THE US Treasury’s tweaking of its Myanmar sanctions this week will boost trade and investment in the Southeast Asian country, and signals support for the mandate of the new civilian government led by Aung San Suu Kyi, writes Eric Yep.
Entities close to the former military junta are still under sanction. But at the same time, the licence to use port facilities of the blacklisted conglomerate Asia World Group has been extended indefinitely, facilitating more trade and shipping activity.
On May 17, the Obama administration amended its sanctions “intended to support trade with Burma, facilitate the movement of goods within Burma, allow certain transactions related to US individuals residing in Burma” and free up the banking sector.
It removed seven state-owned companies and three banks from its blacklist. These entities are responsible for promoting trade and investment in key industries like precious stones, pearls, timber and mining.
After decades of isolation, Myanmar is roaring ahead with the fastest growing economy in Asia in 2016, according to the Asian Development Bank. It expects Myanmar’s economy to grow by 8.4% in 2016, which is the highest growth rate for Asia and the Pacific region.
Asia World Port Terminal
One of the more problematic issues resulting from US sanctions has been the use of the main container terminal at Yangon Port operated by Asia World Port Management Co Ltd, a subsidiary of Asia World Group.
Asia World, one of the largest corporations in Myanmar, is owned by business magnate Steven Law, who was blacklisted by the US government for being a “key financial operative” and supporter of the former Burmese military regime.
In 2010, the US government said Mr Law and his father Lo Hsing Han had a history of involvement in illicit activities such as the heroin trade, and that Asia World had received numerous lucrative government concessions, including the construction of ports, highways and government facilities.
However, Yangon Port is critical to supply goods to Yangon and other cities, at a time when economic growth is primarily concentrated in urban areas.
In 2015, financial institutions like Clearing House Association LLC wrote to the US Treasury saying Asia World’s Yangon terminal constituted a critical artery of foreign trade for Burma. They said sanctions could lead to both US and non-US financial institutions blocking transactions with the port, leading to “a de facto trade embargo on Burma”.
Licence
As a result, the US Treasury’s Office of Foreign Assets Control issued a six-month licence in December 2015 allowing the use of critical trade infrastructure like Asia World’s port terminal, as “sanctions concerns were disproportionately affecting exports to and from Burma”.
On May 17, it indefinitely extended this licence.
“Port users should note that the effect of General License 20 is limited only to authorising certain payments that are incidental to the use of the sanctioned port,” said Karnan Thirupathy, partner at law firm Kennedys.
He said the licence did not permit shipowners to deliver cargo to a blacklisted entity like Asia World, neither did it allow parties to make other payments to the sanctioned port that are not incidental to the use of the port.
“For example payments made to a sanctioned port for the development of port facilities or payments made pursuant to a joint venture with a sanctioned port or some other commercial arrangement are still prohibited,” Mr Thirupathy said.
Asia World said in a statement on Wednesday that it “expects to see continued smooth operations and trade flows following the announcement”.
“This will benefit the movement of goods in and out of Myanmar in the future by allowing sanctioned ports, including [Asia World Port Terminal], to continue with their provision of port operator services.”
So far, suppliers concerned about US sanctions have been using the adjoining terminal of Myanmar Industrial Port and the Myanmar International Terminals Thilawa, owned by Hutchison Port Holdings.
Other terminals at Yangon port, like the Bo Aung Kyaw Street Wharf, are operated by the military-owned Union of Myanmar Economic Holdings Limited, and continue to be on the US blacklist.
Tightening the screws
Some experts view the easing of US sanctions as insufficient to incentivise foreign investment, especially considering the blacklisting of six more companies with a controlling interest by Asia World.
Conglomerates with ties to the former military government occupy a significant foothold in Myanmar’s economy and control the majority of big businesses, especially in natural resources and infrastructure.
The new government is walking a tightrope as it tries to balance the business interests of these corporations and wider economic reform.
“Myanmar political and economic reform is still very much work in progress,” advisory firm Consult-Myanmar’s managing director Andrew Tan said.
He said the US government was greatly aiding the efforts of the new Myanmar government and at the same time tightening the screws on the military by keeping military-owned enterprises, tycoons and related parties on the sanction list.
“By continuing to put pressure on the military and its allies, the US is in fact giving Daw Aung San Suu Kyi’s government leverage over the military,” Mr Tan said.
“For foreign investors, the most important thing is that there is political stability and certainty in the new government.”
Source: Lloyd’s List