INVESTMENT CLIMATE STATEMENT FOR EMBASSY RANGOON

UNCLAS SECTION 01 OF 13 RANGOON 000026

SIPDIS

SIPDIS

STATE FOR EAP/MLS
COMMERCE FOR JEAN KELLEY
PACOM FOR FPA
TREASURY FOR OASIA:SCHUN

E.O. 12958:N/A
TAGS: OPIC KTDB USTR ECON EFIN EINV ETRD BM
SUBJECT: INVESTMENT CLIMATE STATEMENT FOR EMBASSY RANGOON

REF: 07 STATE 158802

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1. Per reftel, this is Embassy Rangoon's submission for the 2008
Investment Climate Statement.

Preface: U.S. Investment Subject to Sanctions
-------------- -


2. On May 20, 1997, by Executive Order 13047, the President imposed
economic sanctions prohibiting new investment by U.S. persons or
entities in Burma (Myanmar),based on the determination that the
Government of Burma had committed large-scale repression of the
country's democratic opposition. The Cohen-Feinstein Amendment to
the Foreign Operations Act of 1997 forms the legal basis for the
investment ban. Every six months, the U.S. government reviews the
sanctions policy. Since imposing the investment ban, the U.S.
Government has found no measurable progress toward political
liberalization in Burma and the sanctions have been renewed at each
six month interval.


3. Prior to the imposition of the investment ban, many prominent
U.S. investors had already withdrawn from Burma due to a hostile
investment climate and disappointing returns. An active anti-Burma
consumer movement in the United States and Europe also put
investors' corporate images at risk. Current U.S. federal sanctions
prohibit new investment, but allow companies invested in Burma prior
to May 20, 1997 to maintain their investments. Very few companies
have elected to do so.


4. In 2003, the President signed into law the Burmese Freedom and
Democracy Act (BFDA),and issued an accompanying executive order
barring the import of most Burmese products into the United States.
The 2003 sanctions also prohibited U.S. persons from providing
financial services to Burma, and seized the assets of certain
Burmese entities. The 1997 and 2003 economic sanctions joined
number of other sanctions the United States imposed against Burma in
1988, following the military's crackdown against civilian democracy
activists and 1990, when the military nullified the results of
democratic parliamentary elections. The United States opposes the
provision of international financial institution assistance to
Burma, prohibits military sales, denies bilateral economic aid and
commercial assistance programs, bans the issuance of U.S. visas to
members of the military and senior government officials, and, since
1990, has downgraded our representation in Rangoon from Ambassador
to Charge d'Affaires. In addition, the United States continues to
engage in vigorous diplomatic efforts to promote political and human
rights reforms in Burma.


5. U.S. law allows U.S. firms to export to Burma, with some
exceptions.


6. In September 2007, in the wake of the Burmese government's
longstanding oppression of the Burmese people and its recent use of
violence against peaceful demonstrators, the President designated an
additional 14 senior Burmese government officials as subject to an
asset block under Executive Order 13310. In October 2007, the
President announced Executive Order 13348, which expands the
authority to block assets to individuals who are responsible for
human rights abuses and public corruption, as well as those who
provide material and financial support to the regime.

Openness to Foreign Investment
--------------


7. To attract more foreign investment, the Burmese government
enacted the Foreign Investment Law (FIL) on November 30, 1988. The

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priorities for foreign investment, according to the FIL, are:

--promotion and expansion of exports;
--exploitation of natural resources that require heavy investment;
--acquisition of high technology;
--support for production and services requiring large amount of
capital;
--expansion of employment opportunities;
--development of facilities that would reduce energy consumption;
and
--regional development.


8. According to the State-Owned Economic Enterprises Law, enacted
in March 1989, state-owned enterprises have the sole right to carry
out the following economic activities:

--extraction of teak and sale of the same in the country and
abroad;
--cultivation and conservation of forest plantations, with the
exception of village-owned firewood plantations cultivated by the
villagers for their personal use;
--exploration, extraction, sale, and production of petroleum and
natural gas;
--exploration, extraction, and export of pearls, jade and precious
stones;
--breeding and production of fish and prawns in fisheries which have
been reserved for research by the government;
--postal and telecommunications services;
--air transport and railway transport services;
--banking and insurance services;
--broadcasting and television services;
--exploration, extraction, and exports of metals;
--electricity generating services, other than those permitted by law
to private and cooperative electricity generating services; and
--manufacturing of products relating to security and defense.


