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In 2012, Myanmar saw a number of important positive political changes with the election of Daw Aung San Suu Kyi to Parliament and the normalisation of diplomatic relations with several countries. These political changes were accompanied by a significant increase in foreign interest in Myanmar as an investment destination, which itself was further encouraged by the necessary reform of Myanmar’s foreign exchange system and certain key legal developments including, most significantly, the enactment of a new Foreign Investment Law.
In the first quarter of 2013, Myanmar has continued implementing and consolidating legal reforms aimed at attracting foreign investors. There is also an emphasis on encouraging transparency in the development of much-needed major public infrastructure through the implementation of international tenders. The EU and the US have acknowledged Myanmar’s overall progress with the EU permanently lifting sanctions and the US substantially easing them.
This client alert provides an update of key trends and legal developments in Myanmar since the beginning of this year, focussing on the new foreign investment by-laws, the impact of Myanmar's accession to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention), the easing of sanctions, and current international tenders.
Our previous alert summarising the main aspects of the new Foreign Investment Law may be accessed here.
In November 2012 a new Foreign Investment Law was passed. Since then, two implementing regulations have been issued: the Foreign Investment Rules (Notification 11/2013 of the Ministry of National Planning and Economic Development) and Notification 1/2013 outlining restricted activities of the Myanmar Investment Commission (MIC), the State body with the authority to approve foreign invested projects through the issuance of investment permits. This regulatory framework for foreign investment is more detailed than was previously the case, and grants MIC significant discretion.
MIC Notification 1/2013 sets out a list of current:
The MIC investment permit
The Foreign Investment Rules clarify the various steps to be taken by applicants and the procedures that the MIC will follow in issuing an investment permit. Please note that depending on the circumstances, in the case of a project relating to an activity subject to State monopoly, the application for an investment permit may need to be sent to the MIC through the relevant Ministry.
Upon receiving an application the MIC will assess if the information provided by the applicant in its investment proposal is sufficient. If the level of information provided is sufficient, the proposition will be “accepted” and the proposal will be passed on to a review group comprising of high ranking officers from various Government departments.
If the review group approves the investment proposal, MIC will also request comments from the relevant local and State authorities depending on where the project is located, the Ministry of Environmental Protection and Forestry and an assessment group within the relevant Ministry.
Finally the MIC will scrutinize the proposal by reference to certain broad and fairly subjective statutory criteria, which include an assessment of the economic justification of the proposal and whether the investment is socially and economically responsible.
If the application is approved by the MIC, it must issue the investment permit within 90 days of the approval date.
Registration of a Foreign Company with the Directorate of Investment and Company Administration (DICA)
A foreign invested company must also be incorporated as a legal entity with DICA. This process is separate from the application for an investment permit with MIC, although the Director General of DICA sits as chairman of the initial review group to which MIC submits the applicant's application for a MIC investment permit.
Rule 19 of the Foreign Investment Rules clarifies the interdependency between the incorporation of a company with DICA and the application for an MIC permit as follows “when the Commission (i.e. MIC) approves the proposal and issues the investment permit, DICA shall issue foreign company incorporation or registration at the same time”.
Other matters
Other important provisions of the Foreign Investment Rules regulate the procedures relating to the approval of long-term leases, share transfers and capital contributions, and the obligations of foreign investors in Myanmar with respect to reporting and training, as well as the reinstatement of certain foreign exchange controls.
Overall, the Foreign Investment Rules provide applicants with more detail on the process which will be used to assess their applications and the investment framework which will apply to their activities, although the manner in which the authorities, and MIC in particular, will implement the new framework remains to be seen.
On 16 April 2013, Myanmar deposited an instrument of accession to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958. This news followed the report by several sources that Myanmar’s Parliament had agreed for Myanmar to become a party to the convention earlier in March 2013.
While Myanmar is currently a party to the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927 and the Geneva Protocol on Arbitration Clauses of 1923, these international treaties have important limitations. As an example, enforcement of an award under the Geneva Convention requires a “double exequatur”, which means that the award must first be confirmed in the court of the place of arbitration before it is enforceable in Myanmar, a real hurdle in practice, introducing significant uncertainty.
The accession by Myanmar to the New York Convention should offer foreign investors significantly more certainty on their ability to enforce their rights under international arbitral awards against local counterparts. Furthermore, the signature of the New York Convention could represent an occasion for Myanmar to overhaul its current arbitration framework, which is currently based on the outdated Arbitration Act of 1944.
