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Myanmar Foreign Minister and State Counselor Aung San Suu Kyi attended the opening ceremony of the Union Peace Conference at Naypyidaw, Myanmar’s capital city, on 12 January 2016. AFP/Ye Aung Thu
Briefing 149 / Asia

Myanmar’s Peace Process: Getting to a Political Dialogue

After almost 70 years of armed conflict, Myanmar has a rare but fading opportunity to finalise a broad-based, federal settlement. The government must adopt a more flexible approach that allays opposition concerns, and armed groups need to go beyond preliminaries and engage in meaningful discussions.

Also available in: Burmese [PDF]

I. Overview

The current government term may be the best chance for a negotiated political settlement to almost 70 years of armed conflict that has devastated the lives of minority communities and held back Myanmar as a whole. Aung San Suu Kyi and her administration have made the peace process a top priority. While the previous government did the same, she has a number of advantages, such as her domestic political stature, huge election mandate and strong international backing, including qualified support on the issue from China. These contributed to participation by nearly all armed groups – something the former government had been unable to achieve – in the Panglong-21 peace conference that commenced on 31 August. But if real progress is to be made, both the government and armed groups need to adjust their approach so they can start a substantive political dialogue as soon as possible.

Pangalong-21 was important for its broad inclusion of armed groups, not for its content, and the challenges going forward should not be underestimated. Many groups attended not out of support for the process, but because they considered they had no alternative. Many felt that they were treated poorly and the conference was badly organised. The largest opposition armed group, the United Wa State Party (UWSP), sent only a junior delegation that walked out on the second day. An escalation of fighting in recent months, including use of air power and long-range artillery by the Myanmar military, has further eroded trust.

Such issues are not unexpected; what matters is the resilience of the process to deal with them. The announced scheduling of further Panglong-21 conferences every six months (the next for February 2017) imposes an artificially rigid timeframe that limits the flexibility required to overcome obstacles. Weak capacity in the government’s peace secretariat, the National Reconciliation and Peace Centre (NRPC), is another challenge. It will take difficult negotiations to convince most groups to sign the Nationwide Ceasefire Agreement (NCA), a sine qua non for participation in the upcoming political dialogue process – future Panglong-21 conferences and the discussions feeding into them – that has been clearly articulated by both the government and military. This will be even harder if the military continues its forceful posture on the ground.

Eight groups signed the NCA in October 2015, but at least ten other armed groups have reservations. Some, like the UWSP, have better de facto self-governance arrange­ments already and worry their status would be undermined by signing. Others are concerned that the new government has a more unilateral approach to the peace process and that if they sign, political solutions are more likely to be imposed than negotiated. Three groups without bilateral ceasefires are resisting government demands to issue statements renouncing armed struggle in principle.

The government should consider adopting a more flexible timeframe for the peace conferences and reassure armed groups by demonstrating a less unilateral approach to the process in general. It needs to ensure that civil society, women and youth have a stronger voice in the process. It should also take steps to ensure that it has the necessary support capacity in place at the NRPC.

Armed groups need to recognise that though they have legitimate concerns about the process, they are unlikely to get a better chance to achieve a negotiated political settlement. Aung San Suu Kyi has expressed firm support for a federal, democratic solution and has unparalleled political authority to deliver it, particularly with the Burman majority. Now is the time to start discussing the contours of that deal, rather than continuing to focus on preliminaries.

The alternative is not attractive. Time is not on the side of the armed groups. Unless both sides grasp the current opportunity, the prospect of a negotiated solution will recede, likely to be replaced by a messy, drawn-out endgame that fails to address the underlying grievances of the minority communities, including their demands for a federal system and greater equality. This would be to the detriment of peace and stability in the borderlands and to Myanmar’s future as a prosperous, tolerant and democratic country.

II. Peace Legacy from the Previous Government

A. Peace Process with Armed Groups

The administration that took power on 30 March 2016 inherited a peace process that had been in stasis during the lame-duck period leading up to the November 2015 elections and the lengthy handover period afterwards.[fn]For recent Crisis Group reporting on Myanmar, see Asia Briefings N°s 147, The Myanmar Elections: Results and Implications, 9 December 2015; 146, Myanmar’s Peace Process: A Nationwide Ceasefire Remains Elusive, 16 September 2015; 144, Counting the Costs: Myanmar’s Problematic Census, 15 May 2014; 143, Myanmar’s Military: Back to the Barracks?, 22 April 2014; also Reports N°s 282, Myanmar’s New Government: Finding Its Feet?, 29 July 2016; 266 Myanmar’s Electoral Landscape, 28 April 2015; 261, Myanmar: The Politics of Rakhine State, 22 October 2014; and, for more detailed historical background on the armed conflict, 214, Myanmar: A New Peace Initiative, 30 November 2011.Hide Footnote  The previous government had had considerable early success, agreeing bilateral ceasefires with fifteen armed groups between 2011 and 2013 (see Appendix B and the acronyms in Appendix C). There was much optimism on 31 March 2015, when the government and armed group negotiating teams initialled the NCA. However, concerns over the lack of inclusivity (the government did not allow the three groups without bilateral ceasefires – AA, TNLA and MNDAA – to sign) as well as about giving the government of then-President Thein Sein a major victory just ahead of elections, stalled the process. Eventually, eight armed groups signed the NCA at a ceremony on 15 October 2015; the remaining ten involved in the formal peace process did not. This led to some tensions between signatory and non-signatory groups.[fn]For all armed group acronyms, see Appendix B.Hide Footnote

The NCA contains basic principles recognising the territorial integrity of the state (making clear that separatism or irredentism is unacceptable), committing to “principles of democracy and federalism” and embracing the diversity of the peoples and cultures in “a secular state”. A military code of conduct prohibits certain conduct by all parties in ceasefire areas (attacks, reinforcement, recruitment, new bases, laying landmines, etc.) and sets out troop deployment provisions to avoid clashes. There is provision for a joint ceasefire monitoring body, and “interim arrangements” endorse armed groups’ de facto authority in their areas of control for a transitional period. The NCA is to be followed by a “political dialogue”, consisting of a Union Peace Conference to reach a comprehensive peace agreement that would be “the basis for amending, repealing and adding provisions to the constitution and laws, in line with agreed procedures” – that is, through the legislature – along with armed group disarmament and security sector reform.[fn]For a detailed summary of the NCA, see Crisis Group Briefing, Myanmar’s Peace Process, op. cit., Section IV.Hide Footnote

Finalisation of the NCA was thus only the first step in a long, difficult process needed to reach a comprehensive peace agreement. Many of the most challenging issues, including a possible form of federalism, how revenue would be shared, future status of the armed groups and their possible integration into the military, were deferred to the political dialogue, as were some technical military issues on ceasefire monitoring and code of conduct. It is thus neither a classic ceasefire agreement – many military issues, such as force separation, demarcation and verification, are vague, not included or need further agreement to come into force – nor a full political agreement, as it references many political issues but defers detailed discussion. This hybrid status reflects its genesis, the diverse actors and priorities around the table and political constraints.

Following the partial signing, the previous government took formal steps to implement the NCA, specifically:

  • A first session of the Joint Implementation Coordination Meeting, the body mandated to oversee NCA implementation, was held 15-17 October 2015. It established the committees set out in the NCA to take the process forward: the Joint Monitoring Committee (JMC) for military and ceasefire matters and Union Peace Dialogue Joint Committee (UPDJC) for political dialogue. The JMC contains ten representatives of NCA-signatory armed groups, ten of government (including military), and four independent civilians; there are also subnational committees. The UPDJC initially had sixteen representatives each of NCA-signatory armed groups, government (including military and legislature) and political parties and was chaired by then-Vice-President Sai Mauk Kham.
  • A joint legislative session ratified the NCA on 8 December, giving it legal status.
  • A Framework for Political Dialogue was agreed on 15 December, including the mandate, agenda, working methods and proportions of representatives to be included in the dialogue.
  • The first Union Peace Conference was held 12 to 16 January 2016, with opening addresses by the president, commander-in-chief, Aung San Suu Kyi and Mutu Say Poe, the head of the Karen National Union armed group. The conference had 700 participants but, occurring in the lame-duck period after the elections, was largely symbolic, intended only to launch the process and keep to the NCA’s ambitious political roadmap. Armed groups that did not sign the NCA were invited to observe, but nearly all declined.[fn]In accordance with the Framework for Political Dialogue, the 700 seats were divided 75 each for government and legislature, 150 for military, 150 each for ethnic armed groups and registered political parties, 50 each for ethnic representatives and other relevant persons. The roadmap required the Framework for Political Dialogue to be agreed within 60 days of the NCA signing and the dialogue to commence within 90 days. One non-signatory group, the National Socialist Council of Nagaland-Khaplang, did accept the invitation. Three non-signatory armed groups without bilateral ceasefires (Arakan Army, Ta’ang National Liberation Army, Myanmar National Democratic Alliance Army) were not invited.Hide Footnote

B. Armed Conflict

Notwithstanding these important procedural developments, the peace process essentially was in stasis between the NCA signing and the new government taking up the issue in April 2016. Meanwhile, the situation on the ground remained volatile, with fighting continuing to break out sporadically, and often unexpectedly, in many different parts of the country.

Most groups that signed the NCA are based near the Thai border in southern Shan State and the south-east. Their signing consolidated a fragile local peace, or at least absence of war, that had prevailed for some time. Groups based near the Chinese border did not sign, and the situation in many of those areas continued to be unstable, with regular, sometimes intense fighting, including between ethnic armed groups. The geographic split reflects very different political-economic realities between the areas, including access to funding and weapons and the distinct policies and approaches of China and Thailand.

Serious bouts of conflict since early 2015 include:

  • in Shan State, resumed major fighting between Myanmar National Democratic Alliance Army (MNDAA) troops and government forces in the Kokang Self-Administered Zone since February 2015, which was particularly intense from February to June that year and again in October 2015. Elsewhere in Shan State, there have been sporadic clashes between government forces and the Ta’ang National Liberation Army (TNLA) and between that group and the Shan State Army-South (SSA-South). There have also been clashes between government forces and the SSA-North, of particular intensity from October to November 2015 and in August 2016;
  • in Kachin State, between government forces and the Kachin Independence Organisation (KIO) throughout the period, and in particular from July to November 2015, and again from April to August 2016;
  • in Rakhine State and southern Chin State, occasional, sometimes heavy clashes between government forces and the Arakan Army, in particular in April 2015, January 2016 and from April to June 2016; and
  • in Kayin State, clashes in July 2015 and again from August to September 2016 between a renegade faction of the Democratic Karen Buddhist Army (DKBA) and government troops together with Border Guard Force soldiers.

Such conflicts are usually accompanied by grave violations of human rights by all belligerents.[fn]See, for example, “Report of the Special Rapporteur on the situation of human rights in Myanmar”, UN OHCHR A/HRC/31/71, 18 March 2016.Hide Footnote  They undermine stability and trust in the peace process and severely impact lives and livelihoods – particularly of those most at risk, including women and children – often causing internal displacements.[fn]For a detailed risk analysis, see “Kachin and northern Shan protection concerns and risk analysis”, Protection Sector, October 2015.Hide Footnote  Some 100,000 people remain displaced in Kachin and northern Shan states as a result of fighting following the 2011 breakdown of the KIO ceasefire. Fighting in the Kokang Self-Administered Zone displaced around 80,000 in February 2015, the majority to China, though most have now returned. At least 12,000 were displaced in northern Shan State in the first half of 2016 in the complex conflicts that included government forces, the TNLA and the SSA-South; most have returned home, but some 3,000 remain displaced. The fighting in Rakhine State in March-April 2016 displaced approximately 1,900, who have yet to return home. Most recently, fighting in Kayin State displaced some 4,000 in September 2016.[fn]Figures from UN Office for the Coordination of Humanitarian Affairs, except Kayin State displacements, from “Tatmadaw launch operations against KKO splinter group in Wah Boh Taung-Kyonhtaw, Methawaw regions”, Global New Light of Myanmar, 17 September 2016.Hide Footnote

III. The New Government’s Approach

A. First Steps

During the previous government’s tenure, the National League for Democracy (NLD) was invited, with other political parties, to participate in the peace process. Though it sent representatives, their engagement was limited. Aung San Suu Kyi kept her distance and was at times critical of the process. Her speech to the inaugural Union Peace Conference in January 2016 (above) was thus significant.

Suu Kyi had indicated that achieving peace would be a top priority for her government, and the NLD’s election manifesto addressed this as its first item, promising to “hold political dialogue based on the Panglong spirit in order to address the roots of internal armed conflict” – referring to the pre-independence Panglong Conference, convened by her father in 1947.[fn]“2015 Election Manifesto”, NLD, official translation, p. 5. For details on the 1947 Panglong Conference, see Crisis Group Report, Myanmar: A New Peace Initiative, op. cit., Section I. The 1947 Panglong Agreement was not a peace deal – there was then no insurgency – but an agreement by some ethnic areas (Shan, Kachin and Chin) to join an independent Burma in return for promises of full autonomy in internal administration and an equal share in national wealth.Hide Footnote  In her first major speech after the transfer of power, a Myanmar New Year’s message to the nation on 18 April, Suu Kyi stated that the government would aim to bring remaining organisations into the NCA, and “through peace conferences, we’ll continue to be able to build up a genuine, federal democratic union”.[fn]“State Counsellor offers New Year message”, Global New Light of Myanmar, 18 April 2016.Hide Footnote  She indicated that she would personally lead the process.

