPEAN COMMISSION administrative capacity are particularly weak when it comes to addressing environmental problems arising from key sectors, in particular mining.261 In summary, the conclusions of this section are that the increased EU investment could be positive or negative for the environment of Myanmar depending upon how it is directed. As noted in the economic analysis section, the IPA is expected to increase overall European FDI in Myanmar across multiple sectors. The composition effects for individual sectors are harder to predict. A key uncertainty in terms of environmental management will be the extent to which environmental legislation and governance will improve. It is expected that legislation and governance will improve, both due to domestic efforts and international support (e.g. from UN agencies, EU policy support and bilateral assistance); however, progress will likely depend on the outcomes of the broader reform process underway in Myanmar, including efforts to tackle corruption and mismanagement in areas such as illegal logging. With regard to environmental management, EU companies may bring high internal environmental standards to their overseas operations and moreover call on their local suppliers to provide good environmental management as a precondition for commercial engagement.262 Due diligence on the part of EU investors will be key in ensuring that investment is not directed to companies engaging in unsustainable practices. In several sectors, such as textiles, food and beverages, it may be the case that the scale effect leading to greater environmental pressures will outweigh improvements from better environmental management by individual operators. Overall, however, it is difficult to predict the outcomes clearly. This result underlines the importance that complementary measures can play: these could include, notably, direct technical assistance to the Myanmar government to support better environmental governance, as well as support for multilateral efforts via the UN and other international bodies. 6.1.

Specific IPA provisions and the environment

Two provisions of the IPA, on sustainable development and on the right to regulate, will have a direct influence on environmental impacts of EU FDI in Myanmar. Other provisions, while not directly referring to the environment, may have an indirect influence on EU investors in related sectors. The table below provides an overview of eight provision areas anticipated for the IPA.

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World Bank. (2015). Myanmar Investment Climate Assessment: Sustaining reforms in a time of transition, Report No. 93848-MM UNCTAD and the European Business School. (2004). Making FDI Work for Sustainable Development. New York and Geneva: UN. The study focused on case studies of EU companies investing abroad. See also: Liang, F.H. (2006). Does Foreign Direct Investment Harm the Host Country’s Environment? Evidence from China SIA on the EU-Myanmar Investment Protection Agreement EN

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Table 9: Overview of likely impacts of key provisions of the IPA Provision Scale Composition Environmental Management Non-discrimination Likely to increase Unclear Indirect, possibly and MFN status EU FDI positive impact Expropriation Likely to increase Unclear Indirect, possibly EU FDI positive impact Fair and equitable Likely to increase Unclear Indirect, possibly treatment EU FDI positive impact Transfer of capital Likely to increase Unclear Indirect, possibly EU FDI positive impact Sustainable Unclear May discourage Expected to development ‘pollution haven’ promote better investments environmental management Transparency Likely to increase Unclear Indirect, possibly EU FDI positive impact Investment dispute Likely to increase Unclear Indirect, possibly resolution EU FDI positive impact Right to regulate Unclear May discourage Expected to ‘pollution haven’ promote better investments environmental management Provisions with an indirect influence – such as those on expropriation, fair and equitable treatment and transparency – are expected to provide greater market confidence for EU investors. On the one hand, such provisions are expected to increase the overall scale of EU investment, and thus increase environmental pressures associated with increased economic activity. On the other hand, greater certainty will favour long-term investment commitments in which investors are more likely to incorporate good environmental management for their operations in Myanmar. It can be noted that in certain past agreements around the world, these types of provisions have been used by investors in court cases against environmental regulation. The concerns of some consultation respondents are specifically related to such cases. For example, investors have argued before arbitral tribunals that MFN status entitles them to use the same provisions as IPAs with other countries, in particular agreements with more favourable environmental provisions. Though legal opinion differs on the validity of such arguments, they should be addressed in the EU-Myanmar IPA.263 This issue was clarified in CETA, Article 8.7(4) which states: For greater certainty, the “treatment” referred to … does not include procedures for the resolution of investment disputes between investors and states provided for in other international investment treaties and other trade agreements. Substantive obligations in other international investment treaties and other trade agreements do not in themselves constitute “treatment”, and thus cannot give rise to a breach of this Article, absent measures adopted or maintained by a Party pursuant to those obligations. A similar provision was included in the EU-Vietnam FTA section on Trade in services, investment and e-commerce, Article 4(6). This kind of provision should also be included in the IPA.

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Bernasconi-Osterwalder, N. et al. (2012). Investment Treaties & Why they Matter to Sustainable Development: Questions & Answers. Winnipeg, Canada: IISD 110

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Similarly, foreign investors have argued in courts that stronger environmental regulation would constitute a form of ‘indirect expropriation.’ Provisions on ‘fair and equitable treatment’ (FET) have also been used as arguments against environmental regulations. Defining this term clearly to exclude environmental protection measures in an IPA with Myanmar will minimise potential associated negative impacts. This has been the EU's approach as can be seen from the closed list of elements constituting a breach of FET in CETA, EU-Singapore FTA, EU-Vietnam FTA, and the TTIP proposal.264 The provision on ‘sustainable development’ could have an important positive effect on the environmental performance of EU investors. A key factor will be its specific references to internationally recognised minimum standards regarding environmental protection. The provision could also call on EU investors to use high standards and to promote technology transfer. The provision on the ‘right to regulate’ is expected to play a key role in ensuring the right of the Myanmar government to strengthen its currently weak environmental requirements over time and to apply future rules also to EU investors. Consequently, this provision would provide a long-term perspective in which environmental requirements in Myanmar are improved. The provision also allows the EU to continue strengthening its environmental acquis. These two provisions, on sustainable development and the right to regulate, are expected to have an influence on the composition of EU investments – discouraging possible investments seeking low-cost locations for highly polluting activities. They may also encourage EU investors to ensure good environmental management in their operations in Myanmar, as well as to encourage investors to promote environmental management among their local suppliers. A chapter reaffirming the two countries’ commitment to the goals of sustainable development could be added to the IPA to establish the complementarity of the IPA with shared commitments in the form of multilateral environmental agreements (MEAs) and broader sustainability objectives. The EU-Vietnam FTA contained a chapter on Trade and Sustainable Development reaffirming the countries shared commitment to goals including sustainable forestry, sustainable management of living marine resources and aquaculture products and upholding levels of environmental protection. 265 The EU has proposed a similar chapter for inclusion in TTIP.266 The broader provisions of the IPA may also have wider, indirect effects on the environment by encouraging government progress on environmental governance in Myanmar. This may depend more on actions outside the IPA, such as EU technical assistance to strengthen environmental governance. In addition, the provisions could also set a new standard for investment agreements, leading to stronger provisions for environmental protection in future agreements between Myanmar and other parties.

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Under some agreements, including NAFTA, courts have interpreted ‘fair and equitable treatment’ to block new environmental requirements. Bernasconi-Osterwalder, N. et al. (2012). Investment Treaties & Why they Matter to Sustainable Development: Questions & Answers. Winnipeg, Canada: IISD The full text of ‘Trade and Sustainable Development’ chapter of the EU-Vietnam FTA is available here: http://trade.ec.europa.eu/doclib/docs/2016/february/tradoc_154229.pdf The full text of the proposed ‘Trade and Sustainable Development’ chapter for the TTIP negotiations is available here: http://trade.ec.europa.eu/doclib/docs/2015/november/tradoc_153923.pdf SIA on the EU-Myanmar Investment Protection Agreement EN

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6.2.

Consultation responses on environmental impacts

Most of the responses to the SIA consultation expected the environmental impacts of an IPA to be either positive or neutral. Several EU businesses expected the response to be positive, including in terms of the use and transfer to clean energy and clean technology to Myanmar. Among academia and think tanks based in Myanmar, one consultation respondent from the Myanmar Centre for Responsible Business stated that EU companies currently investing in the country follow ‘environmental and social standards… [that] are higher than companies traditionally investing’. NGO and civil society respondents in Myanmar saw an overall negative impact on the environment across areas including biodiversity, water, land and pollution unless adherence to local and international environmental provisions was secured. One of these respondents from the Myanmar Environmental Institute stated that ‘investors should follow the law, regulation, policy and guidelines of both countries/parties and should adhere to sustainable development practices and adopt responsible social business practices’. Two respondents based in Myanmar, one from the UNDP and the other a local businessperson, raised concerns that if EU investors have strong rights under an IPA (e.g. vis-à-vis national law), environmental protection could be diminished. The stakeholder from the UNDP raised a concern that an IPA may refer to only ‘voluntary’ rather than mandatory adoption of internationally accepted minimum standards of responsible conduct, including those for environment. The SIA workshop in Yangon, which included participants from all of these categories, concluded that an IPA created opportunities for ‘promoting sustainable development practices’ and for ‘creating policy change for protection of labour rights, human rights and the environment’. 6.3.

Impacts on key areas of environmental management

6.3.1.

Forest resources

Myanmar retains rich forest resources, which range from coastal mangrove forests to tropical wet forests to mountain forests. These forests provide habitats with high levels of biodiversity. They also store carbon and regulate water resources. Forest cover has declined rapidly in recent decades, from 58 per cent of the country’s land cover in 1990 to 43 per cent in 2015, according to the FAO. 267 Moreover, deforestation is accelerating: the same report states that the average annual rate of change in forest area has doubled from -0.9 per cent between 1990 and 2000 to -1.8 per cent between 2010 and 2015, as shown in the figure below.

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Food and Agriculture Organization of the United Nations. (2015). Global Forest Resources Assessment 2015: Desk reference. Rome, Italy. Available: http://www.fao.org/3/a-i4808e.pdf 112

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Forest cover in Myanmar - % of total land area 60% 55% 50% 45% 40% 1990

2000

2005

2010

2015

Source: FAO268 Deforestation has led to loss of biodiversity and an increase in land degradation and has harmed local communities in forest areas. Key drivers of deforestation include: legal and illegal logging, clearance for infrastructure projects including roads and dams and the expansion of commercial agriculture and mining. Foreign investment has played a key role, including Chinese investment in mining and dam construction and Thai investment in Myanmar companies (often with ties to the military) operating in commercial agriculture, in particular palm oil and rubber plantations.269 Myanmar’s legal framework and tracking system to control the timber trade, designates all wood as legal if it has the hammer stamps of the state-owned Myanmar Timber Enterprise (under the Ministry of Environmental Conservation and Forests), and is exported via Yangon’s seaports.270 The Myanmar government has recently put in place new measures to combat deforestation and forest degradation, including the expansion of designated forests (Forest Estate) and biodiversity protected areas and a ban on log exports (passed April 2014). A new forest law to replace the 1992 law 271 was proposed in 2015 but has not yet been passed. Enforcement of forest protection rules has been intermittent although it has shown improvements in recent years.272 A key open question will be the extent to which the government can slow the rate of inland deforestation by improving management of the national Forest Estate, enforcing the ban

Food and Agriculture Organization of the United Nations. (2015). Global Forest Resources Assessment 2015: Desk reference. Rome, Italy 269 Woods, K. (2015). Commercial Agriculture Expansion in Myanmar: Links to Deforestation, Conversion Timber, and Land Conflicts. Forest Trends and UKaid. 270 Woods, K. (2013). Timber Trade Flows and Actors in Myanmar, Forest Trends. Available: http://www.forest-trends.org/documents/files/doc_4133.pdf 268

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The 1992 Forest Law is online in English here: http://displacementsolutions.org/wpcontent/uploads/THE-FOREST-LAW-1992.pdf

Woods, K. (2015). Commercial Agriculture Expansion in Myanmar: Links to Deforestation, Conversion Timber, and Land Conflicts. Forest Trends and UKaid; and UNEP Resources Center for Asia and the Pacific. (2008). Myanmar National Environmental Performance Assessment (EPA) Report. 272

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on export of logs and more generally tackling illegal logging – and similarly, the extent to which legislation can effectively protect coastal mangroves. As a baseline, both national and international demand for forest products is likely to grow in coming years, thus perpetuating the ongoing pressures for deforestation. Among these pressures, the expansion of commercial agriculture is likely to continue. 273 As discussed in more depth in section 4.5.1, FDI in the agriculture and fishery sector only accounts for 1 per cent of total FDI, mainly due to complex land ownership conditions, which are currently under reform.274 As the agricultural sector still employs about 70 per cent of the country’s workforce, FDI and technology transfer could significantly increase the efficiency of the industry. This could help to increase food security (more than one quarter of Myanmar’s population still live in poverty), however it may also have the effect of increasing deforestation. To mitigate against EU investment in the agricultural and forest products in Myanmar worsening this problem, companies should be encouraged to hold local partners to the national legal requirements, and also to international sustainable forestry standards. The EU Timber Regulation (EUTR) bans the placing on the EU market of any illegally harvested timber products, and demands that companies who wish to market timber products conduct due diligence to ensure their legality. This kind of due diligence should be expected of companies investing in agricultural and forest products in Myanmar. Equally, increased investment in companies engaged in sustainable practises could encourage the adoption of better and more sustainable forestry in Myanmar. CSR issues are discussed further in section 5.5. To avoid products of illegal logging entering the EU, Myanmar should be encouraged to negotiate a Forest Law Enforcement, Governance and Trade (FLEGT) Voluntary Partnership Agreement (VPA). Once agreed, the VPA will include commitments and action from both parties to halt trade in illegal timber, notably with a license scheme to verify the legality of timber exported to the EU. The agreement also promotes better enforcement of forest law and promote an inclusive approach involving civil society and the private sector. 275 6.3.2.

Biodiversity

Myanmar’s forests, rivers, lakes and coastal areas host exceptionally rich biodiversity. The country is considered one of the world’s ‘most important biodiversity hotspots’, an intersection of biogeographic regions that holds a wide variety of ecosystems, important endemic species as well as key globally endangered species such as tigers. 276 Biodiversity in Myanmar is under increasing pressure. Deforestation and forest degradation are depleting forest ecosystems; plans for dam construction and river flow modification, along with the introduction of alien invasive species, raise concerns for freshwater ecosystems.277 In coastal areas, the loss of mangroves due to pressures from aquaculture

Woods, K. (2015). Commercial Agriculture Expansion in Myanmar: Links to Deforestation, Conversion Timber, and Land Conflicts. Forest Trends and UKaid; and UNEP Resources Center for Asia and the Pacific, Myanmar national Environmental Performance Assessment Report, 2008. 274 Aung Hlaing. Investment Opportunities in Agricultural Sector in Myanmar. Nay Piy Taw, Myanmar: Ministry of Agriculture. Available: http://slideplayer.com/slide/4448999/ 275 More information on the FLEGT VPAs available on the EC website here: http://ec.europa.eu/environment/forests/flegt.htm 273

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Smithsonian Institution. (2016). Sustaining Myanmar’s Biodiversity. Available: https://nationalzoo.si.edu/SCBI/ConservationEcology/Myanmar/ Rao, M. et al. (2013). Biodiversity Conservation in a Changing Climate: A Review of Threats and Implications for Conservation Planning in Myanmar. Ambio. Available: http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3790132/pdf/13280_2013_Article_423.pdf 114

EUROPEAN COMMISSION and off-shore oil and gas extraction activities is growing concern. 278 Illegal trade in endangered species is a further threat, in particular in areas bordering the People’s Republic of China.279 As a result of these pressures, numerous habitats and species are endangered. Fishery resources are also under threat (these are described separately below). Over the past decade, Myanmar’s government has significantly increased protected areas, following the 2001 Forestry Plan, which called for protection to extend across 10 per cent of the country. By one estimate, the total surface area of protected areas has quadrupled since the 1990s to reach about 7 per cent of land area in 2010.280 The Global Environment Facility (GEF) estimated that the coverage of protected areas in 2014 stood at a more conservative 5.6 per cent of land area.281 A number of existing protected areas have been degraded, whilst the policy and institutional framework for biodiversity protection remains weak.282 In recent years, international organisations including GEF, bilateral assistance and NGOs have sought to support biodiversity protection in Myanmar. 283 As a baseline, pressures on Myanmar’s biodiversity are likely to continue in the coming 15 years, including timber and agriculture pressures. The government is expected to continue to designate protected areas to safeguard the country’s biodiversity, however, better enforcement efforts will be needed. Moreover, biodiversity outside of protected areas is likely to face ongoing threats due to the expansion of commercial agriculture and of urban and industrial areas as well as increased pollution levels. As discussed in the forest resources section above, the Myanmar government is taking additional measures for the protection of forest habitats. To avoid EU investment contributing to these ongoing environmental issues, it is important to ensure that it is directed toward enterprises which are in line with the local laws and goals for the protection of biodiversity in Myanmar. Increased investment in companies engaged in sustainable practises has the potential to positively impact the protection of biodiversity in Myanmar. CSR issues are discussed further in section 5.5. 6.3.3.

