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International Executive Reports, Ltd.   
East Asian Executive Reports 
September 15, 1999 
SECTION: MYANMAR; Volume 20, Number 9; Pg. 9 


Myanmar's Forest Law and Rules: Developing One of the World's Last Untapped
Wildernesses; Vast Teak and Rare Hardwood Resources 

By James Finch and Saw Soe Phone Myint, Esqs; James Finch is a partner of, and
Saw Soe Phone Myint is associated with, the law firm of Russin & Vecchi in
Yangon, Myanmar. 

   Myanmar's vast untapped forest resources include over 80 percent of the
world's remaining teak trees and a variety of rare hardwoods. 

The Myanmar government began to prepare for increased interest in developing
this vital national resource in 1992, when it enacted the Forest Law and
repealed the previous forest act, which dated back to 1902. 

The Forest Law is aimed at harmonizing economic realities and environmental
needs in the development of this vital national resource. It has two
fundamental objectives: 

(a) maintaining biodiversity, conserving natural forests, and establishing
forest plantations; and 

(b) avoiding overlogging and other threats to the forest, including fires,
insect infestation, and plant diseases. 

To implement the provisions of the Forest Law, the Forest Rules were
promulgated by the Ministry of Forestry in 1995. 
  
Framework for Foreign Participation 

The Forest Rules deal with reserved forest (forest areas reserved for the state
and off-limits to development), the declaration of areas as protected public
forest, the management of forest land, the establishment of forest plantations,
and the procedures for obtaining permission to extract forest produce. They
also cover procedures for: 

- Harvesting forest produce. 

- Establishing and operating timber depots. 

- Establishment of wood-based industries. 

- Investigation of violations. 

- Administrative actions, such as imposing fines and confiscating the timber,
to penalize violations. 

- Offenses and penalties. 

Restrictions under the Myanmar State Owned Economic Enterprises Law (MSOEL),
enacted March 31, 1989, reserve to the state quite a number of commercial
activities relating to forest products, including their extraction and sale.
The same law, however, provides that the government may waive such restrictions
if it deems such waiver to be in the state's best interest. The nature of the
state's waiver in connection with the forest sector was announced in a May 1989
notification issued by the Myanmar Investment Commission (MIC). Under this
notification, the private sector, including foreign private companies, is
allowed to participate in the following activities: 

- production and marketing of basic construction materials, furniture and
parquet using teak extracted and sold by the state-owned economic
organizations; these activities must be carried out jointly with the
state-owned economic organizations; 

- production and marketing of carvings and handicrafts made of teak that has
been extracted and sold by the state-owned economic organizations; 

- production, processing and marketing of hardwoods other than teak, as well as
of bamboo, cane and rattan; and  

- production and marketing of construction materials, furniture and other
products using hardwoods other than teak, as well as bamboo, cane and rattan. 

In addition, foreigners and foreign companies can participate in competitive
bidding to buy previously harvested teak logs and other hardwoods and export
them, in accordance with tender conditions prescribed by the Myanmar Timber
Enterprise (MTE), which is owned by the Ministry of Forestry. 

Also, foreign companies can engage in the extraction of teak or the cultivation
and maintenance of forest plantations in joint ventures with Myanmar private or
state-owned companies in accordance with the Myanmar Foreign Investment Law
(MFIL). 

Under the MSOEL and MFIL, these activities may in theory also be carried out by
wholly foreign-owned ventures, but MIC approval of such projects under the MFIL
is not automatic. 

To sum up, foreign investors may participate in Myanmar's forest sector in four
ways: 

- through a joint venture with a state-owned economic enterprise such as MTE; 

- through a joint venture with a private company in Myanmar, 

- through a 100-percent foreign-owned company; and 

- by simply bidding on and purchasing tendered lots of previously harvested
forest products for export, without forming a company in Myanmar. 

The advantage of a joint venture with a state enterprise is that the Ministry
of Forestry controls all extraction of forest products. A joint venture with a
state enterprise such as MTE is, therefore, assured of receiving enough raw
materials for its operations. Also, both a 100-percent foreign-owned company
and a foreign-local private joint venture will be limited to the activities
discussed above in connection with the May 1989 notification, whereas a
foreign-state enterprise joint venture will not be so limited. 
  
