Jo Daniels, Myanmar managing partner, said closer cooperation between Myanmar and the US, as well as deepening ties with Asian economic powerhouses, has the potential to fuel a boom in infrastructure development and consumer spending in Myanmar.

“As sanctions have eased over the past two years, we have seen a range of multinationals looking to set up Myanmar-specific investment vehicles, or include Myanmar as part of their wider emerging markets investment strategy. However, US multinationals have not featured as prominently in these discussions as other economic powers such as China, Thailand and Japan, in part due to the complex sanctions regime.

“Following the historic visit by Myanmar’s State Counselor Aung San Suu Kyi to the US, and the decision by President Obama to further ease sanctions for Myanmar companies and state-owned enterprises (SOEs), we are hopeful that more US investors will begin to see the opportunities emerging in this great nation of 53 million people.”

The Myanmar office has timely produced a guide for US companies seeking clarity on the legal landscape in Myanmar: Doing Business in Myanmar for US Companies.

Sanctions expert and US Partner Alison Stafford Powell said that this level of sanction relief could indeed lead to significant US investment.

“The biggest hurdle to US investment has been the continuing designation or “blacklisting” of key Myanmar banks, companies and businessmen. The removal of the Myanmar Executive Order will effectively remove the basis for most Specially Designated Nationals (SDN) listings and should have a positive impact on the appetite of US companies to invest in this still largely untapped market. Non-US investors should also find it easier to procure financing from major international banks which, as a result of suffering huge fines for US sanctions violations, are extremely risk-averse to touching even lawful dealings with anyone who remains an SDN. KYC (know your customer) due diligence is still important though, as several SDNs remain and the prohibitions extend down to even unlisted entities that are 50 per cent or more owned by one or more SDNs.”

Though being above the average, all Asean countries except Singapore, Myanmar and Cambodia declined in the rankings compared to two years ago.

They did better than the overall average for timeliness, which means shipments frequently arrive at their destination within the expected time, but they do not do so well on infrastructure provision. This suggests more investments in infrastructure may improve these rankings.

Thailand’s score in the 2016 ranking was 3.26, a decrease from 3.43 in 2014. Its ranking also fell from 35th to 45th. Thailand is among four countries showing negative change in the two years, aside from Malaysia, Haiti and Tajikistan.

Among 167 countries, 135 show no change in the performance.

Countries such as Cambodia and Myanmar improved their performance, which shows that the willingness to reform and implement good practices and policies directly impact fluidity of cross border trade.

Compared to two years ago, Germany ranked first for the second time in a row, followed by Luxembourg, Sweden, the Netherlands and Singapore. Singapore was among the world’s Top 10 performers, ranking 5th overall, and topped the list of Asean countries.

On timeliness, the frequency with which shipments reach their destination within the scheduled or expected time, a key criteria impacting a country’s logistics performance, Asean countries scored higher than the overall average. Singapore had the largest improvement in the timeliness indicator, in 2016 compared to 2014, a testament to the service delivery performance in the sector here, the World Bank said.

“Singapore’s strong ranking in the Logistics Performance Index can be attributed to our robust ecosystem comprising of major logistics firms operating their regional and global functions here, and our consistent efforts to drive operations excellence through public-private collaborations. These factors put Singapore in good stead to maintain our position as a leading global logistics hub. However, we cannot rest on our laurels. We will need to continue to encourage the growth of supply chain innovation and to strengthen our logistics capabilities, so that Singapore remains a strategic choice for companies to navigate the increasingly complex supply chains in intra and inter region trade,” said Lee Eng Keat, director for Logistics, Singapore Economic Development Board.

The report found that the “logistics gap” between more and less developed countries persists – high income countries on average score 45% higher on the LPI than low income countries. While low performers appeared to be closing this gap in past surveys, this trend has reversed in 2016, and the gap between top ranked countries and those at the bottom of the list has widened.