Land degradation

Land degradation in terms of soil degradation is a major environmental issue posing a threat to sustainable livelihood in Myanmar. Soil erosion is seen in upland areas, where traditional agricultural practice of shifting cultivation has been exacerbated by population pressures as well as commercial logging: the resulting erosion leads to forest degradation and threatens agricultural yields and livelihoods. Land degradation is a particular concern for farming in Myanmar’s Dry Zone in the centre of the country, where rainfall is lower than other regions and is concentrated during the monsoon season. The zone’s soils are

UNEP Resources Center for Asia and the Pacific. (2008). Myanmar National Environmental Performance Assessment (EPA) Report. 279 Asian Development Bank. (2014). Myanmar - Unlocking the Potential - Country Diagnostic Study. Mandaluyong City, Philippines: Asian Development Bank. 280 Istituto Oikos and Banca. (2011). Myanmar Protected Areas: Context, Current Status and Challenges. Milan, Italy: Ancora Libri. 281 The Global Environment Facility. (2014). GEF Finances Large Expansion of Myanmar’s Protected Area System. The Global Environment Facility. Available: https://www.thegef.org/gef/node/10805 282 Rao, M. et al. (2013). Biodiversity Conservation in a Changing Climate: A Review of Threats and Implications for Conservation Planning in Myanmar. Ambio. 283 BirdLife International and the Critical Ecosystem Partnership Fund. (2014). Final Assessment of CEPF Investment in the Indo-Burma Hotspot 2008-2013. 278

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particularly vulnerable to erosion, while irrigation efforts have led to salinisation.284 As a result, 17 per cent of households in this part of the country are severely food insecure. In this part of the country especially, desertification is a long-term land degradation threat. 285 Underlying causes of land degradation include demographic pressures, agricultural expansion, over-grazing, logging and fuelwood collection.286 Other factors include mining as well as industrial activities leading to soil pollution in urban areas. A 2015 study revealed that in the highly semi-arid region of Central Myanmar observed crop yields were 3–12 times lower compared with the yields of these crops grown in less degraded areas. 287 The government has undertaken several actions to address land degradation, such as efforts for reforestation and for terrace farming in upland areas. A government body, the Dry Zone Greening Department, focuses on reforestation and other actions to address land degradation in this part of the country. The European Parliament’s Economic and Scientific Policy Dept. has identified multiple other priorities to address this issue worldwide: the control of inappropriate urban development; reduced emissions of atmospheric pollutants; improved management of irrigation drainage and flooding; and the promotion of sustainable agriculture, ceasing the cultivation of unsuitable soils, reducing impacts of contaminants on farmland and improving waste management. 288 As a baseline, pressures leading to land degradation are expected to continue in coming years, including those cited above: the expansion of commercial agriculture along with ongoing timber extraction. Ongoing deforestation is likely to lead to continued erosion problems. Mining is also expected to continue to grow rapidly, given Myanmar’s rich mineral resources. Increased FDI from the EU into related sectors has the potential to exacerbate this issue if investment is directed towards companies engaged in unsustainable practices. CSR issues are discussed further in section 5.5. 6.3.4.

Water resources

In 2015, 81 per cent of Myanmar’s population had access to a safe water source,289 up from 79 per cent in 2011 and 68 per cent in 2001. Thus, while Myanmar achieved significant progress since 2001, it did not reach the Millennium Development Goal of 100 per cent access to safe water sources by 2015. Moreover, these statistics may mask some of the problems. While the capital, Yangon, is supplied by upstream rivers and groundwater wells operated by the city, reportedly 3 million inhabitants, over half of the

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Yee, U. K. (2010). Land degradation assessment in the drylands of Myanmar. Nay Piy Taw, Myanmar: Land Use Division, Myanmar Agriculture Service, Ministry of Agriculture and Irrigation Eswaran, H., Lal, R., & Reich, P. (2001). Land degradation: an overview. In E. Bridges, I. Hannam, L. Oldeman, F. Pening de Vries, S. Scherr, & S. Sompatpanit (Ed.), Proc. 2nd. International Conference on Land Degradation and Desertification, Khon Kaen, Thailand. New Delhi, India: Oxford Press Myanmar Ministry of Forestry. (2005). National Action Programme of Myanmar to Combat Desertification in the Context of United Nations Convention to Combat Desertification (UNCCD). Yangon, Myanmar Shresthaa R., Dattab A. (2015). Assessment of land degradation and its impact on crop production in the Dry Zone of Myanmar, International Journal of Sustainable Development & World Ecology, Volume 22, Issue 6, 2015, pages 533-544. Available: http://www.tandfonline.com/doi/pdf/10.1080/13504509.2015.1091046

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European Parliament (2009) Land Degradation and Desertification, European Parliament Policy Division: Economic and Scientific Policy. Available: http://www.europarl.europa.eu/RegData/etudes/etudes/join/2009/416203/IPOLENVI_ET(2009)416203_EN.pdf

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The World Bank. (n.d.). Improved water source (% of population with access). Available: http://data.worldbank.org/indicator/SH.H2O.SAFE.ZS 116

EUROPEAN COMMISSION city’s population, use alternate sources, which may be unsafe including private wells, rooftop collection or public water tanks.290 Most of Myanmar freshwater resources are supplied by rivers, and water abstraction (the process of taking water from a ground source) represents less than 3 per cent of total resources. 291 The largest catchment basin, the Ayeyarwady (Irrawady) River, supplies water to almost 40 per cent of the country. Precipitation is strongly linked to monsoons, and seasonal water shortages affect some areas, in particular the ‘dry zone’ in central Myanmar. A series of pressures affect freshwater resources and associated ecosystems. The main sources of water pollution are agricultural chemicals, sewage and industrial waste water. 292 Access to improved sanitation facilities reached about 80 per cent in 2015, up from 63 per cent in 2001293. In Yangon, the sewerage network covers only part of the city and waste water flows far exceed the capacity of the treatment plant.294 Untreated effluent from factories is a growing concern in the capital.295 Land degradation, notably erosion following deforestation and agriculture, is leading to increased silting (pollution of water by silt of clay); moreover deforestation and forest degradation reduce the role of forests in retaining and regulating water flows, bringing risks of increased flooding and water scarcity. Between 1990 and 2009, 252 dams and reservoirs were built in Myanmar; in 2014, a further 88 projects were under consideration.296 These dams provide hydroelectricity and, in some cases, irrigation water – however, the projects displace rural communities and disrupt freshwater ecosystems. Chinese investment has been key in recent dam construction and they, along with Thai investors, are prominent in current project proposals, though proponents and others companies involved have also come from India, Japan and the EU.297 As a baseline, economic development and population growth will likely increase water consumption, which may strain resources during the dry season, in particular in Myanmar’s Dry Zone.298 Water pollution is expected to increase from key sources, including industry and intensive agriculture and aquaculture; moreover, releases from mines will pose an ongoing threat. 299 For water pollution in particular, policy action – including the construction of waste water treatment plants – will play a key role in determining the

Win Aung, Z. (2014). Water supply options for the growing megacity of Yangon - scenarios with the WEAP model. Hannover, Germany: Leibniz University 291 Frenken, K. (2011). Irrigation in Southern and Eastern Asia in figures - AQUASTAT Survey. Rome, Italy: Food and Agriculture Organization. 292 Water, Environment Partnership in Asia, Outlook on Water Environmental Management in Asia, 2012 293 The World Bank. (n.d.). Improved sanitation facilities (% of population with access). Available: http://data.worldbank.org/indicator/SH.STA.ACSN/countries/MM?display=graph 294 Maung, W. and Tun, K. (2005). A Review of the Development of Yangon Megacity in some Aspects of Infrastructure and Environment. In F. Kraas, H. Gaese, & M. M. Kyi, Megacity Yangon: Transformation processes and modern developments. 295 Than, M. M. (2010). Water and Waste Water Management in Yangon, Myanmar. Myanmar Ministry of Agriculture and Irrigation. 296 Asian Development Bank. (2014). Myanmar - Unlocking the Potential - Country Diagnostic Study. Mandaluyong City, Philippines: Asian Development Bank; Burma Rivers Network. Available: http://www.burmariversnetwork.org/ 297 Asian Development Bank. (2014). Myanmar - Unlocking the Potential - Country Diagnostic Study. Mandaluyong City, Philippines: Asian Development Bank 298 Johnston, R., et al (2010). Climate Change, Water and Agriculture in the Great Mekong Subregion. Colombo, Sri Lanka: International Water Management Institute. 299 Asian Development Bank. (2014). Myanmar - Unlocking the Potential - Country Diagnostic Study. Mandaluyong City, Philippines: Asian Development Bank. 290

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extent of pressures. The construction of dams is likely to continue but the pace may slow in coming decades due to increased national and international scrutiny of project proposals. Increased FDI from the EU into the water sector has the potential to exacerbate water related issues if investment is directed towards companies engaged in unsustainable practices. CSR issues are discussed further in section 5.5. Increased investment in sustainable agriculture, wastewater management and wastewater treatment could be very beneficial in this area. 6.3.5.

Solid and hazardous waste management

Solid waste management is a major environmental issue in particular in major cities such as Yangon, Nay Pyi Taw and Mandalay. Rapid urbanization, changing lifestyles and a growing industrial sector are increasing waste levels. Local capacity in this area is growing: In Yangon, waste collection rose from 40 per cent in 1983 to 80 per cent in 2004300 and in 2014 exceeded 90 per cent.301 Across the country, however, waste collection is a significant concern in smaller cities and towns. Waste not collected is either recycled via informal channels or dumped illegally.302 Landfills, both in large cities and elsewhere, do not meet international sanitary standards.303 Little information is available on the management of hazardous waste, 304 which is likely to grow with economic development and industrialisation. Following improvements in waste collection, city officials in Yangon have considered a number of proposals for improved waste treatment facilities, including from potential foreign investors from South Korea and other countries.305 Overall, however, a national approach to address solid waste, including industrial waste, is not yet in place. As a baseline, a range of drivers is expected to lead to higher levels of solid waste in Myanmar, in particular growing industrial production and household consumption. Industrial growth is likely to lead to growing levels of hazardous waste to be treated. A key issue for coming years will be the development of a national legal and policy framework for waste management as well as the development of institutional capacities for waste management in large cities and their investment in treatment facilities. Foreign companies and governments have explored investments in waste management in Yangon and they could play a role in this and other places in Myanmar. 306 The EU is a leader in solid and hazardous waste treatment technology and process development which could benefit Myanmar enterprises.

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UNEP Resources Center for Asia and the Pacific. (2008). Myanmar National Environmental Performance Assessment (EPA) Report. Available: http://www.gmseoc.org/uploads/resources/22/attachment/Myanmar%20EPA%20Report.pdf Institute for Global Environmental Strategies. (2014). Feasibility Studies on Joint Crediting Mechanism Projects towards Environmentally Sustainable Cities in Asia. Institute for Global Environmental Strategies. Menikpura, N. (2013). Present Situation of Solid Waste Management in Yangon City. Institute for Global Environmental Strategies. Asian Development Bank. (2014). Myanmar - Unlocking the Potential - Country Diagnostic Study. Mandaluyong City, Philippines: Asian Development Bank. UNEP Resources Center for Asia and the Pacific. (2008). Myanmar National Environmental Performance Assessment Report Menikpura, N. (2013). Present Situation of Solid Waste Management in Yangon City. Institute for Global Environmental Strategies. Menikpura, N. (2013). Present Situation of Solid Waste Management in Yangon City. Institute for Global Environmental Strategies. 118

EUROPEAN COMMISSION 6.3.6.

Air pollution

Outdoor air pollution is an important concern in Myanmar’s major cities. Air pollution monitoring is still rudimentary, with levels recorded mainly for the cities of Yangon and Mandalay: in 2015, recently installed monitoring stations recorded levels of airborne particles above the WHO guidelines.307 The growing number of motor vehicles is a key driver of high levels of particulates and other pollutants in cities. Vehicle density has been and will remain one of the main causes of increasing air pollution. 308 As of May 2014, 4.4 million cars were registered in the country, most of them in the cities, and this figure is expected to grow about 8 per cent per year through this decade; most are imported used cars, which may have higher emissions as they are older models.309 Vehicle numbers and related air pollution issues are growing rapidly in particular in the two main cities of Yangon and Mandalay. 310 Increasing industrial pollution is a further concern, as well as unauthorised waste burning, road dust and construction projects.311 As the major source of the urban air pollution problem is the transport sector, Myanmar’s National Commission for Environmental Affairs (NCEA), the Ministry of Rail Transportation, and other related Ministries have set the goal of working towards the establishment of an environmentally sustainable transport system.312 A key uncertainty is the extent to which domestic environmental policy will address growing air pollution in coming years. As a baseline, the rapid growth in motor vehicles and their use for both private and commercial purposes is expected to continue in coming years, increasing air pollution emissions and contributing to air quality problems, in particular in large urban areas. As average income levels remain low, most of the growth may continue to be in imports of used cars. Industrial emissions are also expected to increase significantly with the growth of a range of manufacturing sectors. FDI is expected to play an important role in the growth of manufacturing in Myanmar. FDI from EU companies could have a positive influence if directed to companies that are utilising technologies to control industrial pollutants. The EU has very high air pollution standards and adoption of technologies such as scrubber systems which remove particulate matter from industrial emissions is very high in the EU. Investment in polluting industries is a risk that needs to be addressed. CSR issues are discussed further in section 5.5.

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Kyaw, K. P. (2015). Yangon air pollution measured just above WHO guidelines. Yangon, Myanmar: The Myanmar Times. Available: http://www.mmtimes.com/index.php/nationalnews/yangon/15567-yangon-air-pollution-measured-just-above-who-guidelines.html Asian Development Bank. (2014). Myanmar - Unlocking the Potential - Country Diagnostic Study. Mandaluyong City, Philippines: Asian Development Bank Solidiance. (2015). The Rise of Myanmar’s Automotive Aftermarket. Available: http://www.solidiance.com/whitepaper/the-rise-of-myanmars-automotive-aftermarket.pdf UNEP Resources Center for Asia and the Pacific. (2008). Myanmar National Environmental Performance Assessment Report Hlain, O. M., Patdu, K., and Capadocia, C. (2014). Myanmar Country Profile: Focus on Cities. Bangkok, Thailand: - ASEAN-German Technical Cooperation - Clean Air for Smaller Cities in the ASEAN Region. Statement by H.E Col: Nyan Htun Aung, Deputy Minister for Transport, Union of Myanmar SIA on the EU-Myanmar Investment Protection Agreement EN

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6.3.7.

Climate change

Myanmar has been ranked among the countries most vulnerable to climate change. 313 Cyclone Nargis, which hit Myanmar in 2008, taking 140,000 lives, highlighted the country’s exposure to storms and tidal surges. In addition, climate change can affect a range of habitats that protect biodiversity and provide ecosystem system services, including mountain and other forests, mangrove forests (vulnerable to increased storms) and coastal and marine habitats such as coral reefs that would be affected by higher marine temperatures. Already changes have been recorded, including a shorter monsoon season, greater rainfall in northern and coastal areas and higher temperatures. 314 Myanmar’s emissions of greenhouse gases are currently low, though they are growing; moreover, estimates vary on the exact level, as land use change plays a key role in the calculations. The Secretariat of the United Nation’s Climate Change Convention (UNFCCC) reports GHG emissions of 38.4 million metric tonnes of CO 2 (MtCO2) in 2005. The Asian Development Bank estimates Myanmar’s total emissions – including emissions from land use change and forestry (LUCF) – at 74.4 million metric tonnes of CO2 equivalent (MtCO2e) in 2010; however, when CO2removal by its forests is included in the calculated, ADB estimates that Myanmar has negative net emissions, -67.8 MtCO2e.315 In contrast, The World Resources Institute (WRI) estimates that Myanmar’s total emissions, including those from land use, land use change and forestry at 184.71 MtCO2e.316 In its intended nationally determined contribution (INDC) under the UN Framework Convention on Climate Change, Myanmar identifies a series of actions directed at its greenhouse gas emissions, including increasing hydroelectricity, promoting energy efficiency, improving forestry management and reducing emissions from agriculture. 317 Myanmar has adopted a National Adaptation Programme of Action to Climate Change, 318 to be implemented with the support of UNEP, which identifies measures for agriculture, early warning systems, forestry, public health, water resources, coastal zone, energy and industry, and biodiversity. As a baseline, Myanmar’s greenhouse gas emissions are likely to increase sharply in coming years with economic growth.319 Emissions related to land use change and forestry are hard to forecast. An important component is related to forestry and will depend in large part on forest management practices. Agricultural developments are also important. The expansion of commercial agriculture is expected to continue and to contribute to higher emissions.

