Japan's contribution to trade and investment law in Myanmar

Author: | Published: 1 Jul 2012
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On April 21 2012, the occasion of the Fourth Mekong-Japan Summit Meeting in Tokyo, Japanese Prime Minister Yoshihiko Noda and U Thein Sein, President of the Republic of the Union of Myanmar, held a private summit meeting at which they reaffirmed their intention to cooperate in several areas, including information and communication technology, promotion of investment from Japan and two-way trade (including the acceleration of consultations on a bilateral investment agreement between Japan and Myanmar), energy and mineral resources through activities such as surveying, investment promotion and human resources development, and the provision of a $500 million line of credit through NEXI (Incorporated Administrative Agency, Nippon Export and Investment Insurance) which enhances the Japanese private sector's trade and investment capabilities with respect to Myanmar.

During the meeting, Noda – referring to the Memorandum of Intent on the Cooperation for the Development of the Master Plan for the Thilawa, which was signed on the same day by the Ministry of Foreign Affairs and the Ministry of Economy, Trade and Industry of Japan, and the Ministry of National Planning and Economic Development of Myanmar – requested that Myanmar endeavour to reform its Foreign Investment Law; that it expedite the establishment of, and provide for the efficient administration of, planned special economic zones pursuant to the Myanmar Special Economic Zone Law (SEZ Law); and accelerate the negotiation of a bilateral investment treaty (BIT).

The proximity of Japan and Greater Mekong Subregion

Foreign investment law

Under the Union of Myanmar Foreign Investment Law of 1988, the first step in order to establish a company is to obtain a permit issued by the Myanmar Investment Commission (MIC). Then, as a foreign company under the Myanmar Companies Act of 1913, it is also necessary, before its memorandum and articles are filed with the Registrar, to obtain a permit from the President of Myanmar (in practice the granting of such permits is delegated to the Directorate of Investment and Company Administration of the Ministry of National Planning and Economic Development). The MIC will grant such a company exemption or relief from taxes which may include (for companies engaged in the production of goods or services) exemption from income tax for three years inclusive of the year of commencement of such business.

A bill for a new Foreign Investment Law was still being discussed at the parliament as of the end of June 2012, and is predicted to be approved by the parliament in July 2012. It will reportedly introduce the following changes (among others): an extension of the tax holiday for new firms from three to five years, with other forms of tax relief also available depending on certain conditions; the ability for foreign investors to lease not only government-owned land but also private-owned land; and an obligation to increase the proportion of local employment to meet certain percentage targets over time.

Special economic zones

Recognising the importance of attracting foreign investment to achieve economic development, on January 27 2011 Myanmar's SEZ Law came into effect (and is reportedly in the process of being redrafted). Chapter III of the SEZ Law provides for the establishment of SEZs in which special, streamlined rules may apply in order to facilitate investment. The Central Body, acting through the Central Working Body and the Management Committee, will carry out a one-stop service granting all approvals that are necessary to allow foreign investors to commence operations in the SEZ.

According to Chapter V of the law, investors operating within an SEZ receive certain special privileges, including but not limited to the ability to apply for income tax exemption on the proceeds of overseas sales for the first five years, as well as other tax relief measures.

Dawei, a harbour district located in Southern Myanmar, approximately 200km from Bangkok, has been prescribed as the first such SEZ, and the government is considering making similar declarations with respect to the Thilawa and Kyaukphu regions. As previously mentioned, the Japanese government has entered into a memorandum of intent in respect of the Thilawa region, which anticipates the prescription of Thilawa as an SEZ. Please refer to the map, inset.

Bilateral investment treaties

In the field of international trade, a common institutional framework for international investment has been established through the World Trade Organization, of which Myanmar has been a member since the Organization's establishment in 1995. Though attempts were made in the mid 1990s, no "broad multilateral framework for international investment with high standards for the liberalization of investment regimes and investment protection and with effective dispute settlement procedures" (in the words of the OECD) has yet been concluded. Therefore, the current practice is for pairs of nations to enter into BITs with each other for the reciprocal promotion and protection of investments in each other's territories by companies based in either country. Provisions of a typical BIT are sometimes incorporated into an Economic Partnership Agreement.

