While the use of financial and commercial sanctions has intensified significantly over the last couple of years, with restrictions on trade with a number of countries becoming increasingly strict as tensions mount, the International Community has also shown itself ready to react rapidly where regimes take positive steps towards reform. In Burma, the recent suspension of sanctions has allowed EU and US companies to return in earnest. However, awareness is needed that both the EU and US may take a tougher line than the rest of the World if they do not see the progress they expect in the country. If the recent sectarian violence between Buddhists and Muslim Rohingyas in western Burma have not yet altered Brussels and Washington's views on sanctions, they defiantly took the international community by surprise.
The EU and US were in fact very rapid to reward the long-awaited and welcome elections in Burma earlier this year. On 12 May 2012, the EU agreed a one year suspension of almost all sanctions – including the asset freeze that targeted members of the military regime. At present, only the embargo on arms and equipment that can be used for internal repression remains in force. In welcoming the changes in Burma as opening "a new chapter in our relations", Catherine Ashton, EU High Representative for Foreign Affairs and Security Policy, went as far to say "Now that the sanctions will be effectively suspended, we encourage trade and investment in the country." This can only be taken as a positive endorsement of investment and trade.
Perhaps most importantly for mining companies, the suspension of sanctions removes the ban on financing Burmese companies involved in the key extractive industries. As a result, business is now possible with more than 800 Burmese companies in the sectors of logging, timber processing and mining of precious metals and precious stones. Moreover, investment in about 50 companies previously considered too close to the government is now allowed.
However, notwithstanding the rapidly thawing relations, the EU has been careful only to suspend sanctions. The decision taken in May 2012 only lasts until 30 April 2013. A review of the situation will be undertaken in October this year and by placing a time limit on the suspension, the EU is making it clear that it expects progress in Burma to continue and not roll back.
Undoubtedly, in the past twelve months, the government made significant progress towards a democratic transition while demonstrating a certain level of commitment by the authorities to national reconciliation. The recent decision by the International Labour Organisation (ILO) to suspend their resolution against Burma condemning labour practices in the country confirms this trend.
But there remains many points on which Burma's critics want more progress. European human rights associations regularly condemn the fact that repressive laws remain in force, fear there has been an increase in human rights abuses in the past year rather than a decrease and hundreds of political prisoners are still believed to be in jail. Even the British Prime Minister David Cameron, while welcoming the sanctions' suspension, carefully added "those changes are not yet irreversible, which is why it is right to suspend rather than lift sanctions for good". The message is clear – European companies still face risks when trading with and investing in Burma.
So mining companies that are viewing Burma as a new investment Eldorado should still proceed with extreme caution and make sure they put in place a number of necessary checks.
First of all, companies involved in international transactions with Burmese individuals or companies should get to know their new business partners as well as they can and understand as much as possible about how they came to be where they are now, including whether they were previously subject to sanctions and their current position in respect of the government regime. These are good rules to follow in any international investment and most firms have procedures in place for properly assessing the risks associated with an investment – but in the case of Burma, it is crucial.
In the pre-contractual stage, mining companies should design their relationship with their Burmese counterparts carefully and seek to future-proof the legal paperwork to cover all eventualities. For example, in many cases firms seek to add a sanctions clause to their contracts that would exempt the Parties from any obligation that would bring them into conflict with sanctions adopted under the UN, EU or US. This is useful whether new sanctions are introduced or old ones brought back into force. Such clauses could, for example, help businesses avoid financial liabilities towards listed individuals, or entities that they cannot pay because it is forbidden by an asset freeze or another financial restriction.
Throughout the process of entering the market and concluding a contract, it would be useful for companies to liaise with their own national government agencies and ministries. This will ensure that their interests are known to their own government, establish useful channels of communication for use should the situation deteriorate and also allow companies the chance to make use of diplomatic sources of information in addition to their own assessment of the investment or contract.
Finally, once a contract is concluded and the business is underway, regular monitoring of the political situation and the development of the sanctions list will be crucial. As mentioned before, the European Union has stated that it will review the suspension of the sanctions in October this year. Should there be negative developments, companies that have already entered into contractual engagements in the country will need to keep their eye on the ball and ensure that they take action to avoid falling foul of sanctions if they are reintroduced. It will be important to liaise with diplomatic and government sources very closely in order to monitor political developments around the sanctions regime and put in place key relationships that might be useful should there be changes that could adversely affect the business in question.
Burma represents a fantastic opportunity and the political changes are very positive. However, companies must be ready to do their homework not only on their partners financial promise, but their political connections. While everyone hopes that positive developments will continue, it is only prudent to envisage worst case scenarios and take some simple steps to protect the investment.
© DLA Piper
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