Since the change of regime in March 2011, the government of Myanmar has sought to promote foreign investment, leading to wide-ranging changes to the legal framework and regulatory environment. The number of diplomatic visits from the US, Europe, and Asian countries, including Japan, has increased and as a number of sanctions previously imposed on Myanmar have been suspended either in whole or in part, there has been a surge in international investors seeking to expand their presence in the country.

An important recent addition to this change of mood is the consent and accession to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the "Convention") by Myanmar on 16 April 2013. The Convention is a cornerstone of international arbitration, providing as it does a framework for the recognition and execution of arbitral awards within contracting states.

The Convention should come into force in Myanmar on 15 July 2013, ninety days after the instrument of accession was deposited with the Secretary-General (in accordance with the Convention). This is a very positive step forward for arbitration in Myanmar and welcome news for foreign companies doing business there or elsewhere with Myanmese parties.

Nevertheless, a number of hurdles still need to be cleared and it is critical for anyone considering investing in Myanmar to have a sound understanding of the environment in which businesses operate and an appreciation of the risks. In this newsletter we examine how the adoption of the Convention might help investors, but also look at some of the pitfalls that remain.

Protections and dispute resolution options for investors

If an investment turns sour and a settlement cannot be reached, foreign investors need a reliable form of dispute resolution to which to turn. In jurisdictions where recourse to the local courts is not recommended (like Myanmar), international arbitration is the standard alternative.

But historically this option has been of limited use when doing business in Myanmar. Until it becomes a Convention-state, foreign investors are not guaranteed the usual benefits of international arbitration in Myanmar: in other words, a foreign arbitral award that is final and binding and will be recognised and enforced, except on limited grounds.

Instead, any foreign party trying to enforce an award in Myanmar has faced an uphill battle. Myanmar is a signatory to the Geneva Convention on the Execution of Foreign Arbitral Awards 1927, a predecessor to the Convention. But this is of limited use to foreign investors because Myanmar only recognises the enforcement of awards made in a “reciprocating territory”. Only 15 countries are so recognised, including England and Thailand, but not Japan, Singapore or Hong Kong. In light of the difficulties with dealing with Myanmar’s courts, it is not surprising that there are no reported cases of a foreign award being recognised in Myanmar.

The news of Myanmar's consent and accession to the Convention is therefore a very welcome development. It will mean that arbitral awards made in Myanmar would be enforceable in the 148 countries that are already party to the Convention, and more importantly, would mean that awards issued in all signatory countries would (theoretically) be enforceable in Myanmar.

Acceding to the Convention also specifically strengthens Myanmar’s new Foreign Investment Law ("FIL"), approved on 2 November 2012. The FIL will permit foreign investors to lease land from the government, or from authorised private owners, for up to fifty years. Amongst other benefits and protections, foreign investors will be entitled to a five year income tax exemption and other forms of tax relief may be available depending on the investment, if deemed of national interest.

Although the FIL does not itself provide for dispute resolution through international arbitration, it allows for dispute resolution in accordance with the mechanism "stipulated in the relevant agreement", if any. This provides scope for foreign investors and their counterparts to include international arbitration clauses in contracts – a right which, thanks to the Convention, may have real meaning.

This is particularly important in circumstances where protections from 'traditional' sources, such as multilateral and bilateral investment treaties, are relatively weak. Only one (unsuccessful) claim is thought to have been brought under the the ASEAN Investment Protection Agreement (1987), and none have been brought under the successor ASEAN Comprehensive Investment Agreement of 2009. Further, there are only three bilateral investment treaties ("BIT") in place (with China, India and the Philippines). A few more are due to come into force soon and Japan is currently in the process of negotiating a BIT with Myanmar, but the overall number remains low.

Outstanding issues for investors to consider

Several hurdles remain before foreign investors can celebrate Myanmar's accession to the Convention.

  • First, subsequent to signing the Convention, Myanmar’s parliament would need to ensure that the provisions of the Convention are implemented adequately in domestic legislation. It is not clear how long this would take, but a substantial update to the current 1944 Arbitration Act, which does not even provide for the enforcement of foreign awards, will be necessary.
  • Second, at the time of writing, it is not yet known if Myanmar has made any reservations prior to accession, such as on reciprocity1, thereby potentially limiting the practical effect of acceding to the Convention.
  • Third, while accession to the Convention would boost investor confidence, it is also equally if not more important to educate and train the local judiciary to ensure that the Convention and the implementing law are applied as per international practice.

In addition, whilst the EU announced on 22 April 2013 that it will lift all sanctions (with the exception of an arms embargo), certain US sanctions are still in place.

Further, the current favourable international attitude towards Myanmar depends on the continuation of political progress and respect for human rights.2 Any reversal or abandonment of government reforms could lead to the full or partial reinstatement of sanctions.

Careful planning to minimise risk

Structuring deals and dispute resolution clauses

The legal and judicial procedures for enforcing contracts and protecting rights remain complex and uncertain. Careful investment structuring is of paramount importance. In so far as negotiating dispute resolution clauses in any investment, investors should:

  • avoid using Myanmar law where possible;
  • push for disputes to be resolved by an arbitral tribunal (rather than the Myanmar courts), with a seat in a foreign jurisdiction; and
  • consider structuring deals so that the investment can be brought within the scope of the (limited number of) investment treaties to which Myanmar is a party.