Reserved Forest Areas 

The Ministry of Forestry consists of: the Office of the Ministry of Forestry;
Forest Department; Survey Department; MTE;
Planning and Statistics Department; and Department of Greening of Arid Zones.
The term "forest officer" is defined as the head of the state, divisional,
district or township forest department; they are all officers of the Forest
Department under the Ministry of Forestry. In Myanmar, the organs of the state
can be divided into three levels, namely: the state or divisional level; the
district  level; and the township level. The township forest officer is the
head of the township forest office; his superior, the district forest officer,
is the head of the district forest office; above the district forest officer in
rank is the state or divisional forest officer. 

For foreign and local private investors, another limit on the development of
forest resources is that under the Forest Law, the Minister of Forestry may,
with the approval of the government, reserve forest areas exclusively for the
government's disposal.  

The Minister may likewise declare forest areas reserved for purposes of water
and soil protection, conservation of arid-zone forests, general conservation of
the environment, and maintenance of biodiversity and sustainable production.  

The Forest Department is responsible for implementing plans relating to
conservation of water, soil, biodiversity and the environment; sustained yield
of forest produce and protection of forest-covered land; and management of
forest land. The Department is also responsible for submitting proposals to the
Minister for the determination, alteration or cancellation of reserved forest
areas, protected public forest areas and species of reserved trees ("reserved
trees" are defined as teak and any other trees declared as reserved under the
Forest Law; such trees are reserved for the government). 

According to data in the "Economic Development of Myanmar," issued by the
Ministry of National Planning and Economic Development, reserved forest areas
totaled 103,954 square kilometers in 1996/97. These areas were reserved for all
purposes noted above. 
  
Approvals, Permits, Other Requirements 

Section 12(a) of the Forest Law requires any person or company wishing to carry
out an economic project on forest land in Myanmar to obtain the Ministry of
Forestry's prior approval. Even MFIL projects relating to forest land must be
preapproved by the Ministry of Forestry. Moreover, the Forest Rules strictly
limit the activities of such person or company to exactly what is contained in
the approval. Permit holders must comply with Rule 22 of the Forest Rules,
which requires that they conserve the forest environment and remove all
equipment and other property within 60 days of the expiration of the permit. 

* Extraction. Permits for the extraction of forest produce on a commercial
scale are granted, depending on the term of the permit, by the Minister of
Forestry (for terms of five years or more), the Director General of the Forest
Department (for terms of from two to four years), or state and divisional
forest officers (for terms of up to one year). 

Persons or companies that obtain permission for extraction of forest produce
are obliged to abide by the conditions of the permit, as well as orders,
directives, prohibitions and restrictions issued by the Forest Department, and
are also responsible for paying the royalties, security deposits and advances
set forth in the permit. Many permits require their holders to establish forest
plantations or encourage natural regeneration after extraction. 

* Forest Plantations. The same permit requirements described above apply to
projects for the cultivation and maintenance of forest plantations except that
permission must be obtained not merely from the Ministry of Forestry, but also
from the Cabinet. Approval typically allows for the cultivation or maintenance
of a forest plantation as a joint venture with the government. In theory, a
wholly foreign-owned company is not precluded from carrying out such projects,
but in practice, this has never been
allowed. 

* Removal Pass. Once a permit is granted, a removal pass must be obtained from
the township forest officer with jurisdiction
in order to transport significant amounts of forest produce out of the forest.
Those transporting the forest products must carry
the removal pass and present it at the revenue station where assessment of
royalties takes place. 

* Processing. Any private entrepreneur wishing to establish a sawpit, sawmill,
tongue-and-groove mill, plywood mill, veneer mill, or wood-based industry is
also required by law to obtain a permit from the forest officer before doing
so. With respect to permits for processing, the Forest Rules provide that an
application must be submitted to the Director General of the Forest Department
to obtain a permit for a plywood mill, a veneer mill or a sawmill with
production capacity of 6,000 tons and above
per year. After scrutinizing the application, the Director General may, with
the approval of the Ministry of Forestry, issue such permit. If the capacity of
the sawpit, sawmill or tongue-and-groove mill that is to be established is less
than 6,000 tons per year, the application must be submitted to a forest officer
empowered by the Director General for this purpose. 