A document endorsed by Japan's Cabinet on September 19 2008 entitled Follow-up of Japan's New Growth Strategy describes Japan's policy of the strategic adoption of BITs to achieve a "strong economy". Myanmar is the only Asean (Association of Southeast Asian Nations) country with which Japan has not yet entered into a BIT. Subsequent to the expression of the intention of Prime Minister Noda during the private summit meeting with President Thein Sein to accelerate the negotiation of the BIT between Myanmar and Japan, a second preliminary high-level session took place in Nay Pyi Taw in May 2012, which, according to reports in the Nikkei newspaper, aims to conclude negotiations in the latter half of 2012.

Arbitration

Generally, under a BIT it is prescribed that if an investor of a contracting state alleges to have incurred loss or damage by reason of a breach of any obligation under the BIT of the other contracting state, such dispute must be submitted to international arbitration to be conducted in accordance with or under the rules of, among others, the Icsid Convention, or the Uncitral Arbitration Rules.

If an arbitration is conducted under the Icsid Convention, the award must be recognised and enforced according to Article 54 of the Convention. However, other arbitration rules do not incorporate any such recognition and enforcement mechanism within themselves. In respect of arbitrations conducted pursuant to such other rules, awards may be recognised and enforced according to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (generally known as the New York Convention).

While Japan is a party to the New York Convention, Myanmar has not ratified it. It is, however, a party to the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927. Pursuant to Article VII, section 2 of the New York Convention (which provides that the Geneva Convention will not cease to have effect in relation to arbitration between states until both states are bound by the New York Convention), the Geneva Convention may apply to an arbitral award arising from a dispute between the states of Japan and Myanmar and/or their respective nationals. It remains to be seen, therefore, not only how the arbitration clause will be prescribed in the BIT which is expected to be signed by Japan and Myanmar toward the end of 2012, but also whether and when Myanmar will ratify the New York Convention. Also, it should be noted that a dispute between a state and an investor which arises as a result of the execution of a state power such as expropriation may be out of scope of the New York Convention (see, for example, 'The Possibility of Applying the New York Convention to Arbitral Award on Investment Disputes', Masato Dogauchi, 2009, available at www.meti.go.jp).

Myanmar and Japan have historically had very close links. Myanmar's efforts to build democratic institutions are applauded widely in Japan among government, business, academic and political circles alike. There are still, however, a number of ambiguities in its legal system and application of international conventions, which hopefully Japanese legal professionals can help to iron out in order for Myanmar to build up the kind of strong legal framework that is needed for both countries to benefit from cross-border investment activities.

The author would like to express her sincere appreciation to Professor Yuka Kaneko of Kobe University for her assistance during the preparation of this article, not only with respect to the laws of Myanmar, but also with regard to investment treaties, the arbitration of investment disputes and the recognition of arbitration awards.

Junko Ogushi
  Atsumi & Sakai

Junko Ogushi joined Atsumi & Sakai in February 2000, bringing to the firm a wealth of experience and knowledge from her banking and trading company background. She graduated BA in international relations from University of Tokyo (1984), the Research Institute of Supreme Court of Japan (1998) and was admitted in Japan in 1998. Her practice is focused on real estate, acquisitions, structuring, lending, insolvency, insurance, banking and finance, and Myanmar- and Vietnam-related work.

She advises large Japanese and foreign-based real estate companies, foreign funds, banks, securities companies, insurance companies and other financial institutions on various aspects of Japanese insurance, real estate, corporate law and regulatory issues, and has extensive experience in real estate finance and securitisation transactions.

Ogushi is very well versed in insurance law, and participated in Japan's Legislative Council on the establishment of the new Insurance Law.