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What Do New US Sanctions Mean for Myanmar Sourcing?

The White House announced Thursday new sanctions that will target Myanmar’s military leaders, their families and businesses, and redirect $42.4 million of U.S. aid that would have supported the local government’s efforts to reform economic policy and strengthen civil society and the private sector.

The sanctions, which name top military commander Min Aung Hlaing and his deputy Soe Win, as well as four members of the State Administration Council, prevent the generals from accessing $1 billion of Myanmar government funds held in the United States. The executive order signed by President Joseph R. Biden, Jr. also allows the Treasury Department to target their spouses and adult children, as well as the Myanmar Ruby Enterprise and Myanmar Imperial Jade Co. gemstone businesses operated by the regimen.

The move follows this month’s coup in the Southeast Asian nation, also known as Burma, throwing into question the fate of its $2 billion garment industry and threatening jobs that were already imperiled because of the pandemic. Young women make up the majority of the sector’s 700,000-strong workforce, according to the International Labour Organization (ILO), which noted last year that the garment sector plays a “pivotal role” in Myanmar’s economic growth and “quest for economic and social development through decent work.”

“In a democracy, force should never overrule the will of the people or erase the outcome of a credible election,” the White House said in a statement, referring to the detention of civilian leader Aung San Suu Kyi, President Win Myint and other politicians by the junta amid allegations of election fraud. “For almost a decade, the people of Burma have been steadily working to establish credible elections, civilian governance and the peaceful transfer of power. That progress must be respected.”

“Today’s sanctions need not be permanent,” it added. “Burma’s military should immediately restore power to the democratically elected government, end the state of emergency, release all those unjustly detained and ensure peaceful protestors are not met with violence.”

While the additional sanctions will have little impact on the military because many of the individuals and entities were already sanctioned by the Trump administration over the Rohingya crisis, analysts said Thursday, they are bound to increase already heightened sourcing risks in the nation.

In 2019, a report by the UN Independent International Fact-Finding Mission on Myanmar highlighted that two of the country’s “most opaque enterprises”—Myanmar Economic Holdings Limited (MEHL) and Myanmar Economic Corporation—are both “owned and influenced” by senior military leaders responsible for forcibly deporting more than 700,000 ethnic Rohingya to Bangladesh. Together, the two companies own at least 120 businesses, including industrial parks that house suppliers to brands such as Bestseller, C&A and H&M. It also flagged Myanmar Wise-Pacific Apparel Yangon Co. (MWY) as a joint venture between MEHL and Pan-Pacific Co. in South Korea. Since last September, however, Pan-Pacific has “entirely completed the legal procedure to terminate [the] Joint-Venture partnership with MEHL,” Sam Choi, corporate sustainability management customer service representative and team leader, told Sourcing Journal. MWY, he added, is now an independent foreign investment company with 100 percent ownership by Pan-Pacific, the result of corporate efforts to comply with global human-rights standards regarding ethical and social responsibility.

“Recent UN reports connecting garment suppliers to the military, linking international brands to human rights violations, had already shone a spotlight on the difficulties of responsible sourcing the country pre-coup,” Sofia Nazalya, human rights analyst at Verisk Maplecroft, told Sourcing Journal. “While major brands may not immediately withdraw production from Myanmar, it may be only a matter of time as reputational or legal risks exacerbate with the introduction of new sanctions. This will prove disastrous for garment workers in the country, many of whom are self-employed women who have already been hard hit by reduced demand due to the pandemic.”

The military’s wide-ranging influence may mean that brands sourcing from Myanmar will not be able to avoid working with military-affiliated local partners, which is “likely to eventually expose them to reputational risks or even sanctions,” said Kaho Yu, senior Asia analyst at Verisk Maplecroft. Any new sanctions, too, could make it harder for responsible companies to adhere to international best practices “due to reputational and Environmental, Social and Corporate Governance considerations,” Yu added.

Steve Lamar, president and CEO of the American Apparel and Footwear Association, said that the industry group is working with Worldwide Responsible Accredited Production, its corporate social responsibility partner, to release guidelines to members on best practices and approaches “to navigate this crisis.”

“This coup is wrong,” Lamar told Sourcing Journal. “Every day the Myanmar military persists on their current course is another day they put the economic progress of their country and the well-being of their workers in jeopardy. The military must respect the results of the November elections; quickly, peacefully, and irrevocably restore democratic institutions; and release all those detained.”

