Back to Burma

Feature | 12 January 2015
Back to Burma

It has been two years since Aung San Suu Kyi took her seat in Myanmar's new parliament and the US has jump-started trade and investment relationships, observe Warren Maruyama and Anthony Capobianco

Myanmar (formerly Burma) is in the midst of a major, but incomplete, economic and political transformation.

Elections in November 2010 ended 60 years of military rule and led to a quasi-civilian government headed by a new president, Thein Sein. Despite initial low expectations - it certainly was not foreseen by most US experts - Sein initiated a series of political and economic reforms. These included the release of most political prisoners ending Aung San Suu Kyi's years of house arrest.1

In parliamentary elections in November 2012, Aung San Suu Kyi and her opposition National League for Democracy party won 43 seats in parliament. This comprised 37 seats in the 440-seat lower house, along with four in the upper house and two in the regional chambers.

Restoration of diplomatic relations

As a result of this political sea change, the United States has restored full diplomatic relations and significantly eased its sweeping financial and investment sanctions.

President Obama has visited Myanmar twice, once in November 2012 and again last month for the 2014 ASEAN Summit. The visits by President Obama and by Secretary of State Hillary Clinton in 2011 (pictured) were clearly meant to signal US support for Myanamar's political and economic reforms.

The government has also taken major steps to open up the economy to international trade and investment. Judging from meetings with senior officials, the government desperately wants to expand trade and investment and sees it as a path to economic growth. Myanmar has a long and proud history that goes back centuries, but has fallen far behind the leading ASEAN economies.

It is now one of the poorest countries in South-East Asia, and there is widespread recognition that this is in large part because it missed out on the opportunities provided by trade and export-led growth during its economic isolation under military rule.2 In response to this, government officials and many ordinary Burmese are eager to expand international trade and investment flows. The government also appears focused on diversifying Myanmar's trade beyond its traditional export markets in India and China by boosting trade flows with the US, the European Union, and Japan from their current low levels. An element in this is a popular perception that the Chinese are exploiting Myanmar's resources, while giving little back.

Progress in trade and investment

Thus far, the increases in trade and investment have been slow. Several prominent US, European, and Japanese multinationals have made initial investments.

Many companies have visited in order to check out the economic, business, and investment climate. While some of this likely reflects normal corporate due diligence, political uncertainty about the upcoming elections may also be a factor. The government has little stomach for trying to turn the clock back; officials openly disparage the years of military rule and there would be a popular backlash if it tried to do so; many ordinary people appear eager for continued economic and political reforms and the higher living standards they think these would bring.

However, despite the far-reaching reforms adopted to date, the military retains extensive power, including a guaranteed allotment of seats in the parliament, which it has used to stymie legislation supported by the opposition. The number of seats allotted to the military is supposed to decrease to 5% in next year's elections. Yet the constitution continues to bar persons whose spouse or children are foreign citizens from running for president - a provision targeted at Aung San Suu Kyi. As a result, she and other opposition figures have grown frustrated and some foreign multinationals appear to be holding back until they see what happens in the 2015 parliamentary elections.

The election could bring the various contending forces in Burmese society to a head. If it leads to political turmoil or if the military seeks to roll back the clock in order to block the opposition, there is a risk that US and European sanctions could be re-imposed.3

On the other hand, if Myanmar continues on a reform path, it has the potential to become a major market for US, European and Japanese companies, and a major producer and exporter of minerals, energy, gems, labour-intensive manufacture, agricultural and other products. There is broad support for continued reforms among both government officials and ordinary people, and a high degree of pent-up energy. There is also widespread recognition among both groups that Myanmar needs to strengthen the rule of law, address corruption, and strengthen its educational system to attract foreign investment, improve its competitiveness, and provide greater opportunities for its people.

US policy towards Myanmar

The US and Myanmar governments continue to negotiate over restoring Myanmar's eligibility for the US Generalised System fo Preferences Programme (GSP), which provides duty-free treatment to imports from developing countries. GCP would allow Myanmar to diversify its exports, and is likely to benefit smaller private sector entrepreneurs and the agricultural sector. The State Department's website has a section on US policy towards Myanmar at www.state.gov/r/pa/ei/bgn/35910.htm, including a section on US economic policy which makes it clear that US policy supports responsible investment. The following is a summary of this.

Bilateral economic relations

In recognition of Burma's political and economic reform progress, the US has taken concrete steps to accelerate broad-based economic growth and support the political reform process:

  • In July 2012, the administration issued a general licence to authorise the export of US financial services to Burma, permitting the first new US investment in Burma in nearly 15 years.

  • In September 2012, the administration removed President Thein Sein and Speaker Shwe Mann from the Specially Designated Nationals (SDN) list.4

  • In September and October 2012, the administration eased the ban on the export of financial services to Burma to allow assistance and support by the US government and international financial institutions (IFIs).

  • In November 2012, the administration issued a general licence to authorise the import of Burmese-origin goods into the US, with the exception of jadeite and rubies mined or extracted from Burma, for the first time in almost a decade. The 28 July 2013 expiration of the Burmese Freedom and Democracy Act's (BFDA) ban on imports from Burma formalised this treatment.

  • In 2013, the administration issued a general licence to authorise US persons to conduct most transactions - including opening and maintaining financial accounts and conducting a range of other financial services - with four of Burma's major financial institutions: Asia Green Development Bank, Ayeyarwady Bank, Myanmar Economic Bank, and Myanmar Investment and Commercial Bank.

