A First Step or an Empty Gesture: Relaxing Sanctions against Burma/Myanmar?

On April 17, the United States began to relax sanctions against Myanmar/Burma as a quid-pro-quo for recent liberalization efforts and for apparently fair parliamentary elections that elected Nobel laureate Aung San Suu Kyi in a landslide. Australia has relaxed sanctions and the European Union may do the same within the next week.  What does this mean for market liberalization and trade and investment opportunities?  

Recent Developments in Burma/Myanmar

The political and economic changes taking place in Burma are dramatic as the country emerges from decades of isolation. The first elections in twenty years in 2010, nominally transferred power from the military junta to a civilian government. At the same time renowned opposition leader Aung San Suu Kyi was released from house arrest. President Thein Sein has since cautiously guided Burma from international pariah towards reintegration into the international community. Suu Kyi's National League for Democracy won 43 of 45 contested seats in the recent parliamentary by-elections, giving her a symbolically powerful presence in the country's 664-seat parliament.  President Sein is using the political opening to introduce economic reforms, including a managed float of the local currency. A draft foreign investment law proposes a five-year tax holiday for foreign investors, the ability to repatriate profits, liberal foreign ownership, and generous leasing requirements, among other provisions. International partners are actively welcoming Burma's nascent liberalization, with high-profile visits by Secretary of State Hillary Clinton and UK Prime Minister David Cameron. Although still in the early stages of what will be a long process of rejoining the global economy, governments around the world are lifting long-standing economic sanctions against the country.

U.S. Sanctions

Following up on Secretary Clinton's commitment to relax some sanctions, the United States – acting through the Office of Foreign Assets Control ("OFAC") – issued General License No. 14-C ("General License 14-C" or "GL 14-C") to the Burmese Sanctions Regulations ("BSR"), 31 C.F.R. Part 537. General License 14-C replaces General License 14-B, issued on May 9, 2008, which authorized the exportation and reexportation of financial services to Burma in support of not-for-profit humanitarian and religious activities in Burma provided that the exportation or reexportation was not: (1) directly or indirectly to the Government of Burma; and (2) for the benefit of any person whose property or interests in property are blocked. General License 14-C has now authorized certain financial services in support of humanitarian, religious or other not-for-profit activity in Burma. Specifically, the expanded GL 14-C authorizes financial services in support of the "following not-for-profit" activities:

1. Projects to Meet Human Needs – e.g. refugee assistance, provision of food, shelter, water, and medical equipment; health services, etc
2. Democracy Building and Good Governance – e.g., building rule of law, citizen participation, civil society development, government accountability, etc
3. Educational Activities – e.g., literacy programs, educational access, vocational training, education reform, foreign language instruction, etc
4. Sporting Activities – e.g., amateur sporting events, construction and maintenance of sporting facilities, etc
5. Non-commercial development projects benefiting the Burmese people – e.g., preventing infectious disease, maternal/child health, food security, sustainable agriculture, construction of schools, hospitals, libraries; etc
6. Religious activities – e.g., education and training, construction and maintenance of houses of worship, etc

Like General License 14-B, GL 14-C does not authorize the exportation/reexportation of financial services to or for the benefit of persons blocked under the BSR which would include senior officials in the Burmese government and all other individuals designated by OFAC. 

The United States also announced it will normalize diplomatic relations with Burma by appointing an Ambassador and will establish an AID office in the country.  

Developments in the European Union

In February the European Union suspended a visa ban for President Sein and other leaders of the Myanmar government. The European Union is expected to further ease sanctions in the coming weeks. At the EU's foreign ministers meeting on April 23 in Luxembourg, EU sanctions against Burma/Myanmar, from the arms embargo to limits on investments, will be reviewed as they are set to expire on April 30. Diplomatic sources believe there will be some loosening of sanctions, but the arms embargo will not be lifted.

While there are significant differences among the EU member states over how much sanctions should be eased, France and the UK support a relaxation.

During his visit to Burma/Myanmar last week, British Prime Minister David Cameron called for sanctions to be suspended, emphasizing that moves towards democratic reform should be rewarded. However, like the United States, Cameron does not support a relaxation of the arms embargo.

Additional Worldwide Developments

Other countries have taken steps to encourage Burma's fledgling transition to democracy. Australia has moved the furthest and announced that it will lift all economic sanctions and will normalize trade relations with Burma. Japan does not have sanctions on Burma/Myanmar, but the Tokyo Stock Exchange and the Daiwa Securities Group have announced plans to help Burma/Myanmar establish its own stock market. Even Canada, which imposed the harshest set of sanctions on Burma/Myanmar, has indicated its willingness to relax some measures.

*          *          *

While developments in Burma encourage a gradual loosening of global sanctions, most countries maintain a complicated set of sanctions on Burma/Myanmar. Companies considering entering the Burma market or investing in the country should therefore seek guidance regarding strategies for market access as well as guidance regarding the scope and contours of the current sanctions programs. Please contact any of the professionals listed at right for further information.