9. The Myanmar Investment Commission (MIC),"in the interest of the
State", can make exceptions to this law. The MIC has granted some
exceptions in the areas of banking (for domestic investors only),
mining, petroleum and natural gas extraction, and air services. As
with all major political and economic decisions, this discretion
lies solely with the Cabinet and senior generals of the ruling
junta.


10. According to the FIL, the MIC must review all potential
investment, both foreign and domestic. Due to accusations of
corruption within the MIC, the ruling State Peace and Development
Council (SPDC) sharply reduced the MIC's influence in 1999.
Potential investors must still work through the MIC, but it has lost
most of its decision-making authority. Interested foreign investors
must submit proposals through the MIC, which obtains the final
approval from either the Cabinet (chaired by Prime Minister General
Thein Sein, why in turn must also obtain clearance from SPDC
Chairman Senior General Than Shwe) or the Trade Policy Council (TPC,
chaired by SPDC Secretary (1) Lt. General Thiha Thura Tin Aung Myin
Oo). The Cabinet and the TPC have the same membership, so
authorities choose the decision-making body on a case-by-case basis.
Although the MIC has no power to protect foreign companies, there
is no evidence that the MIC overtly discriminates against foreign
investors. Bureaucratic red tape, arbitrary regulation changes and
endemic government corruption, however, continue to pose serious
obstacles for all potential investors.


11. Once the government grants permission to invest, a foreign
company must get a "Permit to Trade" -- essentially a business
license -- from the Ministry of National Planning and Economic

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Development's Directorate of Investment and Companies Administration
(DICA). Since February 2002, the government no longer allows DICA
to issue new permits or renew existing ones for foreign firms. This
decision has halted most new foreign investment and has disrupted
the business of many foreign investors, forcing the closure of
several foreign manufacturing firms. Since 2002, some foreign
investors have attempted to do business by operating as local firms
under the cover of Burmese partners, but some have faced legal
action and difficulties in divesting.


12. Once a company has the "Permit to Trade", it may, in theory,
use the permit to get resident visa status, to lease cars and real
estate, and to obtain new import and export licenses from the
Ministry of Commerce. The government has had a de facto policy in
place since the end of 2001 to only issue import licenses to those
firms that are export earners. Companies without export earnings
must purchase "export dollars" from another firm at an inflated
exchange rate in order to apply for an import license. Some
companies fraudulently transfer money between the accounts of export
revenue earners to facilitate this process. Companies can also now
use account transfers from Burmese seamen and other Burmese workers
in foreign countries for exports. Since the government taxes these
overseas remittances at a rate of 10%, many overseas workers remit
their money home through informal networks. As of August 20, 2005,
the high-level Trade Policy Council gives final approval for all
import and export licenses.


13. In February 2002, a reversal of the government's "open door
economy" policy came from a verbal directive outlawing the issuance
of new "Permits to Trade" and renewal of existing permits for any
trading firms owned by foreigners (or jointly owned by foreigners
and Burmese). The government allegedly took this measure to promote
local trading firms, but it has served only to further distort the
local marketplace. The authorities have not published any official
notice of this directive but they generally enforce it, including
against foreigners who have tried to evade the directive by listing
their company under the name of a Burmese colleague or friend.


14. The FIL allows FDI in a wholly foreign-owned venture or a joint
venture with a Burmese partner (either private or state-owned).
Sole proprietorships and partnerships are equally acceptable. The
FIL requires that at least 35 percent of equity capital in all JVs
and partnerships be foreign-owned. The minimum foreign investment
required in practice, though not specified in the law, is $500,000
for manufacturing investments, and $300,000 for services in cash or
in kind. These minimum amounts include cash-on-hand requirements in
foreign currency (calculated at the official rate of exchange of
roughly 6 kyat = US$1, which is roughly 0.47% of the market exchange
rate) of:

--300,000 kyat (US$50,000) for a services company,
--500,000 kyat (US$83,000) for a trading company (though the GOB
does not currently allow trading companies),and
--one million kyat (US$166,666) for a manufacturer.


15. In June 2006, the Ministry of Finance and Revenue issued a
notification for levying tax on profits gained by transferring
assets of the companies conducting business in oil and gas sector as
following rates:

Profit Tax rate
(a) up to US$100 million 40%
(b) Between US$100 and $150 million 45%
(c) Over US$150 million 50%

These tax rates remained the same in 2007.

