Myanmar Business Guide: Regional Context

Myanmar's relationships with its neighbours

 

5.1 Overview

It is important to view Myanmar in a regional context in order to fully appreciate the potential that lies within the country. In terms of a manufacturing base, Myanmar holds much promise as its wage rates will remain competitive regionally, it possesses a literate labour force and it is abundant in natural resources. Its domestic market consists of fifty-five million people, its membership in ASEAN guarantees participation in one of the most dynamic regional economies and its proximity to India and China further expands the market potential of the country. While Myanmar’s development has lagged behind that of its neighbours it possesses tremendous potential. Over the past few years several multi-lateral bodies have formed to develop and coordinate regional development that impacts on Myanmar.

5.2 The Association of Southeast Asian Nations (ASEAN)

ASEAN was initially conceived in 1967 as a forum to promote stability in the Southeast Asian region. Thailand, Malaysia, Singapore, the Philippines and Indonesia were the five original signatories to the Bangkok Declaration that established ASEAN. Subsequently, Brunei was admitted in 1984, Vietnam joined in 1995 and both Myanmar and Laos were most recently incorporated in July 1997.

Since its conception, ASEAN has developed into a regional grouping that provides leverage in negotiations with other regional trading blocks and also a forum to guide social, political and economic cooperation amongst member countries. Original ASEAN members have already committed to the harmonization of tariff nomenclature, customs procedures, customs valuation and dispute resolution. Future developments envisage cooperation in the establishment of an intra-ASEAN standard with regards to tests and product certification, co-operation in services and the promotion of infrastructure development projects. However, the focus of much of the attention within ASEAN lies in the development of a free trade area.

The ASEAN Free Trade Area (AFTA) remains the centerpiece of ASEAN’s attempt to promote regional economic cooperation. AFTA is to be implemented primarily through provisions contained in the Agreement on the Common Effective Preferential Tariff (CEPT). CEPT intends to reduce tariffs on the trade of goods between countries within ASEAN by creating a common effective tariff rate that will be implemented by the year 2000 under the fast track provisions and by the year 2003 under the normal track provisions.

a. Fast track

The category of products that will be placed on the fast track are vegetable oils, cement, chemicals, pharmaceuticals, fertilizers, plastics, rubber products, pulp, textiles, ceramic and glass products, gems and jewellery, copper cathodes, electronics and wood and rattan furniture. There is a two step process:

Step 1: tariffs in excess of 20% will be reduced to between 0% and 5% by January 2000; and

Step 2: tariffs below 20% will be reduced to between 0% and 5% by January 1998.

b. Normal track

The categories of products that will follow the normal track are all other categories not contained in the fast track provisions and not on the exclusion list (discussed below). Likewise, there is a two step process:

Step 1: tariffs in excess of 20% will be reduced to 20% by January 1998 and thereafter from 20% to between 0% and 5% by January 2003; and

Step 2: tariffs at or below 20% will be reduced to between 0% and 5% by January 2000.

Note, the rule of origin requirements mandates that a product contain at least 40% of its content made in ASEAN member countries cumulatively, and at least 25% of the content produced by the last exporting country, in order to take advantage of the CEPT provisions.

Also note, Vietnam, Laos and Myanmar will be required to comply with the CEPT scheme though these countries will be allowed leniency in terms of the time frame in which they are expected to reduce their respective tariff rates.

Member countries agreed during the Manila summit, in 1987, that an exclusion list would be created exempting certain categories of goods from the tariff reduction scheme. It was declared at that summit that the exclusion list was to be no more than 10% of the number of traded items and/or 50% of the value of intra-ASEAN trade. However, the ASEAN Economic Minister’s Meeting in September 1994 went further to eliminate the exclusion list by removing 20% of the products on the list annually over the course of five consecutive years.

5.3 The Greater Mekong Subregion (GMS)

The GMS is a regional economic growth zone which encompasses the countries of Cambodia, China, Laos, Myanmar, Thailand and Vietnam. The region encompasses an area of 250,000 square km. containing abundant natural resources. The population of the region is estimated to be some 230 million people with an anticipated GDP output of US$545.4 billion by the year 2000.

One of the principal architects of development in the region is the Asian Development Bank (ADB). Initial efforts were directed toward project identification and planning. Consequently, a list of 100 priority projects have been developed highlighting projects in the areas of the transportation sector, the energy sector, the telecommunications sector, the environment, the tourist sector, human resource development and trade and investment. The ADB initiated program has progressed into the third phase involving implementation and finance mobilization. To date, the ADB has provided US$280 million for investment in the sub-region and an additional US$200 million in matching funds has been provided by other sources. The ADB has earmarked an additional US$300 million for further investment in the sub-region over the course of the next three years.

A Ministerial Meeting on June 17, 1996 involving participants from the countries of Brunei, Cambodia, China, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam established the ASEAN-Mekong Basin Development Co-operation. A steering committee, comprised of senior officials of the participating countries together with a representative of the ASEAN Secretariat, has been formed as a mechanism to follow through with the objectives that were established at the ministerial meeting: 1) to enhance the development of the Mekong Basin; 2) to co-ordinate development within the region; and 3) to strengthen relations between the ASEAN countries and the Mekong riparian countries. This regional grouping, backed by ASEAN, promises to attract financing for regional projects that fall in line with the objectives which have been established and the sectors that have been identified. However, the details of the funding mechanisms have not yet been worked out. Malaysia advocates the creation of a central fund while Indonesia would like to see members pay directly for individual projects.

Finally, Cambodia, China, Laos, Myanmar, Thailand and Vietnam have endorsed the establishment of a GMS Business Forum to foster private sector cooperation. The forum will consist of national chambers of commerce from the six GSM countries and was established to serve as a link between private sector institutions throughout the region. In addition, the forum further serves as a point of contact with the governments of the GMS countries to discuss regional developmental issues as well as specific projects.