She gave the first concrete indication of her plans at a 27 April JMC meeting, announcing that a new 21st Century Panglong (Panglong-21) peace conference would be held within two months. This caused consternation among ethnic leaders due to both form and substance. There had been no prior consultation with ethnic armed groups or political leaders; and no details were provided on the initiative, which was seen as potentially signalling a unilateral shift in approach in a process with a legally-binding framework that had required months of detailed negotiation. The venue for the announcement compounded these concerns, as the JMC is tasked with military or ceasefire matters, not the political dialogue, for which the UPDJC is the mandated body.[fn]Crisis Group interviews, ethnic party and armed group leaders, Yangon, May-July 2016. For example, a month later the leader of the Shan State Army-South, a major armed group that signed the NCA, expressed concern on both aspects. “Lt-Gen Yawd Serk: If this conference is wrong, it will affect the future of the union”, Shan Herald Agency for News, 26 May 2016.Hide Footnote

In a 26-28 May meeting of the UPDJC, which she chairs, Suu Kyi sought to allay some concerns. She confirmed she would continue to follow the NCA framework, and Panglong-21 was only a different name for the Union Peace Conferences that framework envisaged. While this reassured ethnic leaders, other comments raised new concerns, notably her stated intention to narrow the scope of discussions in the political dialogue from the five thematic areas agreed in the UPDJC to federalism and security.[fn]Ibid. “NCA to guide 21st Century Panglong Conference”, Global New Light of Myanmar, 28 May 2016. The previously-agreed five areas are set out in the Framework for Political Dialogue, which is being amended. The three thematic areas proposed to be dropped were: social issues (including culture, language, gender, resettlement, human rights, drugs), economic issues (including foreign investment, tax and revenue distribution and regional development) and issues around land and natural resources (including resource management and revenue sharing).Hide Footnote  This would leave out some key areas of concern and missed an opportunity to build confidence by addressing easier issues, such as language policy. With armed group leaders strongly opposed, the matter was not settled before the Panglong-21 conference, and discussions are ongoing. It is likely armed group concerns will be accommodated, and the dialogue’s scope will remain unchanged, though with some effort to focus on priority issues.[fn]Crisis Group interview, member of UPDJC, Yangon, September 2016.Hide Footnote  There has to date been little outreach to civil society, and few efforts to engage a wider range of voices in the peace process, particularly women and youth.

The government also announced a new peace architecture on 31 May, with three sets of structures:

  • the NCA-mandated JMC and UPDJC, the latter now chaired by Suu Kyi and with party membership limited to those that won seats in the last elections;
  • a committee to transform the previous government’s Myanmar Peace Centre into a National Reconciliation and Peace Centre (NRPC). This new centre, launched on 11 July, is headed by Suu Kyi. Under it is a new Peace Commission, chaired by Dr Tin Myo Win, her personal physician and newly-designated chief peace negotiator.[fn]Established by President Office Orders 50/2016 and 51/2016, 11 July 2016.Hide Footnote  Unlike its predecessor, a semi-government body staffed mainly by non-government experts, it is a government institution under Suu Kyi’s State Counsellor Office, staffed by civil servants and governed by civil service laws and financial rules; and
  • a Panglong-21 preparatory committee also chaired by Dr Tin Myo Win and sub-committees to liaise respectively with NCA-signatories and non-signatories.

B. Peace Conference Preparations

Though the date for Panglong-21 slipped from her initial late-June proposal, Suu Kyi appeared determined to avoid major delays. This seems to stem from two considerations: not wanting to repeat the experience of the previous government, when negotiations bogged down over process, particularly which armed groups would be included; and a sense that her leverage would be at its greatest early in her term, due to the election landslide. Some observers also believed she wanted the conference before her September meetings with President Obama in Washington DC and at the UN General Assembly. Thus, at her urging, there was agreement with the NCA signatories for Panglong-21 to begin no later than 31 August, a very ambitious timeframe both logistically and for obtaining buy-in of non-signatory armed groups.[fn]Crisis Group interviews, armed group leaders and international peace-process adviser, Yangon, July-August 2016. “Gov’t, NCA signatories agree to hold UPC no later than 31 August”, Global New Light of Myanmar, 29 June 2016.Hide Footnote

The intention to make Panglong-21 inclusive of all armed groups, stated from the outset, was positively received. This has long been a demand of the non-signatories. On 3 June, as a first step to secure their participation, Dr Tin Myo Win met the United Nationalities Federal Council (UNFC), the main umbrella organisation of non-signatories. He then met separately on 17-19 June with the UWSP and NDAA, non-signatories that are not UNFC members. Under the previous government, non-signatories were only invited as observers; the new government got around this by indicating that since the first Panglong-21 conference would be symbolic, with presentations but no negotiations or decisions, all armed groups would be “attendees” (tet-yauk-thu). The government position remained, however, that only signatories could participate in the future political dialogue.[fn]Crisis Group interview, member of the Peace Commission, Yangon, August 2016.Hide Footnote

There were also negotiations with the three previously-excluded groups: AA, TNLA and MNDAA. Since these lack bilateral ceasefires, they are not eligible to sign the NCA, and the military previously insisted they must disarm, something the groups equated with surrender. The commander-in-chief subsequently proposed that it would be sufficient to put their arms beyond use in some verifiable way, along the lines of formulas used in Aceh, Nepal and Northern Ireland, but this was rejected.[fn]Ibid. Also, commander-in-chief meeting with press, 13 May 2016, reported in “Tatmadaw sets out peace conference conditions”, Myanmar Times, 16 May 2016.Hide Footnote  Negotiations then focused on a statement committing the groups to renounce armed struggle in principle. Considerable progress was made, with the only sticking point being the Burmese-language term for “armed struggle” versus “violence”.[fn]Crisis Group interview, member of the Peace Commission, Yangon, August 2016.Hide Footnote  However, no agreement was reached, the three issued no statement, and they were not invited to Panglong-21. Crucially, however, that did not lead to the UNFC and other non-signatories boycotting, though lack of inclusion had been a key reason cited by groups for not signing the NCA.[fn]See Crisis Group Briefing, Myanmar’s Peace Process op. cit., Section III.B.Hide Footnote  

In the lead-up to Panglong-21, representatives of seventeen armed groups held a major strategy meeting in the KIO-controlled town of Maijayang, 26-30 July, to coordinate positions on key issues; the UN and China attended as international observers. Four armed groups did not attend (UWSP, MNDAA, TNLA and NSCN-Khaplang). The UWSP, together with its NDAA ally, went to Naypyitaw to meet on 29 July with Suu Kyi and then the commander-in-chief.[fn]The NDAA participated in both the Maijayang meeting and the Naypyitaw visit.Hide Footnote

C. The Panglong-21 Conference

The conference, officially the “Union Peace Conference – 21st Century Panglong”, was held in Naypyitaw from 31 August to 3 September. Suu Kyi’s opening address was followed by plenary speeches from the lower and upper house speakers, the commander-in-chief, the KNU chairman, NLD patron Tin Oo (an ex-commander-in-chief), the KIO vice chairman and UN Secretary-General Ban Ki-moon.[fn]The KIO vice chairman’s talk was a last-minute concession; there was initially no speaking slot for the non-signatory groups (Major-General N’Ban La also chairs the UNFC).Hide Footnote

Representatives of nearly all armed groups attended, except the AA, TNLA, MNDAA and NSCN-Khaplang.[fn]The first three were not invited; the NSCN-Khaplang, though invited, had long made clear it would not attend, as it is committed to the creation of an independent Naga homeland out of parts of Myanmar and India, which is politically inconsistent with the NCA and the peace process.Hide Footnote  Some 850 attendees participated over the four days. In a move armed group representatives welcomed for its transparency, the 72 ten-minute speeches were carried live on national television, “the first time in more than 50 years that they [were] able to express their desires and pent up aspirations to a national audience without fear of being arrested and put in prison”.[fn]Crisis Group interviews, armed group representatives, Yangon, September 2016. Quote from “Political Monitor No. 20”, Euro-Burma Office, 20 August-2 September 2016.Hide Footnote

The attendance of most non-signatories was an important step forward. However, it does not necessarily indicate significantly greater trust in the new government on the part of armed group leaders. It more reflects the very different political landscape – in particular, the domestic and international legitimacy of Suu Kyi. Many armed group leaders felt they had little alternative but to participate, despite reservations or concerns; some came under pressure from China to attend (see below).[fn]Ibid.Hide Footnote  A prominent ethnic politician, Khun Tun Oo, who chairs the Shan Nationalities League for Democracy, did boycott on the basis that the conference was not fully inclusive of armed groups (though the decision was undoubtedly influenced by political tensions between his party and the NLD).[fn]Crisis Group interviews, armed group representatives and analysts, Yangon, September 2016. “Khun Tun Oo absent from peace talks”, Shan Herald Agency for News, 31 August 2016. For details on the tensions, see Crisis Group Report, Myanmar’s New Government, op. cit., Section III.C.Hide Footnote

Several groups felt the conference had been hastily convened, and there was considerable unhappiness at flawed arrangements. Armed group delegations were not met at the Naypyitaw airport and had to find their own way to their accommodation; delegations, including some senior leaders, were housed dormitory-style by the government; written documents and nameplates did not give military ranks of armed group representatives or other honorifics (failure to use the equivalent of “Mr” or “Ms” before a name is culturally very impolite in Myanmar). A major group, the UWSP, walked out after the first day, saying it felt discriminated against, though this was at least as much a reflection of its ambivalence about the NCA as it was over a specific issue; it had sent only a low-level delegation.[fn]The UWSP delegation had booked itself into a prominent hotel, rather than stay at the government-assigned accommodation. Since groups were not met at the airport, the delegation did not collect its conference passes, and on the opening day a government organiser arranged temporary “observer” badges so the delegation could attend the plenary. Since these were not valid for the following day session, when the UWSP was to give its presentation, security barred the delegation, which then walked out in protest before organisers could remedy the problem. Crisis Group interview, organising committee member, Yangon, September 2016.Hide Footnote  Some of these issues arose from the tight timeframe for convening the conference, but others appear to have been the deliberate result of the government’s approach to organising it.

IV. Huge Challenges Remain

The government has indicated that it plans to hold such Panglong-21 peace conferences every six months.[fn]“Union Peace Conference to be held every six months”, State Counsellor Office statement, 15 August 2016.Hide Footnote  This would impose an artificially rigid set of deadlines on a process that must achieve the buy-in of diverse stakeholders on very contentious issues. Challenges lie in the preliminary matters that must be settled before the next session, the content of future political discussions and the political and security context.

A. Preparations for the Next Conference

Achieving broad participation by armed groups at the recent conference hinged on three things:

  • Suu Kyi, who won an electoral landslide, including in many ethnic areas, and enjoys strong international support as well, has great political capital and legitimacy. Most armed group leaders accordingly felt politically compelled to attend, unlike in the past. This was reinforced by the military’s support for the conference and the clear convergence of views between the soldiers and government on the peace process. China’s backing was also critical. The combination gave Suu Kyi a large advantage over the previous government, which had military support but far less legitimacy and no backing – indeed, sometimes obstruction – from China. (It also amplified the power asymmetry between the government/military and the armed groups, making the latter nervous.)
  • Decisions on difficult issues were postponed until after the conference. In particular, discussions on a revised Framework for Political Dialogue continue, and there is not yet agreement on topics to be included and how a series of “national dialogues” to feed into the next Panglong-21 will be conducted. Non-signatory groups declined to attend a September framework review meeting.[fn]Crisis Group interview, UPDJC member, Yangon, September 2016.Hide Footnote
  • Perhaps most importantly, the requirement that armed groups must sign the NCA to participate was not enforced. This was possible because the conference was billed as a symbolic launch, without discussions or decisions. But it remains firm government policy and a red line for the military that armed groups wishing to participate in the political dialogue must first sign the NCA. This message was reinforced by Suu Kyi and Commander-in-Chief Min Aung Hlaing, who made the NCA a key focus of their opening speeches.[fn]Reproduced in Global New Light of Myanmar, 1 and 2 September 2016, respectively.Hide Footnote

The timeframe is extremely tight. The next conference is due in February and may be timed to coincide with the 70th anniversary on 12 February of the 1947 Panglong agreement, celebrated annually as Union Day. Before this, there is need for negotiations to secure signing of the NCA by non-signatories and agreement on a revised Framework for Political Dialogue (targeted for end of October), followed by national dialogues in each state and region. All these steps are difficult, time-consuming or both, particularly getting more groups to sign the NCA. The largest armed group, the UWSP, is very reluctant to sign, because it is a de facto mini-state with far more autonomy than anything the NCA offers. The closely-allied NDAA is likely to follow its lead.

The seven UNFC groups (see Appendix B), particularly the larger ones, desire to reach a political settlement on the grievances driving decades of conflict – fundamentally, lack of autonomy and equality. They recognise the current moment may be the best opportunity they will ever get, but exclusion of the AA, TNLA and MNDAA makes the NCA politically problematic for them and a ceasefire militarily unfeasible. They also have not yet been offered any concessions – not even of the face-saving kind – for signing,[fn]In particular, the UNFC has put forward an eight-point proposal for amending/supplementing the NCA. It will be very difficult for the government to accept any changes now that it is signed by the former president, commander-in-chief and legislative speakers, as well as eight armed groups, and been ratified by the legislature. Some of the specific proposals are also quite difficult, but a compromise must be found. See also, Sai Wansai, “Framework for Political Dialogue: UNFC’s boycott leads to peace process deterioration”, Shan Herald Agency for News, 21 September 2016.Hide Footnote  and will be reluctant to do so if the only reason is to gain access to a process they view as driven unilaterally by the government and insufficiently sensitive to their concerns. They worry that conforming to an artificial, government-imposed timeframe would set a precedent for unilateral imposition of any subsequent political solutions.