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16. The Burmese armed forces are involved in many commercial
activities via the Union of Myanmar Economic Holdings, Ltd. (UMEHL)
and the Myanmar Economic Corporation (MEC). To set up a joint
venture, foreign firms have reported that an affiliation with UMEHL
or MEC proves useful to help them receive the proper business
permits. Nonetheless, entering into business with UMEHL or MEC does
not guarantee success for foreign partners. Some investors report
that their Burmese military partners are parasitic, make
unreasonable demands, provide no cost-sharing, and sometimes muscle
out the foreign investor after an investment becomes profitable.


17. In November 2005, the government moved Burma's administrative
capital to the newly-constructed town of Nay Pyi Taw, located in a
remote valley about 240 miles north of Rangoon. All official
transactions, including import/export licenses, must be approved in
Nay Pyi Taw. Although the majority of import/export procedures have
not changed, several businesses have complained that the time and
cost of obtaining licenses has increased since 2005. Currently, it
takes approximately two weeks for license approval. The Burmese
Government, to offset the time lag for import/export approval
introduced in October 2007 a one-stop service in Rangoon for marine
products and medicine licenses. For these products alone,
import/export licenses are approved in two days.

Conversion and Transfer Policies
--------------


18. According to the Foreign Investment Law (FIL),investors in
Burma have a guarantee that they can repatriate profits after paying
taxes. The law also provides that, upon expiry of the term of the
contract, the investor can receive the amount to which he or she is
entitled in the foreign currency in which the investment was made.
Due to the current shortage of foreign exchange in Burma, however,
foreign investors have encountered difficulties in legally
transferring their net profits abroad. The Foreign Exchange
Management Department of the Central Bank of Myanmar must give
permission for all transfers abroad of foreign currency.


19. Likewise, Burma's multiple exchange rates make conversion and
repatriation of foreign exchange very complex, and ripe for
corruption. The official rate of approximately 6 kyat to the dollar
is grossly overvalued. The government also issues Foreign Exchange
Certificates (FEC) at a fixed rate of 1 FEC=450 kyat via licensed
exchange counters, but that rate is still significantly overvalued.
The market exchange rate as of January 2008 was 1260 kyat to $1.
Companies generally unload their kyat earnings as quickly as
possible. The government requires foreign companies to use dollars
or FEC to pay rental charges and utility and telephone bills
(charged at a rate that is often ten times higher than what local
firms are charged). The government allows foreign firms to deposit
dollars in a state bank for later withdrawal as FEC by the company's
employees.


20. In Burma, only three state banks -- the Myanma Foreign Trade
Bank (MFTB),the Myanma Investment and Commercial Bank (MICB) and
the Myanma Economic Bank (MEB) -- are legally permitted to handle
foreign exchange transactions. In practice, the MFTB and MICB
handle most of these transactions. The MFTB primarily handles
foreign currency transactions for government organizations,
businesses, and private individuals, while the MICB primarily serves
companies and joint ventures. MEB handles foreign currency
transactions in the border trade regions.


21. U.S. government restrictions imposed in 2003 on the provision
of financial services to Burma by U.S. banks severely disrupted the

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legal foreign trading system, which had long been primarily
dollar-denominated. U.S. banks no longer offer any trade
facilitation or correspondent banking services, making the use of
letters of credit denominated in U.S. dollars problematic. Some
traders and government banks have shifted to euros or Singapore
dollars. As of July 29, 2003, the U.S. Government also froze the
correspondent accounts of MEB, MFTB, and MICB in the United States,
along with all other GOB assets and property.


22. Private banks held a large share of domestic banking activity
until February 2003, when a major banking crisis severely reduced
the holdings of the private banking sector. The GOB never permitted
these banks to deal in foreign exchange. Although the government
allowed some smaller private banks to resume operations in 2004, the
sector remains tightly restricted. There is no indication that, if
the private banking system is revitalized, the GOB would give
private banks the right to deal in foreign currency.

Expropriation and Compensation
--------------


23. The Burmese Foreign Investment Law (FIL) provides a guarantee
against nationalization during the "permitted period" of investment.
However, the GOB has forced a number of foreign firms in various
sectors to leave the country because it did not honor the terms and
conditions of investment agreements. In the late 1990s, two large
Japanese firms voluntarily left Burma after they found they were not
able to operate according to earlier investment agreements.
Additionally, government has seized the assets of foreign and local
investors without compensation when the particular investment turned
out to be very profitable.


24. In the 1990s, the GOB forced out a Swiss cement importer and
distributor ostensibly because the company was not "operating
according to its permit." According to most accounts, however, the
government evicted the company because the Swiss company could sell
better quality, cheaper cement than its government-owned
competitors. In another case in 1999, the government confiscated a
large brewery that an expatriate businesswoman had made profitable
and turned it over to the Ministry of Industry (1) to run. The
local courts proved unhelpful in resolving the case, and the
investor never received any compensation from the government.