* Extraction of Teak, Other Hardwoods for Export. In theory, the mechanism
exists for allowing private enterprises to extract teak and other hardwoods
from forest areas for export. Article 17 of the Forest Law provides that, with
certain exceptions, private enterprises may do this after obtaining a permit
from the Ministry of Forestry. Article 18 of the same law provides that, with
certain exceptions, such extraction must be by competitive bidding. In
practice, however, no such private
sector extraction from forest lands has been allowed since 1993. It was allowed
on a limited basis from 1991 to 1993, but the Ministry of Forestry was not
satisfied with the results, at least in part because of alleged excesses by
middlemen. Since 1993, MTE has done all harvesting of hardwoods. The hardwoods
are then disposed of in various ways, including through the sale in lots to
private enterprises, as discussed below. 
  
Competitive Bidding for Hardwood Lots 

Competitive bidding by private companies for lots of hardwoods previously
harvested by MTE for export may be conducted through open or sealed tenders. 

For open tenders, a foreign company must submit a completed application form to
MTE. Earnest money in an amount fixed by MTE must be provided in the form of a
standby letter of credit or a bank guarantee. In a recent tender, a foreign
company was required to provide $ 15,000 in earnest money, while local
companies purchasing locally pay about $ 5,000. 

The open bidding takes place about a week after the applications are filed.
Bids are on a U.S. dollars-per-ton FOB Yangon basis. Bids on behalf of a
foreign company must be signed by the authorized company official or a local
party registered as the company's trade representative. 

MTE notifies successful bidders, who must open a prepayment-against-acceptance
letter of credit within 30 days of the date of
such notification. If such letter of credit is not opened within this period,
the earnest money is confiscated; and if the letter of
credit is not opened within 45 days, the lot may be withdrawn and retendered,
and the offending bidder may be barred from future sales. 

Lots purchased for export must be shipped out of Myanmar within 90 days,
failing which the earnest money will be confiscated, and ground rent will be
charged after 90 days. 

The same general rules apply to sealed bids, except that the bids must be
dropped into a box at the marketing section of MTE. 

MTE usually invites tenders for the sale of hardwoods and/or assorted logs to
private bidders (with sealed or open bidding) once a month. Tenders usually
take place at MTE's head office in Yangon, but occasionally they are conducted
in the district where the logs to be sold are located. As for the level of
interest, in one recent bid, for example, a total of 64 foreign and local
companies were present to buy teak and hardwoods through a tender. 
  
Other Rules and Procedures 

The Forest Rules contain detailed administrative procedures. An order or
decision of a township forest officer may be appealed to the relevant district
or state and divisional forest officer within 30 days of the date of such order
or decision. An order or decision of the district or state and divisional
forest officer may be appealed to the Director General of the Forest Department
within 60 days of such order. And an order or decision made by a forest
settlement officer or the Director General may be appealed to the Minister of
Forestry within 60 days of the date of such order or decision. The Minister has
the power to confirm, alter or set aside such order or decision, and the
Minister's decision is final and conclusive. 

Violations of the Forest Law and the Forest Rules, including extracting teak
without a permit, are criminal offenses, and violators are subject to
imprisonment, fines, and confiscation of vehicles and equipment. Civil
penalties such as cancellation of permits may also be imposed. 
  
Will Efforts Succeed? 

As noted, Myanmar's vast forest resources constitute one of the world's few
remaining untapped wildernesses in the forestry field. It is the Forestry
Ministry's job to implement the Forest Law so that development enriches the
nation and preserves the environment. Its success will depend in part on the
black letter law (that is, the formal rules) discussed above, and perhaps more
importantly on the administrative skills and resources of the Forestry Ministry
officials and other Myanmar government
officials. 