But income alone does not explain performance – countries such as Cambodia and Myanmar improved their performance, which shows that the willingness to reform and implement good practices and policies directly impact fluidity of cross border trade.

Infrastructure continues to play a big role in assuring basic connectivity and access to gateways for most developing countries. In all income groups, survey respondents reported that infrastructure was improving. However, in all Asean countries except Singapore and Malaysia, the scores for infrastructure were lower than the overall scores.

“Beyond freight forwarders, shippers and carriers, those who benefit from well performing logistics and connectivity are producers and consumers, particularly small firms and the poor. Tracking connectivity through a nation’s logistics performance is a critical measurement of a nation’s ability to export competitively, import efficiently and improve productivity,” said Jordan Schwartz, director of the World Bank Group’s Singapore Hub for Infrastructure and Urban Development.

Welcoming Aung San Suu Kyi to Washington DC, President Barack Obama affirmed the commitment to deepen US-Myanmar partnership. This includes the restoration of the GSP trade benefits to Myanmar in light of progress on a number of fronts, including strengthening protections for internationally recognised worker rights.

In a statement by the US Department of State, the remaining sanctions would be lifted while the US also anticipates expanding people-to-people ties, deepening bilateral economic engagement, continuing to work toward an Open Skies Treaty, and initiating a new USAID loan portfolio guarantee.

At their meeting, both leaders recognised the important role of small and growing businesses in supporting inclusive economic growth. The United States intends to sign a loan guarantee with five local microfinance institutions to support over US$10 million in loans to small businesses in Myanmar, which will increase access to food and support employment opportunities for communities in Myanmar.

They also shared interest in enhancing bilateral economic engagement and exchanging views on laws and practices that affect bilateral investment flows and foreign investment, including the elements of a high-standard Bilateral Investment Treaty.

The announcement was released after the arrival of Suu Kyi, who made her first official visit to the US in her new capacities as State Counsellor and Foreign Minister. The US welcomed latest developments in Myanmar, which now has a civilian-led, democratically elected government focused on bringing peace and national reconciliation, economic prosperity and social welfare, and respect for human rights to its people.

“Building on this progress and in close coordination with the new government, President Obama has decided to make significant adjustments to our policies to help State Counsellor Aung San Suu Kyi, her government, and the people of Myanmar continue their process of political reform and broad-based economic growth and prosperity,” the statement said.

“The government has a 20-year-development plan, including airport expansion and logistics that have been lined up to link Thailand with [the rest of] Southeast Asia,” the PM said.

With the construction of the new phase at Suvarnabhumi having been delayed for six years, Prayut stressed that the country urgently needed more air-travel capacity.

He added that airport development would extend to U-Tapao Rayong Pattaya International Airport as well as Don Mueang International Airport, along with the Eastern Economic Corridor mega-project that was now being initiated.

AOT owns and operates six international airports around the country, with Don Mueang claiming to be the regional base for low-cost airlines.

The Cabinet approved the Suvarnabhumi Airport expansion plan in 2010 with a budget of Bt62.5 billion, although this has since been cut to Bt55 billion.

When Phase-II work is completed in 2019, it should increase passenger capacity at the airport from 45 million currently to 60 million per year.

Major works under the programme entail expanding the east passenger terminal (satellite building), taxiway, parking and infrastructure, and consultancy and management projects. AOT president Nitinai Sirismatthakarn yesterday said construction of the satellite building (levels B2, B1 and the ground floor), taxi areas and the east tunnel were set to be completed within 780 days, while the infrastructure work should be finished within 990 days.

Bidding for system

The company will open bidding for an Automated People Mover system by the end of next month and commence installation by February next year, he added.

AOT also plans to build a third runway and a new passenger terminal at Suvarnabhumi as part of the airport’s Phase-III expansion, in a move aimed at increasing capacity to 90 million passengers per year by 2020.

Prayut said it was crucial that the aviation development programme also fully took into account concerns about safety and security, which were now global issues.

