SIA in support of an investment protection agreement...

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

Sustainability Impact Assessment (SIA) in support

of an investment protection agreement between the European Union and the

Republic of the Union of Myanmar

Final Report

EUROPEAN COMMISSION

Directorate-General for Trade

Directorate B — Investment Unit DG Trade B2 — Investment

E-mail: [email protected]

European Commission B-1049 Brussels

mailto:[email protected]

EUROPEAN COMMISSION

SIA on the EU-Myanmar Investment Protection Agreement 2016 EN

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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

Final Report

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Abstract

This SIA seeks to analyse the extent to which the EU-Myanmar Investment

Protection Agreement (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 has 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.

ဤ SIA - (IPA) IPA SIA

Résumé

Cette EIDD (Évaluation de l'impact sur le développement durable) vise à

analyser dans quelle mesure l'Accord sur la protection des investissements entre l’UE et la Birmanie (API) pourrait affecter l'économie et les problèmes

de durabilité, notamment les normes dans le domaine social et du travail,

ainsi que les droits de l'homme, en Birmanie. L'EIDD a conclu que l'API peut

largement contribuer à des impacts économiques positifs, mais que les

impacts sociaux et environnementaux sont plus difficiles à prévoir, car ils

dépendront de l'orientation des nouveaux investissements de l'UE et des

pratiques des sociétés européennes concernées. L'équipe du projet a

proposé des recommandations politiques afin d'augmenter les impacts

positifs potentiels de l'accord et de prendre en compte les externalités

négatives pouvant découler d'investissements accrus de la part

d'investisseurs européens à la suite de l'API.

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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.

A central function of the SIA has been to facilitate consultation with civil society

stakeholders in the EU and Myanmar. The Project Team has intermediated between input

from civil society stakeholders and the EC throughout the SIA. This has facilitated a

continuous flow of information between stakeholders and the EC that has informed the

negotiation process.

Stakeholder outreach included 49 face-to-face interviews with relevant stakeholders on

the ground in Myanmar, a stakeholder workshop held in Yangon on December 17th

2015,1 a website, two civil society dialogues in Brussels and an online questionnaire. A

summary of the stakeholder outreach activities is presented in the methodology section

of the report. An analysis of findings can be found in annex Inputs from stakeholders

have been incorporated throughout the analysis.

Trade and investment between the EU and Myanmar have more than doubled 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

1 Workshop report available in Annex II

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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 Final Report presents the key findings of the research and analysis of key

sustainability issues related to the specific provisions of the IPA. This includes an

analysis of the economic, social, environmental and human rights impacts which have

been 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 finds that successful conclusion of the IPA could

expand the share of EU-sourced FDI in Myanmar and bring it closer to levels of

current leading foreign investor countries.

It is difficult to predict the quantitative effects of IPAs on FDI, and there remains

disagreement in the literature as to whether IPAs cause FDI growth.2 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 49 interviews and 15 questionnaires

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 EU-

Myanmar IPA considers a descriptive scenario wherein this amount would

increases by 5 percentage points (to approx. 15 per cent) 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 per cent 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.

2 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; http://poseidon01.ssrn.com/delivery.php?ID=140021013065021108098065093125000120105018010061023037119087114064086010000027018000035020062104054111107010083005

110108026118025011081022124113120025078118073062012032021026122031098118097066012070096087091010024098005126096028078123115087107029&EXT=pdf.

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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 the IPA scenario, total

gross value added (GVA) per capita and labour productivity respectively increased

by 0.2 and 0.1 per cent more per annum than otherwise expected under the

baseline.

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. 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.

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.

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.

3 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

4 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.

http://trade.ec.europa.eu/doclib/press/index.cfm?id=1304

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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.

The human rights impact assessment projects that increased EU investment as a

result of the IPA is more likely to deliver positive than negative impacts in terms of

human rights. This conclusion is corroborated by input received from stakeholders;

60 per cent of all interviewees and questionnaire respondents considered that the

EU-Myanmar IPA will have “positive” human rights impacts.

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 processes 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 Final Report.

Opportunities

The IPA, by strengthening the protection and decreasing risks 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.

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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.

EU companies may bring corporate environmental standards to their Myanmar

operations and may call on their local suppliers to ensure good environmental

management as a precondition for commercial engagement.

An EU-Myanmar IPA could provide investors from both Parties with easier access

to investment dispute resolution while protecting Myanmar’s interests by setting

safeguards in this regard.