Some UNFC members may also want to delay major decisions until the KNU holds its congress in November.[fn]Crisis Group interview, senior armed group representative, Yangon, September 2016.Hide Footnote  If a more hardline leadership results, they believe it could pave the way for this influential armed group to rejoin the alliance, enhancing its power and bargaining position. However, if the UNFC tries to prolong the process too much, it risks being marginalised, for example not being eligible to participate in the national dialogues, thereby giving government and political parties a stronger role in defining the peace process agenda.[fn]Crisis Group interviews, armed group leaders, members of government peace bodies and analysts, Yangon, July-October 2016.Hide Footnote

The issue of the three groups, AA, TNLA and MNDAA, without bilateral ceasefires is even more difficult. Including them in the next conference requires, at a minimum, agreement on a statement renouncing violence in principle; even then, they could likely attend only as observers. Having declined that for the last conference, it is far from clear whether they will do so ahead of the next; the TNLA sent an open letter to Panglong-21 stating it would “never lay down arms or renounce arms, at any time or under any circumstance”.[fn]TNLA open letter to the Panglong-21 conference, 31 August 2016.Hide Footnote  This not only matters for inclusivity, but also has on-the-ground consequences. These groups are to various degrees allied with or supported by the UWSP and KIO, and they fight together in joint patrols and in some cases together with the KIO and SSPP. All operate in adjacent or overlapping territory, and it is hard to imagine any ceasefire being sustainable without the three non-ceasefire groups.[fn]See “Military confrontation or political dialogue: Consequences of the Kokang crisis for peace and democracy in Myanmar”, Transnational Institute, July 2015.Hide Footnote  

A huge amount of procedural work and negotiation is required before the next peace conference. In addition to the inherent challenges, the peace architecture has quite limited capacity. Lead negotiator Dr Tin Myo Win works extremely hard but has no chief of staff for the process and continues his medical work for Suu Kyi and as a surgeon at a philanthropic hospital. The NRPC, tasked with the day-to-day work, has only a handful of staff, compared with 120 under its predecessor. Because Suu Kyi decided to establish it as a fully government entity under her office (its predecessor was semi-independent, at least administratively), it must follow civil service staffing and budgeting regulations. Scaling up will take considerable time, and it will be difficult to draw on outside expertise.[fn]Crisis Group interviews, individuals with direct knowledge, Yangon, June-September 2016. The new multi-donor Joint Peace Fund is an initiative that can provide significant resources, but it cannot necessarily overcome the regulatory restrictions the NRPC operates under.Hide Footnote  There is thus a worrying lack of institutional capacity to support peace-process mechanics, and the armed groups also have little support capacity.

B. Questions of Content

Now that the peace process set out in the NCA has been launched symbolically on two occasions – the Union Peace Conference in January 2016 and Panglong-21 in August – the next conference will have to start addressing the substantive issues. Assuming that a revised Framework for Political Dialogue can be agreed and reasonable inclusivity of armed groups can be achieved through an expansion in NCA signatories, participants will then need to start grappling with the substance. All agree this will be very challenging, and it will likely be many years before a comprehensive peace agreement can be reached. Three key questions arise:

  • Is a negotiated federal solution possible? This is the main demand of armed groups and ethnic leaders, and Suu Kyi has strongly committed to achieving “the democratic federal union of our dreams”. The military is far more cautious. The commander-in-chief did not use the term “federal” in his opening speech at Panglong-21, emphasising “peace and unity” and that armed struggle is inconsistent with democracy. However, the military is not rejecting federalism; the commander-in-chief signed the NCA, whose first point is to “establish a union based on the principles of democracy and federalism”, and a senior military officer used the term at Panglong-21.[fn]Aung San Suu Kyi, opening speech, Panglong-21, Naypyitaw, 31 August 2016. NCA Section 1(a); speech of Lt. General Yar Pyae, JMC chair, at Panglong-21, reported in “21st Century Panglong commences in Nay Pyi Taw”, Global New Light of Myanmar, 1 September 2016.Hide Footnote  The potential deal is federalism in return for disarmament of armed groups. However, this will be complicated given the number of armed groups and their divergent interests, and the extent of federal powers that military and government are ready to devolve is not yet clear. There are also hundreds of armed militias, some of which have ethno-nationalist positions, but most are primarily economic actors.[fn]For details, see John Buchanan, “Militias in Myanmar”, The Asia Foundation, July 2016.Hide Footnote

  • Can the concerns of sub-minorities be accommodated? One of the more intractable issues is likely to be their status. Federalism has tended to be conceived, in geographic terms, as devolution of powers to the existing seven ethnic states.[fn]Chin, Kachin, Kayah, Kayin, Mon, Rakhine and Shan.Hide Footnote  This alarms smaller minority groups within these states, who fear that political domination at the state level will replace domination by Naypyitaw. This was already clear from the speeches at Panglong-21, where specific claims for new states were made by the Wa, Ta’ang and Pao (all currently having self-administered areas within Shan State) and the Red Shan (in Kachin State and Sagaing Region, where they have no territorial designation). Many other potential claims can be anticipated.[fn]See comments of Sai Htay Aung (Red Shan), Khun Myint Tun (Pao) and U Yan Kyaw (Wa), Global New Light of Myanmar, 3 September 2016; and TNLA open letter, op. cit., which specifically calls for creation of a Ta’ang (Palaung) State.Hide Footnote  Shan and Kachin political and armed group leaders in general oppose these proposals.
  • Will any negotiated solution be regarded as legitimate and be implemented? Even if a reasonably inclusive process can be achieved and consensus reached on the complex substantive issues, many constituencies may feel marginalised by the process. Minority ethnic representation is limited to those that have armed groups or political parties that won seats (in a recent change Suu Kyi initiated, those that did not win legislative seats in 2015 have only a token number at the peace conference and no UPDJC representation).[fn]See “Kayah political parties boycott Panglong Conference”, Myanmar Times, 22 August 2016.Hide Footnote  Many influential ethnic parties won nothing in the NLD landslide and will have a minimal voice in the process; some minority groups are not represented by an armed group; and questions can be asked about how representative armed groups are of communities in their areas.

There is a fundamental doubt about whether state-based federal solutions can appropriately be negotiated between armed groups and government, in particular when civil society voices, women and youth feel marginalised in the process.[fn]“CSOs pine for seat at table”, Myanmar Times, 26 August 2016; statement by Alliance for Gender Inclusion in the Peace Process on Panglong-21, September 2016; “No women, no peace: Gender equality, conflict and peace in Myanmar”, Transnational Institute, 13 January 2016; “Youth ethnic alliance emerges after summit”, Myanmar Times, 3 August 2016.Hide Footnote  That process should be adjusted to ensure that it has broader legitimacy. Even where representation has strong legitimacy – for example, the NLD government’s support from the majority Burman group (and many others) – the population at large has had little engagement with the peace process and may oppose solutions that devolve too much political authority and economic control to minority areas. Minority communities will not necessarily see the NLD as representing their interests, even if they voted for it, because that vote was in many ways a referendum on military rule, reflecting determination to vote out the military-backed party.[fn]For discussion of the election outcome in ethnic areas and its interpretation, see Crisis Group Briefing, The Myanmar Elections, op. cit., Section IV.C; and “The 2015 general election in Myanmar: What now for ethnic politics?”, Transnational Institute, December 2015.Hide Footnote

While Suu Kyi’s focus has been on federalism and security – she initially proposed that the political dialogue deal directly with only those issues – minority communities have many other concerns. These include rights and discrimination, revenue sharing, natural resource management and language policy.[fn]For detailed discussion, see Crisis Group Report, Myanmar: A New Peace Initiative, op. cit., Section IV.Hide Footnote  Whether these are dealt with up-front as potentially more tractable confidence-building measures or sidelined by more fundamental issues can have a big impact on the dynamics of the peace process. Overlooking them would likely be a mistake.

C. The Political and Security Environment

Since the peace process was launched in 2011, it has had to face significant external and domestic challenges. Serious armed conflict on the ground and China’s role have been particularly important and are to some degree interlinked.

The most significant outbreak of conflict in recent years was the collapse of the KIO ceasefire in 2011, the seeds of which were sown prior to the 2010 election. Fighting resumed ahead of the formal launch of the peace process in August 2011, and a serious escalation in December 2012 threatened to derail it, but China’s intervention, prompted in part by fighting spilling over its border, pushed the sides back to the negotiating table.[fn]See Crisis Group Asia Briefing N°140, A Tentative Peace in Myanmar’s Kachin Conflict, 12 June 2013.Hide Footnote  Another major test came in April 2014, when serious clashes displaced some 5,000 civilians and eroded the trust of all parties in the NCA negotiations. The crisis deepened in November 2014, when an army mortar attack on a military training centre at KIO headquarters almost caused the talks to collapse. Serious fighting in the Kokang Self-Administered Zone between government forces and the MNDAA from February 2015 hardened opposing positions of the military and several armed groups over inclusivity, part of the reason why a number of groups were unwilling to sign the NCA that year.[fn]Crisis Group Briefing, Myanmar’s Peace Process, op. cit., Section II.D.Hide Footnote

With a fragile peace holding in parts of the borderlands and clashes ongoing in many others (Section II.B above), the peace process is likely to continue to be buffeted. Rigid timelines for Panglong-21 conferences risk becoming an obvious target for spoilers and an unsatisfactory framework for adjusting to unpredictable but inevitable escalations in the conflict. The military may feel less constrained by the peace process than under the previous government; given the power asymmetries, it is likely to continue pressing its ground advantage, especially with NCA non-signatories and in particular if the peace process moves slowly or it feels that armed groups are being obstructive.

China’s influence can have a big impact on ground dynamics and the peace process, given its considerable leverage over the groups on its border. It has regularly intervened, positively and negatively. Relations with the Thein Sein administration were often strained, starting with suspension of the Myitsone dam project in 2011 and difficulties with the Letpadaung copper mine – both major China-backed projects – and long delays in announcing that a Chinese company had won the tender for the Kyaukpyu deep-sea port and special economic zone, a major Chinese strategic interest.[fn]See Yun Sun, “Aung San Suu Kyi’s visit to Beijing: Recalibrating Myanmar’s China policy”, Transnational Institute, 16 August 2016.Hide Footnote  Myanmar’s markedly improved relations with the U.S. intensified China’s angst that it had lost its “traditional advantage”.[fn]“China’s engagement in Myanmar: From Malacca Dilemma to Transition Dilemma”, Transnational Institute, July 2016.Hide Footnote  The poor relations, combined with specific irritants such as Myanmar’s intrusion into Chinese airspace in 2015 to attack the MNDAA, a flood of refugees into China and Naypyitaw’s invitation to Japan and the West to become involved in the peace process, produced a negative stance toward the NCA, to the point that persistent allegations emerged that China was lobbying armed groups in 2015 not to sign.[fn]China has denied the allegations, which were made publicly by a member of the Myanmar Peace Centre and subsequently retracted, and privately to Crisis Group and others by a wide range of people connected to the peace process. Whether true or not, it is clear from talk with armed groups leaders at the time that there was no Chinese pressure to sign the NCA and massive private financial support from China that the authorities must have been aware of. See “Fraud probe alleges Chinese firm sent money to Myanmar insurgents”, Frontier Myanmar, 3 February 2016.Hide Footnote  

The situation has shifted significantly under the new government. China feels Suu Kyi gives more priority to the bilateral relationship, and it supports her peace overtures. At the July summit of armed group leaders hosted by the KIO, the Chinese special envoy publicly called on all groups to attend Panglong-21, and Beijing successfully put considerable pressure on several to do so. China has also given several million dollars to fund the JMC but remains uncertain about the trajectory of relations, the chances for success in the peace process and how many years that would take; it is thus likely to continue to balance support for Naypyitaw and maintaining ties with armed groups along its border.[fn]Yun Sun, “Aung San Suu Kyi visit to Beijing”, op. cit. Crisis Group interview, Myanmar expert on China, Yangon, September 2016.Hide Footnote

V. Conclusion

The Panglong-21 conference encapsulated both the significant advantages Suu Kyi has for forging peace and the enormous challenges she must surmount. The broad attendance of armed groups gives hope of a more inclusive, successful peace process, but it would be a mistake to think that the fundamental problems have become easier to solve. It will take difficult negotiations to convince most groups to sign the NCA, a sine qua non the government and military have each expressed. The announced scheduling of Panglong-21 conferences every six months artificially limits the flexibility required to secure signatures. Weak capacity in the government’s NRPC peace secretariat makes the job more difficult.

The government should consider adopting a less rigid timeframe and less unilateral approach and take steps to ensure it has the necessary support capacity in place. Armed groups need to recognise that, though they have legitimate concerns about the process, they may never get a better chance to negotiate a settlement. Aung San Suu Kyi has expressed firm support for a federal, democratic solution and has the political authority to deliver. Now is the time to start discussing the contours of that deal, rather than continuing to focus on preliminaries.

Yangon/Brussels, 19 October 2016

Appendix A: Map of Myanmar

Map of Myanmar. CRISIS GROUP

Appendix B: The Main Ethnic Armed Groups and their Ceasefire Status

  1. United Wa State Party (UWSP)
    Bilateral ceasefire: 6 September 2011. NCA-signatory: No
  2. National Democratic Alliance Army (NDAA, “Mongla group”)
    Bilateral ceasefire: 7 September 2011. NCA-signatory: No
  3. Democratic Kayin Benevolent Army (DKBA)
    Bilateral ceasefire: 3 November 2011. NCA-signatory: Yes
  4. Restoration Council of Shan State/Shan State Army-South (RCSS/SSA-South)
    Bilateral ceasefire: 2 December 2011. NCA-signatory: Yes
  5. Chin National Front (CNF)  
    Bilateral ceasefire: 6 January 2012. NCA-signatory: Yes
  6. Karen National Union (KNU)
    Bilateral ceasefire: 12 January 2012. NCA-signatory: Yes
  7. Shan State Progress Party/Shan State Army-North (SSPP/SSA-North)
    Bilateral ceasefire: 28 January 2012. NCA-signatory: No
  8. New Mon State Party (NMSP)
    Bilateral ceasefire: 1 February 2012. NCA-signatory: No
  9. Karen National Liberation Army Peace Council
    Bilateral ceasefire: 7 February 2012. NCA-signatory: Yes
  10. Karenni National Progressive Party (KNPP)
    Bilateral ceasefire: 7 March 2012. NCA-signatory: No
  11. Arakan Liberation Party (ALP)
    Bilateral ceasefire: 5 April 2012. NCA-signatory: Yes
  12. National Socialist Council of Nagaland-Khaplang
    Bilateral ceasefire: 9 April 2012. NCA-signatory: No
  13. Pao National Liberation Organisation (PNLO)
    Bilateral ceasefire: 25 August 2012. NCA-signatory: Yes
  14. All Burma Students Democratic Front (ABSDF)
    Bilateral ceasefire: 5 August 2013. NCA-signatory: Yes
  15. Kachin Independence Organisation (KIO)
    Bilateral ceasefire: (30 May 2012)*. NCA-signatory: No
  16. Ta’ang National Liberation Army (TNLA)
    Bilateral ceasefire: No. NCA-signatory: No
  17. Myanmar National Democratic Alliance Army (MNDAA, “Kokang group”)         
    Bilateral ceasefire: No†. NCA-signatory: No
  18. Arakan Army (AA)
    Bilateral ceasefire: No. NCA-signatory: No

* An agreement was signed on 30 May 2012. It was not a formal ceasefire, but contained inter alia a commitment to “efforts to achieve de-escalation and cessation of hostilities”.

