Myanmar and the European Union to enter into an investment protection agreement

In furtherance of its commitment to foreign investment and international arbitration, Myanmar has recently been involved in negotiations with the European Union (the EU) as a precursor to signing an investment protection agreement that, among other things, will recognise international arbitration as the preferred dispute resolution mechanism.  

In addition to the enactment of the Foreign Investment Law in 2012 and the accession to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the Convention), which came into force in Myanmar on 15 July 2013. Click here for our earlier blog post. Myanmar appears to be taking several other steps to encourage foreign investor confidence.

Not so long ago, the military run regime in Myanmar was the subject of EU sanctions. However, these sanctions were lifted in April 2013, paving the way for a new economic and political relationship between the EU and Myanmar. Click here for our earlier blog post. Myanmar was also readmitted to the EU's Generalised System of Preferences in June 2013 allowing it to benefit from lower duties on exports. The EU Council stated that it 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….”.

Myanmar has already signed similar investment protection agreements with its Asian neighbours namely, China, Korea, India, Kuwait, Laos, the Philippines, Thailand and Vietnam. It also signed a Trade and Investment Framework Agreement with the United States in May 2013. Further, Myanmar is party to various multilateral investment agreements, including the ASEAN-Australia-New Zealand Free Trade Area agreement and the Bay of Bengal Initiative for Multi-Sector Technical and Economic Cooperation which aims to establish a free trade are by 2017 among Bangladesh, Bhutan, India, Myanmar, Nepal, Sri Lanka and Thailand.

According to official figures, the EU's investment in Myanmar from the UK, France, the Netherlands, Austria, Germany, Denmark and Cyprus amounted to about 3.855 billion USD as of July 2013.  The Myanmar government hopes that entering into a similar investment agreement with the EU will provide renewed confidence to European investors to enter the Myanmar market.

The Myanmar government is, however, likely to be cautious when entering into such agreements given the recent spate of investment arbitrations launched against various nations with the common perception being that even where states win the investor disputes they still end up losing due to the large drain of public resources spent in defending the claims. Sceptics will note that it took Myanmar more than one and half years to negotiate and finalise an investment protection agreement with Japan.  It seems safe to predict that the agreement with the EU will not be concluded and brought into force in the imminent future.

Nonetheless, these are positive steps taken by Myanmar to establish a stable political and legal framework for investors; all of which will contribute to Myanmar's attractiveness for foreign investment.

Note: Herbert Smith Freehills has recently published a Myanmar Investment Guide. Please email asia.publications@hsf.com if you are interested in obtaining a copy. In addition, we have close relationships with highly-regarded legal firms in Yangon and currently have a senior corporate associate from our offices in Singapore based in Yangon, working with a local law firm. With the ability to work so closely alongside lawyers in the local market, Herbert Smith Freehills is able to provide a seamless service to clients on Myanmar matters. If you would like any further information on Myanmar, please contact Alastair Henderson or Kritika Venugopal.