According to Andrew Tillett-Saks, a labor organizer in Myanmar, while U.S. sanctions may not impact the garment industry “specifically very much,” the coup in general could have “enormous ramifications” on the industry.

“A lot depends on what the garment worker unions call for,” he told Sourcing Journal. “If they call for comprehensive sanctions and for brands to boycott the country entirely, as opposed to just targeted at military-owned enterprises, you could see a mass exodus of European brands and a huge blow to the Myanmar economy.”

Garment workers and unions, he added “don’t seem to see any chance of a decent future under the military regime, garment jobs or not, so it wouldn’t surprise me if they did call for comprehensive sanctions and boycotts. The international community needs to follow and support whatever call the garment worker unions make, not decide paternalistically what’s best for them.”

H&M, which works with 56 supplier factories in Myanmar, says while it is concerned about the situation in the country and is closely monitoring developments, it is refraining from taking immediate action regarding its presence there.

“We are prioritizing the safety of our staff as well as supporting our suppliers so they can ensure the safety of their employees,” a spokesperson told Sourcing Journal. “We are also in dialogue with UN agencies, humanitarian organizations, diplomatic representatives, human rights experts and other multinational companies. These consultations will guide us in any future decision in relation to how we as a company can best support positive developments in Myanmar.”

The retailer further noted that it adheres to UN recommendations, one being that it has a responsibility to ensuring human rights are secure in its value chain. Its “fundamental standpoint,” it added, is that its business should have a positive influence in communities in the countries where it operates.

“During the past decade, the garment and textile industry has helped to reduce poverty in Myanmar as well as giving over a half a million garment workers an opportunity to earn an income,” the spokesperson said. “If buyers such as H&M Group were to move production to other countries, garment workers and local communities would of course be negatively impacted. We are acutely aware that garment workers, in particular women, are extremely vulnerable in this situation.”

Bestseller and C&A did not immediately respond to a request for comment.

Similarly, the Fair Labor Association (FLA), a multi-stakeholder initiative, whose affiliates include Adidas, Uniqlo owner Fast Retailing, Gildan, Hanesbrands, Lululemon, Nike, Patagonia and Under Armour, is closely watching the situation as it unfolds.

“The military’s actions take the country in the wrong direction,” president and CEO Sharon Waxman told Sourcing Journal. “New U.S. sanctions aimed at the financial and business interests of military leaders are a strong signal that apparel companies sourcing from Myanmar should ensure that their suppliers’ operations are not entwined with the military.”

The organization says it’s urging apparel companies that source from Myanmar to engage with their suppliers to protect workers, particularly union leaders, whose jobs are especially precarious because of the political unrest.

“Companies are advised to ensure workers are being paid on time and in full and offer suppliers lenient delivery terms if there are production stoppages,” Waxman said. “The FLA is committed to helping companies protect workers in Myanmar during this time of political crisis.”

Human Rights Watch, an international nonprofit, reiterated this sentiment last week. More sanctions may be coming down the pipeline from the United States, United Kingdom, European Union and others, and all companies should take the opportunity to reevaluate their commercial ties with businesses linked to the military, it advised.

“They should also publicly disclose the names, addresses, ownership and other relevant details about whom they do business with in the country,” Aruna Kashyap, senior counsel, business and human rights division, said in a statement. “No consumers or investors should be directly or indirectly supporting the denial of the right of Myanmar’s people to choose their government and other military abuses, but it’s the companies themselves who have a responsibility to ensure they have no ties with Myanmar’s security forces, their individual members, or entities owned or controlled by them.”

Without these steps, she added, company executives risk not “only complicity with Myanmar military abuses, but losing the trust of their customers and investors as well.”

As reports of intimidation and threats against workers peacefully protesting for a return to civil rule emerged over the past week, Guy Ryder, director-general of the ILO, drew a direct line between democracy and freedom of association.

“I urge military leaders to uphold commitments under the Convention to ensure that workers and employers are able to exercise their freedom of association rights in a climate of complete freedom and security, free from violence and threats,” Ryder said in a statement Wednesday, referencing the ILO Convention on Freedom of Association and Protection of the Right to Organize.”

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