† The MNDAA’s 1989 ceasefire ended after an army attack in 2009, with one faction being routed (and its leaders fleeing to China) and the other agreeing to become a Border Guard Force unit under partial army control. The routed faction subsequently reactivated, with support from other groups.

The United Nationalities Federal Council (UNFC) is an armed group umbrella organisation, whose seven members have not signed the NCA: SSPP/SSA-North, NMSP, KNPP, KIO, Lahu Democratic Union, Arakan National Council, Wa National Organisation. The last three do not have significant armed forces, so have not been directly included in the ceasefire process.

Appendix C: List of Acronyms

AA: Arakan Army

ABSDF: All Burma Students Democratic Front

ALP: Arakan Liberation Party

CNF: Chin National Front

DKBA: Democratic Kayin Benevolent Army, Democratic Kayin Buddhist Army

JMC: Joint Monitoring Committee

KIO: Kachin Independence Organisation

KNPP: Karenni National Progressive Party

KNU: Karen National Union

MNDAA: Myanmar National Democratic Alliance Army (Kokang)

NCA: Nationwide Ceasefire Agreement

NDAA: National Democratic Alliance Army (“Mongla group”)

NMSP: New Mon State Party

NRPC: National Reconciliation and Peace Centre

NSCN-Khaplang: National Socialist Council of Nagaland-Khaplang

PNLO: Pao National Liberation Organisation

RCSS: Restoration Council of Shan State

SSA-North: Shan State Army-North

SSA-South: Shan State Army-South

SSPP: Shan State Progress Party

TNLA: Ta’ang National Liberation Army

UNFC : United Nationalities Federal Council

UPDJC: Union Peace Dialogue Joint Committee

UWSP: United Wa State Party

Myanmar law enforcement authorities seized illegal drugs worth 187 million USD marking the International Day against Drug Abuse and Illicit Trafficking during a ceremony in Yangon on June 26, 2018. YE AUNG THU/AFP
Report 299 / Asia

Fire and Ice: Conflict and Drugs in Myanmar’s Shan State

Civil strife has turned Myanmar’s Shan State into a crystal methamphetamine hub. The richer the traffickers get, the harder the underlying conflicts will be to resolve. Instead of targeting minor offenders, the military should root out corruption, including among top brass, and disarm complicit paramilitaries.

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What’s new? Shan State has long been a centre of conflict and illicit drug production – initially heroin, then methamphetamine tablets. Good infrastructure, proximity to precursor supplies from China and safe haven provided by pro-government militias and in rebel-held enclaves have also made it a major global source of high purity crystal meth.

Why does it matter? Drug production and profits are now so vast that they dwarf the formal sector of Shan State and are at the centre of its political economy. This greatly complicates efforts to resolve the area’s ethnic conflicts and undermines the prospects for better governance and inclusive economic growth in the state.

What should be done? The government should redouble its drug control and anti-corruption efforts, focusing on major players in the drug trade. Education and harm reduction should replace criminal penalties for low level offenders. The military should reform – and ultimately disband – militias and other pro-government paramilitary forces and pursue a comprehensive peace settlement for the state.

Executive Summary

Myanmar’s Shan State has emerged as one of the largest global centres for the production of crystal methamphetamine (“ice”). Large quantities of the drug, with a street value of tens of billions of dollars, are seized each year in Myanmar, neighbouring countries and across the Asia-Pacific. Production takes place in safe havens in Shan State held by militias and other paramilitary units allied with the Myanmar military, as well as in enclaves controlled by non-state armed groups. The trade in ice, along with amphetamine tablets and heroin, has become so large and profitable that it dwarfs the formal economy of Shan State, lies at the heart of its political economy, fuels criminality and corruption and hinders efforts to end the state’s long-running ethnic conflicts. Myanmar’s government should stop prosecuting users and small-scale sellers and work with its neighbours to disrupt the major networks and groups profiting from the trade. The military should better constrain pro-government militias and paramilitaries involved in the drugs trade, with an eye to their eventual demobilisation.

The growing drugs trade in Shan State is in part a legacy of the area’s ethnic conflicts. For decades, the Myanmar military has struck ceasefire deals with armed groups and established pro-government militias. Such groups act semi-autonomously and enjoy considerable leeway to pursue criminal activities. Indeed, conditions in parts of Shan State are ideal for large-scale drug production, which requires a kind of predictable insecurity: production facilities can be hidden from law enforcement and other prying eyes but insulated from disruptive violence.

Tackling the drug trade presents a complex policy challenge involving security, law enforcement, political and public health aspects.

But if the drugs trade is partly a symptom of Shan State’s conflicts, it is also an obstacle to sustainably ending them. The trade, which now dwarfs legitimate business activities, creates a political economy inimical to peace and security. It generates revenue for armed groups of all stripes. Militias and other armed actors that control areas of production and trafficking routes have a disincentive to demobilise, given that weapons, territorial control and the absence of state institutions are essential to those revenues. The trade attracts transnational criminal groups and requires bribing officials for protection, support or to turn a blind eye, which allows a culture of payoffs and graft to flourish and adds to the grievances of ethnic minority communities that underpin the seventy-year old civil war. Myanmar’s military, which has ultimate authority over militias and paramilitaries and profits from their activities, can only justify the existence of such groups in the context of the broader ethnic conflict in the state – so the military also has less incentive to end that conflict.

Tackling the drug trade presents a complex policy challenge involving security, law enforcement, political and public health aspects. An integrated approach that addresses all of these areas will be needed to effectively address it:

  • Myanmar’s government should redouble its drug control efforts, ending prosecutions of small-time dealers and users and refocusing on organised crime and corruption associated with the trade. The president should instruct and empower the Anti-Corruption Commission to prioritise this.
  • At the community level, the government should focus more on education and harm reduction, in line with its February 2018 National Drug Control Policy. It should work with relevant donors and international agencies to invest in education and harm reduction initiatives geared specifically toward the particular dangers of crystal meth use. Although crystal meth is currently not widely used in Myanmar, that is likely to change given the huge scale of production.
  • Myanmar’s military should rethink the conflict management approaches it has employed for decades. In particular, it should exert greater control over – and ultimately disarm and disband – allied militias and paramilitary forces that are among the key players in the drug business. The impunity that these groups enjoy, and the requirement that they mostly fund themselves, has pushed them to engage in lucrative illicit activities.
  • The military should also investigate and take concerted action to end drug-related corruption within its ranks, focusing on senior officers who facilitate or turn a blind eye to the trade.
  • ​​​​​​​Myanmar’s neighbours should stop illicit flows of precursors, the chemicals used to manufacture drugs, into Shan State. As the main source of such chemicals, China has a particular responsibility to end this trade taking place illegally across its south-western border. It should also use its influence over the Wa and Mongla armed groups controlling enclaves on the Chinese border to end their involvement in the drug trade and other criminal activities.

Targeting the major players in the drug trade will not be easy and comes with risks of pushback, perhaps violent, from those involved. But the alternative – allowing parts of Shan State to continue to be a safe haven for this large-scale criminal enterprise – will see closer links between local armed actors, corrupt officials in Myanmar and the region, and transnational criminal organisations. The more such a system becomes entrenched, and the greater the profits it generates, the harder it will be to dislodge and the longer conflicts in that area are likely to persist. The people of Shan State, and Myanmar as a whole, will pay the highest price.

Brussels, 8 January 2019

I. Introduction

Myanmar’s conflicted Shan State has long been a global centre of illegal drug production.[fn]For Crisis Group reporting on Myanmar since the 2015 elections, see Asia Reports N°s 296, The Long Haul Ahead for Myanmar’s Rohingya Refugee Crisis, 16 May 2018; 292, Myanmar’s Rohingya Crisis Enters a Dangerous New Phase, 7 December 2017; 290, Buddhism and State Power in Myanmar, 5 September 2017; 287, Building Critical Mass for Peace in Myanmar, 29 June 2017; 283, Myanmar: A New Muslim Insurgency in Rakhine State, 15 December 2016; and 282, Myanmar’s New Government: Finding Its Feet?, 29 July 2016; and Asia Briefings N°s 153, Bangladesh-Myanmar: The Danger of Forced Rohingya Repatriation, 12 November 2018; 151, Myanmar’s Stalled Transition, 28 August 2018; 149, Myanmar’s Peace Process: Getting to a Political Dialogue, 19 October 2016; and 147, The Myanmar Elections: Results and Implications, 9 December 2015.Hide Footnote For decades the primary global source of opium and heroin – until it was eclipsed by Afghanistan in the 1990s – it is now the centre of a massive methamphetamine manufacturing and trafficking business, linked to sophisticated transnational criminal organisations.[fn]Afghanistan overtook Myanmar as the largest opium produced in 1991, whereas Myanmar had the largest area of poppy cultivation until 2003. (The difference is due to higher yields in Afghanistan.)Hide Footnote

This business thrives on the proximity of Shan State to supplies of precursors – the chemicals needed for drug production – from across the Chinese border and huge local and regional markets for the drugs. It benefits from a combination of high-level corruption and the existence of safe havens controlled by army-backed militias or non-state armed groups, allowing industrial-scale synthesis of drugs and their trafficking in tonne quantities. Both precursors and drug products are often concealed within increasing large licit trade flows across the region, spurred by greater connectivity and improved transport infrastructure.

The drug trade and armed conflict in Shan State have been interlinked since the 1950s.

The methamphetamine business has become so large and profitable that it now dwarfs the formal economy of Shan State, and is at the centre of its political economy. This report examines the implications of this for the dynamics of the armed conflict and the prospects for resolving it, and more broadly for the political and economic stability of Shan State. It is based on Crisis Group research since May 2018, including interviews in Myanmar and Thailand with experts on drug policy and the drug trade, and research in northern Shan State, including interviews with current and former members of militias and ethnic armed groups, members of civil society and other individuals with direct knowledge of the drug trade. Research focused in particular on northern Shan State, currently the location of the most active armed conflicts – between ethnic armed groups and the Myanmar military; among ethnic armed groups or militias – and a key hub of drug production and trafficking; illicit drug production also takes place in other parts of Shan State, but there is currently less armed conflict in those areas.

Drug Terminology CRISISGROUP

II. A Long Legacy

The drug trade and armed conflict in Shan State have been interlinked since the 1950s.[fn]For detailed accounts of the events in this section, see Bertil Lintner, Burma in Revolt: Opium and Insurgency since 1948 (White Lotus, 1994); and Martin Smith, Burma: Insurgency and the Politics of Ethnicity, 2nd edition (Zed Books, 1999). For a concise overview of ethnic conflict more broadly in Myanmar, see Crisis Group Asia Report N°214, Myanmar: A New Peace Initiative, 30 November 2011, Sections I and II.Hide Footnote In 1949, remnants of the nationalist Chinese Kuomintang Army invaded northern Myanmar and formed a series of base areas in eastern Shan State along the border with Thailand. The Kuomintang soon established control over the transportation of opium to heroin processing labs in Laos and Thailand, and later processed high-grade heroin themselves. During the 1970s and 1980s, Myanmar produced the majority of the world’s processed heroin for export, trafficked through Thailand to Hong Kong and on to markets in North America and Australia. This hub of opium cultivation and drug processing that encompassed Shan State, western Laos and northern Thailand became known as the “Golden Triangle”.

During these decades, drug kingpins or organisations competed for dominance in the opium and heroin trade, including first the Kuomintang, then the ethnic Kokang warlord Lo Hsing-Han, and from the 1970s, the Sino-Shan rebel leader Khun Sa, who first operated as a local militia commander, then as the leader of rebel forces – the Shan United Revolutionary Army and subsequently the Mong Tai Army. Within this milieu proliferated a number of small and medium sized armed groups, including many rebel militias from ethnic groups such as the Wa, Palaung (Ta-ang), Kokang and Shan – often in shifting alliances over commodities and control of territory. Around the margins of large ethnic armed organisations was a plethora of smaller militias, cultivated by Myanmar’s armed forces (the Tatmadaw) and nominally controlled by them, but not provided with resources. These militias were first called Ka Kwe Ye (village defence units) and subsequently Pyithu Sit (people’s militias).

In the late 1960s, China stepped up support for the Communist Party of Burma, which had gone underground three months after Myanmar’s independence in January 1948. The Communist Party had been struggling militarily, but with new resources it launched a successful operation from Chinese territory into northern Shan State, where it soon absorbed several border-based ethnic armies, including those of the Wa and Kokang, becoming the strongest anti-government armed force in the country for two decades.