An agreement would ensure a level playing field for EU investors (given the 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).

Potential to include provisions supporting sustainable and responsible investment.

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 Transparency provisions could support positive developments concerning

sustainability and responsible business conduct in Myanmar, particularly

through improvements to stakeholders’ awareness of key issues and

improved accountability.

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 that 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 in Myanmar, many of the existing laws and

regulations likely to be affected by the IPA are currently 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

5 Myanmar Centre for Responsible Business. (2015). Human rights and business country guide:

Myanmar. Available: http://hrbcountryguide.org/wp-content/uploads/2014/06/Human-Rights-and-Business-Country-Guide-Myanmar-Final-08.04.15.pdf.

http://hrbcountryguide.org/wp-content/uploads/2014/06/Human-Rights-and-Business-Country-Guide-Myanmar-Final-08.04.15.pdfhttp://hrbcountryguide.org/wp-content/uploads/2014/06/Human-Rights-and-Business-Country-Guide-Myanmar-Final-08.04.15.pdf

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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

having 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 a

reformed approach on investment protection, including safeguards on the right to

regulate and an alternative mechanism, the 'Investment Court System' (ICS),

which address a number of these issues and encourages recourse to 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 at

mitigating potential negative externalities are summarised in the following section.

1. Chapters should be included in the IPA that encourage compliance with 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 general exceptions clause and the right to regulate article should be designed to allow both Parties to engage in legitimate regulatory actions

without risk of liability to investment dispute and compensation claims. This is

especially important given that Myanmar is currently engaged in an active

reform process. This could be complemented by clear definition of ‘fair and

equitable treatment’ (FET) and of ‘indirect expropriation’ to avoid excessive

interpretations, as well as frivolous or bad-faith claims.6 This has been the

EU's approach as can be seen from the closed list of elements constituting a

breach of FET in the EU-Canada Comprehensive Economic and Trade

Agreement (CETA), the EU-Singapore FTA, the EU-Vietnam FTA and the TTIP

proposal.

1.2. To address the concerns about the lack of transparency and legitimacy within some ISDS mechanisms, the EC could extend the ICS to the EU-Myanmar

IPA, as was included for investment dispute resolution mechanisms in the

most recent EU FTAs.

6 For further differentiation of direct and indirect expropriation, cf. TTIP Investment Chapter: Annex I http://trade.ec.europa.eu/doclib/docs/2015/september/tradoc_153807.pdf.

http://trade.ec.europa.eu/doclib/docs/2015/september/tradoc_153807.pdf

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1.3. The IPA should include 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. 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 CETA, article 8.7(4) and the

EU-Vietnam FTA, article 4(6).

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

1.5. Objectives of CSR/RBC for EU companies operating in Myanmar should be included in the text of the agreement, encouraging companies to adhere to

similar CSR/RBC practices as are upheld in the EU, tailored to local conditions.

Measures to this effect would conform with resolutions of the European

Parliament, most notably that of 18 April 2012 on the “Annual Report on

Human Rights in the World and the European Union’s policy on the matter”,

which recommends that, “CSR should be binding on European companies

operating in countries with institutional weaknesses.”7

2. Considering the weakness of Myanmar’s implementation and enforcement systems with respect to labour, environmental and human rights standards,

the parties to the agreement should consider what existing mechanisms can

be utilised to strengthen implementation and enforcement of such

standards.

The complementary 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 Member States could be asked to look into issues concerning the

behavior of EU companies in Myanmar when such occurrences are documented.

Recognizing that neither Party is likely to agree to binding implementation and

enforcement measures in this respect, parallel implementation and enforcement

mechanisms therefore represent a pragmatic approach that allows stakeholders to flag

ill-directed investments without breaching the legislative sovereignty of either Party.

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 evaluations 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 ensuring enforcement of adequate compensation

7 (2012). 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-2012-0126+0+DOC+PDF+V0//EN.