Dispute Settlement
--------------


25. Private and foreign companies suffer major disadvantages in
disputes with Burmese governmental and quasi-governmental
organizations. Foreign investors generally prefer to use the 1944
Arbitration Act, which allows for international arbitration. The
Burmese government usually tries to stipulate local arbitration in
all contracts it signs with foreign investors. The military regime
closely controls the entire legal system in Burma, and courts are
neither independent nor impartial, so local arbitration is not
reliable. Companies facing adverse administrative decisions have no
recourse. Burma is not a member of the International Center for the
Settlement of Investment Disputes, nor is it a party to the New York
Convention.


26. The Attorney General's Office and the Supreme Court ostensibly
control the legal system in Burma, but neither body is independent
of the ruling regime. Burmese criminal and civil laws are modeled
on British law introduced during Burma's colonial period, which
ended in 1948. Every Township, State, and Division has its own law
officers and judges. The regional commanders and military
authorities at the township, state and divisional level, however,

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have supreme de facto authority over judicial decisions at the local
and state/division level.


27. There is no bankruptcy law in Burma.


28. Foreign companies have the right to bring cases to and defend
themselves in local courts. As the military regime controls all the
courts tightly, foreign investors with conflicts with the local
government and those whose business has been expropriated, have
little luck getting compensation.

Performance Requirements and Incentives
--------------


29. Officially, companies covered under the Foreign Investment Law
(FIL) are entitled to a tax holiday for a period of three
consecutive years. Under the FIL, the Myanmar Investment Commission
(MIC) can extend this tax holiday. At the MIC's discretion,
investors are also eligible for a number of other incentives
including: accelerated depreciation of capital assets, a waiver of
customs duties and taxes on imported machinery and spare parts
during the period of construction, or a waiver of duties on imported
raw materials during the first three years of commercial production.
Although the MIC issues the permission, the TPC and the Cabinet
makes final decisions on these incentives and extensions.


30. There are no official performance requirements for new foreign
investors in Burma, but the government does require investors to
purchase local machinery and insurance (fire, marine, and personal
liability). Unofficially, before approving an investment, the
government often requires companies to commit to a certain level of
exports. The government then requires compliance reports every
three months, with evidence of export results or an explanation why
goals were not met. There is no evidence that the GOB has taken any
action against firms that do not meet their initial export targets.


31. There is no requirement that foreign investors buy or hire from
local sources. Technology transfer is not generally a pre-requisite
for investment.


32. Any enterprise operating under the FIL or the Myanmar Companies
Act must pay income tax at a 30 percent tax rate. Withholding tax
on royalties and interest is 15 percent for resident foreigners and
20 percent for non-resident foreigners. Tax collection in Burma is,
in practice, extremely lax, but foreign investors are an easy target
for cash-strapped tax authorities. The Burmese fiscal year ends
March 31; tax returns are due by June 30.

Right to Private Ownership and Establishment
--------------


33. By law, foreigners may not own land in Burma, and may only rent
property on a short-term basis, frequently for terms less than one
year.


34. A private entity can establish, buy, sell, and own a business
only with the review and approval of the MIC (and, by proxy, the top
regime leadership).

Protection of Property Rights
--------------


35. Burma does not have adequate IPR protection. Patent,
trademark, and copyright laws and regulations are all deficient in
regulation and enforcement. After Burma joined ASEAN in 1997, it
agreed to modernize its intellectual property laws in accordance

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with the ASEAN Framework Agreement on Intellectual Property
Cooperation. An IPR law, first drafted in 1994, still awaits
government approval and implementation. A Committee for IPR
Implementation, established in July 2004, has worked toward approval
of a new law, with assistance from the World Intellectual Property
Organization. The World Trade Organization (WTO) has delayed
required implementation of the TRIPS Agreement for Least Developed
Nations until 2013.


36. The Government of Burma introduced a Patents and Design Law in
1946, but never brought it into force. Thus, the registration of
patents and designs in Burma is still governed by the Indian Patents
and Designs Act of 1911, enacted under British colonial rule.


37. The piracy of music CDs, video CDs, CD-ROMS, DVDs, books,
software, and product designs is evident nationwide, especially in
border regions and in the two major urban centers of Mandalay and
Rangoon. Most consumers of IT products in Burma, both in the
private sector and in government, use pirated software. Given the
small number of local customers, poor state of the economy, and lack
of infrastructure (e.g., unreliable electricity for manufacturing),
piracy does not have a significant adverse impact on U.S. products.