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Kreft, S., Eckstein, D., Junghans, L., Kerestan, C., and Hagen, U. (2014). Global Climate Risk Index 2015 - Who Suffers Most From Extreme Weather Events? Weather-related Loss Events in 2013 and 1994 to 2013. Bonn, Germany: Germanwatch e.V. Asian Development Bank. (2014). Myanmar - Unlocking the Potential - Country Diagnostic Study. Mandaluyong City, Philippines: Asian Development Bank Asian Development Bank. (2014). Myanmar - Unlocking the Potential - Country Diagnostic Study. Mandaluyong City, Philippines: Asian Development Bank. WRI, CAIT. (2014). Climate Analysis Indicators Tool: WRI’s Climate Data Explorer. Available: http://cait2.wri.org The Republic of the Union of Myanmar. (2015). Myanmar' s Intended Nationally Determined Contribution-INDC. Available: http://www4.unfccc.int/submissions/INDC/Published%20Documents/Myanmar/1/Myanmar's% 20INDC.pdf Lwin, U. S. et al. (2012). Myanmar’s National Adaptation Programme of Action (NAPA) to Climate Change. Nay Pyi Taw, Myanmar: National Environmental Conservation Committee, Ministry of Environmental Conservation and Forestry. Asian Development Bank. (2014). Myanmar - Unlocking the Potential - Country Diagnostic Study. Mandaluyong City, Philippines: Asian Development Bank. 120

EUROPEAN COMMISSION Increased EU investment to have a range of impacts on this sector: The EU is a global leader in green technology including renewable energy and energy efficiency. Technology transfer and the transfer of sustainable practices to local businesses could contribute to Myanmar’s climate change goals. Equally investment in C02 intensive industries could be detrimental. Conventional energy is a key existing area of EU investment in Myanmar, discussed in more detail below. 6.4.

Sectoral analysis, environmental impacts

With the country’s rapid economic growth, environmental pressures from a broad range of sectors have increased. The brief descriptions below provide an overview of key environmental issues for the six focus sectors. Detailed information, for example on their emissions, is not available at the sector level. As Myanmar’s framework of environmental legislation is not complete, and moreover the enforcement of existing rules is generally weak, the extent of environmental pressures is likely to depend greatly on the environmental management of individual companies and plants and thus could vary greatly among similar activities. In addition to direct impacts from production, the ongoing growth of each sector is likely to be linked to greater transport of raw materials and products, including by motor vehicles, thus generating further environmental pressures such as air pollution emissions. 6.4.1.

Energy

The energy sector covers electricity generation and fossil fuel extraction. Myanmar is endowed with rich natural resources for production of commercial energy. The available current sources of energy found in Myanmar are crude oil, natural gas, hydroelectricity, biomass and coal. Besides these, wind energy, solar, geothermal, bio-ethanol, bio-diesel, and biogas are the potential energy sources found in Myanmar.320 The construction of large numbers of hydroelectric dams in recent years has provided increased access to electricity and irrigation water, however, it has disrupted freshwater ecosystems and services. Recently constructed dams appear to have had major impacts, also given the lack of consideration to their environmental impacts.321 Oil and gas exploration and extraction is an important and fast growing industry in Myanmar, however it creates a broad range of environmental impacts, from air pollution (flaring and fugitive emissions), to the risk of spills to direct disruption of habitats and species. 322 For example, offshore exploration and extraction can directly harm seabed habitats and the expansion of related port infrastructure can degrade coastal habitats, including mangrove forests. Oil pollution has been highlighted as one of the key pressures on water quality across the Bay of Bengal. 323 Coastal communities are particularly vulnerable to the impacts of marine pollution and other potential disturbances from exploration and extraction, due to their reliance on fishing and marine products. 324 Onshore activities can lead to direct deforestation and contamination in pristine areas. Moreover, the construction of roads and infrastructure for exploration and extraction, while

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Asian Development Bank. (2014). Myanmar - Unlocking the Potential - Country Diagnostic Study. Mandaluyong City, Philippines: Asian Development Bank. International Finance Corporation. (2015). Environmental, Health, and Safety Guidelines for Offshore Oil and Gas Development. Available: http://www.ifc.org/ehsguidelines Bay of Bengal Large Marine Ecosystem Project. (2012). Transboundary Diagnostic Analysis. Available: http://www.boblme.org/key_documents_TDA_SAP.html MCRB, IHRB and DIHR. (2014).Myanmar Oil & Gas Sector-Wide Impact Assessment (SWIA) SIA on the EU-Myanmar Investment Protection Agreement EN

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potentially contributing to infrastructure development in Myanmar, could lead to deforestation. As a baseline scenario, oil and gas exploration and extraction are expected to grow in scale in the coming years, though current low oil prices may slow expansion in the immediate future. As a result, pressures on marine, coastal and inland habitats will grow, along with risks of pollutions spill. Even without the IPA, it appears that large EU companies are among the main players and may bring higher environmental standards, which may to some degree offset the scale effect. Dam construction is expected to slow down: in this sector, the government could play a key role by providing a new policy approach as well as stronger environmental and social safeguards. Foreign investment, in particular from China and other Asian countries, has played a key role in supporting dam projects: EU companies have so far played a minor role, for example as consulting engineers. 325 The role of EU companies could grow in coming years. EU companies are already major investors in oil and gas in Myanmar, and EU FDI is expected to continue to grow even without the IPA, so the IPA could certainly play a role in facilitation of increased FDI. Most EU companies in the field include large global players that are likely to follow similar environmental management practices in all their operations. The IPA may encourage smaller EU companies in the sector to invest in Myanmar, further increasing the scale effect and thus lead to greater environmental pressures. EU companies are not currently major players in dam investment and construction. Given an expected slowdown in construction, it is not clear if the IPA would affect this sector. 6.4.2.

Textile industry

The main environmental impacts of production of textile garments relate to water consumption and the release of waste water, which can contain chemicals such as bleaches and dyes. Garment production can also release air pollution and solid waste, including some hazardous waste.326 The production of leather garments, currently quite limited in Myanmar, typically creates significant waste water emissions due to its use of tanning chemicals, biocides and other substances. Leather tanning also produces a range of solid waste products from skins and other materials used.327 Water pollution and other releases can be expected to have increased in Myanmar in recent decades with the expansion of the garment sector in major urban areas such as Yangon. As a baseline, the textile sector is expected to continue to grow, with scale effects on water consumption and pollution. This is expected to be the case also for leather production, which has potentially greater impacts on water pollution. As noted in the economic analysis, EU investment has so far focused on distribution and trade, and thus may play a small role in these environmental impacts, though exports to the EU would be an important factor. The IPA could lead to greater EU investment in production and could potentially also increase exports to the EU. This would lead to a scale effect, implying higher levels of water consumption and pollution. EU companies in the textile industry and garment

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Burma Rivers Network. (2016).Other investors. Available:: http://www.burmariversnetwork.org/ International Finance Corporation. (2007). Environmental, Health, and Safety Guidelines for Textile Manufacturing. Available: http://www.ifc.org/ehsguidelines International Finance Corporation. (2007). Environmental, Health, and Safety Guidelines for Tanning and Leather Finishing. Available: http://www.ifc.org/ehsguidelines 122

EUROPEAN COMMISSION production could bring better environmental management to address these and other environmental impacts. 6.4.3.

Automobile and Electronic Consumer Goods

The manufacture of automobiles and their components requires high levels of energy and can create air pollution, including volatile organic compounds (VOCs) as well as dust. Waste water can contain metals, oils and hazardous substances; solid waste will include metals as well as hazardous substances.328 The manufacture of electronic consumer goods can involve a range of hazardous materials, leading to emissions of air pollution (in particular) as well as hazardous waste.329 Factories in Myanmar for automobile and electronic consumer goods are expected to manufacture components as part of global supply chains. Their impacts will depend on their specific production activities, likely included increased air and water pollution and waste generation, in particular in urban and industrial areas. As a baseline, manufacture of components for automobiles and electronic consumer goods is expected to increase in coming years, creating higher pressures in terms of air and water pollution and solid waste generation. It is not expected that there will be a major change in composition for the automobile industry, with Myanmar mainly producing components for assembly in other countries. For electronic goods, there could be changes in the types of production, though the impact in terms of the level of pollution cannot be predicted. EU FDI would play a role in this sector even without an IPA. Many large automobile producers in OECD countries call on their subsidiaries and suppliers to meet minimum environmental standards: as a result, better environmental management could reduce some pressures. The IPA could bring greater EU investment in manufacturing in these sectors. Although the scale effect would lead to higher pollution levels, EU companies could bring better environmental management to address environmental impacts. Where technology transfer is involved the end products may also have better environmental credentials, such as lower carbon footprint, when compared to current products on the market. 6.4.4.

Food and Beverages

Food processing covers a broad range of activities and products, including the production of dairy, meat and fish products as well as beverages. In general, this industry consumes significant amounts of water, and needs clean water for its activities (or needs to treat incoming water). The industry thus produces waste water, which can include discards and pesticides, other chemicals and pathogens (the latter in particular for meat processing). The industry produces solid wastes from discards and potentially also sludges. 330 This sector includes a great variety of different activities. It can be expected to have had an impact in particular in terms of water demand and waste water discharges. As a baseline, the production of food and beverages, both for domestic consumption and export, is likely to grow, increasing the number of processed and packaged foods on the

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International Finance Corporation. (2007). Environmental, Health, and Safety Guidelines for Metal, Plastic, and Rubber Products Manufacturing. Available: http://www.ifc.org/ehsguidelines International Finance Corporation, Environmental. (2007). Health, and Safety Guidelines for Semiconductors & Other Electronics Manufacturing. Available: http://www.ifc.org/ehsguidelines International Finance Corporation. (2007). Environmental, Health, and Safety Guidelines for Food and Beverage Processing; and International Finance Corporation. (2007). Environmental, Health, and Safety Guidelines for Fish Processing. Available: http://www.ifc.org/ehsguidelines SIA on the EU-Myanmar Investment Protection Agreement EN

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market in Myanmar, especially in large cities. This will lead to increasing solid waste and water impacts. FDI is expected to play an important role in this sector. There are multiple innovative developments which could reduce the environmental impacts of the growing food and beverages industry, such as biodegradable bioplastic which can be used for packaging. The EU has developed best practices as regards eliminating water contamination from food and beverage production which could be beneficial in directing the development of this sector. It is vital that these high standards for sustainability are upheld in company’s benefits from the increased EU investment in Myanmar that will result from the IPA. In addition, the EU is a leader in solid and hazardous waste management and recycling technologies and processes. Myanmar could also benefit from technology and knowledge transfer in this area. 6.4.5.

Fisheries

Myanmar is still known for its abundant freshwater, coastal and marine fish resources. For Myanmar as well as other countries on the Bay of Bengal, marine fishery resources are under pressure due to excessive fishing, including illegal, unregulated and unreported fishing. Mangrove forests continue being converted to agricultural fields or aquaculture ponds, depleting high biodiversity areas that are valuable for fish spawning. The status of the country’s reefs is not well mapped, and could be damaged by fishing.331 The fishery sector is considered as the most important after the agriculture sector to meet the protein requirements of the people of Myanmar as well as to provide opportunities for employment. The livestock and fisheries sector contributed to 7.5 per cent of GDP in 20082009. 332 Official statistics indicate that total production from both fisheries and aquaculture was 4.5 million tonnes in 2012, and has increased significantly in recent decades. A reported 2.4 million tonnes of the 2012 catch came from marine fisheries, including coastal and inshore fisheriesand deep sea (offshore) fisheries. 333 Of the six countries on the Bay of Bengal, Myanmar takes the largest share of fishery catch, approximately one-quarter of the total.334 Aquaculture has grown rapidly. As a whole, the sector produced 885,200 tonnes in 2012 a dramatic increase compared to a reported level of 7,100 tonnes in 1990. Over 90 per cent of the 2012 production came from freshwater aquaculture. 335 An estimated 3 million people are directly employed in the sector. 336 Both coastal and freshwater aquaculture can be sources of nutrient pollution. Coastal aquaculture has replaced mangrove forests, harming biodiversity.

Bay of Bengal Large Marine Ecosystem Project. (2012). Transboundary Diagnostic Analysis. Available: http://www.boblme.org/key_documents_TDA_SAP.html 332 FAO (2012) Fishery and Aquaculture Country ProfilesThe Republic of the Union of Myanmar. Available: http://www.fao.org/fishery/facp/MMR/en 333 Defined as waters up to eight fathoms in depth, defining a boundary between 8 and 16km from shore 334 Food and Agriculture Organization. (2012). Fishery and Aquaculture Country Profiles. Myanmar. Rome; Bay of Bengal Large Marine Ecosystem Project, Transboundary Diagnostic Analysis: Executive Summary, 2012. Available: http://www.boblme.org/key_documents_TDA_SAP.html 335 FAO. (2012). Fishery and Aquaculture Country Profiles: The Republic of the Union of Myanmar. Available: http://www.fao.org/fishery/facp/MMR/en 336 Reizer D. et al. (2015) Myanmar’s Agriculture Sector: Unlocking the Potential for Inclusive Growth. ADB Economics Working Paper Series No. 470. Available: http://www.adb.org/sites/default/files/publication/177652/ewp-470.pdf 331

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EUROPEAN COMMISSION Most of the catch goes to the internal market, providing the main source of animal protein, while exports have remained under 400,000 tonnes a year. 337 Myanmar exported between 5 and 10 percent of its production to the EU in 2010.338 As the ASEAN is drawing up safety guidelines based on EU standards, benefits will accrue for access to markets with requirements for quality assurance. Another area of cooperation between Myanmar and the EU is on Illegal, Unreported and Unregulated (IUU) compliant certification for fishery exports.339 Myanmar is not a member of the Indian Ocean Tuna Commission (IOTC) under FAO, an intergovernmental body that regulates tuna catch. There are reports of substantial amounts of illegal fishing and unsustainable fishing practices such as blast fishing occurring in Myanmar’s waters.340 Reports from WorldFish, a research organisation based in Malaysia, who are working with the Fisheries Department of the Ministry of Livestock, Fisheries and Rural Development, Myanmar, suggest that for marine species, there’s evidence that the stocks have dropped quite significantly since the early 1980s.341 In addition, growing coastal and freshwater aquaculture is leading to the release of nutrient pollution. Changes appear to be underway in Myanmar to attempt to redress overfishing an illegal fishing. Myanmar opted in 2014 not to renew the licences of many foreign vessels operating in the country’s waters. 342 The DoF now issues leases for periods of up to nine years to promote improved long-term management.343 As a baseline, illegal fishing and overfishing is putting pressure on marine and coastal fisheries. With continued, but declining marine catches, the wild resource base is at risk of further decline, which would in turn lead to expansion of coastal and marine aquaculture. In particular, shrimp farming could lead to further conversion of mangrove areas, while freshwater aquaculture is likely to expand. FDI from Asian countries is expected to play an important role in the intensification of aquaculture in Myanmar, with the risk of unsustainable development of the sector, like in neighbouring countries. The EU is the world’s largest fish importer and is committed to preventing the propagation of illegal fishing practices.344 In 2010, the European Council passed a regulation to prevent, deter and eliminate illegal, unreported and unregulated fishing (the IUU Regulation). The IUU regulation is a non-discriminatory instrument based on International Law. Based on this instrument, the EU IUU Policy aims at improving through cooperation with third

337

338 339 340

341 342 343 344

LEI Wageningen UR. (2012). Myanmar seafood exports: Quick scan of the EU market potential;Myanmar Department of Fisheries. (n.d.). Fishery Sector. Available: http://www.mlfrd.gov.mm/index.php?option=com_content&view=article&id=62&Itemid=7&lan g=en; Htwe, C. M. (2015). Fish exports continue to decline with floods, slow catches. Yangon, Myanmar: The Myanmar Times. Available: http://www.mmtimes.com/index.php/business/16664-fish-exports-continue-to-decline-withfloods-slow-catches.html FAO. (2012). Fishery and Aquaculture Country Profiles: The Republic of the Union of Myanmar. Available: http://www.fao.org/fishery/facp/MMR/en Ibid. Expo 2015. (2015). Overfishing in the waters off Myanmar's coast. Available: http://www.expo2015.org/magazine/en/innovation/overfishing-in-the-waters-off-myanmar-scoast.html Slow, O. (2016). Myanmar fisheries keen to scale up. Frontier Myanmar. Available: http://frontiermyanmar.net/en/myanmar-fisheries-keen-scale CBI - Ministry of Foreign Affairs of the Netherlands. (2014). CBI Import Intelligence: Seafood in Myanmar. FAO. (2012). Fishery and Aquaculture Country Profiles: The Republic of the Union of Myanmar. Available: http://www.fao.org/fishery/facp/MMR/en European Commission. (April 2015). Press Release: EU acts on illegal fishing: Yellow card issued to Thailand while South Korea & Philippines are cleared. Available: http://europa.eu/rapid/pressrelease_IP-15-4806_en.htm SIA on the EU-Myanmar Investment Protection Agreement EN

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countries their regulatory and enforcement frameworks in place to prevent illegal fishing. IUU Cooperation dialogues have been established with countries in this Asian region such as Thailand, Guinea, Cambodia and Sri Lanka. This action is encouraging better regulation to be adopted in Myanmar. Mr Johnstone the Myanmar Country Director of WorldFish stated that these actions have encouraged the government of Myanmar to re-examine its fisheries system.345 In addition the EC is currently funding the Myanmar Sustainable Aquaculture Programme (MYSAP) under the Development Cooperation Instrument (DCI). 346 The project, which began in 2014 and will continue through 2020 is working to support the sustainable intensification of aquaculture, thereby realising its potential for food security, nutrition and sustainable livelihoods. The target group includes over 250,000 farmers and employees that are already involved in the sector, as many as 25,000 smallholder rice farmers that could significantly improve their income by stocking their paddy fields with fish or shifting to freshwater aquaculture, as well as landless workers that could benefit from new employment opportunities in the value chain. This fast growing sector which is employing millions of local people has great potential which could be further developed through FDI, provided that sustainable practices are adopted. In line with the EU commitment to sustainable fishing practices, EU companies' investment in Myanmar’s fast growing fisheries industry needs to be directed toward companies engaging in sustainable fishing practices. CSR issues are discussed further in section 5.5. 6.4.6.

