By Martin Petty

YANGON (Reuters) - European Union Foreign Policy chief Catherine Ashton was in Myanmar on Saturday to open a "new chapter" of relations following an easing of sanctions that could prompt a surge of investor interest in the long-isolated state.

Her visit is the most high-profile by the EU since a military junta made way a year ago for a quasi-civilian government with reform agenda that has stunned the world and convinced the bloc to suspend most of its punitive measures.

That suspension was intended to allow aid and investment to reward the government for what Ashton said were "remarkable" political and economic concessions, while reserving the right to re-impose the sanctions if the reform process stalls.

"Of course reforms need to continue - we need to see further progress," she said in a statement prior to her departure.

"We are ready to assist with these efforts as well as with economic and social development. We will continue to support the democratic transition, including through electoral assistance and encourage trade and investment in the country."

But overshadowing the easing of sanction is a political quagmire centered on Nobel Peace Prize laureate Aung San Suu Kyi, whose party won a landslide in an April 1 by-election but has refused to take up its seats in parliament until a swearing-in oath is changed.


The National League for Democracy (NLD) party's refusal to take a vow to "safeguard" the constitution has been widely criticized and has created a stalemate between the NLD, the government and the fledgling parliament that European diplomats say no one wants, and no one quite knows how to resolve.

The standoff, centered on the NLD's plans to change the constitution to reduce the military's guaranteed political stake, does not bode well for Western countries keen for political stability as Myanmar's inexperienced rulers try to manage the fast paced reforms, of which parliament is seen as a crucial driver.

Ashton is expected to raise the issue during talks with Suu Kyi on Saturday and will open an EU office in the commercial capital Yangon, the bloc's first diplomatic representation in a country the West shunned while under brutal military rule for 49 years.

She will go to the remote capital Naypyitaw to meet President Thein Sein and other moderates seen as drivers of the reforms, including the influential lower house speaker and power-broker Thura Shwe Mann and Railways Minister Aung Min, who has negotiated ceasefires with numerous ethnic rebel armies.

The trip comes at a time when the EU is vying with Western powers to capture influence and strengthen commercial ties with Southeast Asia, a region with a combined economy of more than $2 trillion dollars that plans to establish an EU-style economic community by 2015.

European firms now have the green light to compete with Asian companies for a share in the vast untapped natural resources of a country strategically sandwiched between heavyweights China and India and a gateway to the fast growing economies of ASEAN.

While investment in the former British colony is still seen as risky, it is rich in oil, gas, teak and gemstones, with huge tourism potential and urgent needs for financial services, new roads, hotels and railways and a proper telecoms infrastructure.

(Additional reporting by Justyna Pawlak in Brussels; Editing by Jonathan Thatcher)