38. Burma has no trademark law, although trademark registration is
possible. Some firms place caution notices in local newspapers to
declare ownership of their trademarks. After publication, the
owners can take criminal and/or civil action against trademark
infringers. Title to a trademark depends on use of the trademark in
connection with goods sold in Burma. The British colonial
government published a Copyright Act in 1914, but has never
instituted a means to register copyrights. Thus, there is no legal
protection in Burma for foreign copyrights.


39. Most real estate transactions in Burma require cash. Regular
bank loans are difficult to obtain and are not available directly to
foreigners.

Transparency of Regulatory System
--------------


40. Burma lacks regulatory and legal transparency. All existing
regulations, including those covering foreign investment,
import-export procedures, licensing, and foreign exchange, are
subject to change with no advance or written notice at the whim of
the regime's ruling generals. The country's decision-makers appear
strongly influenced by their desire to support state-owned
enterprises and meet the needs of the military-controlled Myanmar
Economic Corporation and Myanmar Economic Holdings, Ltd., as well as
wealthy cronies. Even omens and fortune-tellers can play a role in
their decisions. The government regularly issues new regulations
with no advance notice and no opportunity for review or comment by
domestic or foreign market participants. The GOB rarely publishes
its new regulations andregulatory changes, preferring to
communicate ne rules verbally to interested parties and often
efusing to follow up in writing. The government ocasionally
publishes selected new regulations and laws in the government-owned
daily newspaper, "Te New Light of Myanmar," as well as in "The
Burm Gazette."


41. Burma's written health, environental, tax, and labor laws do
not impose a majorburden on investment. However, the unpredictable
nature of the regulatory and legal situation -- an irregular
enforcement of existing laws -- makesinvestment in Burma extremely
challenging withou good -- and well-connected -- local legal
advic.

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42. See the Preface and Openness to Foreign Investment section for
further details of the legal and regulatory system.

Efficient Capital Markets and Portfolio Investment
-------------- --------------


43. Burma has no true equity or debt markets, and the average
citizen does not have portfolio investments. Burmese authorities
have stated in the past that the existence of capital markets is
essential for the development of a well-functioning financial
system, and the Myanmar Economic Bank (MEB) and Japan's Daiwa
Institute of Research Co. Ltd. established a joint venture -- the
Myanma Security Exchange Centre Ltd. -- to set up a limited stock
exchange. However, the exchange is moribund, with only two listed
companies - a small forestry joint venture and a small
semi-government bank. A few Burmese companies sell bonds privately
on a very small scale. Private companies, whether foreign or
domestically controlled, are generally small in size. Usually, a
small number of people or entities, often within the same family,
closely hold the business shares. There is no securities law.


44. The private banking system in Burma was frozen in February 2003
after a public scare and a run on private banks, and the subsequent
decision by the government to avoid any bailouts. The crisis did
not seriously affect state-owned banks and partially state-owned
banks. Although some banks closed, other private banks resumed
operations in 2004 with limited functions. Government restrictions
have made it impossible for the largest private banks to take in
many new deposits or to extend significant new loans, and have
limited the maximum amount clients can withdraw each week. The GOB
has fixed interest on deposits at 12%.


45. The Financial Action Task Force (FATF) removed Myanmar from its
list of Non-Cooperative Countries and Territories in October 2006 in
recognition of GOB efforts to better enforce its anti-money
laundering regime, but advised the Burmese Government to enhance
regulation of the financial sector, including the securities
industry. FATF will continue to monitor Burma's progress on
anti-money laundering in 2008.


46. In April 2004, the U.S. Treasury Department prohibited U.S.
banks from doing business with Burmese banks or their overseas
branches because of ongoing concerns of money laundering in Burma,
specifically at Asia Wealth Bank (the largest pre-crash private
bank) and Myanmar Mayflower Bank. The Government of Burma revoked
the licenses of these two banks in March 2005 and, in August, closed
a third bank suspected of laundering money, the Myanmar Universal
Bank, for violations of the Financial Institutions Act. Currently,
only six fully private and nine quasi-state banks operate, all under
tight governmental restriction.