The dynamics of Shan State’s conflict changed markedly in 1989, when the Communist Party imploded in mutiny, with three major organisations forming from its rank-and-file foot soldiers: the United Wa State Army (UWSA), the Myanmar National Democratic Alliance Army (MNDAA), and the National Democratic Alliance Army (NDAA) that controlled large swathes of territory along the Chinese-Myanmar frontier. The former chief of military intelligence, Lt-Gen Khin Nyunt and warlord Lo Hsing-Han brokered a series of verbal ceasefire arrangements with national and local military commanders, and the areas of control of these groups were designated as seven “special regions”.[fn]Shan State Special Region 1-MNDAA-Kokang; Shan State Special Region 2-UWSA-Pangsang; Shan State Special Region 3-Shan State Progress Party (SSPP)-Northern Shan State; Shan State Special Region 4-NDAA-Mongla; Shan State Special Region 5-Shan State Nationalities People’s Liberation Organisation (SSNPLO)-Eastern Shan State; Shan State Special Region 6-Pao National Liberation Army (PNLA)-Southern Shan State; and Shan State Special Region 7-Palaung State Liberation Front (PSLF)-Northern Shan State. Many of these special regions, such as those of the SSNPLO and PSLF, were almost completely disarmed due to Tatmadaw pressure in the early mid-2000s, while the others were transformed into Self-Administered Areas under the 2008 constitution.Hide Footnote

The drug trade then entered a new phase of competitive violence, with the UWSA challenging Khun Sa’s monopoly on heroin exports and moving against his Mong Tai Army’s bases in eastern and southern Shan State. Pressure on Khun Sa and his army intensified with indictments in the Eastern District Court of New York of key leaders as part of “Operation Tiger Trap” in 1994, and efforts by Thailand to curtail Khun Sa’s activities. As a result of this multi-front containment, Khun Sa surrendered to the government in 1996 and, in exchange for disbanding his army and leaving the drug trade, was permitted to “retire” in Yangon.[fn]Maung Pho Shoke, “Why Did U Khun Sa’s MTA Exchange Arms for Peace”, Yangon, Meik Kaung Press, 1999.Hide Footnote Elements of the Mong Tai Army soon reorganised as the Shan State Army-South, whose political wing is known as the Restoration Council of Shan State.

To further complicate this upheaval in the drug trade, in 1999 the Wa special region declared an opium ban in parts of its territory, which destroyed the livelihoods of poor opium farmers and sparked widespread food shortages.[fn]The whole Wa region was declared opium free in June 2005.Hide Footnote In a draconian social engineering project, the Wa insurgent group, the UWSA, then forcibly relocated an estimated 100,000 ethnic Wa, Lahu and Akha civilians from the northern special region to areas in Monghsat and Mongton townships along the Thailand border across from Chiang Rai province – to populate an area called Mong Yawn, also known as the 171 military region or “southern Wa State”. This was an area previously controlled by Khun Sa’s Mong Tai Army, and which the Tatmadaw had given permission to the UWSA to occupy and settle, as a quid pro quo for their help in defeating the Mong Tai Army. Mong Yawn soon became a hub for the production of a new Golden Triangle drug, yaba.[fn]In Myanmar, many people still refer to yaba as “ya ma”, or “horse medicine” in Thai – due to the drug’s supposed ability to confer the strength of a horse.Hide Footnote

Amid decades of evolving conflict dynamics, drug production in Shan State has undergone three significant phases. From the 1950s to the 1990s, heroin production was dominant. Then from the late 1990s – around the time the UWSA established its southern area and declared an opium ban in parts of its territory – heroin production declined. Methamphetamines (yaba) production began.

More frequent seizures of yaba in Rakhine State and Cox’s Bazar in Bangladesh point to the diversification of export markets for yaba produced in Shan State.

Key to this market shift was the UWSA’s growing influence, and the involvement of a central drug trade entrepreneur, the Sino-Thai operator Wei Hsueh-Kang, who over the past three decades allegedly worked for the Kuomintang, the Mong Tai Army and the UWSA. U.S. courts indicted Wei in 1993 on drug trafficking charges, designated him a drug kingpin in 2000 and indicted him again in 2005, establishing a $2 million bounty for information leading to his capture.[fn]Tom Kramer, The United Wa State Party: Narco-Army or Ethnic Nationalist Party? (East-West Center, 2007), p. 54; and U.S. Bureau of International Narcotics and Law Enforcement Affairs, Narcotics Rewards Program, https://www.state.gov/j/inl/narc/rewards/275656.htm.Hide Footnote He was instrumental in turning Mong Yawn into a drug production hub and in flooding Thailand with cheap methamphetamines.[fn]Ibid.Hide Footnote The third phase of drug production in Shan State has been the production of crystal methamphetamine for export, since the early 2010s (see Section III below).

By 2010, drug production in Shan State had shifted sharply from heroin to meth. Heroin production has not stopped – Myanmar remains the second-largest global producer, albeit now far behind Afghanistan – but the drug is no longer the predominant or most profitable one produced.[fn]In 2017, Myanmar accounted for 5 per cent of global opium production, compared to 86 per cent for Afghanistan. World Drug Report 2018, UNODC, volume 2, p. 28.Hide Footnote The impunity of major armed groups such as the UWSA as well as numerous subcontractors, militias and ethnic armed organisation splinter groups (such as the Democratic Karen Buddhist Army) in other ceasefire areas of eastern Myanmar – allegedly with the assistance of the UWSA – fuelled the rapid expansion of meth production.[fn]See, for example, Des Ball, “Security Developments in the Thailand-Burma Borderlands”, Working Paper No. 9, Australian Mekong Resource Centre, University of Sydney, October 2003.Hide Footnote This surge led to yaba becoming a major export industry, and also increased domestic consumption of the drug throughout Myanmar. More recently, the Arakan Army – established in Kachin State in 2009 – has allegedly been involved in the transit of Shan State-produced yaba across Myanmar and into Bangladesh, where there is a rapidly growing market for the drug.[fn]See “How to Fund a War”, Global New Light of Myanmar, 28 February 2016, p. 1. The Arakan Army strongly rejected the government’s allegations (see “Condemnation Letter”, United League of Arakan/Arakan Army, 29 February 2016). See also “Bangladesh’s drug war death toll tops 200, rights group says”, Agence France-Presse, 17 July 2018.Hide Footnote

More frequent seizures of yaba in Rakhine State and Cox’s Bazar in Bangladesh point to the diversification of export markets for yaba produced in Shan State. There is also evidence that yaba production is increasingly decentralised: the pills now come in many different versions, compositions and brands, for example. As one experienced analyst of the drug trade in northern Shan State observed: “It is a cooperative system. There is no single controller. It is different from when it was under the control of Lo Hsing Han or Khun Sa”.[fn]Crisis Group interview, well-connected local source, Lashio, November 2018.Hide Footnote

III. A New Drug Dynamic

A. A Surge in Production

In January 2018, the Myanmar army and police raided an abandoned house in Kutkai township in northern Shan State, seizing 30 million yaba pills, 1,750kg of crystal meth, more than 500kg of heroin and 200kg of caffeine powder. According to the authorities, it was the country’s largest-ever drug bust, with a domestic value of some $54 million. The following month, a joint army and police team raided two major crystal meth labs in the same area, seizing some seven million dollars’ worth of advanced laboratory equipment, twelve state-of-the art generators, huge quantities of precursor chemicals, and unused branded packaging sufficient for ten tonnes of product – suggesting that the labs were gearing up for a production run of that volume.[fn]Crisis Group interviews, experts on regional narcotics issues, Yangon and Bangkok, May, August and November 2018; “Record narcotics haul in Shan State”, The Irrawaddy, 19 January 2018; “Army, police raid drug labs in northern Shan State”, The Irrawaddy, 19 February 2018.Hide Footnote

The total value of the Mekong drug trade is estimated at over $40 billion per year and rising.

While the sizes of these seizures may have been record-setting, they were not surprising. In the last few years, authorities have regularly captured huge quantities of crystal meth in Myanmar and beyond, with the bulk thought to originate from Shan State. These included 1.2 tonnes seized in Western Australia in December 2017 and 0.9 tonnes in April that year in Melbourne; almost 5 tonnes in Thailand over the course of 2017 and 15 tonnes from January-July 2018; 1.6 tonnes in Indonesia in February 2018; and 1.2 tonnes in Malaysia in May 2018.[fn]See “Australia’s biggest ever methamphetamine haul sees 1.2 tonnes of the drug seized at Geraldton”, ABC News, 22 December 2017; “Indonesia seizes record 1.6 tonnes of crystal methamphetamine”, Reuters, 20 February 2018; “Thai officials reveal largest ever crystal meth haul”, CNN, 4 April 2018; “Meth crisis spreading as supply surges, prices drop”, Straits Times, 21 May; “Malaysians make record bust of crystal meth, shipped from Myanmar”, Reuters, 28 May 2018; “Drug arrests soar but more keep coming”, Bangkok Post, 25 August 2018.Hide Footnote A summary of total seizures for the Mekong sub-region over the last ten years is given below; 2018 figures will exceed those for 2017.[fn]The Mekong sub-region is a transnational area of the Mekong River basin encompassing Cambodia, south-west China, Laos, Myanmar, Thailand and Vietnam.Hide Footnote Gram-for-gram, crystal meth is worth more than heroin, and the total value of the Mekong drug trade is estimated at over $40 billion per year and rising (see Section V below).

Meth seizures in the Mekong sub-region UNODC, 2017 figures preliminary

The Kutkai raids were revealing in a number of ways. First, the location was not a remote, rebel-controlled part of Shan State beyond the authorities’ reach. Rather, it was relatively close to Lashio, not far from the main road to the Chinese border at Muse – Myanmar’s biggest overland trade route – in an area controlled by a militia allied with the Tatmadaw. The Tatmadaw thus had access to the area, even if law enforcement personnel did not.[fn]The Myanmar drug police have expressed to interlocutors their frustration that they require military permission to access certain sensitive areas, and that the necessary permission is either not granted, or delayed such that targets have been tipped off by the time raids take place. Crisis Group interviews, drug policy experts, Yangon, November 2018.Hide Footnote Crisis Group researchers could drive to the area and talk to local people there, passing through checkpoints manned by the militia and visiting the village where the abandoned house was located.

Second, authorities described both the house and the laboratories as “abandoned”.[fn]Ibid.Hide Footnote This suggests that those responsible were tipped off and fled in advance of the raids – which were triggered by Myanmar authorities being given precise coordinates of the locations and a description of the activities taking place there, so that officials apparently felt that they had no alternative but to act.[fn]Crisis Group interviews, experts on regional narcotics issues, Yangon and Bangkok, May, August and November 2018.Hide Footnote There were apparently no consequences for the militia that controls the area, which has maintained a ceasefire with the military for nearly 28 years and has a large compound in Lashio town centre that Crisis Group researchers visited.[fn]Crisis Group research visit to Lashio, November 2018.Hide Footnote

Crystal meth production requires a kind of predictable insecurity.

This case also illustrates the type of enabling environment that crystal meth producers require. As a high-purity pharmaceutical-type product, synthesising it requires trained chemists (many of whom reportedly come from Taiwan), sophisticated laboratory equipment, and a supply of specific precursor chemicals, several of which are highly controlled substances.[fn]There are many chemical pathways for synthesizing crystal meth, but the two most popular and effective are: a) from the decongestant pseudoephedrine (or the blood-pressure medication ephedrine), a simpler and cheaper method than some others, but constrained by controls on pure ephedrine/pseudoephedrine; and b) from phenylacetone (“P2P”), which is a longer, more expensive, lower yield and more difficult process, but with the advantage that it uses different, and possibly less-controlled, precursors (this is the “Walter White method” in the popular television series Breaking Bad). Production in Myanmar appeared to have exclusively used the first method, but there is evidence of diversification to the second, likely due to current or predicted future (pseudo)ephedrine supply problems; almost three tonnes of P2P was seized in Lashio township in November 2018. Crisis Group interviews, experts on regional narcotics issues, Yangon and Bangkok, May, August and November 2018; Myanmar President Office Press Release No. 24/2018, 19 November 2018. All of these, including the chemists, must be brought into Myanmar. Given the difficulty of doing so and the high sunk costs and profit margins involved, there are significant economies of scale in meth production favouring extended, high-volume operations. By contrast, yaba production is a simpler process that does not require significant sunk costs – in some cases, just a small pill press – leading to what has been described as a “cottage industry” in the drug.[fn]International Narcotics Control Strategy Report (hereafter, “INCS Report”), Volume I: Drug and Chemical Control, U.S. Department of State, March 2018, p. 125. The composition of these tablets varies enormously; some are fake and contain only caffeine as the active ingredient.

Crystal meth production requires a kind of predictable insecurity. Industrial-scale clandestine laboratories need to remain hidden and inaccessible to law enforcement or others who may scrutinise them; areas controlled by compliant non-state armed groups are ideal. At the same time, those areas cannot be too unstable, as this would put the investment at risk. Like any manufacturing business, drug production requires good transport infrastructure for the delivery of large quantities of raw materials and onward movement of the finished product. Crossing the front lines of an active conflict is not an appealing prospect in this regard.

Some parts of Shan State perfectly meet these requirements, falling into three broad categories:

  • Areas under the control of militia forces allied with the Myanmar army. Some of these militias are large, well-resourced, well-armed and involved in a range of licit and illicit business activities. In return for carrying out security duties in their areas (essentially, preventing the emergence or incursion of anti-government armed groups), and fighting alongside the military on particular operations, they are given the authority to carry arms and permission to conduct business activities, and the military appears to turn a blind eye to their involvement in illicit activities – which they inevitably engage in, given that they receive no funding or other resources from the military.[fn]For detailed discussion and typology of these forces, see John Buchanan, “Militias in Myanmar”, The Asia Foundation, July 2016. See also fn. 27. Because they are armed and operate checkpoints to control access to their areas or businesses, requests for access by police and civilian government officials generally need to be routed via the Tatmadaw. This explains why the raids on the house and laboratories in Kutkai, a militia-controlled area, were carried out jointly by the military and the anti-narcotics police.[fn]The area in question is controlled by the Kawng Kha militia, which until 2010 was known as the Kachin Defence Army, a faction that broke away from the Kachin Independence Organisation armed group in 1990. Crisis Group visit to Kawng Kha, November 2018; and Crisis Group interviews, well-placed local sources, Lashio and Kutkai, November 2018. See also, “Army, police raid drug labs in northern Shan State”, The Irrawaddy, 19 February 2018.