Agriculture

In Myanmar, agriculture ranges from subsistence farming to small livestock holder farming to large scale commercial operations. In forest areas, subsistence farmers have traditionally used shifting agriculture, clearing small patches for cultivation and moving when soil nutrients are exhausted, thus allowing the forest to regenerate. With the expansion in population, however, fallow areas may not have sufficient time for forest growth and these practices have likely contributed to forest degradation and to deforestation. Commercial farming, in particular rubber and palm oil, has expanded rapidly and has become a major driver of deforestation (conversion logging), and a growing consumer of agricultural chemicals that result in water contaminations and soil degradation. As a baseline, commercial agriculture is expected to continue to grow. FDI is expected to play an important role in its expansion. Chinese investment has developed food production in northern Myanmar for export to China, and this could continue. Investors in Malaysia, Thailand, Korea and Viet Nam are among those considering further investments in oil and rubber production 347 (EU investment has not been a major factor in this market). Consequently, impacts on forests, biodiversity and water quality are likely to increase. The IPA could bring greater EU investment in these sectors. However, it is expected that investors from Asian countries in particular will remain the central players and EU

346

Slow, O. (2016). Myanmar fisheries keen to scale up. Frontier Myanmar. Available: http://frontiermyanmar.net/en/myanmar-fisheries-keen-scale European Commission. (2015). Action Document for the Myanmar Sustainable Aquaculture Programme (MYSAP). Available: https://ec.europa.eu/europeaid/sites/devco/files/aapfinancing-myanmar-annex1-20151209_en.pdf

347

OECD. (2014). OECD Investment Policy Reviews: Myanmar

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EUROPEAN COMMISSION investment will focus on trade-related activities. There may be a scale effect leading to higher pollution levels, but this is hard to assess. EU investment could also develop exportoriented organic and fair trade agriculture. 6.4.7.

ICT

This is understood to include computer and telecommunications services. Computer services can be major consumers of energy, while fixed lines for telecommunications can disrupt habitats. Nonetheless, there was a lack of evidence that these services have had major environmental impacts in Myanmar to date. As a baseline, this sector is expected to expand rapidly in coming years, leading to higher energy use and higher solid waste generation, including electrical and electronic waste with hazardous components. EU investors can be expected to be among the important players in this market. The IPA could bring greater EU investment in these sectors. Although the scale effect would lead to higher energy consumption and pollution levels, EU companies could bring better environmental management to address environmental impacts. As the sector expands, however, waste electrical and electronic products are likely to be generated mainly by downstream users rather than EU investors.

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7. HUMAN RIGHTS The EU commitment to human rights in its external policies is set out in Art. 21(1) TEU which establishes human rights considerations as one of the principles guiding the Union's external activities. Art. 207(1) TFEU sets out that the common commercial policy shall be conducted in the context of the principles and objectives of the Union's external action. Furthermore, Art. 21(3) TEU requires the EU to ensure consistency between the different areas of its external action and between these and its other policies. The Charter of Fundamental Rights of the European Union, proclaimed on 7 December 2000, was given binding legal effect equal to that of the Treaties following the entry into force of the Lisbon Treaty on 1 December 2009, thus strengthening the EU's commitment to human rights. In line with the Strategic Framework on Human Rights and Democracy, 348 the EU is committed to promoting respect for human rights, democracy and the rule of law worldwide. The EU’s trade policy is geared towards promoting free and fair openness to trade in the global market place. In combination with other instruments, it can contribute to the improvement of human rights in various countries. 349 In the following chapter we will explore the current human rights situation in Myanmar, propose a baseline scenario for Myanmar as regards human rights, and explore the potential impacts of the IPA. Data for quantitative analysis of human rights impacts is largely unavailable, so the analysis in this section is primarily based on qualitative research inputs and perspectives contributed by stakeholders. The assessment takes into account the international human rights normative framework, including core UN human rights conventions 350 and other regional human rights conventions. As set out in the human rights impact assessment guidelines, the assessment relies on information from the following sources: EU's Human Rights Dialogues, the EU Reports on Human Rights and Democracy in the World (country reports), the EU Human Rights Country Strategies (HRCSs) and their annual implementing reports, the Civil Society Roadmaps,351 the EU Risk Management Framework for budget support, and UN reports from Treaty-based or Charter-based procedures, including Universal Periodic Review submissions and Reports from the OHCHR Special Rapporteur on the situation of human rights in Myanmar. The assessment also relies on important international civil society reports, including by the International Trade Union Confederation (ITUC); the International Federation for Human Rights (FIDH), and Human Rights Watch, International Commission and well as local sources such as the Myanmar Centre for Responsible Business (MCRB). The below sections present the project team’s analysis of key areas of human rights. The first section of this chapter will examine the legal frameworks and policy objectives, with a specific focus on the judicial system, property rights, minority rights, freedom of

Council of the European Union. (2012). EU Strategic Framework and Action Plan on Human Rights and Democracy. Available: http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/EN/foraff/131181.pdf 349 European Commission. (2015). Guidelines on the analysis of human rights impact in impact assessments for trade-related policy initiatives. Available: http://trade.ec.europa.eu/doclib/docs/2015/july/tradoc_153591.pdf 350 International Convention on the Elimination of All Forms of Racial Discrimination (ICERD); International Covenant on Economic, Social, and Cultural Rights (ICESCR); International Covenant on Civil and Political Rights (ICCPR); Convention on the Elimination of All Forms of Discrimination against Women (CEDAW); Convention against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment (CAT); Convention on the Rights of the Child (CRC); International Convention on the Rights of Persons with Disabilities (ICRPD); and International Convention for the Protection of All Persons from Enforced Disappearance (ICPED). 351 European Commission. (2015). Public Group on Civil Society – Roadmaps. Available: 348

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EUROPEAN COMMISSION expression, assembly and association, data protection, right to livelihood, right to an adequate standards of living, lack of access to remedy, gender equality and laws and commitments to responsible business conduct. Furthermore, it will provide an analysis of human rights in the energy and telecommunications sectors. These key areas were selected on the basis of their relevance and potential to be impacted by the IPA. This section will furthermore develop the baseline scenario for future development. The second section will assess the potential impact of the EU-Myanmar IPA on human rights in Myanmar. Given Myanmar’s stage of development, described in more detail in the chapter on economic impacts, it is assumed that in the coming years Myanmar’s economy and levels of FDI, including from the EU, will continue to grow rapidly. This will have an impact on the human rights situation in Myanmar. In summary, the conclusions of this chapter are that increased EU investment as a result of the IPA could be positive or negative for human rights in Myanmar. An increase in FDI from the EU could promote economic stability and growth, increase employment and as a result lead to better living standards and less poverty. Furthermore, EU companies often have a human rights approach in their codes of conduct, which rely on CSR and RBC. As a result, better standards and human rights could be introduced in Myanmar. This could require above average due diligence from the EU investors and companies, for example to ensure that land for investment is made available through legal means. Furthermore, the investment activities should adhere to established international standards and practices and the IPA should provide sufficient safeguards to realise a positive impact on human rights. However, greater investment in sectors where the risk of human rights violations is higher, such as the energy and telecommunications sectors, could have an impact on the human rights situation in Myanmar. The extractive industry is linked to violation of property rights, livelihood and minority rights. While the telecommunications industry can be a driver of important process like democracy and passing of information with the potential to open up society, it could also raise concerns about surveillance and censorship. The IPA should therefore pay specific attention to the risks in these sectors and provide sufficient safeguards and measures. Additionally, there are some concerns about Myanmar’s readiness to sign an agreement when its own legal system and policy processes are in a state of transition. The resulting unstable legal framework which has a potential litigation risk for Myanmar. 7.1.

Current state of human rights in Myanmar and development in absence of the investment protection agreement between the European Union and Myanmar

Since the civilian government took office in March 2011, Myanmar has embarked on a process of extensive political and economic reform and transition from military to civilian rule with the elections at the end of 2015 making a further step in this process. While Myanmar has undergone far-reaching changes in many aspects of society, there are some signs of slowing reform and flare-ups of ethnic and religious conflict. 352 The major challenge for Myanmar is to take the reforms forward.353

http://capacity4dev.ec.europa.eu/public-governance-civilsociety/minisite/roadmaps 352 OHCHR. (2015). Myanmar: UN Special Rapporteur starts official visit. Available: http://www.ohchr.org/en/NewsEvents/Pages/DisplayNews.aspx?NewsID=16283&LangID=E 353 European Commission. (2014). Annex 2: Action Document for Strengthening Governance in Myanmar. Available: https://ec.europa.eu/europeaid/sites/devco/files/myanmar-2014-aapcommission-decision-annex-2_en.pdf SIA on the EU-Myanmar Investment Protection Agreement EN

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The Joint EU Development Partners’ Transitional Strategy for Myanmar 2014-16 summarises the risks to the reform process going forward in light of the political/legal context in Myanmar. Some key risks are summarised in the matrix below: 354 Risk

Probability

Impact on human rights

Continuation or resumption of serious armed conflict

High (in Kachin)

Medium

Further outbreaks of serious inter-communal violence

High (in Rakhine)

Reform progress vs. expectations gap leading to public protest and instability

Medium

Medium-High

Economic shocks negatively impacting on livelihoods (e.g. high exchange rate / inflation)

Medium

Medium-High

Medium (elsewhere) Medium-High

Medium-Low (elsewhere)

Following the 2015 National Elections, there will be a significant change in Government priorities and structures. New policies and strategies proposed by the Government are discussed in Parliament, where representatives of the opposition are also sitting. Furthermore, a discontinuation of the peace process would have a significant impact on the whole Government and its ability to function effectively, and particularly on the decentralisation process. Lastly, there could be a low absorption capacity of most planning and implementing ministries and institutions. There is a risk of too many resources being released by development partners too quickly ink support of the reform process. This can be reduced by making capacity and needs assessments and adhering to the Nay Pyi Taw Accord for Effective Development Cooperation. The victory of the National League for Democracy (NLD) in the November 2015 national elections has the potential to reenergise reforms and improve democracy. However, the 2008 constitution is still in place which means that the military still appoints one-quarter of parliamentary seats and several senior ministerial positions are reserved for military officers. Additionally, 800,000 disenfranchised Rohingya and other minority voters were left out of the election, and neither the ruling Union Solidarity and Development party (USDP) nor the NLD fielded a Muslim candidate.355 According to Phil Robertson, deputy Asia director of Human Rights Watch, “The 2015 elections made space for new hopes as well as new demands for meaningful change in the lives of ordinary Burmese people … Aung San Suu Kyi and the NLD should use their victory

EEAS. (2014). Joint EU Development Partners’ Transitional Strategy for Myanmar 2014-2016. Available: http://eeas.europa.eu/delegations/myanmar/documents/eu_myanmar/joint-eudevelopment-partners-transitional-strategy-for-myanmar-2014-2016_en.pdf, p. 14 355 Human Rights Watch. (2016). Burma: Election Points Path to Rights Progress – Ending Discrimination, Abusive Laws Should Top New Government Priorities. Available: https://www.hrw.org/news/2016/01/27/burma-election-points-path-rights-progress 354

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EUROPEAN COMMISSION as a jumping-off point to reverse past human rights abuses and begin a programme for durable, long-term reform.”356 Human rights in Myanmar Myanmar has yet to sign many of the international human rights instruments, including the International Covenant on Civil and Political Rights, the Convention Against Torture and the International Convention on the Elimination of All Forms of Racial Discrimination. In July 2015 the government signed the International Covenant on Economic, Social and Cultural Rights. The 2008 Constitution of the Republic of the Union of Myanmar provides enforceable guarantees that relate to a range of rights. 357 There are however limitations to these rights. The Constitution limits the right to freedom of expression, assembly and association to where it is not contrary to morality, without defining what constitutes morality. Some rights are limited to “citizens” only, including the right of non-discrimination, freedom of movement, of expression, of assembly and association, the right to property, health, education, just and fair conditions of work, and privacy. 358 This is problematic as Burmese Chinese, Nepali and Indian ethnic minorities are not recognized as full-citizens in Myanmar’s three-tiered citizenship system, while the Muslim Rohingya are not recognised as citizens of Myanmar at all, rendering them effectively stateless. 359 There still remain several restrictions to society’s ability to participate in the different domains of public life. This is largely due to the political, legal and judicial systems. 360 The International Trade Union Confederation (ITUC) underlines that business activities in Myanmar are linked to serious rights abuses – including violence, land grabs and labourrelated abuses. 361 ITUC emphasises that enhanced human rights due-diligence and transparency are especially important in taking a leadership role and influencing local partners.362 In 2011, the Myanmar National Human Rights Commission was established to promote and monitor compliance with human rights regulations as well as investigate complaints. It received more than 1700 complaints in its first 6 months of operation, with the major part of complaints involving land grabbing cases. 363 The Myanmar National Human Rights Commission is not however considered to meet the definitions under the Paris Principles to be recognised as a national human rights institution, at least in its current form. In particular, the Chairman of the Commission has denied the existence of human rights violations in ethnic areas, particularly in relation to issues pertaining to the Rohingya. The

Ibid. Republic of the Union of Myanmar. (2008). Constitution of the Republic of Myanmar. Available: http://www.burmalibrary.org/docs5/Myanmar_Constitution-2008-en.pdf 358 International Trade Union Confederation. (2015). Foreign Direct Investment in Myanmar: What impact on human rights? Available: http://www.ituc-csi.org/IMG/pdf/ituc-burma.pdf 359 Sot, M. (2012). Myanmar’s ethnic problems. Irin News. Available: www.irinnews.org/report/95195/briefing-myanmar-s-ethnic-problems 360 EEAS. (2015). EU Roadmap for Engagement with Civil Society in Myanmar. Available: http://eeas.europa.eu/delegations/myanmar/documents/press_corner/2015/myanmar-roadmapsummary_en.pdf 361 Burma Partnership & Assistance Association for Political Prisoners. (2015). How to Defend the Defenders? A Report on the Situation of Human Rights Defenders in Burma and Appropriate Protection Mechanisms. Available: http://www.humanrightsinasean.info/document/how-defenddefenders-report-situation-human-rights-defenders-burma-and-appropriate 362 International Trade Union Confederation. (2015). Foreign Direct Investment in Myanmar: What impact on human rights? Available: http://www.ituc-csi.org/IMG/pdf/ituc-burma.pdf 363 Myanmar Centre for Responsible Business. (2015). Tourism Sector-Wide Impact Assessment: Government and Regulatory Framework. Available: http://www.myanmarresponsiblebusiness.org/pdf/SWIA/Tourism/04-Government-Legal-Regulatory-Framework.pdf 356 357

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body has failed to conduct credible investigations into human rights abuses and does not have the power to forward cases to the judiciary. 364 The sections below will discuss some key human rights and will discuss the impact of foreign investment that are likely to occur without appropriate safeguards in place. Furthermore, it will examine the impact of foreign investments in the energy and telecommunications sectors, as these sectors are closely linked to several human rights. 7.1.1.

Myanmar’s judicial system

The judiciary in Myanmar has taken important steps towards asserting its independence from the other branches of government. The 2015-2017 strategic plan adopted by the Supreme Court identified promoting the rule of law; enhancing public trust in the judicial system; adjudicating cases fairly and speedily in accordance with law; public access to justice; enhancing judicial independence and accountability; and ensuring equality, fairness and integrity of the judiciary as its critical aims.365 However, many limitations to judicial independence remain. Concerning judicial control, the Executive controls the appointment of the members of the Constitutional Tribunal; its oversight of the judiciary’s budget remains opaque; 366 the President nominates the Chief Justice of the Union and the judges of the Supreme Court; judges’ decisions remain influenced by the views of government and military officials, in particular local and regional authorities.367 Furthermore, corruption is prevalent and interferes with the judiciary’s role in awarding remedies for human rights abuses and ensuring that perpetrators face justice.368 Lastly, the military retains its independence from the government (Article 20 of the Constitution), its budget expenditure has increased by 131 per cent since 2011; 25 per cent of the Members of Parliament are appointed by the Commander-in-Chief (Constitution); the heads of key ministries (Home Affairs, Border Affairs, Defence) have to be serving military officers. Further reforms to advance human rights and the rule of law may or may not still depend on the military going forward.369 7.1.2.

