On January 31, 2013, the Directorate of Investment and Company
Administration ("DICA") of the Myanmar Ministry of
National Planning and Economic Development (the "NPED
Ministry") published on its web site the Foreign Investment
Rules1 and the Classification of Types of Economic
Activities Notification2 (collectively, the
"Rules") pursuant to Myanmar's new Foreign Investment
Law3 (the "FIL"). Like the FIL itself, the
Rules reflect a Myanmar that is eager for foreign investment
having, among other things, invited bids for 18 onshore oil and gas
blocks in Myanmar's second international petroleum licensing
round.4 They come as part of a series of economic and
political reforms as foreign investors and governments begin
re-engaging with Myanmar in earnest following the relaxation of
American and European economic sanctions against
Myanmar.5 Companies as diverse as Nestle, ANZ, and GE
have announced plans to begin or expand operations in Myanmar - MTV
even held a televised concert in Yangon.
Observers, including Jones Day partners Darren Murphy and Kevin
Murphy, who recently returned from a trip to Yangon, report
sustained momentum for economic and political reform and a genuine
enthusiasm for the development that foreign money will bring.
In a more recent demonstration of its commitment to attracting
foreign capital, the Myanmar Parliament agreed on March 6, 2013 to
sign the Convention on the Recognition and Enforcement of Foreign
Arbitral Awards 1958 (the "New York Convention"). This
critical step should allow for more effective enforcement in
Myanmar of arbitral awards made in signatory countries and provide
foreign investors with needed confidence that contractual terms can
be enforced in Myanmar.6
This Commentary summarizes the FIL and the Rules, and
points out remaining ambiguities that will need to be clarified in
the day-to-day practice of the Myanmar Investment Commission
("MIC").
The Foreign Investment Law
The FIL permits foreign investment through 100 percent owned
investment companies, through joint ventures, or pursuant to a
contract,7 a clause that the Rules interpret to mean a
private-public joint venture contract with the Myanmar government.
The law does not create a special class of foreign investment
companies but rather provides for foreign investments to be
conducted through companies formed under the existing Myanmar
company law upon application to DICA.8
While foreign-owned companies and joint ventures will be subject
to the same principles of company law (and, in general, the same
environmental, labor, and other such regulations) as local
companies, permitted foreign-owned companies and foreign joint
ventures will have the advantage of a foreign investment permit.
Such a permit carries with it a number of important benefits,
including:
- Basic "guarantees" against nationalization and arbitrary state action: "that a business formed under the permit shall not be nationalized"; that the government will not "suspend any investment business carried out under the permit ... before the expiry of the permitted term without any sufficient cause"; and that invested foreign capital may be remitted in the same currency upon expiry of the term of the investment contract.9
- Provisions for the repatriation of profits and invested funds on an ongoing basis, subject to payment of taxes and creditors.10
- Long-term leases for permitted foreign or joint venture companies with terms of up to 50 years extendable twice for further 10-year periods (i.e., to a maximum of 70 years).11
- Enforcement of the "dispute settlement mechanism" in joint venture and investment agreements.
In other words, the plain text of the FIL aims to provide investors with security of tenure, protection against state expropriation, and a means to enforce the terms of their agreements with local partners.
The Implementing Rules
Beyond that, however, the FIL is light on details on the
governance regime for foreign investment. As a member of
Myanmar's parliament told the Thai press, the FIL "is
quite flexible,"12 with much being left to the
discretion of the Ministry and the MIC. The Rules are a solid start
to addressing the FIL's ambiguities:
Investments in Sensitive Sectors. The FIL
prohibits investment in certain specified areas, such as
"farming agriculture," factories that produce or
businesses that use hazardous chemicals, and activities that
"can affect the public health" or "cause damage to
the natural environment and ecosystem." Further, activities
"which can cause great effect on the conditions of security,
economic, environmental and social interest of the Union and
citizens" must be submitted to parliament prior to granting of
a permit.13
The Rules add detail to these categories, providing that foreign
investment is prohibited in a number of sectors, including (i)
defense; (ii) the administration of electric power; (iii) small- or
medium-scale mineral production; and (iv) Myanmar-language
publishing and media. The Rules also limit foreign investment to a
maximum of 80 percent of a joint venture with a citizen in a range
of "restricted sectors," including (i) many food and
agricultural activities; (ii) infrastructure development and
construction; (iii) residential and commercial developments; and
(iv) air transportation services.
Investment in a third category of conditional sectors, which
includes many of the restricted sectors, is subject to specific
conditions and approvals, including clearances from relevant
government ministries and regulatory offices. Certain investment
projects in the minerals, construction, and manufacturing sectors
will also be subject to environmental and social impact
assessments.