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according to the market value of the land. Should there be any documented cases 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 encourage 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, which has met

annually since its creation in 2014.8

8 (2014). Regional Programming for Asia Multiannual Indicative Programme. Available: http://eeas.europa.eu/asia/docs/rsp/regional-asia-mip-2014-2020_en.pdf.

http://eeas.europa.eu/asia/docs/rsp/regional-asia-mip-2014-2020_en.pdf

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Table of contents

ABSTRACT ....................................................................................................... 5

EXECUTIVE SUMMARY ...................................................................................... 6

Policy recommendations ................................................................... 11

ACRONYMS.................................................................................................... 17

1. INTRODUCTION ...................................................................................... 19

2. BACKGROUND ......................................................................................... 21

2.1. EU – Myanmar trade and investment relations .................................... 21

2.2. Developments at a regional level ....................................................... 23

2.3. Content and likely provisions of an IPA between the EU and the

Republic of the Union of Myanmar ..................................................... 24

2.3.1. Protection against uncompensated expropriation ..................... 25

2.3.2. Fair and equitable treatment (FET) and non-discrimination ....... 26

2.3.3. Transfer of capital (returns related to an investment) ............... 26

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

2.3.5. Transparency ...................................................................... 28

2.3.6. Right to regulate ................................................................. 28

2.3.7. Sustainable Development ..................................................... 28

2.4. Status of the IPA negotiations and next steps ..................................... 28

3. METHODOLOGY ....................................................................................... 30

3.1. Presentation of the conceptual framework of the sustainability

assessment analysis ........................................................................ 30

3.2. Stakeholder consultation .................................................................. 32

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

3.2.2. Questionnaire ...................................................................... 39

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

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

4. 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. Descriptive Model ............................................................................ 56

4.2.1. FDI and Logic Chain Theory Analysis ...................................... 56

4.2.2. Data selection ..................................................................... 61

4.2.3. Descriptive analysis ............................................................. 65

4.2.4. Scenario Analysis Results ..................................................... 67

4.2.5. Potential impacts of the IPA for EU investors ........................... 71

4.2.6. Potential impact of the IPA for EU SMEs.................................. 72

4.3. Potential Impacts on the Myanmar Government .................................. 73

4.4. Sectoral analysis, economic impacts .................................................. 75

4.4.1. Agriculture and Fisheries ...................................................... 76

4.4.2. Extraction ........................................................................... 77

4.4.3. Manufacturing ..................................................................... 78

4.4.4. Tourism.... .......................................................................... 78

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4.4.5. Finance and Business Services .............................................. 79

4.4.6. Energy..... .......................................................................... 79

4.4.7. Garment.. ........................................................................... 80

4.4.8. Automobile and Electronic Consumer Goods ............................ 81

4.4.9. Food and beverages (F&B) .................................................... 81

4.4.10. Information and Communication Technologies (ICT) ................ 82

5. SOCIAL IMPACTS ..................................................................................... 84

5.1. Current state of social welfare in Myanmar and development in

absence of the investment protection agreement between the EU and

Myanmar ........................................................................................ 85

5.1.1. Social dimension in Myanmar’s existing investment

agreements ........................................................................ 85

5.1.2. Effects on labour induced by foreign investments .................... 87

5.1.3. Effects on education induced by foreign investments ................ 90

5.1.4. Effects on public health induced by foreign investments ........... 93

5.1.5. Effects on inclusion induced by foreign investments ................. 94

5.2. Sector Specific: Development without an EU-Myanmar IPA ................... 96

5.2.1. Energy and mining ............................................................... 96

5.2.2. Textiles... ........................................................................... 97

5.2.3. Agriculture ........................................................................ 100

5.2.4. Automobile and Electronic Consumer Goods .......................... 101

5.2.5. Manufacturing ................................................................... 102

5.2.6. ICT......... ......................................................................... 102

5.3. Potential social impacts of the IPA on Myanmar ................................. 103

5.3.1. Labour rights, social inclusion and sustainable development .... 103

5.3.2. Potential Labour and Social Impact of the IPA for Myanmar .... 104

5.4. Sector-specific analysis of the EU-Myanmar IPA and the social impacts

of its provisions............................................................................. 108

5.4.1. Energy and mining ............................................................. 108

5.4.2. Textiles... ......................................................................... 108

5.4.3. Agriculture ........................................................................ 108

5.4.4. Automobiles and electronics ................................................ 109

5.4.5. ICT......... ......................................................................... 109

5.4.6. Food and beverage ............................................................ 109

5.5. Corporate social responsibility ......................................................... 109

5.5.1. Consultation responses on CSR ........................................... 110

5.5.2. Key issues for CSR in Myanmar ........................................... 110

6. ENVIRONMENTAL IMPACTS ..................................................................... 113

6.1. Specific IPA provisions and the environment ..................................... 114

6.2. Consultation responses on environmental impacts ............................. 117

6.3. Impacts on key areas of environmental management ........................ 118

6.3.1. Forest resources ................................................................ 118

6.3.2. Biodiversity ....................................................................... 120

6.3.3. Land degradation ............................................................... 121

6.3.4. Water resources ................................................................ 122

6.3.5. Solid and hazardous waste management .............................. 124

6.3.6. Air pollution ...................................................................... 125

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6.3.7. Climate change ................................................................. 126