Property rights

Concerns in Myanmar have been raised regarding large-scale investment projects resulting in forced evictions, loss of livelihoods, inadequate consultation and compensation. These cases are usually linked with agribusiness, hydropower, extractives, and the development of special economic zones and affect predominantly ethnic minority areas. 370 This is facilitated by the lack of formal land titles and legal recognition of customary land tenure in Myanmar.371

International Trade Union Confederation. (2015). Foreign Direct Investment in Myanmar: What impact on human rights? Available: http://www.ituc-csi.org/IMG/pdf/ituc-burma.pdf 365 International Commission of Jurist. (2015). Submission to the Universal Periodic Review of the Republic of the Union of Myanmar. Available: http://icj.wpengine.netdna-cdn.com/wpcontent/uploads/2015/03/Myanmar-UPR-Advocacy-2015-ENG.pdf 366 Ibid. 367 Ibid. 368 Ibid. 369 Myanmar Centre for Responsible Business. (2015). Tourism Sector-Wide Impact Assessment: Government and Regulatory Framework. Available: http://www.myanmarresponsiblebusiness.org/pdf/SWIA/Tourism/04-Government-Legal-Regulatory-Framework.pdf 370 International Trade Union Confederation. (2015). Foreign Direct Investment in Myanmar: What impact on human rights? Available: http://www.ituc-csi.org/IMG/pdf/ituc-burma.pdf 371 Ibid. 364

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EUROPEAN COMMISSION The Myanmar Centre for Responsible Business notes that ‘The land regime in Myanmar is characterised by a patchwork of new and old laws that leads to overlap, contradiction and confusion. Insecurity of tenure is a major problem. Moreover, the land registration system is considered inefficient, with complex requirements and lack of benefits for registering land’.372 The OECD also points to a lack of recognition of customary land use rights, weak protection of registered land use rights, inefficient land administration, and active promotion of large-scale land allocations without adequate safeguards’'. 373 The box below provides an overview of provisions relating to land law in Myanmar highlights and some of their shortcomings: Examples of shortcomings in Myanmar land regime    

Article 37 of the Constitution provides that the government is the “ultimate owner of all lands” and natural resources. Section 29 of the Farmland Law allows the government to confiscate land on the basis of national interest. The Land Acquisition Act provides that the government can carry out land acquisitions for a company when the acquisition is “likely to prove useful to the public”. The Farmland and the Vacant, Fallow and Virgin laws grants the government wide discretion to use the land in the way it wishes for public interests, without possibility of effective administrative or judicial review of land confiscation and resettlement.

This framework does not adequately protect people against forced evictions, expropriation without proper compensation and loss of livelihood. Access to other remedies can also be limited. The issue of land tenure and land-grabbing issues was highlighted as remaining high-risk in the absence of clear land regulatory frameworks in place within Myanmar. 374 This issue was illustrated in an example from Laos where investors talk to the government to allocate particular kinds of land for a certain period of time. Eventually, issues of land ownership may arise, resulting in a situation of uncertainty whether the land belongs to the government or the local community. Companies may have to withdraw or vacate. As regards land grabbing, companies may not always know who their exact business partners are and the land they invest in may be a product of illegal land grabbing and forceful eviction. Karen Human Rights Group indicates that Karen areas of southeast Myanmar continue to face widespread land confiscation and displacement due to natural resource extraction and development projects undertaken or facilitated by civil and military government authorities, armed groups and private investors. 375 Land confiscations have especially occurred around the Special Economic Zones (SEZ) in Thilawa and Kyaukpyu. Similarly, in

MCRB. (2014). Myanmar Oil & Gas Sector Wide Impact Assessment. Part Available: http://www.myanmar-responsiblebusiness.org/pdf/SWIA/Oil-Gas/00-Myanmar-Oil-and-GasSector-Wide-Assessment.pdf 373 OECD. (2014). OECD Investment Policy Reviews: Myanmar 2014. Available: http://www.oecd.org/daf/inv/investment-policy/Myanmar-IPR-2014.pdf, p. 108 374 Glenn Hunt. Land Core Group. Development Solutions Stakeholder Meeting Minutes 375 Karen Human Rights Group. (2015). ‘With only our voice, what can we do?’, Land confiscation and local response in southeast Myanmar. Available: http://khrg.org/2015/06/with-only-our-voiceswhat-can-we-do-land-confiscation-and-local-response 372

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the tourism sector, large development projects such as on Inle Lake did not adequately consult with local communities.376 Additional issues arise regarding land in conflict-affected areas, which are not included in national cadastres or considered vacant. Since the ceasefire in Kayin State, companies have intensified land confiscations as land formerly occupied by displaced populations was classified as ’vacant’.377 ITUC refers to hydropower projects such as the Myitsone and the Salween River dams, extractive project such as the Shwe Gas project and the Monywa copper mine (comprising the Letpadaung mine) which have led to land confiscations and displacement with little or no compensation. 378 ITUC also reports use of force by the military against local residents to promote business projects and cautions that ‘the level of collusion, and the accompanying violations of land tenure and human rights, should be of serious concern to investors’. 7.1.3.

Minority rights and conflict areas

Myanmar’s ethnic minorities make up about 30 to 40 per cent of the population. As mentioned in the previous section, non-‘indigenous’ ethnic groups, such as the Burmese Chinese, Nepali and Indian ethnic minorities and Muslim Rohingya, hold either limited citizenships or no citizenship at all. The government’s 2015 passage of the “race and religion protection laws”379 could therefore in particular affect the Rohingya community.380 ITUC underlines that local communities are paying the trade-off price for natural resource projects, as many investments in the extractive and energy sectors have led to conflicts between local communities and companies over land confiscation without consultation and adequate compensation, forced relocation, exacerbation of conflicts, and environmental impacts.381 In Southeast Myanmar, indigenous peoples' lands have been confiscated for a variety of business and development projects, including dam construction, mining, logging, large-scale plantation projects and road construction. Impact assessments are rarely made public and indigenous people are rarely compensated. 382 In a submission to the UPR, the Coalition of Indigenous Peoples in Myanmar described issues faced by indigenous peoples in Myanmar, including the impact of destructive development projects on local livelihoods. The group called for amendments to the national land use policy and other legislation to ensure they accommodate “the collective rights of indigenous peoples to their lands, territories, and natural resources, including customary

MCRB. (2015). Part 4.1: Myanmar Tourism Sector Wide Impact Assessment. Available: http://www.myanmar9responsiblebusiness.org/swia/tourism.html 377 Karen Human Rights Group. (2015). ‘With only our voice, what can we do?’, Land confiscation and local response in southeast Myanmar. Available: http://khrg.org/2015/06/with-only-our-voiceswhat-can-we-do-land-confiscation-and-local-response 378 International Trade Union Confederation. (2015). Foreign Direct Investment in Myanmar: What impact on human rights? Available: http://www.ituc-csi.org/IMG/pdf/ituc-burma.pdf 379 The Population Control Law, the Buddhist Women’s Special Marriage Law, the Religious Conversion Law, and the Monogamy Law 380 Library of Congress. (2015). Burma: Four “Race and Religion Protection Laws” Adopted. Available: http://www.loc.gov/law/foreign-news/article/burma-four-race-and-religion-protectionlaws-adopted 381 International Trade Union Confederation. (2015). Foreign Direct Investment in Myanmar: What impact on human rights? Available: http://www.ituc-csi.org/IMG/pdf/ituc-burma.pdf 382 Coalition of Indigenous Peoples in Myanmar/Burma. (2015). Joint submission to the UN Universal Periodic Review, March 2015. Available: http://www.burmalibrary.org/docs21/NEEDCoalition_of_IPs_in_Myanmar-2015-03-Submission_to_UPR-en-red.pdf 376

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EUROPEAN COMMISSION land use practices with regard to forests, rivers, and other land, as well as agricultural land.”383 Conflict areas Ethnic areas along the borders with Thailand, China, India and Bangladesh have been hotspots of internal armed conflict, with Government forces fighting a wide array of groups including communist insurgents, ethnic armies and narcotics militias. 384 Substantial progress has already been made in Mon, Kayin and Kayah states but in other areas the situation remains volatile and inter-communal violence has recently flared between Buddhist and Muslim communities. 385

Figure 13: Myanmar’s main ethnic groups (Source: The Economist, March 2014)386 Conflict in Kachin State is ongoing, after a 17-year-long bilateral ceasefire between the government and the Kachin Independence Army (KIA) broke in 2011 when the military attacked the rebel group near a disputed hydropower dam site. Confrontations in northern Kachin State have intensified since June 2013 and more displacement was witnessed in 2014 following clashes between the Myanmar national army and non-state groups in Kachin and northern Shan States387. Human rights have been at the centre of EU engagement with Myanmar. The EU has consistently called on the government to address the underlying causes of inter-communal violence, including the status and welfare of the Rohingya, and to guarantee the respect of human rights and the rule of law. Ongoing conflict between the Myanmar armed forces and ethnic armed groups in particular in Kachin and Shan States has resulted in population

Snaing, Y. (2015). Indigenous Rights Coalition in Burma Plans UPR Submission. The Irrawaddy. Available: http://www.irrawaddy.com/burma/indigenous-rights-coalition-in-burma-plans-uprsubmission.html 384 EEAS. (2014). Joint EU Development Partners’ Transitional Strategy for Myanmar. Available: http://eeas.europa.eu/delegations/myanmar/documents/eu_myanmar/joint-eu-developmentpartners-transitional-strategy-for-myanmar-2014-2016_en.pdf 385 Ibid. 386 The Economist. (2014). A Census in Myanmar: Too much information. Yangon: The Economist. Available: http://www.economist.com/node/21599404/comments 387 UNHCR. (2015). 2015 UNHCR Country Operations Profile – Myanmar. Available: http://www.unhcr.org/pages/49e4877d6.html 383

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displacement. The EU is one of the largest providers of humanitarian assistance for vulnerable communities. In 2011 negotiations started with ethnic armed groups with the aim of putting an end to decades-long conflict. On 15 October 2015, the Government and eight out of fifteen ethnic armed groups concluded a Nationwide Ceasefire Agreement (NCA). The EU was invited to sign as an international witness alongside the United Nations, China, Japan, India and Thailand. NLD has pledged to make peace and national reconciliation to a top priority for the incoming government. In many ethnic minority areas of Myanmar, minority, conflict, displacement, attacks against civilians, and other serious human rights violations against local communities have been the result of the implementation of investment and infrastructure projects. Dams, pipelines and mines, often financed by China, have been used as a wartime tool to encroach on ethnic lands and dominate local populations. 388 ITUC recommends that companies should not invest in large-scale development projects in Myanmar’s conflict areas until durable peace agreements are established. In particular, active conflicts in a number of oil, gas and hydropower producing areas means that companies need to pay particular attention to human rights risks associated with these conflicts. 7.1.4.

Freedom of expression, assembly and association

Since the reform process began in 2011 there have been significant improvements in the rights to freedom of expression, including loosening of restrictions on the media, and in peaceful assembly and the ability to stage peaceful protests.389 However, limitations in the legal framework remain and authorities continue to use them to arrest and imprison people for their peaceful activities: Article 354 of the 2008 Constitution guarantees the rights to freedom of expression, peaceful assembly, and association; however, exercising such rights must not contravene “community peace and tranquillity”.390 In December 2011 the Parliament enacted the Law Relating to Peaceful Assembly and Peaceful Procession. This law permits peaceful assembly, but prior permission from the Government (in this case the Township Police) is still required for an assembly or procession of more than one person. Furthermore, not all laws which restrict freedoms of expression have been repealed. Some of these are outlined in the box below: Examples of laws restricting freedom of association and expression in Myanmar    

1908 Unlawful Associations Law (pre-Independence); The 1950 Emergency Provisions Act; The 1975 State Protection Law; Various articles of the Penal Code, especially Article 505(b)391

Matthew Smith, Executive Director of Fortify Rights. Myanmar Centre for Responsible Business. (2014). Myanma Oil & Gas Sector Wide Impact Assessment. Available: http://www.myanmar-responsiblebusiness.org/pdf/SWIA/Oil-Gas/00Myanmar-Oil-and-Gas-Sector-Wide-Assessment.pdf, p. 73 390 Myanmar Centre for Responsible Business. (2014). Myanma Oil & Gas Sector Wide Impact Assessment. Available: http://www.myanmar-responsiblebusiness.org/pdf/SWIA/Oil-Gas/00Myanmar-Oil-and-Gas-Sector-Wide-Assessment.pdf, p. 73 391 Myanmar Centre for Responsible Business. (2014). Myanma Oil & Gas Sector Wide Impact Assessment. Available: http://www.myanmar-responsiblebusiness.org/pdf/SWIA/Oil-Gas/00Myanmar-Oil-and-Gas-Sector-Wide-Assessment.pdf, p. 73 388 389

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EUROPEAN COMMISSION The former military government in Myanmar imposed a range of measures to silence dissent and control the flow of information, including limits on access to technology and penalties for online expression.392 Since the formal end of military rule in 2011, the former government of President Thein Sein largely stopped online censorship. 393 In August 2012, the government abolished prepublication print media censorship, but kept 16 guidelines restricting publication of articles critical of the government or related to corruption, illicit drugs, forced labour, and child soldiers. 394 Restrictive ICT laws and regulations remain in place, although the enforcement of these laws has diminished. Some arbitrary media laws remain in place, including the 2004 Electronics Transaction Act. The Media Law and the Printers and Publishers Regulation Bill were passed in March 2014. The vague provisions of the latter law and broad powers of a Registrar to grant or revoke publishing licenses, lead to fears of press self-censorship. 395 Moreover, although prepublication censorship has been abolished, media outlets must submit their publications to the Ministry of Information. Reporting on corruption or the military remains problematic, as shown by the arrests of journalists as recently as July 2014, some of whom were sentenced to years of hard labour.396 According to the Report of the Special Rapporteur on the situation of human rights in Myanmar, Yanghee Lee, the number of political prisoners increased in 2015.397 At the end of 2015, around 112 people were incarcerated in violation of their rights to peaceful assembly and other fundamental rights, and at least 486 more were facing trial. In particular, human rights defenders were harassed and arrested by law enforcement authorities, particularly when they were reporting on and protesting against land confiscations and environmental issues linked to large investment projects (for instance with regard to the Shwe Gas Pipeline Project in 2013 and the Letpadaung Copper Mine Project in Sagaing Region in 2012).398 The Special UN Rapporteur also reported that police used excessive force against demonstrators protesting land expropriations and the loss of livelihoods with regard to large-scale development projects.399 Student protests in March 2015 resulted in the arrest and trial of over 50 student activists.400

OpenNet Initiative. (2012). Burma (Myanmar). Available: https://opennet.net/research/profiles/burma 393 Poetranto, I. (2012). Update on information controls in Burma. OpenNet Initiative Blog. Available: https://opennet.net/blog/2012/10/update-information-controls-burma 394 Human Rights Watch. (2013). World Report 2013. New York: Human Rights Watch. Available: http://www.hrw.org/worldreport/2013/country-chapters/burma 395 Myanmar Centre for Responsible Business. (2014). Myanma Oil & Gas Sector Wide Impact Assessment. Available: http://www.myanmar-responsiblebusiness.org/pdf/SWIA/Oil-Gas/00Myanmar-Oil-and-Gas-Sector-Wide-Assessment.pdf, p. 75 396 Myanmar Centre for Responsible Business. (2014). Myanma Oil & Gas Sector Wide Impact Assessment. Available: http://www.myanmar-responsiblebusiness.org/pdf/SWIA/Oil-Gas/00Myanmar-Oil-and-Gas-Sector-Wide-Assessment.pdf, p. 74 397 UN General Assembly (2015) Report of the Special Rapporteur on the situation of human rights in Myanmar, Yanghee Lee. Available: http://www.ohchr.org/EN/HRBodies/HRC/RegularSessions/Session28/Documents/A_HRC_28_72_e n.doc 398 Amnesty International. (2015). Myanmar: Foreign mining companies colluding in serious abuses and illegality. Available: http://www.amnesty.org/en/news/myanmarforeignminingcompaniescolludingseriousabusesandille gality92015902910 399 United Nations Information Centre Yangon, op.cit. 400 Human Rights Watch. (2016). Burma: Election Points Path to Rights Proress. Available: https://www.hrw.org/news/2016/01/27/burma-election-points-path-rights-progress 392

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Civil society members of the emerging Extractive Industries Transparency Initiative (EITI) multi-stakeholder group raised the issue of excessive measures against protestors with the Government, which appears to have led to a lessening of arrests. 401 According to Human Rights Watch, opening Myanmar information and communications technology (ICT) and telecommunications sectors to international investment has a strong potential for improving human rights. Email, social media, and cell phones support instant communication and access to information for journalists and human rights defenders. 402

7.1.5.

