US embassy cable - 05RANGOON1073

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 001073 
 
SIPDIS 
 
STATE FOR EAP/MLS, INR/TNP, INR/EAP, EB/TPP, EB/ESC, 
COMMERCE FOR ITC:JKELLY, 
TREASURY FOR OASIA:AJEWELL 
 
E.O. 12958: DECL: 09/20/2015 
TAGS: ECON, ETRD, PGOV, PREL, BM, Economy 
SUBJECT: BURMA SQUEEZES INFORMAL TRADE TO PRODUCE REVENUE 
 
Classified By: Econoff TL Manlowe for Reasons 1.4 (b,d) 
 
1. (C) Summary: GOB officials refuse to commit their new 
trade regulations to paper, and business reps are too 
mistrustful to place orders based on unwritten rules.  Recent 
announcements of new regulations designed to bring more trade 
into the formal sector and increase revenues appear unlikely 
to achieve the desired results.  Instead, they have only 
confused and delayed trade, providing business little 
incentive to shift to the formal sector.  End summary. 
 
New Regulations 
--------------- 
2. (C) Rangoon and Mandalay businessmen have described for us 
problems with the implementation of new GOB trade 
regulations.  Ministers of Finance and Revenue, Commerce, 
Transportation, and Livestock and Fisheries announced new 
trade regulations at an August 5 meeting with business 
representatives and government officials.  When asked if the 
regulations, with guidelines for implementation, would be 
printed and released officially, the Finance Minister said 
they would not, because everyone who needed to know them was 
in the room.  The new regulations (and some feedback from 
business representatives on implementation) include: 
 
-- A waiver of the long-standing requirement for imported 
shipments to consist of at least 80% essential items 
(machinery, industrial raw materials, agriculture inputs, 
medicines, etc.), and no more than 20% luxury goods. 
Feedback: Business reps told us that they didn't trust the 
verbal GOB announcement, which could be changed at any time, 
and most would not try to get a license for luxury goods of 
more than 20%.  Some that did try, they said, had been 
inexplicably refused a license.  Also, importer interest in 
luxury items is low.  Because of weak consumer purchasing 
power, these items do not sell as well as essential items, 
such as raw materials and industrial inputs. 
 
-- The Cabinet-level "Trade Council", chaired by Vice Sr. 
Gen. Maung Aye, now must approve all import and export 
licenses (previously necessary only for sensitive shipments). 
 A new board of business representatives has been set up to 
review the prices of goods listed on the application to 
reduce government losses from under-invoicing.  Feedback: 
Sending all imports and exports to the highest government 
level for review and approval has created added delays. 
Businessmen in Mandalay reported that it took up to three 
weeks to get an answer; some refusals had no reason given. 
This creates problems both with keeping a promised delivery 
date to the buyer and with costs.  The kyat has depreciated 
approximately 10% since August 15, so exporters lose money by 
shipping goods priced at the old exchange rate, and importers 
must pay more than they had planned for hard currency. 
 
-- Allowing companies to transfer to another company the 
import credit they earned from exporting.  Previously, only 
exporters who earned hard currency could use those export 
earnings to import.  Feedback: Illegal transfers between 
companies in the past resulted in some significant cases of 
fraud, so this should bring transactions above board.  This 
was generally welcomed by business contacts. 
 
-- Hard currency from sources other than exports, such as 
remittances from seamen, and earnings from offshore workers 
and garment workers, can now be used to import goods after 
paying 10% tax.  Feedback: Since most of this money is 
repatriated informally, there is little incentive to go 
through official channels and incur a 10% loss by paying the 
tax.  Those that have followed the official policy have run 
into difficulty because the relevant GOB officials have not 
been issued guidelines, so no one knows what procedures to 
follow to collect the tax and give credit for it. 
 
-- A new requirement to identify the exact goods to be 
exported before gaining a license to export. Feedback: 
Exporters told us they now have to purchase the goods and 
submit a photograph with the application.  If the license is 
denied, they are saddled with goods they are not allowed to 
sell.  Sources of trade finance hesitate to give credit in 
such an uncertain environment.  This requirement also creates 
a warehousing problem for bulky goods such as beans and 
pulses. 
 
Tighter Borders, Broader Problems 
--------------------------------- 
3. (C) Though not announced at the August 5 meetings, border 
controls were tightened at about the same time, according to 
importers and exporters.  GOB military officials are now not 
letting many informal shipments through at the border.  They 
must see official documentation, including proof of payment 
of the 10% tax.  Businessmen say that, in some cases, the 10% 
tax amounts to less than the "fees" they usually would have 
to pay to get an informal shipment through the border.  With 
informal trade, however, they could make three shipments in 
the time it takes to get official approval for one, so 
ultimately they lose more money.  (Note: This applies to 
trade in consumer goods and agricultural products.  The 
impact on larger gray market exports, such as truckloads of 
timber, is not yet known. End note.) 
 
4. (C) Some Burmese traders are now also prevented from 
bringing their goods right to the border or into China, as 
they had before.  Now, we were told, Chinese buyers must come 
to a collection point inside Burma.  This allows stricter 
oversight by GOB authorities.  When attempting to conform 
with the new controls, some businessmen have found that 
Chinese banks don't want to open Letters of Credit (L/C's) 
for Burmese companies.  The Myanmar Economic Bank, 
representing the Myanmar Foreign Trade Bank at the border, 
prefers only Bank of China L/C business for trade 
transactions.  Authorities have warned traders against 
informal financing and currency exchange. 
 
Comment: Sign Them Up for Trade Policy 101 
------------------------------------------ 
5. (C) The GOB may be seeking increased revenues to pay for 
higher priced imported fuel, which it continues to subsidize. 
 Thus, the GOB tries to increase revenue and bring more hard 
currency into the formal sector.  Strict enforcement of trade 
regulations at the border could help, but only if the 
regulations are clear, predictable, fair, and efficiently 
applied.  Refusal to issue regulations in writing, government 
servants unsure how to implement, long approval times, and 
unexplained license refusals show a lack of understanding 
about how to manage trade flows to fill government coffers. 
Unnecessary and unpredictable government interference in 
trade merely acts as a disincentive. End comment. 
Villarosa