The FIL repeals only the previous version of the foreign
investment law. Investments therefore remain subject to the
restrictions found in other applicable laws. In particular, the
State-Owned Economic Enterprises Law, which provides the Myanmar
government with the sole right to carry out certain activities,
such as the exploration, extraction, and sale of petroleum and
natural gas, air transportation services, and banking and insurance
services, continues to apply to investments in regulated sectors.
Indeed, the Rules reiterate this point. For example, the Rules
expressly condition the selling and marketing of air transportation
services on governmental approval and the recommendation of the
Ministry of Transport.
Guidelines for the Grant of Permits and
Permissions. As noted above, the MIC has substantial
day-to-day authority to, among other things, grant or deny
investment permits and enforce their terms. The Rules provide basic
procedures for the exercise of such authority, including (i) the
general criteria the MIC will consider in exercising its discretion
and (ii) the time limits within which the MIC will act.
Encouragingly, the MIC seems committed to handling applications
expeditiously. It will constitute an inter-department team to
assist in reviews of investment proposals in regulated sectors, and
its application committee will meet weekly to consider the
investment proposals put forward in the preceding week. Further,
while local governments will be provided an opportunity to comment
on investment proposals, their comments must be made within a week
of the MIC's request for remarks.
Not surprisingly, the Rules' procedural provisions will
require further clarification. As one example, the Rules set out
the extensive information that foreign investors must provide to
the MIC in order to obtain an investment permit but make no express
provision for the confidentiality of such information, much of
which will be commercially sensitive.
Timeline for Acting on Investment Permits.
Investors, too, will be held to tight timelines. Those proposing
greenfield projects must complete construction within the time
provided in their MIC permit, which is subject to only limited
extension. Where such time limits are exceeded for reasons other
than force majeure, the MIC can cancel the investor's permit
without compensation.
The Rules also add detail to the process for obtaining land use
permits and transferring capital in and out of the country as
provided in the FIL. These provisions contain one or two surprises,
including a suggestion that investors can, on a case-by-case basis,
obtain initial land tenancies of greater than 50 years where they
invest in less-developed regions of Myanmar.
But while the Rules do provide some useful details, other key
issues faced by investors remain to be addressed:
Tax Relief. The FIL provides that the Commission
shall grant an investor an income tax exemption for a period of
five consecutive years. It also provides that the MIC "may
grant" 10 other tax benefits, including extensions to the
initial five-year tax holiday, exemptions from taxation for profits
reinvested in Myanmar within a year, and exemptions from certain
customs duties. Neither the FIL nor the Rules detail any additional
criteria the MIC will use in exercising its discretion to grant
such tax exemptions.
Transfer of Projects. The Rules do provide for
the sale of interests in projects to Myanmar citizens or other
foreign investors. However, such transfers are subject to approval
by the MIC, which can be withheld on a broad range of
grounds.
Employment of Foreign Nationals. The FIL
differentiates between "skilled" and
"unskilled" workers, and it provides that the latter must
be Myanmar nationals. The FIL also provides for a minimum quota of
Myanmar citizens in skilled jobs, which will increase over time,
although the timeframe may be increased by the Commission for
businesses "based on knowledge." The Rules, however, do
not define what jobs will be categorized as
"skilled."
The Rules are a good step in Myanmar's process of economic
liberalization. However, they still leave significant day-to-day
discretion with the MIC. The Myanmar government's latest moves
are cause for optimism, but perhaps only cautious optimism until
the MIC has developed a track record in practice.
Footnotes
1. This Commentary's summary of the Foreign Investment Rules (Notification No. 11/2013, January 31, 2013) is based on an unofficial translation of the document published in the Myanmar language on DICA's web site. At present, an English translation is not available on DICA's web site.
2. Classification of Types of Economic Activities (Notification No. 1/2013, January 31, 2013) as published in English on DICA's web site.
3. The Foreign Investment Law (November 2, 2012) as published in English on DICA's web site. The NPED Ministry has published a different translation on its web site.
4. See Jones Day Commentary, " Second Petroleum Bid Round in Myanmar" (January 2013).
5. See Jones Day Commentary, Eased Sanctions Widen Doorway to Myanmar Oil and Gas Sector" (August 2012).
6. Implementation of the New York Convention in Myanmar through the adoption of domestic legislation remains to be completed.
7. 2012 FIL § 9.
8. 2012 FIL § 10.
9. 2012 FIL §§ 28-30.
10. 2012 FIL § 39.
11. 2012 FIL § 31-32.
12. "Myanmar's Foreign Investment Law Lauded," The Nation (Nov. 7, 2012), available at http://www.nationmultimedia.com/business/Myanmars-foreign-investment-law-lauded-30193800.html.
13. Discussed at 2012 FIL §§ 3-6.
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