Data protection

Myanmar has not signed nor ratified the ICCPR, which upholds the right to privacy under Article 17.403 Political reforms have been initiated since 2010, but due to inter-communal violence in 2013 and the looming elections, state surveillance has intensified. Human rights defenders have expressed their concerns about this state surveillance. 404 There is no robust legal framework on surveillance: whilst the new telecommunication law adopted in 2013 requires a court order for the disclosure of information kept in secured or encrypted systems under Article 69, the government of Myanmar has yet to draft laws that govern the interception of communications by law enforcement 405 and fails to provide privacy protections.406 7.1.6.

Right to livelihood

According to recent studies, activities in the oil and gas sector impacted livelihoods of rural population relying on agriculture and fishing. 407 Road and site constructions changed hydrology, which resulted in flooding during monsoon season. Similarly, deforestation was linked to mining and extractive industrial activities, resulting in soil erosion and landslides, thus impacting communities’ access to food and livelihoods. 408 Prominent examples include the construction of the Hatgy Dam in Kayin State – with investments from China and Thailand and the Myitsone Dam Project, which was financed by China.409

Myanmar Centre for Responsible Business. (2014). Myanma Oil & Gas Sector Wide Impact Assessment. Available: http://www.myanmar-responsiblebusiness.org/pdf/SWIA/Oil-Gas/00Myanmar-Oil-and-Gas-Sector-Wide-Assessment.pdf, p. 74 402 Human Rights Watch. (2013). Reforming Telecommunications in Burma: Human Rights and Responsible Investment in Mobile and the Internet. Available: http://www.hrw.org/sites/default/files/reports/burma0512_ForUpload.pdf 403 Privacy International. (2015). Universal Periodic Review Stakeholder Report: 23rd Session, Myanmar, The Right to Privacy in Myanmar. Available: https://www.privacyinternational.org/sites/default/files/Myanmar_PI_UPRpercent20Stakeholdersu bmission.pdf 404 Freedom House. (2014). Freedom on the Net 2014: Myanmar. Available: https://freedomhouse.org/sites/default/files/resources/Myanmar.pdf 405 Purdon, L. (2015). Rights, safety at risk without lawful interception rules. Available: http://www.mmtimes.com/index.php/opinion/12900-rights-safety-at-risk-withoutlawfulinterception-rules.htm 406 Freedom House. (2014). Freedom on the Net 2014: Myanmar. Available: https://freedomhouse.org/sites/default/files/resources/Myanmar.pdf 407 Ibid. 408 Myanmar Centre for Responsible Business. (2014). Myanma Oil & Gas Sector Wide Impact Assessment. Available: http://www.myanmar-responsiblebusiness.org/pdf/SWIA/Oil-Gas/00Myanmar-Oil-and-Gas-Sector-Wide-Assessment.pdf, p. 74 409 Myanmar Centre for Responsible Business. (2014). Myanma Oil & Gas Sector Wide Impact Assessment. Available: http://www.myanmar-responsiblebusiness.org/pdf/SWIA/Oil-Gas/00Myanmar-Oil-and-Gas-Sector-Wide-Assessment.pdf, p. 74 401

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EUROPEAN COMMISSION As of 2014, the Environmental Conservation Law established for the first time a mandatory Environmental Impact Assessment Procedure for some investment projects depending on their classification.410 In January 2016, the Ministry of Environmental Conservation and Forestry released new procedures for evaluating the environmental impact of local projects. The Environmental Impact Assessment Procedure should result in effective environmental management.411 7.1.7.

Right to an adequate standard of living

In analysing the key human rights implications for the oil and gas sector, the MCRB highlights that the development and operation of offshore oil and gas projects has the potential to adversely impact fish habitats and resources, small-scale subsistence and artisanal fisheries exploiting these resources. 412 Fishermen are rarely consulted to notify them or mitigate the impact to their livelihoods. Some fishing populations, such as the indigenous Moken on the Tanintharyi coast, are particularly vulnerable to impacts on fish stocks.413 The MCRB also points to a ‘high vulnerability of local rural populations to social and environmental impacts due to their overwhelming dependence on land-based subsistence agriculture or local fishing’. The vulnerability will be even higher within at-risk groups within the community – women, minorities and the disabled.414 There is also a reported lack of clarity and transparency for local communities about the process and compensation for communities for impacts on their livelihoods.415

7.1.8.

Lack of access to remedy

A cross-cutting issue in the Myanmar human rights landscape is the issue of access to justice and lack of access to remedies for victims of human rights abuses, including in the context of violations committed in the context of business activities.416 The government has formed the Myanmar National Human Rights Commission, a number of parliamentary committees and investigative bodies to deal with complaints and, for high profile incidents, ad hoc commissions to deal with individual incidents. However, as highlighted in the ITUC report: “the judicial system remains weak, and human rights defenders and protesters, particularly those involved in land disputes, are still being arrested and charged for peaceful activities’’.417 It is also worth noting the cost and length of judicial processes and the legal aid system make it difficult for human rights victims to access formal judicial remedies. As a result,

Myanmar Centre for Responsible Business. (2014). Myanma Oil & Gas Sector Wide Impact Assessment. Available: http://www.myanmar-responsiblebusiness.org/pdf/SWIA/Oil-Gas/00Myanmar-Oil-and-Gas-Sector-Wide-Assessment.pdf, p. 74 411 Myanmar Center for Responsible Business, op.cit. 412 Myanmar Centre for Responsible Business. (2014). Myanma Oil & Gas Sector Wide Impact Assessment. Available: http://www.myanmar-responsiblebusiness.org/pdf/SWIA/Oil-Gas/00Myanmar-Oil-and-Gas-Sector-Wide-Assessment.pdf 413 Ibid. 414 Ibid. 415 Ibid. 416 International Trade Union Confederation. (2015). Foreign Direct Investment in Myanmar: What impact on human rights? Available: http://www.ituc-csi.org/IMG/pdf/ituc-burma.pdf 417 International Trade Union Confederation. (2015). Foreign Direct Investment in Myanmar: What impact on human rights? Available: http://www.ituc-csi.org/IMG/pdf/ituc-burma.pdf 410

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they are usually referred to more accessible religious institutions and local level dispute resolution mechanisms, such as village leaders and elders’ councils.418 7.1.9.

Gender equality

Myanmar acceded to the UN Convention against All Forms of Discrimination against Women (CEDAW) in July 1997. The 2008 Myanmar Constitution does not include a specific constitutional guarantee of gender equality, though it is worth noting that traditionally Burmese women enjoyed a high degree of independence and social status, especially in comparison to women in other Southeast Asian countries. 419 Nevertheless, women are under-represented in Government and in most traditionally male occupations. In order to address some of these issues, in October 2013 the Government launched a 10-year action plan for the advancement of women.420 Women can be particularly at risk of negative impacts from investments as they are disproportionally affected by poverty. Girls often do not attend school, particularly in remote mountainous border regions, which means that women are on the whole are less educated, leading to a lower literacy rate. This limits their access to employment and makes them more vulnerable to exploitation.421 An October 2014 report by the Gender Equality Network discussed violence against women in non-conflict situations, such as intimate partner violence, including marital rape, and sexual assault and harassment outside the home. Sexual violence against women in the context of internal armed conflict in Myanmar is also reported. 422 7.1.10.

Laws and commitments to responsible business conduct

The 2015 Myanmar Investment Law seeks to consolidate the Myanmar Citizens Investment Law of 2013 and the Foreign Investments Law of 2012. It reflects the ‘government's commitment to policies and regulatory mechanisms necessary for promoting good governance, transparency, accountability, respect for the sanctity of contractual obligations and the desire to attract responsible investment’. 423 Furthermore, it adds nominal human rights protections to future foreign investment projects. 424 Commenting

Myanmar Centre for Responsible Business. (2014). Myanma Oil & Gas Sector Wide Impact Assessment. Available: http://www.myanmar-responsiblebusiness.org/pdf/SWIA/Oil-Gas/00Myanmar-Oil-and-Gas-Sector-Wide-Assessment.pdf, p. 6;p. 37; Institute for Human Rights and Business (IHRB). (2015). Submission to UPR review: Myanmar. Available: http://www.ihrb.org/pdf/submissions/2015-UPR-Myanmar.pdf; International Bar Association (IBA). (2012). The Rule of Law in Myanmar. Available: http://www.ibanet.org/Document/Default.aspx?DocumentUid=DE0EE11D-9878-4685-A20F9A0AAF6C3F3E, p. 56 419 Ikeya, C. (2005/2006). The ‘Traditional’ high status of women in Burma: A Historical Reconsideration. The Journal of Burma Studies. Available: http://www.niu.edu/burma/publications/jbs/vol10/abstract2_ikeyaopt.pdf, p.51 420 UNDP, (2013). Women’s National Strategic Plan for Women Advancement Released. Available: http://www.mm.undp.org/content/myanmar/en/home/presscenter/pressreleases/2013/10/strategi cplanwomen/ 421 Myanmar Centre for Responsible Business. (2015). Sector Wide Impact Assessment Myanmar ICT Sector-Wide Impact Assessment. Available: http://www.myanmarresponsiblebusiness.org/pdf/SWIA/ICT/complete.pdf 422 Ibid. 423 DICA. (2015). Draft Myanmar Investment Law of 2015. Available: http://www.burmalibrary.org/docs21/2015-Myanmar-Investment-Bill-V2-24-02-2015.pdf 424 Mon, K.H. (2015). After Much Deliberation, Investment Law Approved by Parliament. The Irrawaddy. Available: http://www.irrawaddy.com/burma/after-much-deliberation-investment-lawapproved-by-parliament.html 418

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EUROPEAN COMMISSION on the draft of the Investment Law, the Myanmar Centre for Responsible Business (MCRB) raised several key concerns:

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Human rights concerns on the draft Myanmar Investment law raised by the MCRB 425 







Section 7 (Mandate Function and Powers of the Myanmar Investment Commission (MIC)): lack of clarity about the mandate, powers, discretions and processes of the MIC – The present draft appears to envisage a system where the MIC would exercise unstructured discretion in relation to the issuing of investment permits. This is unsatisfactory, as it opens the MIC approvals process to the potential or perception of abuse. Section 13 (Access to land) – The Foreign Investment Rules currently provide certain protections against abuses related to leases by foreign investors under the MIC permit regime.426 Section 13 of the Myanmar Investment Law should contain similar levels of protection (i.e. a foreign investor should not be permitted to lease land in a place that the public is not desirous to transfer and vacate). Section 21 (Dispute Settlement Mechanisms) – Section 21(2) seems to provide advance consent to international arbitration to all foreign investors in relation to any future investment dispute. This carries risks of a lack of transparency of arbitration proceedings (particularly in cases involving investor challenge to public policy measures); and whether affected communities’ interests are appropriately represented (especially taking into account the high cost of proceedings. It also reduces the impetus to reform and develop the national legal system.427 Section 22 on exceptions: it should be clarified that the Law does not prevent the Government of Myanmar from adopting legitimate regulatory measures that affect investors, so long as such measures are adopted in good faith and applied in a non-discriminatory manner.

The International Commission of Jurists (ICJ) also flags that while granting stringent investment protection, the current draft of the Investment Law does not have sufficient commitments regarding the need to protect human rights or to international human rights law.428 In May 2012, Myanmar adhered to the UN Global Compact, a UN policy initiative to encourage businesses to commit to align their operations with ten universally accepted principles on human rights, labour, environment and anti-corruption. As of 2015, Myanmar had 241 participant companies listed on the United Nations Global Compact directory. 429 While studies suggest that the UN Global Compact has the potential to becoming a meaningful voluntary governance mechanism through local policy networks, 430 several

Myanmar Centre for Responsible Business. (2015). Comments on the Myanmar Investment Law. Available: http://www.myanmar-responsiblebusiness.org/pdf/2015-03-30-MCRB-Comments-ondraft-Myanmar-Investment-Law.pdf 426 Notification 39/2011” on the Right to Use of Land relating to the Republic of the Union of Myanmar Foreign Investment Law. 427 International Commission of Jurist. (2015). Submission to the Universal Periodic Review of the Republic of the Union of Myanmar. Available: http://icj.wpengine.netdna-cdn.com/wpcontent/uploads/2015/03/Myanmar-UPR-Advocacy-2015-ENG.pdf 428 ICJ. (2015). ICJ Submission to the Universal Periodic Review of the Republic of the Union of Myanmar. Available: http://icj.wpengine.netdna-cdn.com/wpcontent/uploads/2015/03/Myanmar-UPR-Advocacy-2015-ENG.pdf 429 UN Global Compact Directory. (2016). Myanmar. Available: https://www.unglobalcompact.org/engage-locally/asia/myanmar 430 Kenneth, C. (2014). Myanmar’s China Threat: How the UN global Compact is changing development in Southeast Asia. Athens Journal of Social Sciences. Available: http://web.isanet.org/Web/Conferences/FLACSOISApercent20BuenosAirespercent202014/Archive/bac7ea74-e50a-4992-bd09-300f57a7cdd5.pdf 425

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EUROPEAN COMMISSION limitations of the UN Global Compact have been raised. These relate to the annual Communication on Progress (COP) report’s tendency to report on positive impacts rather than identifying weaknesses; the lack of far-reaching organisational impacts; inconsistent participation and weak commitment by some companies, as well as the minimum accountability for the company members as the Compact is voluntary.431 Several business coalitions in Myanmar also created in 2014 a countrywide network of ‘Myanmar Business Coalition on CSR’ offices in order to build awareness of responsible business practices and adoption mechanisms.432 Further, the Myanmar Centre for Responsible Business adopted in 2014 a Myanmarspecific methodology of Transparency International’s report activities to assess the transparency and responsible business behaviour of local companies. Among the findings were that Myanmar companies require above-average legal due diligence from their international business and investment partners, thus facing exceptional scrutiny and encouraging compliance with international regulations to attract foreign investment and business partners.433 Findings from the Business and Human Rights Resource Centre which launched the Myanmar Foreign Investment Tracking Project 434 showed that there seems to be a significant difference between US and EU companies vis-à-vis Asian companies in terms of human rights commitments.435 While the presence of Western companies is still limited compared to Asian competitors, in particular from China, Hong Kong, Japan and Singapore, there is distrust among the Myanmar population towards Chinese state-run enterprises, based on allegations of corruption and pollution.436 Their investment projects are mainly located around large infrastructure investments which tend to be implemented with disregard to the local rule of law.437 The EU has recognised that EU companies should uphold human rights in their investment with Myanmar. In April 2012, the Council referred specifically to the OECD Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights and the EU’s CSR strategy for 2011-2014, stating that future trade and investment activity by European businesses in Myanmar should “promot[e] the practice of the highest standards of integrity and corporate social responsibility”.438 A number of large European companies have already invested in Myanmar in the absence of an investment treaty, e.g. TOTAL, Shell, ENI, BP, Unilever, Carlsberg, Heineken, BAT, De Heus, Lafarge, Ericsson. The MCRB reports that their presence has been positive for economic growth, and slightly positive for other issues given that the environmental and

431

Bitanga, J. and Bridwell, L. (2010). Corporate Social Responsibility and The United Nations Global Compact. NYC: Pace University. Available: http://www.larrybridwell.com/Corporateper cent20Socialper cent20Responsibilityper cent20andper cent20UNper cent20Globalper cent20CompactBitangaBridwell.pdf 432 Myanmar Centre for Responsible Business. (2014). Myanmar Business Coalition on CSR. Available: http://www.myanmar-responsiblebusiness.org/news/myanmar-business-coalition-oncsr.html 433 Myanmar Centre for Responsible Business. (2015). Transparency in Myanmar Enterprises. 434 Business & Human Rights Resource Centre. (2015). Most foreign investors in Myanmar silent or evasive when asked about their human rights commitments. Available: http://business-humanrights.org/en/press-release-most-foreign-investors-in-myanmar-silent-orevasive-when-asked-about-their-human-rights-commitments 435 Ibid. 436 Kenneth, C. (2014). Myanmar’s China Threat: How the UN global Compact is changing development in Southeast Asia. Athens Journal of Social Sciences, op.cit. 437 Ibid. 438 Council of the European Union. (2012). Council Conclusions: 3159 th Council Meeting Foreign Affairs. Available: http://europa.eu/rapid/press-release_PRES-12-152_en.htm?locale=en SIA on the EU-Myanmar Investment Protection Agreement EN

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social standards they follow are higher than companies traditionally investing in Myanmar. FIDH however argues that the EU has yet to give effect to their statements on upholding the highest standards of CSR in investing in Myanmar.439 Large companies have negotiated protections in Production Sharing Contracts (oil and gas), Licence Agreements (telecommunications) or can access protection by investing via Singapore and benefitting from the ASEAN Comprehensive Investment Agreement. 440 However, important factors leading to increased positive impacts on the issues and rights mentioned above will be improvements to Myanmar's regulatory and administrative capacity (ease of doing business) and infrastructure. As stated by the MCRB, this is what the EU should focus on to encourage investment and its positive impacts. 441 The UN special rapporteur also encouraged the Government to develop a National Action Plan on Business and Human Rights following consultation with relevant government departments, civil society and the private sector. 442 7.2.

