REGIME MAKES IT HARDER TO DO BUSINESS IN BURMA

C O N F I D E N T I A L SECTION 01 OF 03 RANGOON 001466 SIPDIS SIPDIS STATE FOR EAP/MLS; PACOM FOR FPA, TREASURY FOR OASIA:AJEWELL E.O. 12958: DECL: 09/21/2016 TAGS: ECON PGOV BM SUBJECT: REGIME MAKES IT HARDER TO DO BUSINESS IN BURMA REF: RANGOON 982 RANGOON 00001466 001.2 OF 003 Classified By: Econoff TLManlowe for Reason 1.4 (b,d) ¶1. (U) Summary: Traders who still try to do business in Burma now face additional headaches from long customs clearance delays, visa uncertainties, and unpredictable new policies. The regime's surprise June crackdown on corruption within the Customs Department froze trans-border trade briefly and slowed sea trade. Over 280 containers remain impounded at the port of Rangoon. Many traders are reluctant to send new shipments while import procedures remain unclear. These economic uncertainties squeeze supplies of some imported products, fueling further inflation, and reducing an important source of private sector income for many middle and upper class Burmese. End summary. The Country Will Be Good Only When Civil Servants Are Good -------------- -------------- ¶2. (U) In a surprise crackdown on corruption, on June 23, the GOB detained dozens of traders at the Chinese border checkpoint of Muse and arrested the Director-General of Customs and customs and immigration officials in Rangoon, on the borders, at airports, and at seaports (reftel). The GOB seized hundreds of pounds of trade goods on the border and sentenced 20 traders to prison terms of seven to 42 years. Drivers of trucks carrying unlicensed goods received sentences of three to ten years. Many traders fled to China to avoid arrest and have not returned. Meanwhile, the GOB continues to pursue corruption cases against former customs officials, and recently began to advertise for new officers to fill vacancies created by arrests. Those remaining at work are, predictably, scared and reluctant to take any risks. A freshly painted banner at Customs' Rangoon headquarters reminds them, "The country will be good only when civil servants are good." Sitting in the Dock of the Bay -------------- ¶3. (SBU) The customs crackdown had a short-lived impact on the border, but officials detained hundreds of shipping containers in ports, creating a simultaneous shortage of containers available for outgoing exports. Importers tell us that Customs, Port Authority, and Commerce Ministry officials now carefully inspect the contents of each container to ensure that all goods are listed on the shipping manifest. This has added an average three weeks to the clearance process and created a significant backlog at ports. The GOB's approval process for import and export licenses is equally slow, cumbersome, and unpredictable. Many small and medium sized companies traditionally import items not included on shipping documents, either because they had no license or to avoid paying customs duties. In the past, a payment of about $2,000 per container guaranteed that port officials would overlook the discrepancies between the manifest and goods. After the crackdown, some traders abandoned their containers rather than risk arrest after the goods were inspected. On September 20, over 280 unclaimed containers remained in four ports, with a cargo value estimated by Customs officials of approximately $1 million. ¶4. (C) In August, the GOB compiled "black" and "brown" lists of importers, freight forwarders, and clearance agents suspected of handling unlicensed or under-invoiced cargo, and threatened to suspend or withdraw their permits to trade. A logistics manager for YES Company said he recently cleared a detained container, but had to pay Customs ten times the previous rate, despite being on the "brown list." Other firms said they will simply wait out the new, slower RANGOON 00001466 002.2 OF 003 inspection process to get their cargo cleared. The Singaporean Embassy told us its importers had no complaints, although a Burmese lawyer told emboffs that 320 containers were held up in Singapore last month awaiting more predictable clearance procedures. The general manager of one of Rangoon's five-star hotels said that his containers faced only slight delays, but complained that Customs officials were now opening and inspecting every item inside, ruining perishable items in the process. Daw Win Tint Tint, Director of City Mart supermarkets, one of the country's largest importers, told us that all of her recent containers had cleared, despite local rumors that City Mart was one of the major targets of the customs crackdown. She said that routine customs inefficiencies and more cumbersome import procedures had negatively affected her business and added significantly to her operating costs. ¶5. (C) Customs auctioned the contents of 50 unclaimed containers in early September, and recently announced that it would auction in early October all cargo not claimed by September 30. Because of the number of impounded containers in recent months, exporters also faced delays because empty containers were not available. Since GOB law requires that importers show that they have earned revenue from exports before they can receive a new import license, slowing exports also further slowed the rate of imports. Unpredictable GOB actions have caused some businessmen to reduce or temporarily halt their trading business, cutting into the volume and variety of goods available in the market, according to trade certifier Kyaw Tin, who monitors import/export volumes. When questioned by media at an August press conference about recent shortages of computers and electronic goods, the Minister of Home Affairs, Maung Oo, claimed that customs clearance is accomplished within one week. Instead, he blamed the shortage on importers who had been bringing in such goods without licenses. Bad Policies -------------- ¶6. (C) The GOB has added other new trading requirements this year that have made documentation more difficult. Importers can no longer apply their export credit to more than one import at a time, and they cannot import goods from more than one source in the same shipment. The Deputy Director-General of Customs, one of the few senior officials not arrested in the recent crackdown, told an embassy staff member last week that rapid inflation of imports in recent months could be blamed on one thing: "Bad policies." ¶7. (C) One businessman told us that over the last six months his shipping line has doubled its charges to ship containers from Burma to Korea. Foreign traders also suffer from shifts in GOB visa policy. The Ministry of Immigration has begun enforcing a three-month validity on business visas, forcing foreign businesspersons to leave the country regularly to apply and wait weeks for new visas. The policy had been enforced selectively, primarily within Korean, Indian, and Thai business communities, but a Singaporean embassy official told us that the policy will now apply to all foreign traders. ¶8. (C) Comment: Recent regime policies have made an already unattractive trade environment even more difficult and less predictable, stifling one of the few sectors in Burma's economy that had been modestly successful. Many middle-class and upper class residents of Burmese cities and border towns supplemented their income through meeting consumer demand for imported goods. Burmese businesspeople do not believe the recent customs crackdown will help eliminate corruption, but merely exchange one hand in the till with a new one. Without policy predictability or written regulations, even RANGOON 00001466 003.2 OF 003 experienced importers are increasingly frustrated with the costs of doing business in Burma. End comment. STOLTZ