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<html>
<font face="Courier, Courier">International Executive Reports,
Ltd.&nbsp;&nbsp; <br>
East Asian Executive Reports <br>
September 15, 1999 <br>
SECTION: MYANMAR; Volume 20, Number 9; Pg. 9 <br>
<br>
<br>
Myanmar's Forest Law and Rules: Developing One of the World's Last
Untapped Wildernesses; Vast Teak and Rare Hardwood Resources <br>
<br>
By James Finch and Saw Soe Phone Myint, Esqs; James Finch is a partner
of, and Saw Soe Phone Myint is associated with, the law firm of Russin
&amp; Vecchi in Yangon, Myanmar. <br>
<br>
&nbsp;&nbsp; Myanmar's vast untapped forest resources include over 80
percent of the world's remaining teak trees and a variety of rare
hardwoods. <br>
<br>
The Myanmar government began to prepare for increased interest in
developing this vital national resource in 1992, when it enacted the
Forest Law and repealed the previous forest act, which dated back to
1902. <br>
<br>
The Forest Law is aimed at harmonizing economic realities and
environmental needs in the development of this vital national resource.
It has two fundamental objectives: <br>
<br>
(a) maintaining biodiversity, conserving natural forests, and
establishing forest plantations; and <br>
<br>
(b) avoiding overlogging and other threats to the forest, including
fires, insect infestation, and plant diseases. <br>
<br>
To implement the provisions of the Forest Law, the Forest Rules were
promulgated by the Ministry of Forestry in 1995. <br>
&nbsp; <br>
Framework for Foreign Participation <br>
<br>
The Forest Rules deal with reserved forest (forest areas reserved for the
state and off-limits to development), the declaration of areas as
protected public forest, the management of forest land, the establishment
of forest plantations, and the procedures for obtaining permission to
extract forest produce. They also cover procedures for: <br>
<br>
- Harvesting forest produce. <br>
<br>
- Establishing and operating timber depots. <br>
<br>
- Establishment of wood-based industries. <br>
<br>
- Investigation of violations. <br>
<br>
- Administrative actions, such as imposing fines and confiscating the
timber, to penalize violations. <br>
<br>
- Offenses and penalties. <br>
<br>
Restrictions under the Myanmar State Owned Economic Enterprises Law
(MSOEL), enacted March 31, 1989, reserve to the state quite a number of
commercial activities relating to forest products, including their
extraction and sale. The same law, however, provides that the government
may waive such restrictions if it deems such waiver to be in the state's
best interest. The nature of the state's waiver in connection with the
forest sector was announced in a May 1989 notification issued by the
Myanmar Investment Commission (MIC). Under this notification, the private
sector, including foreign private companies, is allowed to participate in
the following activities: <br>
<br>
- production and marketing of basic construction materials, furniture and
parquet using teak extracted and sold by the state-owned economic
organizations; these activities must be carried out jointly with the
state-owned economic organizations; <br>
<br>
- production and marketing of carvings and handicrafts made of teak that
has been extracted and sold by the state-owned economic organizations;
<br>
<br>
- production, processing and marketing of hardwoods other than teak, as
well as of bamboo, cane and rattan; and&nbsp; <br>
<br>
- production and marketing of construction materials, furniture and other
products using hardwoods other than teak, as well as bamboo, cane and
rattan. <br>
<br>
In addition, foreigners and foreign companies can participate in
competitive bidding to buy previously harvested teak logs and other
hardwoods and export them, in accordance with tender conditions
prescribed by the Myanmar Timber Enterprise (MTE), which is owned by the
Ministry of Forestry. <br>
<br>
Also, foreign companies can engage in the extraction of teak or the
cultivation and maintenance of forest plantations in joint ventures with
Myanmar private or state-owned companies in accordance with the Myanmar
Foreign Investment Law (MFIL). <br>
<br>
Under the MSOEL and MFIL, these activities may in theory also be carried
out by wholly foreign-owned ventures, but MIC approval of such projects
under the MFIL is not automatic. <br>
<br>
To sum up, foreign investors may participate in Myanmar's forest sector
in four ways: <br>
<br>
- through a joint venture with a state-owned economic enterprise such as
MTE; <br>
<br>
- through a joint venture with a private company in Myanmar, <br>
<br>
- through a 100-percent foreign-owned company; and <br>
<br>
- by simply bidding on and purchasing tendered lots of previously
harvested forest products for export, without forming a company in
Myanmar. <br>
<br>
The advantage of a joint venture with a state enterprise is that the
Ministry of Forestry controls all extraction of forest products. A joint
venture with a state enterprise such as MTE is, therefore, assured of
receiving enough raw materials for its operations. Also, both a
100-percent foreign-owned company and a foreign-local private joint