Sectoral analysis of Human Rights Impacts without IPA

This section provides a sectoral analysis of human rights in the energy and telecommunications sector. Investment in the energy sector raises specific human rights concerns, in particular with regard to property rights, livelihoods and minority rights. Investment in the telecommunications sector also raises human rights concerns regarding surveillance and censorship, especially in light of the weak legal framework governing media laws and freedom of expression. 7.2.1.

Energy

In particular in the extractives sector, land tenure and land grabbing issues remain high risk incidents in the absence of clear land regulatory frameworks in place within Myanmar. This is especially true in conflict areas. Efforts to increase transparency in the extractive industries include publicly advertising tenders of the most recent onshore and offshore bidding rounds in English and becoming a candidate country to the Extractive Industries Transparency Initiative (EITI). 443 However, some indigenous people are critical that the Myanmar government is only using EITI as a way of attracting additional investment, and is not truly committed to transparency. 444 ITUC also reports a lack of national standards to regulate the environmental, social and human rights impacts of extractive operations. The Myanmar’s

FIDH. (2015). Open letter: EU-Myanmar/Burma Investment agreement and its sustainability Impact Assessment – concerns on the way human rights are taken into account. Available: http://www.scribd.com/doc/292649899/FIDH-Open-letter-EU-Myanmar-Burma-InvestmentAgreement-and-its-Sustainability-Impact-Assessment-concerns-on-the-way-human-rights-aretaken-into-acc 440 Bowman, V. (2015). Challenges of the Proposed EU-Myanmar Investment Protection Agreement. Available: http://www.eu-yanmarsia.com/data/info/201601111829593619pic.pdf 441 Ibid. 442 UN General Assembly (2015) Report of the Special Rapporteur on the situation of human rights in Myanmar, Yanghee Lee. Available: http://www.ohchr.org/EN/HRBodies/HRC/RegularSessions/Session28/Documents/A_HRC_28_72_e n.doc 443 International Trade Union Confederation. (2015). Foreign Direct Investment in Myanmar: What impact on human rights? Available: http://www.ituc-csi.org/IMG/pdf/ituc-burma.pdf 444 Coalition of Indigenous Peoples in Myanmar. (2015). Joint Submission to the UN Universal Periodic Review, March 2015. Available: http://www.burmalibrary.org/docs21/NEEDCoalition_of_IPs_in_Myanmar-2015-03-Submission_to_UPR-en-red.pdf 439

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EUROPEAN COMMISSION Framework for Economic and Social Reform recognises that there will be “unavoidable trade-offs” for natural resource projects.445 Regarding land grabbing, one Myanmar civil society stakeholder noted that companies face opacity in business deals involving land transactions and due diligence is required to ensure the land is made available for investment through legal means.446 Big development projects have a particularly negative impact on indigenous and vulnerable groups. Forced resettlement and land confiscation along with issues of job insecurity, lack of information sharing (about investment projects as well as new policies) and absence of proper impact assessment could affect communities’ entitlement to basic rights. There is therefore a strong need to take adequate measures to protect the rights of indigenous communities. 447 Particular attention should be paid to this issue when purchasing land or operating in conflict affected areas. 448 Human rights violations linked to the Shwe gas pipeline construction, a natural gas project developed by Daewoo International of South Korea since 2009 (join venture with Myanmar Oil & Gas enterprise) 449 Livelihoods: Negative impacts on the environment and indigenous peoples fishing and farming livelihoods in Kyak Phyu township. Property rights: Ongoing land confiscation with little or no compensation Consultation: Unclear to date whether impact assessments have been conducted (no results made publically available) Freedom of assembly/expression: In September 2013, 10 villagers were convicted after protesting against the impacts of the project without official permission (under Art. 18 of the Peaceful Assembly and Procession Law). An activist had in fact sought permission several times but this was denied to him.

7.2.2.

Telecommunications

As mentioned above, international investment in the telecommunications sector has a strong potential for improving human rights, but also raises the risk that the government may seek to involve technology companies in censorship, surveillance and other abuses. 450

445

East Asian Bureau of Economic Research. (2012). Framework for Economic and Social Reforms Policy Priorities for 2012-15 towards the Long-Term Goals of the National Comprehensive Development Plan, paras. 91-92. 446 Stakeholder consultation, civil society: Glenn Hunt of Land Core Group. 447 Stakeholder consultation, civil society: Lian Bawi Thang from the Chin Human Rights Organisation. 448 Myanmar Centre for Responsible Business and the Danish Institute for Human Rights. (2015). Human Rights and Business Country Guide. Available: http://www.burmalibrary.org/docs21/MCRB2015-04-Myanmar_Human_Rights&Business_Country_Guide-red.pdf 449 Coalition of Indigenous Peoples in Myanmar. (2015). Joint Submission to the UN Universal Periodic Review, March 2015. Available: http://www.burmalibrary.org/docs21/NEEDCoalition_of_IPs_in_Myanmar-2015-03-Submission_to_UPR-en-red.pdf 450 Human Rights Watch. (2013). Reforming Telecommunications in Burma Human Rights and Responsible Investment in Mobile and the Internet. Availalbe: http://www.hrw.org/sites/default/files/reports/burma0512_ForUpload.pdf, p. 15; Fuller, T. (2013). E‐Mails of Reporters in Myanmar Are Hacked. NY: New York Times. Available: http://www.nytimes.com/2013/02/11/world/asia/journalists‐e‐mail‐accounts‐targeted‐in‐ myanmar.html? _r=3&; Crispin, S. (2013). As Censorship Wanes, Cyberattacks Rise in Burma. CPJ SIA on the EU-Myanmar Investment Protection Agreement EN

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In the media industry, the legal framework lacks sufficient protection safeguards. It is still difficult to access information and there is strong need for transparency. The capacity of local businesses is not very strong in its ability to effect change; this has been identified as an area that could be covered in the IPA.451 The Sector-Wide Impact Assessment (SWIA) on the Information and Communication Technology sector in Myanmar conducted by the MCRB suggests that increased investment in ICTs presents the following risks and opportunities:452 Risks

Opportunities human rights

Gaps in the policy, legal and regulatory framework (especially regarding controlling surveillance and online hate speech).

ICTs have the potential to improve the situation of some groups at risk, such as people living with disabilities, by providing them with services or income generation opportunities from which they were previously excluded.

These gaps are compounded by a lack of experience of using ICTs, resulting in the potential for misuse and negative impacts on a range of human rights, particularly the rights to privacy and freedom of expression. Research and other reports have identified disturbing patterns of antiMuslim “hate speech” on social media in particular Corruption in the permitting process is also a risk around network rollout.

7.3.

for

advancing

There are more female than male graduates in ICT related study at universities, opening potential new areas of employment for women (however women are still lagging behind men in employment in the ICT sector, including in start-ups.453 Better access to journalists and defenders.

information for human rights

Potential human rights impacts of the IPA on Myanmar

The IPA is expected to increase EU FDI in Myanmar across many sectors, although the composition effects for each sector are difficult to predict. Especially the impact on human rights is difficult to establish as it is often an indirect impact. According to the Myanmar Centre for Responsible Business, it is difficult to determine precisely at this point whether the IPA will have positive or negative impacts. Indeed, external factors such as regulatory stability, administrative capacity (ease of doing business), infrastructure, transparency, and costs will be determining factors on whether companies will decide to invest in Myanmar. During a session of the United Nations Human Rights Council in June 2015, UN experts acknowledged that the free trade and investment agreements could lead to new economic opportunities and to improvements in living standards, if the investment activities would adhere to established international standards and practices, especially regarding human

Internet Channel. Available: http://www.cpj.org/internet/2013/02/as‐censorship‐wanes‐ cyberattacks‐rise‐in‐ burma.php 451 Stakeholder consultation, local business and media: U Soe Myint of Mizzima Media. 452 MCRB. (2015). Sector Wide Impact Assessment: Myanmar ICT Sector-Wide Impact Assessment. Available: http://www.myanmar-responsiblebusiness.org/pdf/SWIA/ICT/complete.pdf 453 Toe, T. (2015). In Myanmar, Men are Leading the ICT Industry and Women are Lagging. Available: http://www.irrawaddy.com/interview/in-myanmar-men-are-leading-the-it-industry-andwomen-are-lagging.html 146

EUROPEAN COMMISSION rights. It also noted the detrimental impact these agreements may have on civil, cultural, economic, political and social rights should those standards and practices not be followed.454 Many stakeholders consulted for the SIA also commented that, with adequate safeguards and protective measures, an increase in EU foreign investment in Myanmar could have a generally positive impact.455 In particular, the IPA has the potential to promote economic stability and growth and enable higher employment through increased FDI. Consequently, this would contribute to better living standards, alleviation of poverty and promotion of income distribution. Some stakeholders also commented that an IPA has the potential to improve equal opportunities with greater involvement of women in the workforce. 456 EU investors are usually expected to value and protect human rights more than their Asian counterparts, especially as their codes of conduct often include CSR and RBC.457 As a result, the IPA would benefit the human rights situation in Myanmar, especially with respect to the baseline scenario. Additionally, the IPA can have an impact in terms of capacity building and standard setting. ICT investment has the potential, according to some stakeholders from the business group consulted, to be a driver of important process like democracy and passing of information (communication) in order to open up society. 458 Some stakeholders also agreed that EU businesses would bring in good technology and build effective and sustainable capacities. However, there are particular concerns about Myanmar’s readiness to sign an agreement when its own legal system and policy processes are in a state of transition. The political and legislative framework in Myanmar (including relationships between centre and regions) is currently undergoing major change, much of which is poorly notified, coordinated and inadequately consulted on, and not effectively implemented. This unstable legal framework and its impacts on investment pose a potential litigation risk for Myanmar. The FIDH expressed its concern that in their view investment agreements could create new and more stringent conditions for a State measure to be lawful, and weigh seriously on public finances, thereby creating a worrisome “chilling effect”. FIDH refer to reports of governments that are factoring liability risks into decision-making and States which hold back from enacting legislation due to concerns about arbitration claims.459 This could also give rise to costly claims which if the government lost, could in turn result in compensation costs, with negative economic, social, environmental and human rights impacts. 460 A contrary view however is that the EU IPA's have the "right to regulate" firmly enshrined within them for the purpose of encouraging “good governance” across the board. According to the FIDH, the protection provided to foreign investors by investment treaties should therefore not impede the reform process in Myanmar in areas such as the improvement of human rights, but rather should work in synergy with these reforms. Similarly, they should comply with the UN Guiding Principles on Business and Human

OHCHR. (2015). UN experts voice concern over adverse impact of free trade and investment agreements on human rights. Available: http://www.ohchr.org/FR/NewsEvents/Pages/DisplayNews.aspx?NewsID=16031&LangID=EGENEV A#sthash.SDCtWdFz.dpuf 455 Stakeholder consultation, civil society: Ko Thurein Aung of Action Labour Rights, a civil society organisation in Myanmar that works on labour rights and labour policies and their implementation. 456 Stakeholder consultation, civil society: Ko Thurein Aung of Action Labour Rights, a civil society organisation in Myanmar that works on labour rights and labour policies and their implementation. 457 Questionnaire response from an anonymous academic 458 Stakeholder consultation, businesses: Johan Adler from Ericsson, an EU company in the ICT sector. 459 Cotula, L. (2015). Property in a shrinking planet: fault lines in international human rights and investment law. International Journal of Law in Context, p. 129 460 Academic Questionnaire. (Q. 12): Myanmar Centre for Responsible Business 454

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Rights: Specifically with the guiding principle which asserts that States must ensure that trade and investment agreements do not constrain their ability to meet their human rights obligations (Guiding Principle 9).461 It has been suggested by several stakeholders that protection provided to foreign investors by investment treaties can have a impact on the reform process in Myanmar, one example provided by FIDH refers to reports of governments that are factoring liability risks into decision-making and States holding back from enacting legislation due to concerns about possible arbitration claims. 462 This could also give rise to costly claims which if the government lost, could in turn result in compensations costs. A group of UN experts also highlights the concern that both bilateral and multilateral investment treaties might aggravate the problem of extreme poverty, jeopardize fair and efficient foreign debt renegotiation, and affect the rights of indigenous peoples, minorities, persons with disabilities, older persons, and other persons living in vulnerable situations.463 To mitigate this risk, provisions in the ‘right to regulate’ clause, described in more detail in the background section, need to be strong enough to allow the Myanmar government to enact legitimate legislation. The dispute resolution mechanism should be clearly confined to investment protection obligations, excluding legitimate policy actions, especially those taken for protection of human rights, labour rights or environmental protection.” Lastly, assuming that the IPA will lead to greater investment from European companies, the trend will be greater investment across several sectors. In some sectors, such as the energy and the telecommunications sector, the risks of serious human rights concerns are higher. This could lead to a worsening of the current situation when no sufficient safeguards are present. The IPA should therefore pay specific attention to the risks in these sectors. 7.3.1.

Impact of specific IPA clauses on human rights

Many IPA clauses do not refer directly to human rights but will have a direct or indirect impact in this area. This section will discuss the provisions anticipated for the IPA, identifying potential human rights impacts and key considerations that should be taken into account. Overall, the EU-Myanmar IPA could have a positive or negative direct or indirect impact on a number of human rights, including in particular the following five rights: right to property, rights of indigenous people, minority rights, right to freedom of expression and assembly and the right to due process. However, the IPA is expected to have definitive positive direct impact on the freedom of expression and assembly and the right to due process. There are three economic sectors which risk having a potentially negative impact on the aforementioned five human rights, namely the energy, tourism and telecommunication sectors. 7.3.1.1 Non-discrimination and most favourable nation

UN. (2011). Guiding Principles on Business and Human Rights. Available: http://www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf, Guiding Principle 9 462 Cotula, L. (2015). Property in a shrinking planet: fault lines in international human rights and investment law. International Journal of Law in Context, p. 129 461

UHNCHR. (2015). UN experts voice concern over adverse impact of free trade and investment agreements on human rights. Available: http://www.ohchr.org/EN/NewsEvents/Pages/DisplayNews.aspx?NewsID=16031#sthash.4gn7QNO v.dpuf 463

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This provision will guarantee comparable treatment for foreign investors and domestic investors and as a consequence will likely have a positive influence on EU FDI in Myanmar. One argument is that government measures in these areas could be considered a breach of the agreement if they negatively impact a foreign investment, which could leave the government hesitant to implement and enforce human rights.464 For example initiatives seeking to promote equal opportunities or diversity can be repressed under such a provision. Therefore, any such provisions should not contradict government measures seeking to effectively implement human rights related policies in labour, industrial, fiscal and health areas. As discussed EU IPA's contain safeguards such as provisions reaffirming the "right to regulate" for legitimate policy objectives (e.g. CETA, Article 8.9) and general exceptions apply to national treatment and most favoured nation obligations. (e.g. CETA, Article 28.3). 7.3.1.2. Expropriation There exists a high level of uncertainty in the law on expropriation: States managing public affairs with human rights in mind will likely continue to find themselves at the receiving end of expropriation claims.465 This provision has potential negative impacts on the right to property, land rights, minority rights and the rights of indigenous people. Furthermore, it could affect adequate standards of living, right to water, to food, to adequate housing, to health, to education, to private and family life, to fair trials, to be protected against arbitrary arrest, equality before law, disproportionate use of force and extra-judicial killings. These rights are closely linked together, with the main issue being that Myanmar law does not effectively protect people against expropriation due to overlap, contradiction and confusion. This leaves many people, especially the minorities, vulnerable to land grabbing practices. Increased investment in Myanmar, especially in the energy sector in which the risk of land grabbing is higher, could thus lead to violation of these rights. To avoid such detrimental impacts, the provision on expropriation should contain an express mention of human rights to encourage a tribunal to consider human rights as falling within the measure that can benefit from the presumption of legality provided by the text on indirect expropriation. Furthermore, an express mention that some measures are not indirect expropriation “regardless of their adverse impact on investments” should be preferred. Lastly, the list of factors to take into account to qualify indirect expropriations should avoid vague reference to "legitimate/ reasonable expectations" of investors, and "character" of the measure, and introduce a hierarchy of criteria that may be otherwise irreconcilable (like the economic effect and character of the measure). 7.3.1.3 Fair and equitable treatment A clause on fair and equitable treatment (FET) could intersect with human rights whenever administrative, legislative or judicial activity by the host state that is motivated by human rights concerns or norms fails to observe the minimum standard, hence sparking an investment claim.466 On the one hand such conflicts could arise in many spheres, including – but not limited to – labour rights, indigenous rights, public health and safety, sustainable

