US eases Myanmar trade sanctions

US authorities have removed a ban on trade through ports and airports in Myanmar for six months, a move that should help galvanise the country’s incoming government.

A landslide victory by the National League for Democracy, led by the iconic Aung San Suu Kyi, marked the first free polls in 25 years, and the party has welcomed the ruling by the Office of Foreign Assets (OFAC).

The US is a strong supporter of reform in Myanmar and began removing Myanmar trade sanctions in 2011 when a quasi-civilian government was established.

However, much trade was still restricted due to the ties senior military officials have with trade infrastructure.

Banks including Citi, Bank of America, HSBC and PNC Financial last month withdrew from financing trade in Myanmar, Reuters reported, after discovering that the Asia World port in Yangon was run by Steven Law, who has alleged ties to the military and illicit narcotics and who has been sanctioned since 2008. This resulted in a huge decline in US exports to Myanmar, falling to US$5.5mn in September from US$50mn in June.

“The news is certainly encouraging: at least 50% of all Myanmar’s imports goes through Yangon port which is the most efficient in the country so it is not easy to find alternatives to Asia World. Certainly it was having an impact on trade volumes for the banks in quarter two,” Janet Hyde, who works with the Asian Development Bank’s trade finance programme in Myanmar tells GTR from the capital Naypyidaw.

It marks what Hyde describes as a “thawing” in OFAC’s approach, whereby it is “beginning to communicate its aims and intentions more”.

“The current political and business elite looks likely to continue to dominate and so the same risk issues will persist,” Tim Powdrell, Risk Advisory Group
OFAC has historically had a zero-tolerance approach to banks financing or dealing with sanctioned individuals, organisations or countries. Heavy fines have been doled out to international banks such as Standard Chartered and BNP Paribas and while there has been a swathe of Asian banks opening branches in Myanmar, US involvement has been more tentative, but growing nonetheless.

OFAC had removed a ban on financial services in 2012 in a bid to encourage trade and investment, but the fact that many of the nation’s elite remained under embargo created an atmosphere of uncertainty. The military’s reach remains enormous and the ownership of many assets can be traced back to connected individuals.

Tim Powdrell, associate director at the Risk Advisory Group, tells GTR that even after the election, “our message to business is that whatever emerges after the 2015 elections, the current political and business elite looks likely to continue to dominate and so the same risk issues will persist”.

A US government statement said the move was “aimed at solving a discrete set of problems connected to use of critical infrastructure, as sanctions concerns were disproportionately affecting exports to and from Burma”.

While it said that the licensing decision was “not response to the recent election” as the transition has not been completed, it added: “Despite structural flaws, the elections were an important step forward in Burma’s democratic process. The U.S. government will continue to review all of our policies in light of continued progress on a range of issues; including a full political transition to a democratic civilian government; the peace process; respect for human rights of all Burma’s diverse people, including the Rohingya population; and constitutional reforms.”

Trade financing in Myanmar has also received a boost through the support of the Asian Development Bank programme. Myanmar’s Co-operative Bank (CB Bank) was the first commercial bank to sign up to the programme, which allows it to draw on ADB guarantees for trade finance loans totalling US$12mn.

The bank has now launched its own trade finance products in support of Myanmar’s exporters, including financing loans before shipment; invoice financing; export bills’ purchase under documents against payment; and letters of credit in the post-shipment period.

Source: GTR

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