LUXEMBOURG (Reuters) - The European Union agreed on Monday to suspend most of its sanctions against Myanmar for a year in recognition of democratic reforms after half a century of military rule, EU diplomats said.
The suspension, which does not apply to a separate arms embargo, is expected to go into effect later this week. It will allow European companies to invest in Myanmar which has significant natural resources and neighbors China and India.
The EU move rewards a shift in Myanmar's political environment that has seen veteran pro-democracy leader Aung San Suu Kyi elected to parliament and a range of repressive measures lifted.
By deciding to suspend sanctions instead of lifting them altogether, EU governments are moving cautiously in order to pressure the ruling army-backed party keep up the pace of change.
Earlier on Monday, a dispute over a parliamentary oath of office between the government and Suu Kyi marred the opening of the legislature, in the first clear sign of friction since her party swept historic by-elections at the start of April.
Despite the row, EU foreign ministers, meeting on Monday in Luxembourg, still decided to go ahead with the suspension.
?"President Thein Sein has taken important steps towards reform in Burma, and it is right for the world to respond to them," British Prime Minister David Cameron said in a statement after the EU decision.
"But those changes are not yet irreversible, which is why it is right to suspend rather than lift sanctions for good."
EU measures have targeted nearly a thousand firms and institutions with asset freezes, and visa bans have affected almost 500 people. The sanctions have also prohibited military-related technical assistance and investment bans in the mining, timber and precious metals sectors.
Measures have also included an arms embargo, which is not being suspended.
EU governments have been keen to capitalize on Myanmar's economic potential and to secure a place for European businesses in the face of competition from Asian rivals.
The United States is also moving to ease bans on U.S. companies investing in and providing financial services to Myanmar, and will first target those sectors that could support democratic reforms in the country.
(Reporting by Justyna Pawlak and Sebastian Moffett Editing by Maria Golovnina)