Jacob, M. (2010). International Investment Agreements and Human Rights. Available: http://www.humanrightsbusiness.org/files/international_investment_agreements_and_human_rights.pdf 465 Sforza, M. (1998). MAI Provisions and Proposals: An Analysis of the April 1998 Text. Washington D.C.: Public Citizenʹs Global Trade Watch. Available: http://www.humanrightsbusiness.org/files/international_investment_agreements_and_human_rights.pdf, Part I, Sec.1.A.2 466 Ibid. 464

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development and the right to water.467 Secondly, the vast catch‐all nature of such clauses, as demonstrated by the many different contexts in which FET has successfully been invoked, could make them an attractive option for investor claims and thus a potential limit on the regulatory autonomy of states.468 On the other hand the EU's approach to investment protection allows the state the right to regulate for legitimate policy objectives (e.g. CETA, Article 8.9) and includes an exhaustive list of elements that constitute a breach of FET (e.g. CETA, Article 8.10). 7.3.1.4 Corporate Social Responsibility Given Myanmar’s high level of corruption (ranking no. 147 out of the 167 assessed countries in the 2015 Transparency International Corruption Perceptions Index)469 and fragile human rights framework, self-regulating company codes of conduct would not be adequate in Myanmar. Assessing EU and UK practices in particular, studies show that CSR guidelines are without significant impact in practice, are lacking in ambition, remain partial and lack effective application.470 The IPA should therefore not take a selective approach on human rights but rather encompass all human rights (one ground should not be considered less important than others). Furthermore, it should be flanked with effective enforcement measures, as well as mechanisms to address impacts of investment agreements on human rights, including a Human Rights Committee. Lastly, the European Parliament argued that objectives of Corporate Social Responsibility (CSR) should be binding on European companies operating abroad.471 7.3.1.5 Investment dispute resolution As mentioned above if Myanmar’s right to regulate is not sufficiently safeguarded, this provision could potentially have a negative impact on all human rights. Nevertheless, investment dispute resolution also provides an opportunity for Myanmar. It is important that failure to respect human rights and implement international human rights standards should be subject to appropriate dispute settlement mechanisms. It should allow Amicus Curiae and state to state dispute settlement mechanisms to guarantee the crucial role of the government to determine and protect the public interest.472 7.3.1.6 Transparency

Knoll‐Tudor, I. (2009). The Fair and Equitable Treatment Standard and Human Rights Norms in Dupuy, P-M., Francioni, F. and Petersmann, E-U (eds), Human Rights in International Investment Law and Arbitration. Oxford: Oxford University Press, p. 339 468 Sforza, M. (1998). MAI Provisions and Proposals: An Analysis of the April 1998 Text. Washington D.C.: Public Citizenʹs Global Trade Watch. Available: http://www.humanrightsbusiness.org/files/international_investment_agreements_and_human_rights.pdf, Part I, Sec.1.A.2 469 Anti-Corruption Research Centre. (2012). Overview of Corruption in Burma (Myanmar). Availble: http://www.u4.no/publications/overview-of-corruption-in-burma-myanmar, p. 2 470 Schadendorf, S. (2013). Human Rights Arguments in Amicus Curiae Submissions: Analysis of ICSID and NAFTA Investor -State Arbitrations. Transnatonal dispute management, Vol 10 Issue 1. Available: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2206812 471 European Parliament. (2012). Report: Human rights in the world and the European Union's policy on the matter including implications for the EU's strategic human rights policy. Available: http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//NONSGML+TA+P7-TA-20120126+0+DOC+PDF+V0//EN 472 FIDH. (2015). Open Letter: EU-Myanmar/Burma Investment agreement and its sustainability Impact Assessment – concerns on the way human rights are taken into account. Available: http://www.scribd.com/doc/292649899/FIDH-Open-letter-EU-Myanmar-Burma-InvestmentAgreement-and-its-Sustainability-Impact-Assessment-concerns-on-the-way-human-rights-aretaken-into-acc, p. 23 467

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EUROPEAN COMMISSION To realise increased transparency in law-making, as foreseen in the IPA, capacity-building for civil society organisation (as regards EU development assistance) and media in Myanmar needs to be strengthened to ensure comprehensive and thorough participation in stakeholder consultations.473 The EU has already made a commitment to engage with civil society in Myanmar through the EU Roadmap for Engagement with Civil Society in Myanmar. This envisions increased and strategically planned support from the EU and its Member States to civil society.474

Stakeholder consultation, civil society: Piyamal Pichaiwongse representing the International Labour Organization (ILO) 474 EEAS. (2015). EU Roadmap for Engagement with Civil Society. Available: http://eeas.europa.eu/delegations/myanmar/press_corner/all_news/news/2015/20150924_en.ht m 473

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8. CONCLUSIONS AND POLICY RECOMMENDATIONS This section summarises the key benefits and challenges of the IPA initiative that have been identified through the research and stakeholder outreach. This section also includes policy recommendations aimed at maximising the potential benefits of the agreement and mitigating potential risks. Opportunities   





  





475

The IPA, by strengthening the rights of investors is likely to lead to increased outward investment by both the EU and Myanmar, particularly investment from the EU into Myanmar. Increased investment could promote economic stability and growth, increase employment and as a result lead to better living standards and a reduction in poverty in Myanmar. Increased investment could have the dual effect of exporting capital and CSR and RBC practices. This would contribute to an improvement of labour standards and of the social environment in Myanmar by providing better and safer jobs, reducing child labour and increasing female labour market participation within the overall increase in employment. These are considered as positive impacts with respect to the baseline scenario. Access to healthcare for local workers could be improved through the presence of foreign companies following CSR and RBC guidelines in Myanmar. 475 Medical insurance and healthcare for job-related injuries or health issues have been covered by certain foreign companies investing in Myanmar. Greater investment by companies with strong CSR and RBC practices could enhance the levels of inclusion and of equal treatment of women or minorities by abiding by international standards regulating the labour or education sectors, where the inequalities are the most striking. EU companies may bring corporate environmental standards to their Myanmar operations and may call on their local suppliers to provide good environmental management as a precondition for commercial engagement Provide investors from both countries with easier access to investment dispute resolution while protecting Myanmar’s interests by setting guidelines on this issue. Ensure a level playing field for EU investors (given the existing BITs that Myanmar has already concluded with China, India, Japan, Korea, the Philippines and Thailand, and the investment protection provisions agreed to in the framework of ASEAN). Provisions supporting sustainable and responsible investment are likely to be included, in line with the EU’s practice of including such provisions. This could encourage sustainable development while promoting environmental protection and core labour/human rights. The IPA could support the policy reform process currently under way in Myanmar, in the following ways: o Ongoing reforms on labour and human rights issues could be supported through the transfer of EU good practices, particularly with regards to CSR and RBC. o Reforms to protect the environment could be supported by technology and best practices transfer in multiple sectors including sewage and waste management.

Myanmar Centre for Responsible Business. (2015). Human rights and business country guide: Myanmar. Available: http://hrbcountryguide.org/wp-content/uploads/2014/06/Human-Rightsand-Business-Country-Guide-Myanmar-Final-08.04.15.pdf. 152

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o

A transparency provision could support positive developments concerning sustainability and responsible business conduct in Myanmar via a commitment to transparency in law-making.

Challenges 





 

While economic impacts are likely to be positive, all of the related aspects of social, human rights and environmental impacts are difficult to predict as they very much depend on the sectors to which EU investment may be directed. For example although EU companies may bring (high) corporate environmental standards within their overseas operations, there is a risk that when partnering with local enterprises which do not operate to such standards, this could lead to a potential increase in human rights, social and environmental problems. As part of the ongoing reform process the regulatory framework for this agreement is under revision. The agreement needs to avoid placing restraints on Myanmar’s government by giving investors protection from future laws and regulations on the basis of ‘indirect expropriation’, particularly laws and regulations related to labour, human rights and environmental standards. Dispute settlement mechanisms such as Investor State Dispute Settlement (ISDS), which aims to provide direct access to international arbitration for investors as an alternative to national courts of host countries, have been criticised due to what are seen as inconsistencies and unintended interpretations of clauses, unanticipated uses of the system by investors including challenges against policy measures taken in the public interest, costly and lengthy procedures, with limited or no transparency. The threat of foreign investors' recourse to such dispute settlement mechanisms might restrain Myanmar’s government from implementing domestic policy measures to promote social inclusion and labour rights, if the domestic measures envisaged may pose a risk to the value of a foreign investment. As a result, the EU is proposing an alternative mechanism, Investment Court System (ICS) which addresses a number of these issues and encourages recourse in domestic courts. External factors such as instances of abuse of labour rights in Myanmar by EU companies or of abuses occurring within their supply chains could erode the reputation for integrity of EU companies. Myanmar at present has limited institutional capacity to implement stringent commitments; therefore it may fall short of effective enforcement of the IPA measures.

Policy recommendations Recommendations aimed at maximising the potential benefits of the agreement and mitigation of potential negative externalities are summarised in the following section. 1. Chapters should be included in the IPA which encourage the adoption of international labour, environmental and human rights standards by EU and Myanmar investors. The Myanmar government’s ability to effectively promote and enforce international labour standards should be protected, following similar provisions in CETA and TTIP. The inclusion of sustainable development provisions, including labour aspects, within the EU-Myanmar IPA could encourage the government of Myanmar to further undertake capacity development efforts to fully implement and enforce labour standards. The principles and text of the agreement could draw inspiration from other relevant instruments such as the ILO Better Factories programme that can be useful to monitor a particular sector and the US-Burma investors reporting requirements. SIA on the EU-Myanmar Investment Protection Agreement EN

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1.1.

The scope of the investment dispute resolution mechanism should be carefully limited and the right to regulate clause should be designed to give Myanmar freedom to engage in legitimate regulatory actions without facing claims for ‘indirect expropriation’. This is especially important given that Myanmar is currently engaged in an active reform process. From a certain, investor-friendly view, almost any law or regulatory measure can be considered an ‘indirect expropriation’ when it has the effect of lowering future expected profits. This would allow investors to claim compensation as a result of a regulation, law, policy measure, or other government decision that has the effect of reducing the profit-making opportunities. Since almost any government measure can fit that definition, legitimate public policies have faced investor-state lawsuits globally. Provisions in the ‘right to regulate’ clause, described in more detail in the background section, need to be strong enough to allow the Myanmar government to enact legitimate legislation without facing claims. The dispute resolution mechanism should be clearly confined to investment protection obligations, excluding legitimate policy actions, especially those taken for protection of human rights, labour rights or environmental protection.

1.2.

To address the concerns about the lack of transparency and legitimacy within some ISDS mechanisms and in order to give governments sufficient space to regulate in the public interest, the European Commission could extend the Investment Court System (ICS) to the EU-Myanmar IPA, as was included for investment dispute resolution mechanisms in the most recent EU FTAs. The European Commission has recently adopted a new approach to investment dispute resolution. Instead of relying on the ISDS mechanism, the Commission has proposed to set up an Investment Court System (ICS). This new system was designed to address the concerns about the lack of transparency and legitimacy in ISDS and will protect the right of governments to regulate in the public interest. Furthermore, resolution of Vietnam FTA precedent for

this would allow for greater impartiality and fairness in the disputes. This approach has been included in CETA, the EUand has been proposed for TTIP, and therefore there exists a its inclusion in the IPA.

The dispute resolution mechanism adopted should be open to third parties (trade unions, affected communities, NGOs) to submit evidence or arguments before the mechanism. Arbitration panels should include human rights, labour rights and environmental experts. 1.3.

Considering the weakness of Myanmar’s implementation and enforcement systems with respect to labour and environmental standards, and human rights, the parties to the agreement should consider what existing mechanisms can be utilised to strengthen implementation and enforcement of such standards. Provisions on ‘fair and equitable treatment’ (FET) have also been used as arguments against complying with environmental regulations. Defining FET

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An article expressly excluding the right of companies to claim that Most Favoured Nation (MFN) status entitles them to use the same provisions as IPAs in place with other countries should be included. This is especially important due to the lack of human rights and environmental protections included in Myanmar’s BITs with other countries. Examples of articles addressing this issue can be found in other agreements such as the EU-Canada Comprehensive Economic and Trade Agreement (CETA), article 8.7(4) and the EU-Vietnam Free Trade Agreement (FTA) article 4(6). To prevent investors from claiming before any relevant arbitral tribunal that MFN provisions entitles them to use the same provisions as IPAs in place with other countries, allowing them to operate under the more favourable labour or environmental provisions found in such agreements (favourable IPA shopping), thus bypassing the intended human rights and environmental provisions to be included in the EU-Myanmar IPA. This has been the EU’s practice in recent trade agreements, examples of articles addressing this issue can be found other agreements such as in CETA, article 8.7(4) and in the EU-Vietnam FTA, Trade in services, investment and e-commerce section, article 4(6).

1.5.

Provisions on sustainable development, including labour and human rights, should not take a selective approach but rather encompass all related issues. One area of human rights should not be considered less important than others. The sustainable development chapter should be flanked with effective enforcement measures, as well as mechanisms to address impacts of investment agreements on human rights, while considering lessons from related international initiatives such as the US Burma Investment reporting requirements and the ILO Better Factories programme.

1.6.

Objectives of CSR/RBC for European companies operating in Myanmar should be included in the text of the agreement, encouraging companies to hold to similar CSR/RBC practices as are upheld in the EU, tailored to local conditions. Social and environmental impacts are difficult to predict as they depend the direction of EU investment. CSR will therefore be key in ensuring good practices are upheld. Such measures could be based on EU companies' codes of conduct which include CSR and RBC commitments relevant for possible social, environmental and human rights impacts.

2. The agreement should consider the feasibility of establishing a specific mechanism or committee for social, labour and human rights standards. This could be complemented by a monitoring mechanism that is dedicated to dealing with human rights, environmental, social and labour impacts within the limits of the impacts of the IPA agreement. The complimentary mechanism such as the OECD National Contact Points (NCP) under the OECD Guidelines for Multinational Enterprises could be considered in reinforcing SIA on the EU-Myanmar Investment Protection Agreement EN

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Myanmar’s enforcement system. The NCPs provide a grievance mechanism for investigating complaints about a company operating in or headquartered in a particular country. They provide non-judicial assessments on violations which result in settlements/agreements. As such the parties to the IPA agreement could discuss how existing NCPs in EU MS could be asked to look into issues concerning the behavior of EU companies in Myanmar when such occurrences are documented. 3. Planned EC funded ex-post social, labour and human rights impact assessments conducted with regard this IPA should focus on sensitivities identified by the SIA team. The EC is committed to conducting ex post evaluation of its trade and investment agreements; including of their human rights and related impacts. When conducting these assessments, the analysts should remain vigilant in chapters of the assessment which focus on sectors where investment projects involve land acquisition, due to a history of land-grabbing and the customary nature of land-holding that is prevalent in Myanmar. Sensitivities in this regard lie in ensuring that land acquired has been transferred from its owner on a voluntary basis, and with regards to ensuring enforcement of adequate compensation according to the market value of the land. Should there be any documented cases of the occurrence of abuses tied to EU company investment, the ex-post evaluation team should consider them. 4. An EU-Myanmar IPA should work in tandem with EU technical cooperation and capacity development initiatives. This would contribute to a strengthening of Myanmar’s implementation and enforcement systems with respect to ensuring international labour and environmental standards, and social inclusion. Synergies should be built between the above recommendations and the mechanisms already in place at the EU-Myanmar bilateral level. As a result of current weak governance structures and poor domestic implementation and enforcement capacity, the Myanmar government may fall short of effective enforcement of the IPA measures. This may include the sustainable development provisions which could lead to negative impacts for labour rights, the environment and social inclusion. In addition, lack of enforcement and the resulting lack of legal certainty required to protect their reputation or investments might prevent EU companies from investing. There are many EU funded projects currently underway to support institutional capacity building and ensure adherence to international labour and environmental standards in Myanmar, such as a €10 million trade and private sector development programme, the multi-partner Myanmar Labour Rights Initiative, and sector specific projects which currently include: SMART (support to sustainable garment sector), a project in the Aquaculture sector and a Civil Society Roadmap. Other mechanisms or resources include political dialogues, including the EU-Myanmar Human Rights Dialogue, (meeting annually since 2014).

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