  • Areas controlled by “Border Guard Forces”. These are former armed factions or militias from different ethnic groups that in 2009-2010 accepted demands from the junta that they transform into paramilitary units.[fn]For details on the Border Guard Force (BGF) scheme, see Crisis Group Asia Report N°214, Myanmar: A New Peace Initiative, 30 November 2011, Section II.B; and John Buchanan, “Militias in Myanmar”, The Asia Foundation, July 2016.
     Hide Footnote
    They include a proportion of Myanmar army officers and troops, and are partially within the Tatmadaw chain of command, but receive only limited funds and supplies from the military. In practice, however, the Border Guard Forces’ Tatmadaw personnel tend not to participate actively in their activities or travel with them; Border Guard Force commanders often also control other troops that operate independently of the formal structure or oversight. Thus, these Border Guard Forces operate much like militias – bearing arms within a specific area they control, and having wide latitude to pursue licit and illicit business activities. Key units are based in northern and eastern Shan State.[fn]For example, BGF1006 (formerly part of the Myanmar National Democratic Alliance Army) in Laukkaing in the Kokang self-administered area and a number of Lahu, Akha and Wa forces in eastern Shan State (BGFs 1007-1010). BGFs in other parts of Myanmar include the ex-New Democratic Army-Kachin (numbers 1001-1003) in Kachin State and ex-Democratic Karen Buddhist Army (numbers 1011-1022) in Kayin State.
     Hide Footnote
    A number of militias and Border Guard Forces have been implicated in the drug trade.[fn]INCS Report, 2018, p. 74; see also “Myanmar’s State-backed militias are flooding Asia with meth”, Global Post, 12 November 2015; and “Solving Myanmar’s drug trade means involving militias in the peace process”, Myanmar Times, 18 May 2016.
     Hide Footnote
That there have been almost no precursor seizures at the border indicates that traf-fickers can move them freely across national boundaries.
  • Enclaves under the full territorial control of armed groups that have durable ceasefires with Naypyitaw, such as the special regions controlled by the United Wa State Army (UWSA) and National Democratic Alliance Army (NDAA, or “Mongla”) on the Chinese border (and to some extent also the UWSA’s 171 military region on the Thai border).[fn]The UWSA special region (“Shan State Special Region No. 2”) and Mongla special region (“Shan State Special Region No. 4”) were defined at the time of the 1989 ceasefires as the areas that these armed groups had control over. The Wa Self-Administered Division defined in the 2008 constitution is based on township boundaries, and some parts of it fall outside of the UWSA enclave; Mongla is not part of any self-administered area under the constitution. The UWSA’s 171 military region was granted to them informally by the military junta at the time, in return for their military support in defeating the drug warlord Khun Sa’s Mong Tai Army; it has no special status in the constitution.Hide Footnote Both groups agreed to ceasefires in 1989 that were reaffirmed in 2011, and neither have had serious clashes with the Myanmar army over the three decades those ceasefires have been in force. At the same time, these enclaves are defended by large, well-equipped forces and the Myanmar military and civilian authorities cannot freely enter.

The map in Appendix B shows the locations of some of these militias, Border Guard Forces and armed group enclaves. These different safe havens are also well-located from a transport and logistics perspective – either adjacent to the Chinese border or near major trade routes (such as the Mandalay-Lashio-Muse road or the Tachileik-Kengtung-Mongla road). Precursor chemicals, required in massive quantities given the scale of production, can be brought in from China, where they are readily available through legitimate pharmaceutical and chemical markets and from illicit precursor-producing factories. That there have been almost no precursor seizures at the border indicates that traffickers can move them freely across national boundaries.[fn]Crisis Group interviews, experts on regional narcotics issues, Yangon and Bangkok, May, August and November 2018. See also INCS Report, 2018, p. 65; and “Myanmar hosts talks on Asia Pacific strategy to control drug making chemicals”, UNODC Press Release, 7 November 2018.Hide Footnote (India is also a major producer of precursor chemicals, but its distance from Shan State and the poorer transport infrastructure means that it is not currently a significant source. Thailand is a minor source of precursors for meth produced in eastern Shan State; it does not manufacture any such chemicals, but some imports are diverted from legitimate uses.[fn]INCS Report, 2018, p. 68-69.Hide Footnote ​​​​​)

The status of the militias and Border Guard Forces as Tatmadaw-aligned armed units gives them considerable impunity, but also gives the Tatmadaw a degree of deniability about their actions. One ethnic leader in northern Shan State told Crisis Group:

A friend of mine is a big militia leader. He drives from Lashio to Mandalay and all the way to Yangon with his militia cap on the dashboard, and no one dares to stop him, even though his vehicle is unregistered. If he can do that on the road from Mandalay to Yangon and no one stops him, can you imagine what he can do around here?[fn]Crisis Group interview, ethnic political leader, Lashio, November 2018.Hide Footnote

Another observer of the drug trade in Lashio simply stated that “after Muse, there are no serious checkpoints all the way to Yangon”.[fn]Crisis Group interview, local community worker, Lashio, November 2018.Hide Footnote

B. Tip of the Iceberg

Seizures of crystal meth, as well as yaba, have increased significantly in recent years. Each massive haul tends to be presented as an interdiction victory. However, these record seizures represent the tip of an iceberg, and are therefore evidence of the scale of the problem rather than of any genuine success in addressing it. Despite massive seizures, prices of crystal meth have remained stable, a clear indication that they are a small proportion of total volumes.[fn]Crisis Group interviews, experts on regional narcotics issues, Yangon and Bangkok, May, August and November 2018.Hide Footnote

The trade is becoming increasingly professionalised, dominated by transnational criminal syndicates operating at huge scale.

Yaba is produced both for local consumption and export – mainly to Thailand, Indochina and South Asia, particularly Bangladesh. Seizures in Myanmar range from a small number of tablets for personal use, to large wholesale shipments of tens of millions of pills.[fn]See, for example, “Additional statistical bulletin on drug seizures, acting on information”, President Office Press Release No. 24/2018, 19 November 2018; “Myanmar says record drug seizure has street value of $36 million”, Reuters, 31 May 2016; “Record narcotics haul in Shan State”, The Irrawaddy, 19 January 2018.Hide Footnote Crystal meth, on the other hand, is produced mostly for export – it is rarely used in Myanmar, though is starting to become more widely available.[fn]“Methamphetamine use in Myanmar, Thailand and southern China: assessing practices, reducing harms”, Transnational Institute, forthcoming.Hide Footnote It is typically seized in one-tonne lots or larger. Key export markets for Shan State crystal meth are Japan and Australia, which have among the highest street prices in the world for the drug; a tonne has a wholesale value in Australia of at least $180 million, and street prices several times higher. Crystal meth is also exported to China, the Philippines, Malaysia, Indonesia, South Korea and New Zealand.[fn]UNODC statistics and Data, “Retail and wholesale drug prices”, https://dataunodc.un.org/drugs/prices.Hide Footnote

The trade is becoming increasingly professionalised, dominated by transnational criminal syndicates operating at huge scale. Crystal meth is now packed in branded tea packets, both to facilitate concealment and to give it a specific product identity. Increasingly, local production in destination countries is being displaced by imports: China has been effective in cracking down on illicit meth laboratories on its territory, but in practice that has meant displacing them across the border into Shan State. Australian biker gangs have opened up chapters in South East Asia as they have shifted from cooking meth in Australia using smuggled precursors, to procuring the final product in the region and smuggling that instead.[fn]Crisis Group interviews, experts on regional narcotics issues, Yangon and Bangkok, May, August and November 2018; see also “Hells Angels: Founding member of Thai chapter bashed as Australian bikies take over ‘dark business’”, ABC News, 27 March 2017.Hide Footnote

IV. The Links Between Drugs and Conflict

A. Current Conflict Dynamics

The various ways in which the armed conflict and illegal drug production intertwine are not new. They have evolved alongside political alliances between the central government and ethnic armed groups, and with market shifts in drug production. Key to changing patterns in drug production over the last several years, however, has been the end of a period of relative stability that northern Shan State experienced between the early 1990s and 2011 and the tactics the Tatmadaw have used to quell violence.[fn]For detailed discussion of Golden Triangle drug markets and trends, and links to conflict and corruption, see “Bouncing back: Relapse in the Golden Triangle”, Transnational Institute, June 2014.Hide Footnote

Open armed conflict in northern Shan resumed partly because of the outgoing military junta’s determination to transform armed groups with which it had reached ceasefires into Border Guard Forces, nominally under the Tatmadaw chain of command, a scheme it announced in April 2009. Many ceasefire groups – especially smaller or less politically-oriented ones – agreed.[fn]John Buchanan, “Militias in Myanmar”, The Asia Foundation, July 2016.Hide Footnote The army then applied political, military and economic pressure on those who refused, ultimately leading to open warfare in some areas; for example:

  • In August 2009, the Tatmadaw attacked the Myanmar National Democratic Alliance Army (MNDAA) in Laukkaing, the capital of the Kokang self-administered zone – a city on the Chinese border notorious for hosting numerous casinos – vanquishing the group’s longstanding commander, Pheung Kya-shin, who fled into China along with his troops and over 30,000 displaced civilians. The junta installed a rival Kokang faction as a pro-government Border Guard Force to administer the casino city.[fn]That is, BGF 1006. See Tom Kramer, “Burma’s cease-fires at risk: consequences of the Kokang crisis for peace and democracy”, Transnational Institute, September 2009.Hide Footnote
Northern Shan State is experiencing intensifying armed conflict between several armed groups and the Tatmadaw, and increasingly among the armed groups themselves, particularly between Shan and Ta-ang groups.
  • Increased political pressure on the Kachin Independence Organisation (KIO) to accept the Border Guard Force proposal was part of the reason for the breakdown of its seventeen-year ceasefire and the resumption of armed conflict in Kachin State and Kachin-majority areas of northern Shan State in 2011.[fn]See Crisis Group Asia Briefing N°140, A Tentative Peace in Myanmar’s Kachin Conflict, 12 June 2013.Hide Footnote As the KIO came under increasing pressure, it supported the formation of two new armed groups – the Ta-ang National Liberation Army (TNLA) and the Arakan Army – equipping and training them at its bases in Kachin State from 2009. These groups went on to form the kernel of a loose “northern alliance” of armed groups fighting state authorities and allied militias in northern Shan.[fn]The northern alliance today comprises the KIO’s military units based in northern Shan along with the MNDAA (Kokang), the TNLA, the Arakan Army – and de facto the Shan State Army-North as well. These groups are also part of a broader political alliance with the UWSA and the NDAA (Mongla). See David Scott Mathieson, “Burma’s Northern Shan State and Prospects for Peace”, United States Institute for Peace, Peace Brief 234, September 2017.Hide Footnote

Today, northern Shan State is experiencing intensifying armed conflict between several armed groups and the Tatmadaw, and increasingly among the armed groups themselves, particularly between Shan and Ta-ang groups. Conflict zones – which are mainly around Kyaukme, Hsipaw, Namtu, Kutkai and Namkhan townships – are marked by sporadic clashes across rural areas that cause repeated temporary displacement of civilians, often affecting the same villages several times a year. While the number of people in static displacement camps in northern Shan is relatively low – only several thousand, compared to over 95,000 in Kachin State – these figures are misleading as they do not account for multiple short-duration displacements that have serious effects on livelihoods and civilian protection.[fn]United Nations Office for the Coordination of Humanitarian Affairs, “Myanmar: Civilians displaced by fighting in Kachin/Shan 2017-18”, 20 September 2018.Hide Footnote

Local civilian authorities and the Tatmadaw’s North-Eastern Command in Lashio heavily restrict humanitarian access for local aid workers and international relief agencies; accessing the Kokang and Wa areas is particularly challenging. The conflict also carries allegations of serious human rights violations, which a UN-appointed Fact Finding Mission found to be “characterised by systematic attacks directed at civilians and civilian objects, and indiscriminate attacks” amounting to crimes against humanity and war crimes. The mission found that the Tatmadaw perpetrated the majority of these attacks, but that armed groups were also responsible for serious abuses.[fn]Report of the Independent International Fact-Finding Mission on Myanmar, Human Rights Council, Thirty-ninth session, 10-28 September 2018, doc. A/HRC/39/64. See also “Human casualties will be the cost of war as RCSS moves north”, The Irrawaddy, 29 November 2018.Hide Footnote

B. The Role of the Drug Trade in the Conflict

The conflict in northern Shan includes armed groups with very different historical involvement with, and stated policies on, illegal drugs. Even within the northern alliance, there are groups such as the MNDAA that were notorious for their involvement in drug production and trafficking prior to their defeat and expulsion from the Kokang region in 2009; the Arakan Army, which is alleged to fund its operations in part through yaba trafficking; and the TNLA, which has an avowedly anti-drug policy.[fn]Bertil Lintner, Burma in Revolt: Opium and Insurgency since 1948 (White Lotus, 1994), pp. 293, 315; “Foreign nations question support for Myanmar’s opium battle”, Associated Press, 5 March 1999; “Palaung group accuses Tatmadaw of failing to control drug trade”, Myanmar Times, 10 November 2013; and “How to fund a war”, Global New Light of Myanmar, 28 February 2016, p. 1. The Arakan Army strongly rejected the government’s allegations (see “Condemnation Letter”, Arakan Army, 29 February 2016).Hide Footnote

The TNLA’s recent history demonstrates that involvement in the drug trade is never clear-cut for groups in Shan State. The TNLA is the latest incarnation of ethnic Ta-ang (Palaung) armed resistance. The Tatmadaw forcibly disarmed and disbanded an earlier group, the Palaung State Liberation Army, in 2005. Locals claim that because this group had restricted drug trafficking in its area, its disbandment led to a dramatic rise in drug production and consumption in Ta-ang areas of northern Shan (in particular, Kutkai, Namkhan and Manton), which had negative impacts on rural Ta-ang society.[fn]See “Poisoned hills: Opium cultivation surges under government control in Burma”, Palaung Women’s Organisation, 2010.Hide Footnote

The TNLA formed against this backdrop in 2009 and declared that, along with fighting the Tatmadaw, it would also combat the scourge of illegal drugs. This stance, and the group’s high-profile destruction of opium poppy fields, immediately put it on a collision course with militias involved in the heroin business that were protecting those fields, in particular the Pansay militia. Sporadic clashes have occurred between the two groups, most commonly around the opium harvesting period. At times, the Pansay militia has called on the Tatmadaw for support, including heavy artillery and air power, in its battles with the TNLA.[fn]“A Return to War: Militarized Conflicts in Northern Shan State”, Institute for Security and Development Policy Asia Paper, July 2018.Hide Footnote This is one direct way in which the drug trade and the armed conflict between ethnic groups are linked.

