This year’s suspension/relaxation of Burma sanctions by the West is a prime example of the real impact of economic sanctions. For example, although the United States suspended most sanctions on July 11 and is now allowing U.S. investment in Myanmar, the operating environment did not change overnight.
Instead, investors are faced with a country in transition, as both Myanmar and the international community attempt to re-engage after years of economic isolation. Compliance measures imposed by multinational companies will take months to revise, while enterprises in Myanmar attempt to learn international best practices. Partial suspension means that investors must scrutinize possible dealings with companies and persons on the U.S. “Specially Designated Nationals” (SDN) list, as well as the possibility that the U.S. and other Western countries could reimpose the sanctions in full. Overhanging everything are both the 2015 Myanmar elections and very real possibility that President Thein Sein and opposition leader Aung San Suu Kyi will not be able to see through the entire transition to normalcy.
Myanmar’s transformation is underway
As a participant in the first official American trade delegation to Naypyidaw (others have been to Yangon) this month, I had first-hand experience with this country in transition. For years I have had personal ties to the country, but until July 11 I could advise clients to consider business with Myanmar. This article offers some personal observations on how to deal with the country and the Burma sanctions.
1. What’s in a Name? -- The government refers to the country as Myanmar. In dealing with the government and other official entities in the country, it is best to call the country “Myanmar” and not “Burma”.
Ed at the Myanmar Ministry of Commerce
2. Financial Considerations -- pre-July 11, U.S. Burma sanctions forbade any financial transactions with Myanmar, and post-July 11, they still apply to SDNs. Compliance measures imposed by banks, in particular the U.S.-based SWIFT system, mean that credit cards and ATM cards do not work in Myanmar. Even attempting to use such cards in Myanmar can result in their deactivation by the bank. Until the banks modify their compliance measures, cash is king, and should be in crisp and clean US$ 100 notes without a “CB” in their serial number.
3. SDNs – For U.S. companies at least, determining whether their potential business partner is on the SDN list or linked to an SDN is a crucial and daunting task. The lack of information and the limited business support resources from the U.S. Embassy in Yangon mean that U.S. companies will need additional support from experienced hands in Myanmar to help in due diligence efforts. The universe of such persons is quite limited, but growing. More importantly, the U.S. government will eventually tailor the Myanmar designees on the SDN list over time, as a result of better understanding of the business situation and the amendment of U.S. legislation. Until then, the issue of “dealing” with SDNs will remain the primary regulatory issue for U.S. companies. The situations presented thusly can be prosaic (e.g., flying between Yangon and Naypyidaw involves flying on airlines owned by SDNs, so don’t do this) or unique (does appearing a photograph with an SDN constitute “dealing”? Without a quid pro quo transaction, probably not).
US Ambassador to Myanmar Derek Mitchell and Speaker of the Lower House of the Myanmar Parliament Thura U Shwe Mann
4. Legal System -- Myanmar’s legal system appears both familiar and foreign. The legal system is based on the old British India colonial system of common law. Laws and legal education are in English. However, during the Ne Win era, the common law principles of stare decisis and hierarchy of courts were largely discarded. The use of English as the language of law and legal education also serves to insulate lawyers from the rest of Myanmar society. Hence like other developing countries, domestic litigation should be avoided and arbitration clauses are a necessity. In any event, foreign investors should also wait for the passage of the much-discussed foreign investment law before investing in the country.
5. Trading – U.S. Burma sanctions never prevented the sale of goods to Myanmar, only that U.S. companies could not engage in financial transactions with the country (e.g., they couldn’t get paid). As a result, U.S. companies sold to Myanmar through ASEAN-based trading companies. The July 11 relaxation now allows U.S. companies to be paid directly. However, the U.S. ban on imports from Myanmar remains in place through July 2013 at least, and perhaps until 2015 if renewed by Congress.
6. Civil Society – The July 11 relaxation mandates that U.S. companies investing in Myanmar must submit an annual corporate and social responsibility (CSR) report. Unique to Myanmar, this requirement actually may serve to differentiate the U.S. “brand” in Myanmar and help U.S. companies deal with corruption and governance issues. However, civil society in Myanmar is wildly diverse, with various ethnic and religious groups and a newly assertive media, complicating CSR efforts.
In sum, it is still early days for Myanmar’s transition, but the process appears to be lively and ongoing. Many regulatory pitfalls involved in foreign investment remain, but with careful scrutiny and patience, Myanmar offers both economic potential and the opportunity to help its long-suffering people.