6.4. Sectoral analysis, environmental impacts ......................................... 127

6.4.1. Energy....... ...................................................................... 127

6.4.2. Textile industry ................................................................. 128

6.4.3. Automobile and Electronic Consumer Goods .......................... 129

6.4.4. Food and Beverages ........................................................... 129

6.4.5. Fisheries 130

6.4.6. Agriculture ........................................................................ 132

6.4.7. ICT........... ....................................................................... 133

7. HUMAN RIGHTS .................................................................................... 134

7.1. Current state of human rights in Myanmar and development in absence

of the investment protection agreement between the European Union

and Myanmar ............................................................................... 136

7.1.1. Myanmar’s judicial system .................................................. 138

7.1.2. Property rights .................................................................. 139

7.1.3. Minority rights and conflict areas ......................................... 141

7.1.4. Freedom of expression, assembly and association.................. 143

7.1.5. Data protection ................................................................. 145

7.1.6. Right to livelihood .............................................................. 145

7.1.7. Right to an adequate standard of living ................................ 146

7.1.8. Lack of access to remedy .................................................... 146

7.1.9. Gender equality ................................................................. 147

7.1.10. Laws and commitments to responsible business conduct ........ 147

7.2. Sectoral analysis of Human Rights Impacts without IPA ..................... 150

7.2.1. Energy...... ....................................................................... 150

7.2.2. Telecommunications .......................................................... 151

7.3. Potential human rights impacts of the IPA on Myanmar ...................... 152

7.3.1. Impact of specific IPA clauses on human rights ..................... 156

8. CONCLUSIONS AND POLICY RECOMMENDATIONS ..................................... 160

ANNEX I. CIVIL SOCIETY DIALOGUE I MINUTES (NOVEMBER 2015) ................... 166

ANNEX II. MYANMAR LOCAL WORKSHOP MINUTES (DECEMBER 2015) ................ 171

ANNEX III. CIVIL SOCIETY DIALOGUE II (APRIL 2016) ..................................... 191

ANNEX IV: SUMMARY OF STAKEHOLDER CONSULTATIONS ............................... 195

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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

CEDAW Convention on the Elimination of all forms of Discrimination Against

Women

CETA 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

DICA Directorate of Investment and Company Administration of the

Myanmar Government

EC 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 Fair and equitable treatment

FIDH The International Federation for Human Rights

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

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LCTA Logic Chain Theory Analysis

LDCs Least Developed Countries

MCRB The Myanmar Centre for Responsible Business

MDGs Millennium Development Goals

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 Responsible business conduct

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

UMFCCI Union of Myanmar Federation of Chambers of Commerce and

Industry

UN 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

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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 to encourage investment and to secure core protections against discrimination,

uncompensated expropriation and unfair and inequitable treatment.9

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, Japan, Korea, the 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 seeking

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.

A central function of the SIA has been to facilitate consultation with civil society

stakeholders in the EU and Myanmar. The Project Team has intermediated between input

from civil society stakeholders and the EC throughout the SIA. This has facilitated a

continuous flow of information between stakeholders and the EC that has informed the

negotiation process.

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:

9 European Commission. (2014). EU and Myanmar/Burma to negotiate an investment protection

agreement. Brussels, BE: EC. Available: http://europa.eu/rapid/press-release_IP-14-285_en.htm.

http://europa.eu/rapid/press-release_IP-14-285_en.htmhttp://europa.eu/rapid/press-release_IP-14-285_en.htm

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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)

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 was held

on 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). 10 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.11 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 socio-

economic development in Myanmar. 12 On July 22, 2013, the Foreign Affairs Council

adopted The Comprehensive Framework for the EU’s policy and support to Myanmar,

10 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.

11 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.