Thailand and some other countries in Southeast Asia have been facing aviation-safety problems.

International safety regulators, including the International Civil Aviation Organisation and the US Federal Aviation Administration, declared last year that the Kingdom’s aviation sector had fallen below international safety standards.

To solve regional safety and security concerns, the ICAO, the International Air Transport Association (IATA) and Airports Council International have joined forces to address evolving aviation security risks with integrated solutions.

Key topics such as securing landside spaces at airports, information-sharing among governments, managing the risks of home-grown terrorism and preventing cyberthreats will top the agenda at the “25th AVSEC [Aviation Security] World Conference”, which takes place from October 25-27 in Kuala Lumpur.

 

Somkiat Triratpan, inspector-general of the ministry and director of its Policies and Trade Strategies Bureau, said yesterday that after the strategy has been approved by the Cabinet, the ministry will adjust its trade-promotion plans, as well as restructure some of its agencies and amend laws and rules.

The 20-year strategy will be divided into phases.

Phase 1 between now and 2020 will emphasise trade reform. Phase 2, from 2021 to 2025, will focus on promoting Thailand as the major regional supply chain. The third phase from 2026 to 2030 will promote Thailand as the world’s major supply chain. During the final phase, Thailand will be promoted as a world leader in the trade of agricultural products, including innovative products, as well as a trading centre for many key non-agricultural products.

Initially, the ministry will focus on developing the competency of farmers and enterprises. Farmers will be encouraged to reduce production costs, rely on their own communities and become their own marketers and traders.

Local enterprises will be encouraged to expand regionally and then globally.

Inventions and innovative products will be promoted for commercialisation and digital systems will be made more comprehensive, while value will be added to service businesses.

The second strategy will focus on developing trading-system competency.

The ministry will amend laws and regulations to facilitate business growth.

The laws will include the Foreign Business Act, those related to intellectual-property rights and regulations on the promotion of start-ups and small and medium-sized enterprises.

The third strategy will encourage consumers to become smart and proactive, and the fourth will focus on promoting the trading system from unilateral to become connected with the global market.

Somkiat said that if the strategy is successful, Thailand should no longer rely on being a trader in basic agricultural products, but will move to innovative and value-added products and services.

Tourism and Sports Minister Kobkarn Wattanavrangkul and Zhang Xinhong, director of the CNTA’s Bangkok office, yesterday said they would team up to reduce zero-dollar scams and crack down on local nominees who help Chinese run businesses here illegally.

Under zero-dollar schemes, tour operators offer extra-low prices to Chinese tourists travelling to Thailand, but they find there are many hidden costs once they arrive.

Prime Minister Prayut Chan-o-cha has ordered Tourist Police and other authorities to suppress zero-dollar tourism and the use of nominees in order to protect travellers and the economy. Besides the use of nominees to evade the Foreign Business Act, many businesses defraud tourists and evade taxes.

Kobkarn’s ministry claims that zero-dollar scams have damaged the Thai tourism industry for more than 20 years.

She said the number of Chinese arrivals to some areas of Thailand would drop slightly for a short period after the crackdown on unscrupulous tour operators.

“Authorities have been cracking down on illegal operators and also seized properties and licences in order to [prevent] bad behaviour,” she said.

She added, however, that the number of Chinese tourists was still growing. From September 1-11, their numbers increased by 33.7 per cent compared with the same period last year. From January 1 to September 11, the Chinese market grew by 19.3 per cent, while overall foreign arrivals were up by 12.1 per cent.

The Tourist Police recently seized assets of OA Transport over the company’s allegedly inappropriate operations. The company controlled more than 3,000 tourist buses in the country.

Thailand welcomed nearly 8 million Chinese last year who injected revenue of Bt370 billion into the economy. That number is expected to surpass 10 million this year.

 

Kasikorn Research Centre said that although some economic data signalled improvements, such as somewhat stronger domestic consumption and private in-vestment, they would have little impact |on this year’s growth in gross domestic product, which the house forecasts at 3 per cent. The main growth drivers for the remainder of the year are tourism, agriculture, and increasing government investment.

