By Adrian Croft and Justyna Pawlak
BRUSSELS (Reuters) - The European Union is expected to lift all sanctions on Myanmar next week, except for an arms embargo, in recognition of the "remarkable process of reform" in the country, a document seen by Reuters showed on Wednesday.
The EU agreed a year ago to suspend most of its sanctions against Myanmar for a year in response to a dramatic series of reforms, but it is now expected to go further by agreeing "to lift all sanctions with the exception of the embargo on arms", the document said.
The step, which was agreed by EU ambassadors on Wednesday, paving the way for ministerial approval on Monday, will allow European companies to invest in Myanmar, which has significant natural resources and borders economic giants China and India.
"The EU is willing to open a new chapter in its relations with Myanmar, building a lasting partnership," said the document which contains the draft conclusions of Monday's EU foreign ministers' meeting.
The 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 license. Some American executives have urged Washington to go further and lift sanctions entirely to remove an element of uncertainty over their investments.
"The U.S. will no doubt carefully consider the lifting of sanctions by the EU and the rationale for that step in determining the next steps that the U.S. takes in relation to its Myanmar sanctions," said Marae Ciantar, a Singapore-based lawyer at Allens, an international law firm.
Ciantar, who advises a multinational telecoms company seeking to invest in Myanmar, said he expects the lifting of sanctions to give EU companies an edge over U.S. companies. "Their risk profile for investing in Myanmar will be lower than that of U.S. companies," he 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.
"LOSS OF LEVERAGE"
The United States and other Western countries have been easing sanctions on Myanmar to reward a wave of political and economic reforms put in place since Myanmar's military stepped aside and a quasi-civilian government was installed in 2011.
Under President Thein Sein's reforms, opposition leader and Nobel peace prize laureate Aung San Suu Kyi, who spent 15 years under house arrest, has been allowed back into politics and has made a number of visits abroad.
Myint Soe, a vice-chairman of Myanmar's Federation of Chambers of Commerce and Industry and head of the Myanmar Garment Manufacturers Association, welcomed the EU move.
"An important market will be restored for us."
A succession of foreign leaders, including U.S. President Barack Obama, have travelled to Myanmar, also known as Burma, and the country is attracting a surge of interest from overseas businesses keen to enter one of Asia's last untapped markets.
In February, Danish brewer Carlsberg said it was returning to Myanmar following the easing of international sanctions which forced it out of the country in the mid-1990s.
While praising moves towards democracy and government efforts against corruption, the EU document called on Myanmar to release unconditionally remaining political prisoners.
It also called on the government to deal with inter-communal violence and take urgent action to deal with humanitarian risks facing displaced people in Rakhine State, which was swept by sectarian violence last year that killed at least 110 people and left 120,000 homeless.
But with the lifting of sanctions the EU could lose some of its influence over human rights in Myanmar.
"There will be some loss of leverage of the EU over the Myanmar government," said Sean Turnell, an expert on Myanmar's economy at Australia's Macquarie University. "To be honest, though, I am not sure they had much of this commodity anyway."
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.
(Additional reporting by Jared Ferrie and Aung Hla Tun in Yangon. Editing by Jon Hemming and Michael Perry)