12 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 EU-

Myanmar Partnership. Brussels, BE: EC. Available: http://europa.eu/rapid/press-release_MEMO-13-176_en.htm.

http://trade.ec.europa.eu/doclib/press/index.cfm?id=946http://trade.ec.europa.eu/doclib/docs/2013/december/tradoc_152015.pdfhttp://europa.eu/rapid/press-release_MEMO-13-176_en.htmhttp://europa.eu/rapid/press-release_MEMO-13-176_en.htm

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confirming its commitment to negotiate and conclude a bilateral IPA.13 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

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.14

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 uncertain investment climate,

outdated legislation, copyright issues and the issue of unequal treatment are among

prospective investors’ most serious concerns.

13 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

14 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.

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The EC published its internal IPA Impact Assessment in February 2014. 15 This

assessment recommended the opening of negotiations for a bilateral IPA between the EU

and 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 EC 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.”16 The agreement will also protect

Myanmar investors who wish to enter the EU market.17

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.18

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 countries expanded previous agreements by concluding a modern

investment treaty, the ASEAN Comprehensive Investment Agreement (ACIA), which

entered into force in March 2012.19 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.20

Regionally, the EU has concluded FTA negotiations with Singapore 21 and Vietnam. 22

Negotiations are also under way with Malaysia, Thailand and the Philippines23, while

preparatory talks are ongoing with Indonesia.

15 European Commission. (2014). Impact Assessment: Report on the EU-Myanmar/Burma Investment Relations. Brussels, BE: EC. Available: http://ec.europa.eu/smart-regulation/impact/ia_carried_out/docs/ia_2014/swd_2014_0041_en.pdf.

16 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-to-spill-into-next-year.html

17 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-financial-

incentives-myanmar-eu-investment-protection-agreement-and-a-new-stock-exchange.html. 18 BBC. (2015). Myanmar election: Suu Kyi’s NLD wins landslide victory. Available:

http://www.bbc.com/news/world-asia-34805806. 19 Association of Southeast Asian Nations. (2009). ASEAN Comprehensive Investment Agreement.

Available: http://agreement.asean.org/media/download/20140119035519.pdf. 20 United Nations Conference on Trade and Development. (2016). International Investment

Agreements Navigator: Myanmar. Available: http://investmentpolicyhub.unctad.org/IIA/CountryBits/144#iiaInnerMenu.

21 European Commission. (2015). Countries and regions: Singapore. Available: http://ec.europa.eu/trade/policy/countries-and-regions/countries/singapore/: The negotiations

http://ec.europa.eu/smart-regulation/impact/ia_carried_out/docs/ia_2014/swd_2014_0041_en.pdfhttp://ec.europa.eu/smart-regulation/impact/ia_carried_out/docs/ia_2014/swd_2014_0041_en.pdfhttp://www.mmtimes.com/index.php/business/16767-myanmar-eu-investment-treaty-talks-to-spill-into-next-year.htmlhttp://www.mmtimes.com/index.php/business/16767-myanmar-eu-investment-treaty-talks-to-spill-into-next-year.htmlhttp://www.aseanbriefing.com/news/2015/10/05/myanmar-investment-update-financial-incentives-myanmar-eu-investment-protection-agreement-and-a-new-stock-exchange.htmlhttp://www.aseanbriefing.com/news/2015/10/05/myanmar-investment-update-financial-incentives-myanmar-eu-investment-protection-agreement-and-a-new-stock-exchange.htmlhttp://www.bbc.com/news/world-asia-34805806http://agreement.asean.org/media/download/20140119035519.pdfhttp://investmentpolicyhub.unctad.org/IIA/CountryBits/144#iiaInnerMenuhttp://ec.europa.eu/trade/policy/countries-and-regions/countries/singapore/

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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.24

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 EU-Canada 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

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

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.

22 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.

23 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.

24 European Commission. (2016). Overview of FTA and Other Trade Negotiations. Available: http://trade.ec.europa.eu/doclib/docs/2006/december/tradoc_118238.pdf.

http://trade.ec.europa.eu/doclib/docs/2015/december/tradoc_154012.pdfhttp://trade.ec.europa.eu/doclib/press/index.cfm?id=1429http://trade.ec.europa.eu/doclib/docs/2006/december/tradoc_118238.pdf

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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.”25 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.26

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.27 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).28

Private sector and civil society representatives have expressed concerns over current

nationalisation provisions and the lack of protection against expropriation risks.29 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 investor were to have their assets confiscated for breach of national law,

they could seek compensation from the government of Myanmar through an IPA’s

expropriation provisions, thus multiplying the host country’s risk of costly lawsuits.30

