Myanmar's New Foreign Investment Regime: Opportunities Amidst Cautionary Reform

1. Introduction

   With the easing of economic sanctions by the United States and Europe, Myanmar is now a prime target for foreign investors looking to gain a foothold in this resource-rich, strategically-located Southeast Asian nation. Eager to harness the potential of newly accessible foreign capital, Myanmar is now endeavoring to establish a legal framework necessary for effective integration into the world economy. At the center of the debate is Myanmar's recently promulgated Foreign Investment Law (the "FIL"), which replaces legislation enacted in 1988. Early last month Myanmar's parliament passed the updated Foreign Investment Law, which was signed into law by President U Thein Sein on November 3, 2012.

   This Client Alert briefly outlines recent trends in foreign investment laws and Myanmar's bold initiative to reform its legal framework to attract greatly needed foreign capital.

2. "New Generation" Investment Policies

   Myanmar's FIL joins the ranks of what the U.N. Conference on Trade and Development dubs a "new generation" of foreign investment policies. These investment policies have emerged against the backdrop of the recent global financial crisis, and in response to the success of emerging Asian economies that have rejected unfettered markets in favor of greater state involvement.1 Such policies promote an integrated development approach to incentivize foreign investment while ensuring that growth inures to the benefit of local stakeholders. Common features include promoting / restricting investment in targeted sectors, securing a place for local companies in global value chains, establishing environmental safeguards, and promoting self-regulating enterprises through information-sharing and corporate social responsibility.

   In its "Investing Across Borders" ("IAB") series, the World Bank Group uses four major indicators when evaluating a jurisdiction's attractiveness to foreign investors. These categories track the key provisions found in a typical foreign investment law and offer a useful benchmark for evaluating proposed legislation. IAB indicators include (a) sectoral restrictions that limit foreign investment in areas of strategic importance, (b) start-up restrictions such as the "time, procedures, and regulations involved in establishing a local subsidiary of a foreign company", (c) access to industrial land and (d) the legal frameworks for alternative dispute resolution and arbitration.2

   These "best practices" echo much of the conventional wisdom on investor friendly regulatory regimes, and underscore the overwhelming global trend towards liberalization of foreign investment policy. This trend is most pronounced in Asia, which, according to a 2012 U.N. report...