venture will be limited to the activities discussed above in connection
with the May 1989 notification, whereas a foreign-state enterprise joint
venture will not be so limited. <br>
&nbsp; <br>
Reserved Forest Areas <br>
<br>
The Ministry of Forestry consists of: the Office of the Ministry of
Forestry; Forest Department; Survey Department; MTE;<br>
Planning and Statistics Department; and Department of Greening of Arid
Zones. The term &quot;forest officer&quot; is defined as the head of the
state, divisional, district or township forest department; they are all
officers of the Forest Department under the Ministry of Forestry. In
Myanmar, the organs of the state can be divided into three levels,
namely: the state or divisional level; the district&nbsp; level; and the
township level. The township forest officer is the head of the township
forest office; his superior, the district forest officer, is the head of
the district forest office; above the district forest officer in rank is
the state or divisional forest officer. <br>
<br>
For foreign and local private investors, another limit on the development
of forest resources is that under the Forest Law, the Minister of
Forestry may, with the approval of the government, reserve forest areas
exclusively for the government's disposal.&nbsp; <br>
<br>
The Minister may likewise declare forest areas reserved for purposes of
water and soil protection, conservation of arid-zone forests, general
conservation of the environment, and maintenance of biodiversity and
sustainable production.&nbsp; <br>
<br>
The Forest Department is responsible for implementing plans relating to
conservation of water, soil, biodiversity and the environment; sustained
yield of forest produce and protection of forest-covered land; and
management of forest land. The Department is also responsible for
submitting proposals to the Minister for the determination, alteration or
cancellation of reserved forest areas, protected public forest areas and
species of reserved trees (&quot;reserved trees&quot; are defined as teak
and any other trees declared as reserved under the Forest Law; such trees
are reserved for the government). <br>
<br>
According to data in the &quot;Economic Development of Myanmar,&quot;
issued by the Ministry of National Planning and Economic Development,
reserved forest areas totaled 103,954 square kilometers in 1996/97. These
areas were reserved for all purposes noted above. <br>
&nbsp; <br>
Approvals, Permits, Other Requirements <br>
<br>
Section 12(a) of the Forest Law requires any person or company wishing to
carry out an economic project on forest land in Myanmar to obtain the
Ministry of Forestry's prior approval. Even MFIL projects relating to
forest land must be preapproved by the Ministry of Forestry. Moreover,
the Forest Rules strictly limit the activities of such person or company
to exactly what is contained in the approval. Permit holders must comply
with Rule 22 of the Forest Rules, which requires that they conserve the
forest environment and remove all equipment and other property within 60
days of the expiration of the permit. <br>
<br>
* Extraction. Permits for the extraction of forest produce on a
commercial scale are granted, depending on the term of the permit, by the
Minister of Forestry (for terms of five years or more), the Director
General of the Forest Department (for terms of from two to four years),
or state and divisional forest officers (for terms of up to one year).
<br>
<br>
Persons or companies that obtain permission for extraction of forest
produce are obliged to abide by the conditions of the permit, as well as
orders, directives, prohibitions and restrictions issued by the Forest
Department, and are also responsible for paying the royalties, security
deposits and advances set forth in the permit. Many permits require their
holders to establish forest plantations or encourage natural regeneration
after extraction. <br>
<br>
* Forest Plantations. The same permit requirements described above apply
to projects for the cultivation and maintenance of forest plantations
except that permission must be obtained not merely from the Ministry of
Forestry, but also from the Cabinet. Approval typically allows for the
cultivation or maintenance of a forest plantation as a joint venture with
the government. In theory, a wholly foreign-owned company is not
precluded from carrying out such projects, but in practice, this has
never been<br>
allowed. <br>
<br>
* Removal Pass. Once a permit is granted, a removal pass must be obtained
from the township forest officer with jurisdiction<br>
in order to transport significant amounts of forest produce out of the
forest. Those transporting the forest products must carry<br>
the removal pass and present it at the revenue station where assessment
of royalties takes place. <br>
<br>
* Processing. Any private entrepreneur wishing to establish a sawpit,
sawmill, tongue-and-groove mill, plywood mill, veneer mill, or wood-based
industry is also required by law to obtain a permit from the forest
officer before doing so. With respect to permits for processing, the
Forest Rules provide that an application must be submitted to the
Director General of the Forest Department to obtain a permit for a
