Burma

• Facts on Burma • Brief History of Burma • Socio-Economic • Barrier to Trade and Investment • Burma or Myanmar? • Ethnic Nationalities Printable Version

Source: U. S. Department of Commerce - National Trade Data Bank, September 3, 1999

US Sanction Regulation (PDF)

Chapter VI. TRADE REGULATIONS AND STANDARDS

Despite moderate growth in the urban areas in the 1990's, Burma remains designated by the United Nations as a least developed country. Per capita income is only $406. In the past year foreign exchange reserves have fallen to crisis levels, and the GOB has imposed a series of new restrictions on international trade.

Despite laws to encourage foreign trade and investment promulgated in the 1990's, cumbersome restrictions from the socialist period remain, including permits required for imports, exports and most other business activities. The concepts of a market-oriented economy, including reliance on market forces, have not worked its way through the bureaucracy to eliminate burdensome regulations and procedures. Procedures for issuing import and other business permits are not transparent, which provides opportunities for graft. Importers and exporters say it is extremely difficult to work in trade without paying officials for permits.

The official exchange rate, which overvalues the currency by 60-fold, is a key impediment to foreign trade and investment. Burma also lacks a significant private banking sector, modern banking practices and an independent Central Bank. Poor infrastructure is a major impediment to distribution of goods and services.

Due to its poor human rights record and the inadequacy of its narcotics suppression efforts, Burma is unable to obtain multilateral financial assistance and bilateral aid has been suspended. The U.S. does not offer EXIM bank or OPIC insurance coverage for Burma. In 1997, the President prohibited new U.S. investment. Consumer boycotts combined with a plethora of state and local sanctions in the U.S. create additional risk for companies involved in the Burma market.

Trade Regulation

Over the 1997/98 fiscal year, the GOB imposed a series of trade restrictions which in sum have made it tremendously difficult for traders to turn a profit. Among these restrictions, a $50,000 per month remittance cap appears to have been most onerous. The GOB's motivation for this spate of restrictions appears to be an effort to capture scarce foreign exchange. However, the result has been to further dampen legitimate trade. Following imposition of the trade restrictions, there has been an upsurge in black market trading.

In July 1997 the government imposed an "export first" policy, requiring companies to use export earnings to obtain import permits. Imports could only be brought into the country in a ratio of 60% essential goods, 40% non-essentials. At the same time, a remittance cap was imposed limiting remittances to a maximum of $50,000 per month.

In November 1997 after an internal shakeup in which the State Peace and Development Council (SPDC) replaced the State Law and Order Restoration Council (SLORC), the GOB closed border trading posts for several months. Border trade was shut down ostensibly to improve the system by which customs were valued, and to encourage trade to be conducted on a dollar-denominated basis as opposed to a barter trade or local currency basis.

In March 1998 the GOB imposed additional restrictive measures. First, on March 9, 1998, the GOB revoked the foreign exchange privileges of the nine private banks which had previously been authorized to handle foreign currency. Subsequently, only state banks could deal in foreign exchange. Second, on March 20, 1998, under Order No. 5/98, the Ministry of Commerce announced a list of prohibited commodities for import.

On March 20, 1998, the Ministry of Commerce announced Order No. 4/98, under the Control of Imports and Exports Act of 1947, two priority lists, (A) and (B), from which items may be imported in a ratio of at least (A) 80% to (B) 20%. This order strengthened the July 1997 60%/40% regulation, and specified even allowable "non-essential" items.

Also on March 20, 1998, the Ministry of Commerce also announced a service charge of 2% payable in foreign currency on the C.I.F. value for issuance of an import license on items used for garment assembly (cutting, making and packaging).

In the spring of 1998, the Ministry of Commerce announced imposition of a 10% service fee on all border trade exports. While that service fee was reduced in September 1998 to 8%, it still cuts significantly into export profits.

On March 22, 1998, the Ministry of Commerce expanded to border trade posts the prohibition on export of certain restricted items, including:

Rice, sugar, groundnut and sesame oils, petroleum, gems, gold, jade, pearl, diamonds, lead, tin tungsten, wolfram, silver, copper, zinc, coal and other metals, ivory rare animals, skin and hide, shrimp skin powder, arms and ammunitions, antiques, rubber and cotton.

Tariffs and Import Taxes

Burma follows the Harmonized System of International Nomenclature. Three types of taxes can be levied on imports: import duties, commercial taxes and license fees. Since Burma joined ASEAN in July 1997 and adopted a reformed tariff rate schedule, tariffs now range from zero to a maximum of 40%, with cars, luxury items, jewelry and items produced in Burma facing the highest tariffs. Tariffs on most other items including consumer goods are moderate. Tariffs on most industrial inputs, machinery and spare parts are around 15 percent.