“The country’s political risk is also relaxed, which is a good sign for improved confidence, so the MPC can maintain the policy rate at 1.50 per cent,” KResearch said.

An HSBC economist said the bank |had pushed back its rate-cut call to next quarter and expected the Bank of Thailand to keep its policy rate unchanged this month.

Recent mixed data from major economies support the BOT’s “wait and see” stance, even if Thailand’s high-frequency data suggest a slowdown in most indicators, save for tourism, the economist said.

“We are pushing back our expectation of the rate-cut call to Q4 this year. Previously, we expected that the Bank of Thailand would cut its policy rate by another 25 basis points, to 1.25 per cent, in September, not least because of a weaker external environment, which would pose downside risks to exports and overall GDP growth,” she said.

Hence the HSBC economist still sees the probability of another 25-basis-point rate cut by the end of the year. The BOT still has room to ease further, with inflation appearing to return to the policy target of 1-4 per cent more slowly than expected.

“In fact, we are lowering our 2016 and 2017 inflation forecasts to 0.3 per cent and 2.0 per cent, from 0.7 per cent and 2.1 per cent previously, given recent downside surprises in energy and food prices, and the still-weak domestic demand.”

The reform includes the ministry’s plan to bring the existing licensed Thaicom 7 and 8 satellites into the concession regime.

Currently both satellites operate under the single licence of the licensing system of the National Broadcasting and Telecommunications Commission (NBTC).

The minister will meet with the State Enterprise Policy Office and the National Economic and Social Development Board to discuss having the Thaicom 7 and 8 satellites operate under concession contracts and |get them to comply with the law, including the Public-Private Join Venture Act of 2013.

He has to clear issues with the Thaicom 7 and 8 satellites first and submit the results for the Cabinet’s consideration.

The ministry recently proposed to the Cabinet that both satellites will have to comply with the ministry’s concession regime as the satellite concession regime still existed. It is not until 2021 that the concession regime expires.

As part of the ministry’s proposal, once the concession contract ends, the ministry will set the new satellite regulations and will ask the satellite operator to enter into an agreement based on the new requirements.

The new requirements might include the issue of national security and the number of transponders the satellite operator will have to allocate to the state for use free of charge.

Thailand’s satellite industry has operated on the concession regime since day one and before the NBTC got off the ground several years ago and granted the satellite licences.

The Thaicom 5 and 6 and iPSTAR satellites operate under the concession regime.

The life span of iPSTAR and Thaicom 5 will end when the concession ends in 2021, while Thaicom6 will outlast the concession by eight years.

Thaicom pays 20.5 per cent of its revenue for the annual concession fee to the ICT Ministry and the rate will rise to 22.5 per cent during the last five years of the concession.

The Thaicom 7 and 8 satellites cost Thaicom 5.25 per cent of its annual revenue to operate.

Thaicom 6 was launched in January 2014, Thaicom 7 in September 2014, and Thaicom 8 in May 2016.

Recently, the ICT Ministry hired the Thammasat University Research and Consultancy Institute to study government demand for satellite transponders and found that state agency demand is expected to rise between 3 per cent and 5 per cent per year.

Currently all state agencies including the military and the medical and education department use a total of 3.75 transponders of C band and 2.5 transponders of Ku band and use two gigabytes per second of Ku band. Thaicom has allocated one satellite transponder for free state use.

Jo Daniels, managing partner of Baker & McKenzie Myanmar, said at a media roundtable that the new law could be one of Myanmar’s most significant legal reforms once approved by the parliament. While praising the move, she believes much of the benefits still hinge on the enforcement efforts of the Myanmar Investment Commission (MIC).

The new law, a consolidation of existing Myanmar Citizen Investment Law and the Foreign Investment Law, introduces a new form of approval called MIC Endorsement, in addition to issuing MIC permits.