47. Foreign firms do not have access to bank loans, since the banks
require collateral of land or real estate, neither of which
foreigners can own in Burma. Since mid-2002, the government has
forbidden the use of gold as collateral. Loans in kyat are
available for local companies and individuals from state and private
banks. Interest rates are currently fixed at 17 percent per year.
The U.S. Embassy estimates that the inflation rate in 2007 was
approximately 40 percent. Because of negative real interest rates
and inadequate regulation and supervision, the private banking
system remains unstable. Before the 2003 banking crisis, most
private banks engaged in reckless lending and suffered from high
levels of non-performing loans. Now, most are tightly regulated by
the Central Bank and government regulations force them to be more
conservative in policy. While accurate statistics are not

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available, businessmen and bankers say that the quasi-government
banks are regularly asked to bankroll the regime's pet projects and
personal requirements, and as a result may still have a large
percentage of non-performing loans.


48. A 1990 banking law permitted foreign banks to open
representative offices to serve as trade and commercial liaisons for
local and foreign clients in Burma, but they were not allowed to
conduct business for the local market. For a variety of reasons,
including the 1997-1998 Asian financial crisis, the bad local
business climate, and the lack of liberalization of the Burmese
banking sector, only 13 of the original 49 authorized foreign banks
retain a presence in Burma today. Under U.S. law, U.S. persons and
institutions may not provide financial services to Burma.


49. In 2004, in the absence of a government policy, the Myanmar
Accountants Council issued its own standard accounting system -- the
Myanmar Accounting Standards -- based very closely on International
Accounting Standards (IAS).

Political Violence
--------------


50. Burma experienced major political unrest in 1988, when the
current military regime seized power and jailed/killed an
undetermined number of Burmese citizens and democracy activists. In
1990, the military government refused to recognize the results of a
parliamentary election overwhelmingly won by the pro-democracy
opposition. Burma also experienced major student demonstrations in
1996, and other demonstrations occurred in August and September of

1998. In May 2003, government-affiliated thugs ambushed a convoy
carrying pro-democracy opposition leader Aung San Suu Kyi in
northwest Burma, killing or wounding dozens of pro-democracy
activists.


51. Political unrest continued in 2007. Following a sharp increase
in fuel prices on August 15, 2007, pro-democracy groups began a
series of peaceful marches and demonstrations to protest the
deteriorating economic situation in Burma. The regime immediately
responded by arbitrarily detaining over 150 pro-democracy activists
between August 15 and September 11. On August 28, as popular
dissatisfaction spread, Buddhist monks began leading peaceful
marches. On September 5, security forces violently broke up
demonstrations by monks resulting in injuries and triggering calls
for a nationwide response and a government apology. Beginning on
September 18, monks resumed their peaceful protests in several
cities throughout the country. These marches grew quickly to
include ordinary citizens, culminating in a gathering of
approximately 10,000 protestors in Rangoon on September 24. On
September 25, the regime tried to stop the protests by imposing a
curfew and banning public gatherings. On September 26 and 27, the
regime violently cracked down, shooting, beating and arbitrarily
detaining thousands of monks, pro-democracy activists, and onlookers
in Rangoon.


52. The regime routinely underestimated the number of deaths during
the crackdown, confirming the deaths of only 10 protestors. Some
NGOs estimated the number of casualties to be much higher, and in
his December 7, 2007 report to the UN General Assembly, Special
Rapporteur Paulo Sergio Pinheiro stated that there were over 30
fatalities in Rangoon associated with the September 2007 protests.
In retribution for leading protest marches, monks were beaten and
arrested, many monks were disrobed, and several monasteries were
raided, ransacked, and closed. In addition to the more than 1,100
political prisoners whose arrests predate the September 2007
crackdown, hundreds more continue to be detained due to their

RANGOON 00000026 010.2 OF 013


participation in the recent protests. Additional people continued
to be arrested in 2008.


53. In April 2005, a bomb exploded in a market in Mandalay, killing
three civilians. In May 2005, three bombs exploded simultaneously
in central Rangoon commercial areas, killing at least 23 civilians.
No individuals or groups claimed responsibility and, since the
attacks, the Government has not revealed any results of an
investigation or offered credible evidence about the perpetrators.
There have been several small explosions in Rangoon and other
Burmese cities as recently as January 2008 with few fatalities, and
authorities regularly claim to discover such devices at various
locations throughout Burma. In most cases, no groups claim
responsibility and no one is arrested after the bombings.


54. For decades, there has been sporadic anti-government insurgent
activity in various locations, particularly near Burma's borders.
These areas that surround central Burma have seen sporadic fighting
between government forces and insurgent groups throughout the past
50 years. As a result, popular unrest and violence remain possible
throughout Burma. Transparency International rated Burma worst in
the world in 2007.

