By Martin Petty
BANGKOK (Reuters) - Western countries desperately want Myanmar's by-elections on Sunday to go smoothly - and give opposition leader Aung San Suu Kyi a seat in parliament - so they can start to lift sanctions and let their companies invest in the once-isolated state.
Myanmar's civilian rulers have astonished with a reform drive since taking office a year ago, freeing hundreds of political prisoners jailed by the former junta, holding peace talks with ethnic militias and opening up the economy.
Western companies are lining up to get into the country, sandwiched between China and India and offering huge potential in energy, financial services, telecoms and tourism.
Diplomats say some U.S. restrictions such as visa bans and asset freezes could be lifted quickly if the election is credible, and the European Union may end sanctions that ban investment in timber and the mining of gemstones and metals.
But the ballot needs the thumbs-up from the 66-year-old Suu Kyi, who is contesting one of 45 parliamentary seats after two decades in the political wilderness, much of it under house arrest.
"If Suu Kyi and the democratic opposition basically give their blessing that the April 1 elections are ‘good enough', there will be some sort of positive, reciprocal action on the part of the U.S. government," said Jennifer Quigley, advocacy director of the Washington-based U.S. Campaign for Burma.
The EU, Canada and Australia have hinted they will do the same. In a visit to Cambodia on Monday, Australian Foreign Minister Bob Carr said its embargoes would be scaled back in stages, but he emphasized that "each removal of sanctions will be after consultation with the opposition".
But Nobel laureate Suu Kyi has a dilemma of her own. If she disputes the election result, even for valid reasons, and sanctions remain in force, some analysts say it could dent her image among millions of Burmese longing for change.
"(Suu Kyi) views sanctions as leverage to get what she wants from the government. That is a very dangerous policy," said David Steinberg, a veteran Myanmar analyst at Washington's Georgetown University and a critic of the sanctions.
"Why? Because it puts her in the position of being perceived to be in favor of poverty. Not that she is, but ... that could hurt her."
There are bound to be complaints come election day. After 49 years of isolation and army rule, Myanmar has limited experience of holding ballots. And a 2010 general election was widely seen as rigged to favor the military-backed Union Solidarity and Development Party (USDP), now by far the biggest in parliament.
Most diplomats believe Myanmar's rulers are sincere: they want Suu Kyi and her National League for Democracy (NLD) party on board to add legitimacy to parliament.
But the NLD has already laid the grounds for a possible dispute of the result, with allegations of vote-buying and the inclusion of dead people on voters' lists, plus claims the president, who is supposed to be impartial, has tried to influence the vote.
The government has not done itself any favors by not allowing a proper monitoring mission. Last week it belatedly invited a team of five Southeast Asian observers and asked the United States, the EU and others to send in two people each.
Regardless of the outcome, it is unclear how quickly sanctions could be lifted. It is impossible to scrap them all at once, frustrating Western investors who face a race against time as Asian firms snap up deals and business delegations pour into the country to scope out opportunities.
The EU is well placed to relax its curbs on investment sooner than Washington as most of its "restrictive measures", which also include asset freezes, are up for review on April 23.
According to several diplomats from EU member states, those sanctions might be removed with a simple vote by the EU Foreign Affairs Council, as long as the election is deemed credible and Suu Kyi gives her blessing.
What will remain is its arms embargo and its trade measures, which exclude Myanmar from the EU's Generalized System of Preferences for poorer countries, including tariff-free imports under the "Everything But Arms" initiative. Reversing that is complex and could take at least a year, some diplomats say.
Canada might also start to scale back sanctions if the poll is fair, a government official told Reuters. It bans trade and investment in the country by Canadian firms and denies Myanmar access to low tariffs, development aid and financial services.
U.S. FIRMS SIDELINED
That could leave Washington playing catch-up. Its complex, overlapping web of sanctions would be extremely difficult to undo quickly, even though lawmakers say there is bipartisan support in Congress to move ahead on that.
U.S. sanctions are governed by five federal laws and four presidential executive orders issued between 1990 and 2008, each with different, or unspecified, expiry dates and conditions for lifting.
Myanmar may have already met some of the conditions, such as engaging with the opposition and progress on media freedom.
But some laws require the release of all political prisoners, when no one really knows how many are still detained, or stipulate the U.S. president has to be satisfied Myanmar, the world's second-largest opium grower, is no longer "a country of interest for narcotics trafficking".
All this, economists say, does not bode well for the United States, which wants to offset China's influence on Myanmar and has companies chomping at the bit to invest.
"Keeping ourselves completely out of the trade and investment arena while everyone else is jumping in wouldn't necessarily be positioning the U.S. where we want to be," said Bradley Babson, a retired World Bank official and expert on Myanmar's economy.
"Now what they've got is a very complicated, multi-layered structure of legal things, and peeling that onion -- even if there's a shift in policy -- just the mechanics of undoing it all mean it is going to take time."
(Additional reporting by Paul Eckert in Washington, David Ljunggren in Ottawa, Justyna Pawlak in Brussels and Prak Chan Thul in Phnom Penh; Editing by Alan Raybould and Jonathan Thatcher)