plywood mill, a veneer mill or a sawmill with production capacity of
6,000 tons and above<br>
per year. After scrutinizing the application, the Director General may,
with the approval of the Ministry of Forestry, issue such permit. If the
capacity of the sawpit, sawmill or tongue-and-groove mill that is to be
established is less than 6,000 tons per year, the application must be
submitted to a forest officer empowered by the Director General for this
purpose. <br>
<br>
* Extraction of Teak, Other Hardwoods for Export. In theory, the
mechanism exists for allowing private enterprises to extract teak and
other hardwoods from forest areas for export. Article 17 of the Forest
Law provides that, with certain exceptions, private enterprises may do
this after obtaining a permit from the Ministry of Forestry. Article 18
of the same law provides that, with certain exceptions, such extraction
must be by competitive bidding. In practice, however, no such
private<br>
sector extraction from forest lands has been allowed since 1993. It was
allowed on a limited basis from 1991 to 1993, but the Ministry of
Forestry was not satisfied with the results, at least in part because of
alleged excesses by middlemen. Since 1993, MTE has done all harvesting of
hardwoods. The hardwoods are then disposed of in various ways, including
through the sale in lots to private enterprises, as discussed below.
<br>
&nbsp; <br>
Competitive Bidding for Hardwood Lots <br>
<br>
Competitive bidding by private companies for lots of hardwoods previously
harvested by MTE for export may be conducted through open or sealed
tenders. <br>
<br>
For open tenders, a foreign company must submit a completed application
form to MTE. Earnest money in an amount fixed by MTE must be provided in
the form of a standby letter of credit or a bank guarantee. In a recent
tender, a foreign company was required to provide $ 15,000 in earnest
money, while local companies purchasing locally pay about $ 5,000. <br>
<br>
The open bidding takes place about a week after the applications are
filed. Bids are on a U.S. dollars-per-ton FOB Yangon basis. Bids on
behalf of a foreign company must be signed by the authorized company
official or a local party registered as the company's trade
representative. <br>
<br>
MTE notifies successful bidders, who must open a
prepayment-against-acceptance letter of credit within 30 days of the date
of<br>
such notification. If such letter of credit is not opened within this
period, the earnest money is confiscated; and if the letter of<br>
credit is not opened within 45 days, the lot may be withdrawn and
retendered, and the offending bidder may be barred from future sales.
<br>
<br>
Lots purchased for export must be shipped out of Myanmar within 90 days,
failing which the earnest money will be confiscated, and ground rent will
be charged after 90 days. <br>
<br>
The same general rules apply to sealed bids, except that the bids must be
dropped into a box at the marketing section of MTE. <br>
<br>
MTE usually invites tenders for the sale of hardwoods and/or assorted
logs to private bidders (with sealed or open bidding) once a month.
Tenders usually take place at MTE's head office in Yangon, but
occasionally they are conducted in the district where the logs to be sold
are located. As for the level of interest, in one recent bid, for
example, a total of 64 foreign and local companies were present to buy
teak and hardwoods through a tender. <br>
&nbsp; <br>
Other Rules and Procedures <br>
<br>
The Forest Rules contain detailed administrative procedures. An order or
decision of a township forest officer may be appealed to the relevant
district or state and divisional forest officer within 30 days of the
date of such order or decision. An order or decision of the district or
state and divisional forest officer may be appealed to the Director
General of the Forest Department within 60 days of such order. And an
order or decision made by a forest settlement officer or the Director
General may be appealed to the Minister of Forestry within 60 days of the
date of such order or decision. The Minister has the power to confirm,
alter or set aside such order or decision, and the Minister's decision is
final and conclusive. <br>
<br>
Violations of the Forest Law and the Forest Rules, including extracting
teak without a permit, are criminal offenses, and violators are subject
to imprisonment, fines, and confiscation of vehicles and equipment. Civil
penalties such as cancellation of permits may also be imposed. <br>
&nbsp; <br>
Will Efforts Succeed? <br>
<br>
As noted, Myanmar's vast forest resources constitute one of the world's
few remaining untapped wildernesses in the forestry field. It is the
Forestry Ministry's job to implement the Forest Law so that development
enriches the nation and preserves the environment. Its success will
depend in part on the black letter law (that is, the formal rules)
discussed above, and perhaps more importantly on the administrative
skills and resources of the Forestry Ministry officials and other Myanmar
government<br>
officials. <br>
</font><br>
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