  • The US government encourages responsible investment in Burma as part of an overall strategy to support development and improve the standard of living for the Burmese people. Consequently, US companies play a critical role in supporting broad-based, sustainable development in Burma and, therefore, are helping the country progress toward a more open, inclusive, and democratic society.

Burma's membership of international organisations

The US has rolled back many of its prior economic sanctions against Myanmar. The remaining US sanctions focus mainly on persons on the SDN list, members of the military or businessmen who have benefited from close ties to the military or their representatives - the Ministry of Defence, state or non-state armed groups, or entities owned by these organisations.

Apart from this, the US has substantially pared back its economic sanctions and is now encouraging "responsible investment" by US companies. A brief summary of the remaining US economic sanctions and export controls applicable to Myanmar is set out in the remainder of this article.

US economic sanctions applicable to Myanmar

In 2012 and 2013, OFAC issued general licences authorising certain previously prohibited activities, but it continues to prohibit certain other activities. US economic sanctions against Myanmar currently restrict the following types of activities:

  • Transactions involving certain identified Burmese individuals and entities (i.e those identified on the SDN List, as well as those owned or controlled by SDNs).

  • Imports into the United States of jadeite or rubies mined or extracted from Myanmar and jewellery containing such items. These restrictions were imposed by Congress and cannot be lifted without further Congressional action.

  • Provision of "financial services" in connection with security services to the Burmese Ministry of Defence, state or non-state armed groups (which includes the military), or entities owned by these organisations.

  • "Financial services" as used in this context include: (i) the transfer of funds to Myanmar (directly or indirectly); and (ii) the provision (directly or indirectly) to persons in Myanmar of insurance services, investment or brokerage services (including, but not limited to,brokering or trading services regarding securities, debt, commodities, options or foreign exchange), banking services, money remittance services, loans, guarantees, letters of credit or other extensions of credit or the service of selling or redeeming traveler's checks, money orders and stored value.

  • "New investment" in Myanmar resulting from an agreement with Burmese Ministry of Defence, state or non-state armed groups (which includes the military), entities owned by these organisations, or blocked parties. New investment in Myanmar that does not involve these organisations is not broadly prohibited but might require reporting to the US government. US law imposes certain reporting requirements for new investments by US persons above US$500,000 and/or involving the Myanmar Oil and Gas Enterprise.

In this context, "new investment" includes activities such as:

  • the economic development of resources located in Myanmar (for example, natural, agricultural, commercial, financial, industrial and human resources located within the territory of Myanmar);

  • the entry into a contract providing for the general supervision and guarantee of another person's performance of a contract that includes the economic development of resources located in Myanmar;

  • the purchase of a share of ownership, including an equity interest, in the economic development of resources located in Myanmar; or

  • the entry into a contract providing for the participation in royalties, earnings, or profits in the economic development of resources located in Myanmar.

However, it generally does not include entry into, performance of, or financing of a contract to sell or purchase goods, services, or technology unless the contract also includes any of the activities described above.

In addition to all of this, the US economic sanctions against also Myanmar restrict:

  • US person approval or facilitation of prohibited transactions conducted by non-US persons.

  • Evasion ofor attempts to evade the prohibitions.

Activities with Myanmar other than those in this summary are not prohibited under current US economic sanctions against Myanmar.

Export controls applicable to Myanmar

In contrast to countries subject to comprehensive economic sanctions and export controls (such as Iran, North Korea, Sudan and Syria - Cuba having just come off the list), there is no broad prohibition on exporting US-origin goods, software, technology or services to Myanmar.

Export licensing requirements for Myanmar (like other non-sanctioned countries) are based on the export classification of the item and its end-use and end-user.

Exports and re-exports to Myanmar of items subject to the Export Administration Regulations (EAR) and classified as EAR99 or only subject to anti-terrorism (AT) controls generally do not require a licence for Myanmar, except in relation to the EAR's end-use and end-user controls. EAR99 is a designation used to refer to items that are subject to the EAR but that are not specifically listed in a particular Export Control Classification Number (ECCN) on the EAR's Commerce Control List (CCL).

Commercial or dual-use items listed on the CCL and controlled for other reasons (for example, chemical and biological weapons, nuclear non-proliferation, national security, etc.) generally would require a licence for export or re-export to Myanmar. Myanmar also remains subject to an arms embargo and exports, re-exports or transfers to Myanmar of defence-related items, technology, software and/or services generally are prohibited.

Warren Maruyama is a partner with the law firm Hogan Lovells. His practice covers US trade policy, law and legislation, and WTO and NAFTA disputes. Anthony Capobianco is also a partner at Hogan Lovells and his practice focuses on US trade control laws and the impact of US sanctions and export controls

Box-out 1

President Barak Obama and Hilary Clinton at the home of Aung San Suu Kyi after the 2012 elections

References: 

1. See Hugo Williamson's article 'Burma and the road to Mandalay' in TFR(November 2012) at www.tfreview.com/node/8390

2. One of the reasons why the Asian Development Bank resumed operations there in 2012. See http://bit.ly/1DMaoBM

3. See the Guardian article, 'Burma: the EU has been too quick to lift sanctions' (April 2013) at http://bit.ly/16sUYUo

4. www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx

Legal and regulatory: MYANMAR

Already registered? Login to access premium content

Give Feedback