The law firm of Herzfeld, Rubin, Meyer & Rose Limited (HRMR) announced itself as the first 100% American owned law firm in Myanmar on July 29, 2013. While the United States has reduced the number of sanctions it has against the former nation of Burma in the past year, there are many U.S. sanctions still on the books that make it more difficult for American companies to do business in Myanmar than companies of any other country. I had a series of conversations with Eric Rose of HRMR about his parent law firm’s global brand, its specialty in emerging and frontier markets and why it has chosen Romania and Myanmar as its two outposts in these markets.
In the interview below, Mr. Rose candidly speaks about the opportunities and risks in Myanmar where he expects GDP to at least triple in the coming 20 years. While representing his law firm, his answers provide a clear view of investing opportunities, business prospects, sanction situations, Myanmar’s history, current stability and international relations. Jon Springer: During your legal career, you have done a lot of work in emerging and frontier markets both in private practice and as an in-house lawyer for corporations. When did you first work in Myanmar? Eric Rose: I set up the strategy for American Standard, the kitchen and bath goods manufacturer, in Myanmar in the mid-1990s. At that time, U.S. sanctions were limited. Major sanctions came in 2003. JS: Was this experience part of why HRMR decided to open an office in Myanmar?
ER: Our firm specializes in emerging and frontier markets. We chose both Romania and Myanmar for similar reasons. Both countries at the time we arrived were newly open to American business. They both have large, literate populations. In both cases they were or are countries starting with a low GDP basis, a high need for infrastructure development, an incredible wealth of natural resources and a strong relatively cheap workforce. JS: When you say your firm specializes in emerging and frontier markets, what is the range of countries your firm’s attorneys have worked in and range of services provided?
ER: A law firm is only as good as the attorneys it has. Our attorneys have lead transactions in over fifty countries on five continents, the majority of which were then, and some still are, emerging or frontier markets. For example, in the early 1990s, I guided companies like John Deere and Tyco Toys in countries of the former Soviet Union, South Africa and China. In the middle ’90s, I lead American Standard’s and Trane’s entrance in Vietnam, Burma, Egypt and Eastern Europe. Later, I helped Wabco Automotive and Diasorin penetrate India and China. More recently, I steered Cybertel and Perry Equipment transactions in Latin America and Eastern Europe. The firm has over 200 practitioners in six affiliated offices on three continents, and offers a full range of legal services to its clients, which range from individuals to Fortune 500 companies the world over. JS: Specifically looking at Myanmar, it has been touted as early as 1885 as the greatest place to invest in the world in Archibald Colquhoun’s Burma and the Burmans: Or, “The best unopened market in the world”. What is different now?
ER: In the first half of the 20th century, Burma was the richest country in Southeast Asia, the largest producer of rice in the world and the number one producer of beans and pulses. Rangoon, at the time, had the best universities and was the hub airport for travel throughout Asia and beyond. Today, Myanmar is the poorest country in Southeast Asia, 75% of its population does not have access to electricity, and only 10% have access to cell phones. What has changed is that, for the first time since Myanmar’s independence, all of its citizens from all ethnic groups, as well as the government and the army, are sharing the same goals. JS: Thus, the case is that the communism and dictatorship the country experienced after British colonial rule ended in 1948 led to the current malaise and the country is now democratic and primed for capitalist success?
ER: Not quite! Myanmar has experienced civil war since its inception. It is now on the threshold of nationwide peace, it had free by-elections last year, it has freed almost all of its political prisoners, has adopted freedom of the press and association legislation and ended press censorship and it has passed a number of laws and regulations which have opened up most of the country to foreign investment. At the same time, much of industry is still controlled by companies associated with the military and cronies of the former government, land rights are in doubt or disputed, rule of law is still in its infancy, and the country is still rated very low on the corruption index of Transparency International. The effect of the sanctions can still be felt everywhere. For example, in 2002, the Myanmar garment industry exported 75% of its product to the United States. After 2003, when the major U.S. sanctions began, 300 factories closed and 80,000 people were laid off. Assuming on average that those factory workers, most of whom were women and the breadwinners for the average family of 5, the sanctions in that industry alone directly impacted 400,000 people. Now that the U.S. has lifted import restrictions, being able to export garments to the U.S. will, by itself, substantially help grow the economy. For example, in nearby Cambodia, once restrictions were lifted in 1997, exports of garments grew from $175 million to over $2.5 billion during the next dozen years. The same applies to the U.S., once again, granting Myanmar the GSP status, which it lost in 1989. GSP would cover a large percentage of agricultural products, minerals, plastics and rubber products, as well as wood products. All other developed countries have granted GSP to Myanmar, it is the U.S. alone which has not. Generally speaking, the U.S. today – while the GSP program has lapsed – is collecting $2 million/day in duties from the poorest countries on earth, Myanmar included [The U.S. Congress did not renew GSP legislation prior to its expiration July 31, 2013. The legislation to renew it is still pending]. In the first six months since the U.S. import ban against Myanmar has been lifted earlier this year, Myanmar’s exports to the U.S. amounted to only $14 million. Yet, over $8 million were GSP-eligible products, with an average duty of 4.2% when they would be paying zero under GSP.
JS: Could you briefly elucidate the U.S. sanctions currently in place and what is needed to remove them? ER: Currently, the U.S. sanctions regime against Myanmar is still in place, five laws and at least five executive orders. Most of the sanctions have been suspended by the president, but can be re-instated on short notice. No other country continues to have sanctions against Myanmar, except as to its military. By itself, the simple existence of such laws and executive orders hampers the ability of American business to invest in Myanmar, with little, if any, discernable current positive effect on the people of Myanmar. In addition to the bar on deals with the Tatmadaw (the Myanmar military), or its controlled business entities, there continues to be a bar on transactions with Myanmar entities and individuals listed on the Office of Foreign Assets Control’s Specially Designated Nationals list, and on the importation of certain jewels. Furthermore, American companies and individuals alone have to annually report on their investments exceeding $500,000, certain payments to the government, dealings with the national oil and gas company, and a plethora of other requirements. Although large corporations are well equipped to deal with these reporting requirements, small and medium and enterprises (SMEs) are not. Thus, these reporting requirements put a disproportionate burden on SMEs investing in Myanmar.
Source : forbes.com/sites/jonspringer/2013/12/16/american-law-firm-grows-opportunities-in-myanmar/2/