Corruption
--------------


55. Corruption is endemic in Burma. Economists and businesspeople
consider corruption the most serious barrier to investment and
commerce in Burma. Because of a complex and capricious regulatory
environment and extremely low government salaries, rent-seeking
activities are ubiquitous. Very little can be accomplished, from
the smallest transactions to the largest, without paying "tea
money." As inflation increases and investment declines, this
problem appears to be worsening.


56. Since 1948, corruption is officially a crime that can carry a
jail term. However, the ruling generals apply the anti-corruption
statute only when they want to take action against a rival or an
official who has become an embarrassment - most notably in October
2004, when the SPDC arrested then-Prime Minister General Khin Nyunt
and many of his colleagues and family members for corruption. In
2006, authorities arrested over 300 Customs officials, charging them
with corruption. Most citizens view corruption as a normal practice
and requirement for survival. The major areas where investors run
into corruption are when seeking investment permission, in the
taxation process, when applying for import and export licenses, and
when negotiating land and real estate leases.

Bilateral Investment Agreements
--------------


57. Burma has signed several bilateral investment agreements, also
known as "Protection and Promotion of Investment" agreements, with
the Philippines, China, Lao PDR, and Vietnam. These agreements have
had little impact on enhancing incoming investment from other
countries in the region. Investment treaty discussions are underway
with Thailand and Singapore.

OPIC and Other Investment Insurance Programs
--------------


58. Due to U.S. law, OPIC programs are not available for Burma.
Burma is not a member of the World Bank's Multilateral Investment
Guarantee Agency (MIGA).

Labor

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--------------


59. In 1989, the United States withdrew Burma's eligibility for
benefits under the Generalized System of Preferences (GSP),due to
the absence of internationally recognized worker rights.
Independent labor unions are illegal in Burma. Workers are not
allowed to organize, negotiate, or in any other legal way exercise
control over their working conditions. In some instances workers
have gained minor benefits through direct work actions, especially
for wage increases at private enterprises following a significant
pay increase for civil servants in April 2006.


60. Although government regulations set a minimum employment age,
wage rate, and maximum work hours, managers do not uniformly observe
these regulations, especially those in the private sector. The
government often uses forced labor in its construction and
commercial enterprises and for porterage and military building.
These labor practices are inconsistent with Burma's obligations
under ILO Conventions 29 and 87. The ILO imposed sanctions against
Burma in 2000 and has critically reviewed the forced labor situation
in Burma at subsequent ILO Conferences and Governing Body meetings.
In 2006 and 2007, the ILO Governing Board raised the possibility of
bringing Burma to the International Court of Justice for its refusal
to address forced labor. The ILO continues to work with the Burmese
Government on forced labor issues under the Supplementary
Understanding on Forced Labor, which was signed in February 2007.
The United States strongly supports ILO action against Burma.


61. Burma's labor costs are very low, even when compared to most of
its Southeast Asian neighbors. Burmese over the age of 40,
particularly those over 65 years of age, are generally
well-educated, but the lack of investment in education by the
military regime and the repeated closing of Burmese universities
over the past 20 years have taken a toll on the country's young.
Most in the 15-39 year old demographic group lack technical skills
and English proficiency. Many older educated Burmese studied
English in mission schools during the British colonial and early
independence period. The military nationalized schools in 1964 and
discouraged the teaching of English in favor of Burmese.


62. The government does not publish any unemployment figures.
Anecdotal evidence and recent divestment by many foreign companies
indicate a very high level of unemployment and underemployment in
formal, non-agricultural sectors. The minimum wage is 500 kyat
(roughly $0.40) per day. An average worker in Burma earns about
500-1000 kyat (roughly $0.40 to $0.80) per day.

Foreign-Trade Zones/Free Ports
--------------


63. The government has set aside 19 "industrial zones," large
tracts of land surrounding Rangoon, Mandalay, and other major
cities. These areas are, however, merely zoned for industrial use.
They do not come with any special services or investment incentives.
The GOB has developed a draft industrial zone law, which has yet to
be approved.


64. There are no free trade zones in Burma.

Foreign Direct Investment Statistics
--------------


65. Note: Investment figures compiled by the Burmese government
include only investments approved by the Myanmar Investment
Commission (MIC),only a fraction of which go forward. No statistics
exist as to disinvestment. The figures do not include investments

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outside of MIC's purview, such as many small and medium
Chinese-financed projects. Since the end of 2003, the MIC has
stopped making its investment figures available publicly. The
Embassy calculates the current figures based on Monthly Economic
Indicators published by the Central Statistical Organization (CSO).



