The European Union has agreed to lift all sanctions on Myanmar, except for an arms embargo, despite a Human Rights Watch report which accused authorities of complicity in the mass killing of Muslims in the west of the country last year.
Lifting the sanctions gives more certainty to European firms contemplating investments in one of the least developed markets in Asia. Myanmar, formerly known as Burma, has significant natural resources and borders economic giants China and India.
The EU's move could put pressure on the United States, which suspended sanctions in May last year and allowed U.S. companies to invest through a general licence. Some American executives have urged Washington to go further and lift sanctions entirely.
The EU lifted its sanctions on Monday (22 April), a year after suspending them in response to a dramatic series of reforms put in place since Myanmar's military stepped aside and a quasi-civilian government was installed in 2011.
"In response to the changes that have taken place and in the expectation that they will continue, the council [EU governments] has decided to lift all sanctions with the exception of the embargo on arms," EU foreign ministers said in a statement after a meeting in Luxembourg.
But Human Rights Watch accused authorities in Myanmar's western Rakhine State of crimes against humanity in the ethnic cleansing of Rohingya Muslims last year, charges the government dismissed as one-sided and "unacceptable".
Myanmar opposition leader and Nobel peace prize laureate Aung San Suu Kyi said however the clashes should not be tied to the economic embargo.
"I do not think that we should link the economic sanctions to the violence, which has a lot to do with rule of law and with other social political problems."
British Foreign Secretary William Hague said the progress made was sufficient to justify lifting the sanctions despite the violence.
"It is absolutely vital to continue work … to try to stop this ethnic violence and the European Union countries have a role to play in that, including in the training of police forces, where we can help, [and] in promoting dialogue between faiths," Hague told reporters at the EU meeting.
"The problems of Burma are not over but the progress that has been made has been substantial enough, is serious enough, and the government there are sufficiently committed to that, for us to take this decision," Hague said.
The EU had frozen the assets of nearly 1,000 companies and institutions in Myanmar and banned almost 500 people from entering the EU. It also prohibited military-related technical help and banned investment in the mining, timber and precious metals sectors.
Under President Thein Sein's reforms, Suu Kyi, who spent 15 years under house arrest, has been allowed back into politics.
A succession of foreign leaders, including US President Barack Obama, have travelled to Myanmar, and the country is attracting a surge of interest from overseas businesses keen to enter one of Asia's last untapped markets.
But ethnic violence continues to be a problem.
Rakhine State was swept by sectarian violence last year that killed at least 110 people and left 120,000 homeless.
Sectarian violence erupted in Myanmar again last month and 43 people were killed. Thousands, mostly Muslims, were driven from their homes and businesses as bloodshed spread across the central region of the Buddhist-majority country.
New York-based Human Rights Watch said security forces were complicit in disarming Rohingya Muslims of makeshift weapons and standing by, or even joining in, as Rakhine Buddhist mobs killed men, women and children in June and October 2012.
Ye Htut, a presidential spokesman and Myanmar's deputy Minister of Information, dismissed the report for only taking news from "one side" in a statement on his Facebook page.
From 1988 until 2011, Myanmar, also known as Burma, was ruled by a military junta that suspended the country's constitution and turned it into on of the world's most impoverished nations.
The European Union slapped sanctions on Burma in 2007, in response to a violent crackdown on protesters, led by monks, who were complaining about a rising fuel prices.
The EU sanctions included a ban trade and investment in timber, metals and precious stones.
Asian and Western companies are active in the resource-rich country, exporting raw materials and natural gas. China has become Myanmar's most important trading partner through an increasing reliance on raw materials to fuel its rapid economic growth.
- The resumption of development aid programmes to Myanmar can proceed "without delay", according to an EU statement
- By end 2013: EU foreign policy chief Catherine Ashton is expected to table "a comprehensive framework with priorities for the EU’s policy and support to the ongoing reforms for the next three years".
Council of the EU
- Council conclusions on Myanmar/Burma (22 April 2013)
- Human Rights Watch: EU: Ending Sanctions Undercuts Burma’s Rights Progress (22 April 2013)