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Burma: New Foreign Direct Investment Law Adopted

(Sept. 12, 2012) On September 7, 2012, the Pyidaungsu Hluttaw (Assembly of the Union, the parliament of Burma) approved a new Foreign Investment Law, after several months of parliamentary debate and adjustments to the draft legislation “as proposed changes have gone back and forth between the assembly and the president’s office.” (Aung Hla Tun, Myanmar Parliament Passes Investment Law, Now with President, REUTERS (Sept. 7, 2012).) In the end, legislators dropped a number of controversial provisions in the draft law deemed likely to discourage foreign investment, but it still, according to some news reports, “fell short of what many businesses had hoped to see.” (James Hookway, Myanmar Passes Investment Law, THE WALL STREET JOURNAL (last updated Sept. 7, 2012) [subscription required].)

Only a few details of the Law have been announced thus far. One rejected controversial measure was the requirement of a minimum investment of $5 million as start-up capital for joint ventures with domestic companies. According to some analysts, such a provision would have limited the investors “to dealing only with the country’s largest and, possibly, most politically connected firms, including potentially some with ties to Myanmar’s former harsh military regime.” (Id.)

Earlier drafts of the legislation had also restricted foreigners to 49% ownership of joint ventures in delimited sectors, including, among others, agriculture and fisheries, farming, and manufacturing. (Aung Hla Tun, supra.) The final version of the Law permits 50% foreign ownership in such sectors, and, according to government officials, the limit can be exceeded in certain sectors, which they did not, however, specify. The range of industries open to investment will also be broader than initially proposed. (Hookway, supra.) In addition, under the new Law, foreign investors are allowed to lease land for an initial period of 50 years, with an option to renew; the lease term was 35 years under the previous law. (Id.)

President Thein Sein had opposed restrictive measures such as the start-up capital requirement and had reportedly also favored the increased maximum foreign investor stake in joint ventures. Some of his aides had also deemed some of the changes that had been proposed by legislators as protectionist and likely to discourage foreign investors, “to the benefit of the crony capitalists who dominated Myanmar’s economy under the junta and remain a force.” (Aung Hla Tun, supra.) As one reporter commented, the finalized Law “appears to mark a middle ground between a draft offered by a camp pushing for rapid change—led by President Thein Sein—[and] a vision offered by conservative legislators and local business leaders who have worried that opening the country too aggressively would let foreign firms dominate the economy.” (Hookway, supra.)

Legislator Sandar Min was said to have lauded the passage of the Law “but warned that further legislation was needed to bring Burma’s investment environment up to international standards.” She further noted that the country needs more laws related to investment, such as patent legislation and transportation laws, and that “Parliament is working on the issues one by one. Only when all the investment laws are passed will it be possible for foreign investment to come to Burma, … . The FDI law alone is not good enough [to protect] investment.” (Burma’s Foreign Investment Law Approved by Parliament, MIZZIMA (Sept. 10, 2012).

A commission to oversee and make recommendations on foreign direct investment in Burma is to include experts from various types of industry and from nongovernmental organizations, according to Sandar Min. It will recommend, in cases of 100% foreign investment, “how much the required [initial minimum] investment should be, based on the nature of the investment,” not on a fixed amount. (Id.) The commission recommendations will be submitted via the government to the Parliament. However, “the commission will not have the sole authority to make decisions over large investments by foreign companies.” (Id.)

The Law has been passed on to the President for his final approval, but it remains unclear whether he will endorse it. Should the Law remain unacceptable to him, it would not be considered by the Parliament, which is now in recess, until it reconvenes in the third week of October, at the earliest. (Hookway, supra; Aung Hla Tun, supra.)