25 CETA Article 8.1 26 See Articles 8.12, 9.6, and 16 of the CETA, EU-Singapore FTA and EU-Vietnam FTA,

respectively. See also CETA Annex 8-A which provides guidance on the interpretation of

expropriation. 27 Organisation for Economic Co-operation and Development (2014) Investment Policy Reviews:

Myanmar 2014. Available: http://www.oecd.org/daf/inv/investment-policy/Myanmar-IPR-2014.pdf

28 Ibid. 29 Ibid. 30 The Transnational Institute. (2014). Briefing: EU – Myanmar Bilateral Investment Treaty.

Available; https://www.tni.org/files/download/eu-myanmar_bit.pdf.

http://www.oecd.org/daf/inv/investment-policy/Myanmar-IPR-2014.pdfhttp://www.oecd.org/daf/inv/investment-policy/Myanmar-IPR-2014.pdfhttps://www.tni.org/files/download/eu-myanmar_bit.pdf

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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.”31 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.32

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”.33

The risks identified by the OECD, however, are likely to be mitigated by the EU’s

approach to FET, which has included a closed list of instances wherein a party would be

in breach of their obligations. Specifically, these are:

Denial of justice in criminal, civil or administrative proceedings;

A fundamental breach of due process, including a fundamental breach of

transparency, in judicial and administrative proceedings;

Manifest arbitrariness;

Targeted discrimination on manifestly wrongful grounds, such as gender, race or

religious belief;

Abusive treatment of investors, such as coercion, duress and harassment.34

This closed list approach can be found in CETA (Article 8.10), the EU-Singapore FTA

(Article 9.4) and the EU-Vietnam FTA (Article 14). It is likely to be further applied to the

EU-Myanmar IPA.

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”.35 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

31 Organisation for Economic Co-operation and Development. (2014). Investment Policy Reviews: Myanmar 2014. Available: www.oecd.org/daf/inv/investment-policy/WP-2004_3.pdf.

32 Ibid. 33 Organisation for Economic Co-operation and Development. (2014). Investment Policy Reviews:

Myanmar 2014. Available: http://www.oecd.org/daf/inv/investment-policy/Myanmar-IPR-2014.pdf

34 European Commission. (2016). Investment provisions in the EU-Canada free trade agreement (CETA). Available: http://trade.ec.europa.eu/doclib/docs/2013/november/tradoc_151918.pdf.

35 The Transnational Institute, Paung Ku. (2014). Briefing: EU – Myanmar Bilateral Investment Treaty. Available; https://www.tni.org/files/download/eu-myanmar_bit.pdf.

http://www.oecd.org/daf/inv/investment-policy/WP-2004_3.pdfhttp://www.oecd.org/daf/inv/investment-policy/Myanmar-IPR-2014.pdfhttp://www.oecd.org/daf/inv/investment-policy/Myanmar-IPR-2014.pdfhttp://trade.ec.europa.eu/doclib/docs/2013/november/tradoc_151918.pdfhttps://www.tni.org/files/download/eu-myanmar_bit.pdf

EUROPEAN COMMISSION


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of capital, balance of payments and other macroeconomic crises”.36 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”.37

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, 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.”38

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.39 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 EU has recently adopted a new approach to investment dispute

resolution. Instead of relying on the ISDS mechanism, the EU 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.40

36 The Transnational Institute, Paung Ku. (2014). Briefing: EU – Myanmar Bilateral Investment Treaty. Available; https://www.tni.org/files/download/eu-myanmar_bit.pdf.

37 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. 38 OECD (2014) Investment Policy Reviews: Myanmar 2014.

http://www.oecd.org/daf/inv/investment-policy/Myanmar-IPR-2014.pdf 39 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/WP-2015-02.pdf.

40 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

https://www.tni.org/files/download/eu-myanmar_bit.pdfhttp://trade.ec.europa.eu/doclib/press/index.cfm?id=961http://trade.ec.europa.eu/doclib/docs/2014/september/tradoc_152806.pdfhttp://www.oecd.org/daf/inv/investment-policy/Myanmar-IPR-2014.pdfhttp://www.oecd.org/investment/investment-policy/WP-2015-02.pdfhttp://trade.ec.europa.eu/doclib/press/index.cfm?id=1468

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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 Myanmar-

Japan Investment Agreement (Article 8) have not yet significantly contributed to

increased transparency in Myanmar law-making.41

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

administered in a transparent manner, with due notice and opportunities for interested

persons to submit their views before enactment.42

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 whereby Parties renounce reducing

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