Yet with so much of the northern Shan economy revolving around drugs, it is virtually impossible to avoid money related to the drug trade.

Other links are indirect. Even as the TNLA pursues its anti-drug activities, it needs to raise the significant funds necessary for maintaining its insurgency. This it does at least in part through “revolutionary taxation” – in particular, extorting commercial vehicles plying the Lashio-Muse trade route, which must pay half-yearly fees to the group, and forcing Ta-ang businesses and shops to pay protection money. On occasion, the TNLA and its allies have even mounted attacks on the 105 Mile border trade zone in Muse, as they did in November 2016, shutting down much of Myanmar’s trade with China for several days – in part aimed at opening another front at a time of Tatmadaw operations in other areas, and also imposing a financial cost on Myanmar.[fn]“China strengthens border force amid clashes”, Frontier Myanmar, 27 November 2016.Hide Footnote

Yet with so much of the northern Shan economy revolving around drugs, it is virtually impossible to avoid money related to the drug trade. Precursor smuggling and drug trafficking provide some of the most lucrative opportunities for the TNLA’s taxation, with higher tax rates reportedly being levied for these activities, and seized drugs reportedly often sold by the TNLA back into the supply chain (other revenues come from the thriving illegal logging trade, extractive industries, and human trafficking). There are no indications that the TNLA has used any of its income to help promote alternative livelihoods for Ta-ang opium farmers.[fn]Crisis Group interviews, militia members and other well-informed individuals, northern Shan State, November 2018.Hide Footnote

Thus, there are direct links between conflict and drugs, specifically around occasional eradication efforts and clashes between actors in the drug trade. The illicit economy allows these armed groups to generate revenue from taxation or extortion, helping to fund and sustain Myanmar’s seventy-year-old civil war. The immense profitability of the drug trade attracts transnational criminal organisations and promotes corruption that deepens the grievances of ethnic minority communities that underpin the civil war. That civil war in turn provides a justification for the Tatmadaw’s militia strategy, creating the conditions for a corrosive political economy dominated by armed actors operating with impunity.

C. Ethno-political Clashes, Anti-drug Raids or Bank Heists?

Disentangling the motives behind armed group’s actions can be hard: operations portrayed as anti-drug efforts or ethno-nationalist clashes, and reported as such in the media, may in fact be aimed at least in part at capturing profits from the drugs trade.

In March 2017, for example, the MNDAA staged a brazen attack on several targets in Laukkaing, with its commandos dressed in police uniforms first raiding the Laukkaing police station to neutralise any response, then attacking several casinos and hotels and the home of a leader of the rival Kokang faction now in charge of the zone. The raid was presented as a fight between ethnic groups in international media outlets, but resembled an elaborate bank heist more than a rebel assault.[fn]See, for example, “30 dead as intense fighting breaks out in Myanmar-China border town”, Agence France-Presse, 6 March 2017.Hide Footnote It left behind more than 30 casualties, many of them Kokang soldiers, and major damage to casinos. The raiders made off with an estimated 500 million yuan (US$73 million) loaded into several trucks.[fn]Ann Wang, “China-linked rebels’ casino cash grab stills Myanmar border city”, South China Morning Post (Magazine), 4 June 2017; and National Reconciliation and Peace Centre, Announcement No. 1/2017, 6 March 2017.Hide Footnote Some 20,000 civilians were displaced by fighting, with many fleeing into China. The Myanmar Ministry of Defence alleged the MNDAA also seized 120 male and 150 female casino workers as hostages to cover their retreat, releasing Chinese citizens among the captives soon after.[fn]“Tatmadaw continues operations after 48 clashes with MNDAA”, Global New Light of Myanmar, 14 March 2017, pp. 1, 9.Hide Footnote

In May 2018, the TNLA attacked a casino owned and operated by the Pansay militia in the border town of Muse, leaving nineteen dead and over 27 wounded – mostly civilians caught in the crossfire. The TNLA claimed that the casino was being used to sell drugs.[fn]“Press Release on taking the military action into a casino owned by the Pansay Militia near Nam Paw Pankham Bridge of Muse-Namkham Highway at the China-Myanmar border”, Palaung State Liberation Front/TNLA News and Information Department, 13 May 2018.Hide Footnote Other sources suggest that the TNLA attacked at least in part due to deepening tensions between it and the Pansay militia, following that militia’s arrest of a large number of young Ta-ang people on charges of being TNLA informants.[fn]Crisis Group interviews, well-informed individuals, Lashio, November 2018.Hide Footnote Though there may be multiple factors behind the assault, the opportunity to seize large sums of cash from an adversary is likely to have played some part in the TNLA’s calculations and choice of target.

Given the multiplicity of armed actors involved and the massive profits at stake, violence is remarkably rare.

Indeed, while such attacks are infrequent, similar allegations of these establishments being used for illegal activities have been reported along the string of Myanmar-China “casino-capitalism” sites from Kachin State to Muse, Laukkaing, Pangsang, Mongla and Tachileik, as well as the notorious King’s Roman on the bank of the Mekong river in Laos, bordering Myanmar and Thailand. The casinos are crucial enterprises not just for gambling and money laundering, but also for racketeering, drug distribution, human trafficking, prostitution and wildlife smuggling – part of an interlinked illicit political economy in the area.[fn]See, for example, “Mong La, Myanmar’s dreary ‘sleaze capital’”, Frontier Myanmar, 12 November 2015; and “Treasury Sanctions the Zhao Wei Transnational Criminal Organization”, Press Release, U.S. Department of the Treasury, 30 January 2018.Hide Footnote

D. Why Is There Not More Violence?

While there is significant violence and armed conflict in northern Shan State, remarkably little of it appears on the surface to revolve directly around the drug economy. Thus, Lashio is the main hub of the northern trade, yet the city is not convulsed by public violence between competitive cartels or factions. Why does it not suffer the enormous bloodshed that blighted the Colombian city of Medellin during the heyday of cartel activity in the 1990s or, until recently, Ciudad Juarez, on the Mexico-U.S. border or other Mexican cities where armed groups battle for control of drug transit routes?

The answer lies in the fact that the intersection of armed conflict and the illicit economy in northern Shan has for decades operated as “an economic-commercial world of interdependent, entrepreneurial patron-client clusters”, that is geared toward avoiding fighting as much as practicable around economic ventures such as drugs.[fn]Chao-Tzang Yawnghwe, “The political economy of the opium trade: implications for Shan State”, Journal of Contemporary Asia, 23.3, 1993, pp. 308-26.
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This system, described to Crisis Group by several people involved, functions in a relatively stable and predictable way as long as the chain of actors from the Tatmadaw, to larger militia units involved in production, to smaller militias subcontracted to provide localised security, and the armed organisations that levy taxes on the trade all benefit and receive due compensation. Given the multiplicity of armed actors involved and the massive profits at stake, violence is remarkably rare.[fn]Ibid.; Crisis Group interviews, militia members and other well-informed individuals, northern Shan State, November 2018.Hide Footnote

On occasion, however, the system breaks down and violence erupts. Two cases where greed, grievance or principle trumped cooperation were discussed in Section IV.C above. In another case in 2015, fighting between two prominent militias involved in illicit activity, Kawng Kha and Manpang, resulted in over 40 deaths and scores of injuries, with many casualties arriving at Lashio hospital, until “the North-east Commander ordered them to stop” – a clear indication of who the ultimate arbiter of disputes and illicit economic rents is.[fn]Crisis Group interview, local community worker, Lashio, November 2018.Hide Footnote

V. Broader Implications

A. The Political Economy

Northern Shan State sits astride Myanmar’s primary overland trade route, the Mandalay-Lashio-Muse road, connecting the country to its largest trade partner, China (see map in Appendix B). This connectivity and geostrategic location have provided not only opportunities for legal business in northern Shan, but also for enormous profits from illicit activities. While estimating the size of the illicit trade is difficult, well-informed locals suggest that it is the major contributor to the area’s GDP, and that occasional local crackdowns on such trade immediately dampen economic activity as a whole.[fn]One example of a localised crackdown was the 2015-2016 efforts by the anti-drug vigilante group Pat Jasan in Kachin and northern Shan states; some ethnic armed organisations launched crackdowns in their areas at the same time. Crisis Group interviews, Lashio, November 2018. Shan State’s GDP was around $3.5 billion (current dollars) in 2014 (based on a per-capita rate of $600 and a population of 5.8 million). See Myanmar Economic Monitor, World Bank, October 2017, p. 49.Hide Footnote

In 2017, authorities in the region seized more than 25 tonnes of crystal meth, nearly all believed to have been produced in Myanmar. Even larger amounts have been confiscated so far in 2018. Regional narcotics experts estimate seizure rates at below 10 per cent, suggesting a total annual production significantly in excess of 250 tonnes. The regional wholesale value of this haul is in the tens of billions of dollars, and the price increases significantly with distance from Shan State, as the box below highlights. Profits in Myanmar are likely several billion dollars per year for crystal meth alone, and perhaps a similar amount for yaba, although a significant proportion of these profits may remain outside Myanmar, laundered through casinos in border zones and kept in bank accounts in regional financial centres.[fn]Crisis Group interviews, experts on regional narcotics issues, Yangon and Bangkok, May, August and November 2018; see also “Asia’s meth boom”, CNN, 2 November 2018.Hide Footnote

The Crystal Meth Value Chain (per kg, in USD) CRISISGROUP

Unlike heroin production, which employs large numbers of people – opium farmers and traders – the profits from meth production enrich a tiny few. That said, the meth trade may generate significant indirect economic activity in Shan State and beyond, with large sums thought to be laundered via the Yangon and Mandalay land and property markets, which are a major driver of growth and jobs in the Myanmar economy – although the sector has slowed in recent years.[fn]Crisis Group interviews, experts on regional narcotics issues, Yangon and Bangkok, May, August and November 2018; Crisis Group interviews, militia members and other well-informed individuals, northern Shan State, November 2018; “Growth amid uncertainty”, Myanmar Economic Monitor, World Bank, May 2018.Hide Footnote

However, much of the economic activity created by the drug trade has extremely negative consequences: the expansion of local drug markets leading to widespread addiction and associated social ills, better resourced militia forces that act with impunity and often violently, and greater illegal activity in smuggling, protection, trafficking and racketeering. The environmental impact of drug production is grave, as many of the precursors and waste products are highly toxic and disposed of improperly into waterways or the ground – in huge quantities given that each tonne of meth results in some five tonnes of chemical residue.[fn]One person cited the destruction of his family’s paddy fields due to runoff from a yaba lab. Crisis Group interview, Lashio, November 2018. See also “Environmental impacts of methamphetamine”, ABC News, 26 July 2012; “Dangers of meth labs”, U.S. Forest Service Law Enforcement and Investigations, https://www.fs.fed.us/lei/dangers-meth-labs.php.Hide Footnote

More fundamentally, a drug trade that dwarfs legitimate business activities creates a political economy inimical to peace and security. Militias and other armed actors that control areas of production and trafficking routes have a huge disincentive to ever demobilise, given that weapons, territorial control and the absence of state institutions are essential for their lucrative revenues. The trade requires bribing officials for protection, support or to turn a blind eye, which creates an environment where other illegal activities and a culture of payoffs can flourish. Even armed groups and ethnic insurgencies not directly involved in drug production and trafficking find that it is nevertheless the source of a major part of their informal tax revenues, also locking them into the drug economy. The Myanmar military, which has ultimate authority over militias and Border Guard Forces and profits from their activities can only justify the existence of such semi-autonomous armed groups in the context of the broader ethnic conflict in the state – so the Tatmadaw also therefore has no incentive to end that conflict.

Militia leaders’ influence is underscored by the fact that several have risen to elected office. The head of one of the largest such groups in Shan State implicated in the drug trade, the Pansay militia, was a Shan State parliamentary representative until 2015; the former head of the Kutkai militia is currently speaker of the lower house of the national parliament (both deny involvement in the drug trade).[fn]“The drug war in Myanmar’s mountains”, IRIN, 5 November 2015; “Dirty war, dirty tactics”, Frontier Myanmar, 22 March 2016; “NLD elects alleged drug lord as lower house speaker”, Coconuts Yangon, 22 March 2018; “T Khun Myat: Who is the new Pyithu speaker?”, Frontier Myanmar, 22 March 2018.Hide Footnote

B. Geopolitics and the China Factor

Since the collapse of the Chinese-backed communist insurgency in northern Myanmar in 1989, Shan State’s economy has become closely bound with that of south-west China. Chinese investment has surged, huge plantations – everything from watermelons to bananas to rubber – have been established to serve the Chinese market, and cross-border trade has skyrocketed. Transport infrastructure has improved to accommodate the increased flows, which also facilitates illicit trade, including drugs. Large volumes of contraband can be concealed among other commodities moving along highways and across major border crossings, rather than having to be smuggled on the back of mules over remote mountain passes. The “ants moving houses” approach – using hundreds of low-level couriers each transporting small amounts of drugs – has given way to large consignments. A record May 2018 seizure in Malaysia of 1.2 tonnes of crystal meth from Myanmar was the first discovered in a containerised shipment.[fn]Sheldon Zhang and Ko-lin Chin, “Ants Moving Houses: The Social Organization of Heroin Trafficking in the China-Burma Border Areas”, Paper presented at the annual meeting of the American Society of Criminology, December 2013; “Malaysians make record bust of crystal meth, shipped from Myanmar”, Reuters, 28 May 2018.Hide Footnote

CMEC’s scale and geostrategic importance will pull Myanmar, and Shan State in particular, even further into China’s economic and political orbit.