66. According to government figures, at the end of November 2007,
cumulative foreign investment approved by the MIC totaled 417
projects, valued at $14.7 billion. This is 5.7 percent higher than
the cumulative total listed at the end of October 2006.


67. Extrapolating from the latest government statistics on FDI flow
for Burmese FY 2006-2007 (April-March),the U.S. Embassy estimates
an 88 percent year-on-year decrease in the value of new FDI
approvals ($752 million) compared with total new investment
approvals in FY 2005-2006 ($6.066 billion). FY2005-2006 proposed
investments from Thailand ($6.034 billion in power and oil and gas),
India ($30.58 million in oil and gas) and China ($0.70 million in
mining) received approvals. The amount of FDI investments approved
in FY 2005-06 were the highest-ever reported. The approved FDI
amount significantly rose in March 2006 with Thailand's planned
investment of $6 billion in the Ta Sang hydropower project. In
2006-07, the Burmese Government approved $752.7 million in new
investments; Chinese companies pledged $281.22 million, U.K. firms
(which include companies from the British Virgin Islands and
Bermuda) pledged $240.68 million, Singaporean companies pledged
$160.8 million, Korean firms pledged $37 million, and companies from
the Russian Federation pledged $33 million.


68. The vast majority of approved new investment since 1997 has
come from Asian countries. Western countries have largely stayed
away from the Burmese market, largely due to the abysmal investment
climate, including an absence of rule of law, economic
mismanagement, and endemic corruption. New U.S. investment ceased
in 1997 when the U.S. government imposed an investment ban.


69. According to GOB statistics, in stock terms, the United States
is the eighth largest foreign investor in Burma, with 15 approved
projects totaling $244 million. U.S. investment approved prior to
May 1997, which was grandfathered under U.S. investment sanctions,
is largely concentrated in oil and natural gas exploration.


70. Major non-U.S. foreign investors in Burma are concentrated in
resource extraction and include: Petronas (Malaysia),Total
(France),PTTEP (Thailand),Shin Satellite (Thailand),Keppel Land
(Singapore),Daewoo (South Korea),China National Construction and
Agricultural Machinery Import and Export Co. (PRC),and the China
International Trust and Investment Corporation (PRC).


71. Government statistics do not report external investments made
by Burmese companies. However, there is anecdotal information that
some wealthy Burmese individuals and small family businesses have
made investments in China and in neighboring ASEAN countries.

-------------- --------------
FOREIGN INVESTMENT APPROVALS
AS OF 11/30/2007
BY SECTOR
(Millions of US Dollars)
-------------- --------------
No. of Approved % of Total
Sector Projects Amount Approved Amt

Power 2 6,311.000 42.83
Oil and Gas 85 3,242.478 21.32

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Manufacturing 154 1,629.128 11.06
Real Estate 19 1,056.453 7.17
Hotels and Tourism 43 1,034.561 7.02
Mining 58 534.890 3.63
Livestock/Fisheries 25 324.358 2.20
Transport/Comms 16 313.272 2.13
Industrial Estates 3 193.113 1.31
Construction 2 37.767 0.26
Agriculture 4 34.351 0.23
Other Services 6 23.686 0.16
-------------- --------------
Total 417 14,736.279 100.00

-------------- --------------
CUMULATIVE FOREIGN INVESTMENT APPROVALS
AS OF 11/30/2007
BY COUNTRY
(Millions of US Dollars)
-------------- --------------
No. Country No. of Projects Approved Amount
-------------- --------------

1. Thailand 58 7,391.843

2. U.K.* 50 1,860.954

3. Singapore 70 1,515.213

4. Malaysia 33 660.747

5. Hong Kong 31 504.218

6. China 27 475.443

7. France 2 469.000

8. U.S.A. 15 243.565

9. Republic of Korea 37 243.308

10. Indonesia 12 241.497

11. The Netherlands 5 238.835

12. India 7 219.575

13. Japan 23 213.004

14. Philippines 2 146.667

15. Australia 14 82.080

16. Austria 2 72.500

17. Canada 14 39.781

18. Cyprus 2 38.250

19. Panama 1 29.101

20. Germany 2 17.500

21. Denmark 1 13.370

22. Macau 2 4.400

23. Vietnam 1 3.649

24. Switzerland 1 3.382

25. Bangladesh 2 2.957

26. Israel 1 2.400

27. Brunei Darussalam 1 2.040

28. Sri Lanka 1 1.000
-------------- --------------
Total 417 14,736.279

*Inclusive of enterprises incorporated in British Virgin Islands,
Bermuda, and the Cayman Islands.

VILLAROSA