Customs Valuation

The Customs Department bases its valuation on CIF value, after adding landing charges equal to 0.5 percent of CIF value. For some commodities, Customs uses its own reference guide to determine the value of imports. The guide lists prices in kyat based on the price goods are sold for in Burma, and sometimes lists values substantially lower or higher than the value outside Burma. Since 1996 the GOB has evaluated imports, for customs duty purposes, at 100 kyats per U.S. dollar.

Import Licenses

Import permits issued by the Ministry of Trade are required for all items. In the past year such permits have been increasingly difficult to obtain.

Prohibited Imports

The Export Import Control Committee, an interagency committee chaired by the Deputy Minister for Trade, makes ad hoc amendments to the list of prohibited imports. The list is published in trade bulletins and publications, but changes with little notice.

On March 20, 1998, the Ministry of Commerce issued Order No. 5/98, prohibiting additional commodities for import. That list includes: MSG, soft drinks, biscuits, canned food, dried noodles, liquor and alcohol, beer, cigarettes, fresh fruits, and other items prohibited by existing laws.

Export Controls

Vice-Chairman of the State Peace and Development Council (SPDC), General Maung Aye, has chaired an Import / Export Control Council this past year which is credited with making many decisions on trade policy. All exports require a permit from the Trade Ministry. The Export Import Control Committee has made frequent amendments to the list of prohibited exports, issuing temporary bans with little or no advance notice. The state has a monopoly on exports of rice, teak, petroleum, natural gas, gems, jade, pearls and other items. Exports of such items are controlled by the relevant government ministry.

An export service fee of 10% was imposed on all border trade exports in March 1998; that fee was reduced to 8% in September 1998. It must be paid in foreign exchange.

Non-Convertible and Overvalued Currency

A main obstacle to doing business in Burma is an official exchange rate that overvalues the domestic currency (kyat) by some 60 times. The official exchange rate is so out-of-line with the market rate, that virtually all business transactions, except those involving state industry, are now conducted at the parallel rate. Nonetheless, foreign firms are required to record transactions at the official rate when submitting forms to the government. When foreign firms bring in foreign exchange to be used for purchases on the local economy, they must deposit it in a state bank. Foreign firms sometimes avoid the official exchange rate by paying for services in dollars. Foreign firms sometimes also withdraw funds from their state bank accounts in Foreign Exchange Certificates (FECs), which they then exchange for kyat at the market rate. The government is now demanding payment in hard currency for an increasing number of local expenses, including the salaries of locally hired management level staff.

The kyat is not freely convertible. Kyat and FECs cannot be taken out of Burma. The government strictly limits outflows and inflows of funds for any purpose, including debt service, imported inputs, capital, returns on intellectual property and profit remittance.

Remittances

Any foreign business transaction is required to go through either the Myanmar Foreign Trade Bank (MFTB) or the Myanmar Investment and Commercial Bank. Border trade transactions are to be handled by the Myanmar Economic Bank.

Since July 1997, a remittance cap of $50,000 per month has been imposed on all foreign business in Burma.

Dispute Settlement

Burmese law stipulates that commercial disputes are to be handled solely under Burmese arbitration. Burma is not a member of the International Center for the Settlement of Investment Disputes nor is it a party to the New York Convention.

Most businesses involved in disputes seek to settle the matter informally, rather than rely on the cumbersome legal system. In 1989, the United States withdrew Burma's eligibility for benefits under the Generalized System of Preferences (GSP) due to the absence of internationally recognized worker rights. Labor unions are illegal in Burma. Workers are unable to organize, negotiate or in any other way exercise control over their working conditions. Although regulations set a minimum employment age and wage, and maximum work hours, these are not uniformly observed, especially in private factories and other establishments. The government uses forced adult labor in infrastructure construction and porterage for the military in active combat zones. These labor practices are not consistent with Burma's obligations under ILO Conventions 29 and 87.

Capital Outflow Policy

Foreign exchange transactions can be handled only by the state-owned Myanmar Foreign Trade Bank (MFTB), Myanma Commercial and Investment Bank (MICB), and the Myanmar Economic Bank (MEB). Citizens who earn foreign currency must deposit their earnings in these banks. Burmese citizens cannot export foreign exchange, but, after paying 10 percent of the amount in taxes, can withdraw the rest in FECs.

INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 1998. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES