Sustainability Impact Assessment on the EU-Myanmar ...trade.ec.europa.eu/doclib/docs/2016/april/tradoc_154428.pdf• Foreign investors are still discriminated upon and face barriers

Civil Society Dialogue on Draft Final Report Tuesday 5th April, 2016

Sustainability Impact Assessment on the EU-Myanmar Investment Protection

Agreement

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SIA on the EU-Myanmar Investment Protection Agreement, Civil Society Dialogue

• Context of EU-Myanmar SIA – Data uncertainty

– Focused on IPA

– First stand alone IPA

• Methodology – Qualitative analysis

• Stakeholder consultation

– Quantitative analysis • Modelling

• Key Findings: potential economic, social, human rights and environmental impacts of the IPA

• Timeline

Structure of the presentation

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• Methodology: Desk research, descriptive modelling and stakeholder consultation (to identify likely variance in sustainability indicators)

– Stakeholder consultation:

Methodology

• 50 face-to-face interviews with relevant stakeholders on the ground in Myanmar

• Civil society dialogues in Brussels in November 2015 and April 2016

• Questionnaire in Myanmar and English (18 respondents)

• Website

Stakeholder Group Number of Respondents inc. interviews and

questionnaire Businesses 18 Civil Society 10

International Organisations

2

Academia/Think Tanks 8 Chambers of Commerce 7

Government 2 Trade Unions 2 Independent Respondent/s

1

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• A stakeholder workshop held in Yangon on December 17th 2015

Methodology

• 90 attendees from NGOs, government, and business.

• Full workshop report available online, annex II.

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Background: Economic trends

High growth rates, continued economic growth expected • Annual growth rate of 14% p.a. between 2000 and 2013; expected growth 8% p.a.

over 2014-2019 • 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 and lifting some 18 million people out of poverty expected to transition from low-income to low-middle income economy (IMF)

Rapid urbanisation and emerging consumer class • Urban population to go from 34% in 2014 to 55% (around 32 million people) by

2050 • Expected increase in size and purchasing power of Myanmar’s middle class: from 2.5

million in 2010 to about 16.5 million people by 2030 (mainly urban areas of Yangon, Mandalay and Ayeyarwady regions) domestic consumption could triple, from € 31.8 billion to around € 89.4 billion

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Background: Economic trends Significant FDI increases in recent years… • FDI rose to unprecedented levels in 2015: from € 300 million in 2010 to € 7.4 billion

in 2014-2015 • Myanmar has existing bilateral investment treaties (BITs) with China, India, Japan,

Philippines and Thailand and through ASEAN • Structural and investment climate-oriented reform measures underway

(enforcement uncertain)

…but structural economic problems persist • Foreign investors are still discriminated upon and face barriers (land, certain sectors) • Vulnerability to external shocks • Informal economy/low tax collection rates • One of the lowest GDP per capita levels in ASEAN (€ 999.45 in 2012) • The Kyat, Myanmar’s national currency, has significantly depreciated (inflation),

thus depleting foreign currency reserves • Overreliance on primary (and secondary) sector: Agriculture accounts for 70% of

employment and 40% of GDP, compared to 41% and 12% for ASEAN - low productivity

• Low degree of integration into GVCs

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Background: Economic trends

Source: DICA

0

5000

10000

15000

20000

25000

USD

(m

illio

n)

Foreign Investment by Permitted Enterprises, as of December 31,

2015

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

USD

(m

illio

n)

Foreign investment by partner country, as of December 31,

2015

Source: DICA

EU’s current FDI share

approx. 10%

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Potential Economic trends – questions to ask Can the Myanmar economy cope without increased EU FDI? • Yes, perfectly well (EU is not currently a major investor (@10%)) • Other countries in Asia are investing strongly • FDI generally seen to have a positive economic effect (with some caveats) • Economy has grown very strongly and all signs are this will continue

How important is the IPA for increased FDI from EU countries? • Helps create a level playing field and alleviate some risks of doing business • But other concerns remain (e.g. infrastructure quality, red tape, financial services) • Implications that a successful IPA will not necessarily lead to a rapid rise in EU FDI

Assuming the IPA is successful, in which sectors will the EU FDI be located? • Traditional sectors of agriculture and mining are large but do not connect well • Energy, manufacturing, telecoms and other services are increasingly attractive

Overall effect on Myanmar economy…? • IPA is part of the general opening process of the economy • EU FDI will bring economic benefits, but how much more benefit than investment

that would have taken place anyway is highly uncertain

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Baseline scenario (no IPA): increasing openness of Myanmar to foreign investment leads to a doubling of FDI by 2025, but EU share does not increase any further

IPA Scenarios: assumes that the successful conclusion of the IPA could double the share of EU-sourced FDI into Myanmar by 2025 compared to the baseline (no IPA) scenario

Potential economic trends – modelling results

Recent History Baseline IPA Scenario

2005-15 2015-25 2015-25

EU share of FDI 10 % 10 % 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 rate 1.3 1.0 1.0

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Background: Social impacts

Source: ILO, ADB and McKinsey (2013) Myanmar's Moment

0%

10%

20%

30%

40%

50%

60%

Myanmar Thailand Indonesia

Sectoral Employment Shares, 2010 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

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Policy recommendations:

• A robust chapter on labour standards in the IPA.

• Future EU cooperation projects (including through Member States) in Myanmar could address the importance of enforcement of labour standards, inc. through the Myanmar Labour Rights Initiative

Potential social impacts, policy recommendations

Positive impacts Risks

• An increase in FDI from the EU could promote economic stability and growth

• Resulting increases in employment may lead to better living standards and reduced poverty

• 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

• Labour rights issues remain prevalent in Myanmar, EU companies could potentially invest in enterprises with bad practices

• Potential risks appear to be higher in the energy, agriculture and telecommunications sectors

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• A robust chapter on environmental standards in the IPA.

• Complementary measures: direct technical assistance to the Myanmar government and private sector to support better environmental governance (e.g. the Myanmar Sustainable Aquiculture Programme MYSAP), as well as support for multilateral efforts via the UN and other international bodies.

Potential environmental impacts, policy recommendations


• EU companies may bring high internal environmental standards to their overseas operations and may call on their local suppliers to provide good environmental management as a precondition for commercial engagement.

• 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, there are risks that the scale effect could lead to greater environmental pressures that could outweigh improvements from better environmental management by individual operators.

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• Encouraging due diligence from EU investors, including (for example) analysis of potential human rights issues in supply chains.

Potential human rights impacts and policy recommendations


• 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

• Human and labour rights issues remain prevalent in Myanmar, EU companies should not be encouraged to invest in enterprises with bad practices

• Investors in sectors where the risk of human rights violations is higher, particularly the extractive industries and agriculture should be especially diligent

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1. The Myanmar government’s ability to effectively promote and enforce international labour and social standards should be protected.

1. The scope of the provisions on expropriation and fair and equitable treatment (FET) should be carefully limited to protect Myanmar’s right to regulate environmental and social standards

2. The EU should extend the Investment Court System (ICS) to the EU-Myanmar IPA

3. An article expressly excluding the right of companies to claim that Most Favoured Nation (MFN) status entitles them to abide by the same standards as companies operating under IPAs in place with other countries

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

5. Objectives of Corporate Social responsibility (CSR) / Responsible Business Conduct (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

Additional policy recommendations I

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2. The EU should consider what existing mechanisms can be utilised to strengthen social, environmental and human rights implementation by private companies, such as the OECD Guidelines for Multinational Enterprises

3. Ex-post social, labour and human rights impact assessments conducted with regard to this IPA should focus on risks and challenges identified by the SIA team.

4. Considering the weakness of Myanmar’s implementation and enforcement systems with respect to labour and environmental standards, and human rights, capacity building in key areas should be implemented.

Policy recommendations II

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Examples of existing EU initiatives:

– Political dialogues, such as the EU-Myanmar Human Rights Dialogue, (meeting annually since 2014);

– Myanmar Labour Rights Initiative;

– the Multi-Annual Indicative Programme 2014-2020 which includes many relevant EU development cooperation in key areas such as education, rural development, governance, capacity development and rule of law;

– Sector specific projects inc. SMART (support to sustainable garment sector), a project in the Aquaculture sector and the Civil Society Roadmap

Policy recommendations III

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Timeline for SIA project

April 5th Civil Society Dialogue

April 12th Minutes from Civil society dialogue online

April 19th Deadline for comments

May Final Report published online

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Discussion and feedback

Feedback can also be submitted via the following e-mail address: [email protected]. Project website: http://www.eu-myanmarsia.com/

mailto:[email protected]



http://www.eu-myanmarsia.com/



Documents

Sustainability Impact Assessment on the EU-Myanmar ...trade.ec.europa.eu/doclib/docs/2016/april/tradoc_154428.pdf• Foreign investors are still discriminated upon and face barriers