New US trade preferences highlight challenges for Myanmar exporters

Myanmar’s business sector has welcomed US plans to lift almost all remaining sanctions against the country and reinstitute special trade preferences, but some industries could find it hard to take advantage of the new environment.

US President Barack Obama announced this week that he intends to lift the state of emergency the US declared against Myanmar in 1997, which forms the basis for almost all remaining sanctions.

The US has steadily chipped away at the sanctions regime in recent months, issuing general licences allowing trade to pass through blacklisted ports, permitting transactions with military-owned banks and removing state-owned lenders from a list of Specially Designated Nationals (SDN) with whom business dealings are illegal.

But despite the gradual easing, the presence of the SDN list and the fact that the state of emergency remained in place has made life difficult for Myanmar’s business community. US banks have refused to transfer money out of Myanmar – even for US firms – and very few are willing to provide transfers into the country.

The sanctions regime has often made lenders from other countries similarly wary of providing transaction services on behalf of Myanmar banks, all of which has hurt their ability to provide trade financing for local firms.

When the state of emergency is lifted, the SDN list, along with prohibitions on new investment and financial services, will disappear. The US has also announced that in November Myanmar will be made eligible for the Generalized System of Preferences (GSP), which will allow Myanmar to export thousands of products to the US at reduced tariff rates, like many other developing countries.

Senior business officials are hoping this will usher in a new era of trade and closer cooperation with US banks and companies.

“Even though some sanctions were lifted, US banks stayed reluctant [to engage with Myanmar],” said U Mya Tha, chair of Myanmar Oriental Bank. “Now with the GSP there will be more and more trade with the US, and US banks can be involved [in trade transactions]. Hopefully institutions in other countries will become more comfortable [with Myanmar] too.”

But whether the potential to ship goods to the US at lower tariffs will prompt a sharp rise in exports is far from clear. The European Union made Myanmar eligible for its own GSP system in 2013. That everything-but-arms initiative allows companies to enjoy duty-free and quota-free exports to the EU market for all products except arms and ammunition.

EU-Myanmar trade increased rapidly in the following years, with the EU importing garments, rice, fishery products and beans. But some sectors struggled to take advantage of the new market. Daw Toe Nandar Tin from Myanmar Fishery Products Processors and Exporters Association said the impact of the EU’s GSP had been modest because Myanmar does not produce many fishery products suitable for the EU market.

Myanmar’s garment sector was the biggest beneficiary of the EU GSP – accounting for 62pc of the 675 million euro (US$ 758.5 million) in Myanmar exports to the EU in 2015. U Aung Win, deputy chair of Myanmar Garment Manufacturers Association said he hoped the US GSP system would be similarly positive for the sector.

But unlike the EU, the US has strict rules on which textiles qualify for GSP.

“There are relatively few textile and apparel products eligible for [US] GSP,” said Eric Rose, lead director at Herzfeld Rubin Meyer & Rose in Yangon.

“But overall, exports of Myanmar textiles to the US reached $500 million annually about 15 years ago,” he said, adding that the industry has the potential to return to its heyday prior to 2003 when it was a major employer in the country before it suffered under sanctions.

Myanmar exports to the US have grown from $38,000 in 2012 to $142 million in 2015, according to a spokesperson from the US embassy in Yangon. He noted that the 2015 figure included several GSP-eligible goods including dried peas, rattan products and wood products.

Economist U Khin Maung Nyo welcomed the sanctions relief and GSP reentry, but said that Myanmar will have to “improve the quality of its commodity exports” in order to take full advantage of the US market.

One of the country’s biggest agricultural exports is beans and pulses. Myanmar exports mostly raw produce to India, which is then put through Indian mills before being sold. But developed markets like the US are less interested in the raw produce that makes up most of Myanmar exports, said Sunil Seth, chair of the Overseas Agro Traders Association of Myanmar (OATAM).

“They want the finished product and in small packages – [for example] ready-to-eat lentils,” he said. Mr Seth has been looking at exporting Myanmar pluses to the Canadian market, but found that Myanmar mills often need to improve quality standards to meet the requirements of North American markets. This is in addition to improving production facilities and logistics chains, he added.

Myanmar is also hoping to boost rice exports, and is in negotiations with countries like Indonesia and China. But some 25 percent of the rice produced in Myanmar is un-milled or “rough” rice, whereas developed markets will typically want finished milled rice for import, said Mr Seth.

“If tariffs come down there will be the possibility to do more value-added agricultural exports,” he said, but the country’s agricultural industry needs investment and development to produce the necessary products at the required standards.

Other industries in Myanmar could also find it hard to make use of the US GSP. The majority of natural gas and mineral exports go to China, and if there is an increase in exports to the US it is likely to be negligible, said Alexander Jaggard, country representative for Mekong Economics.

“It acts as a signal that the US is interested in establishing solid bi-lateral ties,” he said of the GSP. “But in terms of real economic impact I’d be very surprised if it had any substantial effect.”


Source: The Myanmar Times.
NB: Take note that Myanmar has been taken off the US Sanction List by President Obama’s Executive Order signed on 7th October 2016. See US terminated remaining sanctions against Myanmar on 7 Oct 2016.

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