While the accession of Myanmar to the convention is a very good news for international investors, it is important to note that the terms of accession of Myanmar to the convention are not yet known (in particular, Myanmar could have formulated reservations) and that signature of this convention will need to be followed by the passing of efficient and non-biased Myanmar implementing legislation, which itself will be subject to the interpretation and application of the domestic courts.
In parallel with the development of the domestic legal framework in Myanmar, a number of international sanctions have recently been lifted (EU sanctions) or eased (US sanctions).
The EU sanctions against Myanmar were first adopted by the EU by the Common Position on Burma/Myanmar in 1996 (to the exception of the arms embargo which has been in force since 1990). At the time they were suspended for one year in April 2012 by Council Decision 2012/225/CFSP in response to Myanmar's welcome political changes and opening to the Western world, they comprised the freezing of assets of nearly 1,000 companies and institutions in Myanmar and a travel ban on almost 500 individuals. They also prohibited trade and investment in logging, timber processing and mining of precious metals and stones.
The Council of the European Union announced on 22 April 2013 its decision to lift all sanctions previously taken against Myanmar with the exception of the embargo on arms and equipment that might be used for internal repression. The Council said that this decision was taken in response to “the remarkable process of reform in Myanmar” and stated that the EU is “willing to open a new chapter in its relations with Myanmar / Burma building a lasting partnership and to promote closer engagement with the country as a whole”.
The EU is also adjusting its trade relations with Myanmar. In September 2012, the European Parliament’s International Trade Committee recommended that the European Commission should reinstate Myanmar into the European Generalized System for Preferences (GSP), which would provide duty and quota free access to the EU market for all Myanmar produced goods other than arms and ammunition. The vote and formal approval process by the Council are expected to take place in May 2013.
Investors must remember that US sanctions remain in force, although they have been significantly eased since July 2012. US sanctions which remain in effect include a ban on transactions with the Myanmar Ministry of Defence, any state or non-state armed group, or any entity in which such persons own more than 50 %, as well as persons listed on the Office of Foreign Assets Control’s (OFAC) list of Specially Designated Nationals (SDN), as well as a ban on importing certain gems and minerals into the US. However, US persons are now permitted to make transactions with four Myanmar banks that have been approved by OFAC.
The US is reported to have begun talks in late April 2013 on a Trade and Investment Framework Agreement, which may also grant Myanmar preferential access to the US market with other less developed nations.
Several international tenders that were launched or announced in 2012 have significantly progressed in 2013. In particular, one of the tendering rounds launched by the Department of Civil Aviation of the Ministry of Transport for the development and operation of three international airports (Yangon, Mandalay and Hanthawaddy) is expected to reach its final stage soon.
Other on-going tenders include the (i) tender for two telecommunications licences overseen by a selection committee and for which 12 applicants were prequalified on 11 April 2013, and (ii) the request for expressions of interest in developing offshore oil and gas blocks launched by the Ministry of Energy, also on 11 April 2013.
These international tenders represent a major step forward in terms of transparency relating to major public infrastructure and assets and should help lay the foundations of best practices, both in terms of contractual relationships between public and private entities and the application of the newly enacted foreign investment regulatory framework to large investments.
The enactment of the foreign investment bylaws and Myanmar’s accession to the New York Convention are key steps taken by Myanmar towards creating a more favourable and predictable investment climate for international companies wishing to take part in the development of Myanmar.
The EU’s decision to lift its sanctions and US’s decision to ease its own sanctions will also undoubtedly contribute to increasing investment in Myanmar, as companies from those jurisdictions may now consider investment without consequences in their home countries.
According to recent public announcements, further reforms are to be expected in Myanmar in the near future. As an example, an IP protection law is reportedly close to being finalised - this would represent a major development as Myanmar does not currently have any modern trademark protection laws in place. Developments are also expected in the financial services sector.
Nonetheless, investors should note that despite these welcome developments, the current framework is still very much in a testing phase and that its implementation will be key in determining the attractiveness of Myanmar as an investment jurisdiction. In addition, and as widely reported, deep historic ethnic conflicts, particularly but not exclusively in the Western part of Myanmar and in the Kachin and Shan states, may constitute a threat to the ongoing reform process.
We are closely following these legal developments which may offer substantial opportunities to foreign investors interested in Myanmar. For more information, please contact Samantha Campbell or Gilles Cardonnel.