Economic integration is set to accelerate as a new multi-billion-dollar China-Myanmar Economic Corridor (CMEC) takes shape, the memorandum of understandings for which were signed by Chinese and Myanmar officials in September 2018.[fn]“China signs CMEC MOUs with Myanmar”, Global Times, 11 September 2018.Hide Footnote The scheme includes an upgraded road and new high-speed rail line connecting Kunming, the capital of south-western Chinese province of Yunnan, with the port of Kyaukpyu on the Rakhine seaboard, via northern Shan and Mandalay, along with a number of associated trade, infrastructure and energy projects. This project, part of China’s “Belt and Road Initiative”, will give the rapidly growing but landlocked economy of south-west China access to the Indian Ocean, and China as a whole an alternative to the congested Straits of Malacca sea route.[fn]Crisis Group Asia Report N°177, China’s Myanmar Dilemma, 14 September 2009, Section III.C. The Belt and Road Initiative is a development strategy announced by Chinese President Xi Jinping in 2013 involving massive infrastructure networks connecting China to Europe, Asia and Africa.Hide Footnote

CMEC’s scale and geostrategic importance will pull Myanmar, and Shan State in particular, even further into China’s economic and political orbit. In the long term, this could lead to a reduction in illicit economies, as lucrative opportunities emerge in the formal economy, and as the enabling environment of conflict and insecurity comes to an end, something that China has considerable leverage over and that would be in its long-term interest. In the short term, however, the opposite could be true. In the recent history of the Golden Triangle, increased trade and improved infrastructure have expanded rather than narrowed opportunities for illicit profiteering. People in northern Shan State with detailed knowledge of the drug trade suggest that is likely to be the case in that area with CMEC.[fn]Crisis Group interviews, well-connected local sources and militia members, northern Shan State, November 2018.Hide Footnote

VI. What Should Be Done?

A. A Complex Policy Challenge

The drug trade is an important source of revenue for armed groups and militias, with the huge profits fuelling greater militarisation in Shan State that, while it does not always produce immediate or intense armed clashes, greatly undermines the future prospects for peace. Illicit activity also drives a political economy dominated by armed groups, organised crime and corruption that will be more difficult to dislodge over time and as it generates greater profits. Graft and other ills associated with the drugs trade aggravate the grievances among ethnic minorities at the heart of the long-running civil war.

Illicit drug production and trafficking in Shan State is a complex policy challenge involving security, law enforcement, political and public health aspects. Myanmar’s authorities and donors need an integrated approach that addresses all of these areas. Organised crime and corruption are making greater inroads, many of its people and communities are severely affected by an epidemic of cheap and easily-available drugs, and the country’s reputation and international relations are suffering as it has become the predominant regional source of methamphetamines (both yaba and ice).

In February 2018, Myanmar released its first ever National Drug Control Policy. The policy was developed by the police drug prevention committee with support from UNODC, following an extensive consultation process.[fn]“National Drug Control Policy”, Central Committee for Drug Abuse Control, Myanmar, 20 February 2018.Hide Footnote It recognises the seriousness and scale of meth production in Myanmar, and also the importance of a harm reduction approach to drug use in the country – that is, prioritising public health approaches for users and refocusing law enforcement and criminal justice efforts toward combating organised crime and corruption.[fn]For detailed analysis of the policy, see “Will Myanmar complete its transition towards an evidence-based approach to drug control? A Myanmar Commentary”, Transnational Institute, 20 March 2018.Hide Footnote Almost simultaneously, the parliament enacted an amended drug law, which was not developed in coordination with the new policy, with which it is partly contradictory, in particular as it retains a focus on draconian criminal penalties for drug users caught with even tiny quantities of drugs.[fn]Law Amending the 1993 Narcotic Drugs and Psychotropic Substances Law, 14 February 2018.Hide Footnote

President Win Myint is also giving welcome attention to the issue through his anti-drug initiative and in particular the establishment in June 2018 of a Drug Activity Special Complaint Department to receive tips from members of the public. Such an approach, however, tends to drive arrests and prosecution of drug users and small dealers and can undermine harm reduction efforts because it further stigmatises drug users, makes it more difficult for them to access harm reduction services and deprives them of those services if they are incarcerated. It is therefore inconsistent with the objectives set out in the new national policy of prioritising public health and refocusing law enforcement and criminal justice efforts toward combating organised crime and corruption. Some Myanmar officials estimate that up to 70 per cent of the country’s prison population has been incarcerated for drug offenses, mostly possession of small quantities.[fn]INCS Report, 2018, pp. 124-125.Hide Footnote That the government has recently expressed its intention to target major players is a welcome change.[fn]“Public urged to inform on major drug dealers”, Myanmar Times, 27 November 2018.Hide Footnote

Tackling the drug trade will not be easy and comes with risks of pushback, perhaps violent, from those involved. But the alternative – allowing parts of Shan State to continue to be a safe haven for this large-scale criminal enterprise – will lead to greater insecurity and curbing it will become more difficult as organised crime and armed militias become more powerful. In order to ensure a coherent and effective strategy, the Myanmar government should reconcile the inconsistent approaches set out in the new national policy, the revised drug law, and the president’s anti-drug campaign to ensure that it stops prosecuting users and small-scale sellers and instead focuses on the upper echelons of organised crime and corruption.

B. Political and Security Aspects

The Tatmadaw should reconsider its approach to managing conflict in Myanmar’s borderlands. For decades, its strategy has relied on cutting tactical ceasefire deals with groups or establishing pro-government militias, and in return allowing them to pursue licit and illicit economic activities. This has ultimately fuelled violence and allowed criminal enterprises and a corrosive political economy to flourish. Peace, stability and development in these areas have suffered as a result.[fn]See, for example, Mary Callahan, “Political Authority in Burma’s Ethnic Minority States: Devolution, Occupation, and Coexistence”, East-West Center, 2007; Martin Smith, “State of Strife: The Dynamics of Ethnic Conflict in Burma”, East-West Center, 2007; and “Bouncing back: Relapse in the Golden Triangle”, Transnational Institute, June 2014.Hide Footnote

In particular, the Tatmadaw should review its policies around militias and Border Guard Forces, the fact that they receive limited or no resources from the military, and the freedoms and impunity they are granted in order to enable them to be self-funding. The costs of these policies are high for the military itself. They impact its ability to deliver security and stability in those areas, as well as damaging its reputation. The drug trade and other illegal activities have taken a heavy toll on communities across Myanmar. Countries in the region and beyond must deal with many of the consequences, including drug flows, insecurity and the increasing power of transnational criminal organisations.[fn]See, for example, “Treasury Sanctions the Zhao Wei Transnational Criminal Organization”, Press Release, U.S. Department of the Treasury, 30 January 2018; and Jeremy Douglas, “Parts of Asia are slipping into the hands of organized crime”, CNN, 14 November 2018.Hide Footnote

Responsibility for drug production and other illegal activities in non-state-controlled areas – that is, the Wa and Mongla enclaves – lies with their de facto authorities. Wa leaders have a stated ten-year plan to eliminate methamphetamines from its areas (including its southern area) by June 2024, though it could achieve this sooner if its leaders wanted.[fn]When asked why it would take so long, one Wa political leader suggested that the investors probably needed to make their profits first. Crisis Group interview, Wa political leaders, November 2018.Hide Footnote The reality, however, is that without a political settlement to the area’s ethnic conflicts, it will be very difficult for Shan State to move away from an economy dominated by organised crime and corruption and based on drugs and other illicit activities, including wildlife smuggling, unregulated mining, illicit casinos, money laundering and racketeering. Progress toward such a settlement would require the government and military to adopt a more proactive, flexible approach to the format and inclusivity of negotiations with ethnic armed groups and consider political concessions. Talks must include discussion of security sector reform and demobilisation of paramilitary structures such as militias and Border Guard Forces, issue that are currently not on the table.[fn]For discussion, see Crisis Group Asia Briefing N°151, Myanmar’s Stalled Transition, 28 August 2018, Section II.B; and Asia Report N°287, Building Critical Mass for Peace in Myanmar, 29 June 2017.Hide Footnote

C. Corruption

In addition to his focus on tackling the illegal drug trade, President Win Myint has also prioritised the fight against corruption. His first meeting after his inauguration was with the Anti-Corruption Commission, at which he urged the chair – a reform-minded former general – to follow evidence wherever it led and to alert him if he faced interference. The commission’s empowerment led almost immediately to charges against the director of Myanmar’s food and drug administration for allegedly demanding money in connection with a tender award. In May 2018, the finance minister resigned in the middle of a high-profile investigation, though the commission ultimately said it did not have grounds to pursue charges.[fn]For details, see Crisis Group Briefing, Myanmar’s Stalled Transition, op. cit., Section III.Hide Footnote

The president should draw a more explicit linkage between his anti-drug and anti-corruption efforts. Effectively tackling the illegal drug trade will require going after the main players who currently act with impunity, and targeting the corrupt payments to officials that facilitate their activities. The president should direct the Anti-Corruption Commission to prioritise these issues.

The commission does not have the authority to investigate the Myanmar military.[fn]Under the 2008 constitution, the military rather than any civilian court has ultimate authority over military justice and courts martial. See “Department units to ramp up president’s anti-corruption drive”, Frontier Myanmar, 7 December 2018.Hide Footnote It thus falls on Commander-in-Chief Min Aung Hlaing to take steps to investigate and take action to end drug-related corruption within the military, focusing on senior officers who facilitate or turn a blind eye to the trade.

Myanmar’s government and donors should support surveys and research to im-prove their understanding of domestic drug markets and identify emerging trends in supply and use.

Governments in neighbouring countries need to play their part too. As has been widely noted by drug control agencies and policy groups, the drugs trade would not be possible without high-level corruption in those countries – including China, Laos and Thailand, through which large consignments of drugs or their precursors are smuggled. China has a particular responsibility to prevent precursor smuggling; it is the main source of these chemicals, but has almost never intercepted shipments crossing its border with Myanmar.[fn]Crisis Group interviews, experts on regional narcotics issues, Yangon and Bangkok, May, August and November 2018; INCS Report, 2018, p. 65; “Bouncing back: Relapse in the Golden Triangle”, Transnational Institute, June 2014; and “Myanmar hosts talks on Asia Pacific strategy to control drug making chemicals”, UNODC Press Release, 7 November 2018.Hide Footnote China should also exert its considerable influence over the Wa and Mongla armed groups to press them to end their involvement in the drug trade and other criminal activities in their enclaves.

D. Harm Reduction

Since the early-2000s, yaba use has surged in Myanmar, tracking increased local manufacture of the drug – which was initially produced for export, but for which after some time a local market also developed and grew. Yaba has become steadily cheaper and more readily available, despite significant increases in large and small seizures, and arrests of users and small-time dealers. As the new National Drug Control Policy recognises, law enforcement alone will not reduce the availability of or demand for the drug.[fn]For more details, see “Amphetamine type stimulants and harm reduction”, Transnational Institute, October 2011; “‘Found in the dark’: The impact of drug law enforcement practices in Myanmar”; and “Methamphetamine use in Myanmar, Thailand and southern China: assessing practices, reducing harms”, Transnational Institute, forthcoming.Hide Footnote

Crystal meth is likely to follow the same trajectory. It is becoming increasingly popular in the region, and while retail supply and demand in Myanmar at the present time is limited, this will undoubtedly change. Such a shift will have important public health implications given the potency of crystal meth compared with yaba, and because it is suitable for injection.[fn]Ibid.; Crisis Group interviews, drug policy experts, Yangon, November 2018.Hide Footnote

Myanmar’s government and donors should support surveys and research to improve their understanding of domestic drug markets and identify emerging trends in supply and use. This will give them the evidence base to scale up harm reduction services for amphetamines, particularly crystal meth, including by disseminating accurate information on health risks, promoting safer use practices (such as preventing users switching from inhalation to injection) and providing access to evidence-based treatments.

The government should prioritise education and harm reduction responses over punitive and stigmatising criminal justice approaches. This includes improving police training on how to deal with drug-related issues (searching people who have needles, managing violent users and prioritising the referral of users to harm reduction services rather than arresting them, for example). The government should grant greater access for international agencies, including those working in health and development, to remote and conflict-affected areas, so they can implement education, health and harm reduction programs. Access to prisons and labour camps is also important given the high proportion of drug users in these populations and the lack of harm reduction services available.

VII. Conclusion

Myanmar’s Shan State has been mired in conflict for decades and has long been a centre for illicit drug production – initially opium and heroin, then from the 1990s also yaba. Good infrastructure, proximity to precursor supplies from China and reliable security and impunity provided by pro-government militias and in rebel-held enclaves mean that it has now also become one of the main global centres of crystal meth production, exporting hundreds of thousands of kilos of the high-purity drug to regional markets each year. The scale of production and profit is now so vast that it likely dwarfs the formal sector of Shan State, and is at the centre of its political economy. This greatly complicates efforts to resolve the armed conflict and build a functional, licit economy in the state.

The government should redouble its anti-narcotics efforts as set out in its new national drug policy, focusing on the key players in the trade and the corruption that they rely on and fuel. At the same time, at community level it should focus more on education and harm reduction, with support from international agencies, rather than punitive and stigmatising criminal justice approaches. The Myanmar military should rethink its conflict management approaches and exercise greater control over – and ultimately disarm and disband – militias and other pro-government paramilitary forces.

Brussels, 8 January 2019

Appendix A: Map of Shan State


Appendix B: Key Locations and Trade Routes Mentioned in the Report


Appendix C: Acronyms and Glossary