If a company’s business activities do not fall under one of the restricted categories, it will not require an MIC permit to do business in Myanmar. Instead, they can apply for an MIC endorsement, which will provide the same benefits as an MIC permit such as long-term lease and tax incentives.

“It is one of the significant changes proposed in the new law. We assume that the MIC endorsement process will be less rigorous than the MIC permit application, but that remains to be seen,” she said.

The draft law will revoke the automatic tax exemption and make all tax exemptions entirely at the discretion of the MIC. Tax exemption may be granted for up to seven years. Currently, tax exemption is granted for only three years.

It also offers longer land lease periods. Currently, companies holding an MIC permit are granted long-term leases of up to 50 years with an option to extend for an additional 20 years. According to the new law, companies that invest in less economically developed and remote regions can apply for longer lease periods than the aforementioned with special approval of the MIC.

National security

Daniels said that an unusual provision about national security was included in the draft law. It is not clear what sort of issue would be subject to national security, or how broadly this clause may be interpreted by the government, or how frequently it might be invoked, she added.

But announcements are expected soon, the lawyer said, as Myanmar has drafted the Myanmar Investment Law, the new Companies Act and the Intellectual Property Law.

She also expects the new corporations law and a public-private partnership law in the near future.

Daniels noted that reform efforts on Intellectual Property (IP) law, particularly on trademarks, were necessary to attract international players.

“We do have a system currently of some sort of registration which does not protect your IP but people do trademark cautions in the newspapers. But that is only to take advantage of a common law. There still are problems when someone pertains to be associated with your brand.”

However, key issues were hard to forecast due to the uncertain and transitional nature, she warned.

“I am not sure how it will play out in practice, which is that it makes perfect sense to say things on a policy like prioritising regions that need investments instead of Yangon … I do not think things will be that black and white,” she said.

Daniels said local and international lawyers should work together to support investments from local firms and multinationals. The law firm now has four partners and 11 other legal staff in its Yangon office, which was opened in February 2014.

Aside from adopting policies and strengthening the legal framework, Myanmar also needs to improve infrastructure, fight against corrupt practices and money laundering, and maintain political stability, in order to attract more foreign investors, she said.

There were talks about the United States sanctions at the event, as the remaining sanctions are still a concern for potential investors. Currently, there is speculation about possible easing of more sanctions during Myanmar State Counsellor Aung San Suu Kyi‘s upcoming trip to the US.

“In partnership with sanctions specialists in our other offices, we can help clients navigate the sanctions restrictions and show them what possibilities are opening up in Myanmar. We also provide relevant publications on these topics,” Daniels said.

Ronnarong Phoolpipat, deputy director-general to the Trade Negotiations Department, and chief Thai negotiator for RCEP, said Asean and the six partner countries would wrap up the talks before the next Asean Summit, which will be held in Thailand in October 2017. “It was agreed to postpone the goal to finalise the RCEP talks to next year because of disagreement in the modality of tariff reduction on trade in goods, liberalisation of services, and investment framework. However, every country has set a new plan to wrap up the talks within next year,” he said.

The Asean Ministerial Meeting in the Philippines on November 3-4 should help unlock all issues on which there are differences so that RCEP can be finalised next year, Ronnarong said.

Earlier, RCEP countries had agreed to cut tariffs on 80 per cent of traded goods. However, negotiations are yet to conclude on the remaining 20 per cent. RCEP is also awaiting each member to propose a list of goods under the tariff reduction modality. However, some countries have proposed to cut tariffs on less than 80 per cent. In the service sector RCEP countries have a different bargain, as Asean would like to commit 100 businesses from a total of 155 businesses, while some countries like Australia would like to commit 120 businesses of trade in service.

RCEP has also demanded that all countries must get the same privilege if any country allows other countries to hold stakes in the service business. For instance, if Thailand allows a foreign national to hold more than 49-per-cent share in a service business, other RCEP member states would have to be allowed more than 49 per cent stake as well.