UPDATE 1-EU states agree in principle to suspend Myanmar sanctions-diplomats

Thu Apr 19, 2012 4:49am EDT

* EU taking steps to suspend Myanmar sanctions

* West welcomes rapid democratic transition

* Suspension of sanctions underscores caution

* Arms embargo to remain, diplomats say (Adds details, background)

By Justyna Pawlak

BRUSSELS, April 19 (Reuters) - European Union governments are to suspend most sanctions against Myanmar next week, EU diplomats said on Thursday, in recognition of rapid political and economic reforms after decades of military dictatorship.

Envoys of EU governments reached a preliminary deal on the issue late on Wednesday and foreign ministers of EU states are expected to approve the move formally at a meeting in Luxembourg on April 23, after which it can take effect, diplomats said.

The suspension of EU sanctions, which include a ban on investment and trade related to timber and mining, is likely to open doors to a flood of investment in the country which neighbours the world's two biggest markets, China and India.

"There is now agreement in principle (on) ... a suspension of all sanctions, except for the arms embargo," one EU diplomat said, speaking on condition of anonymity.

EU diplomats say sanctions are being suspended - not lifted altogether - to maintain pressure on Myanmar's quasi-civilian government to keep up democratic transition.

Opposition leader Aung San Suu Kyi, long an advocate of sanctions imposed for human rights abuses by Myanmar's military rules, has spoken in support of such an approach.

British Prime Minister David Cameron also urged caution, when addressing parliament on Wednesday about Myanmar:

"While it is clear that the ... regime is making some steps towards greater freedom and democracy, we should be extremely cautious and extremely careful," he said.

"We want to see the further release of political prisoners, we want to see the resolution of ethnic conflicts, we want the democratisation process to continue."

EU governments are keen to ease access to Myanmar for their businesses, hoping to capitalise on the country's rich natural resources, proximity to large markets and vast tourism potential. European firms fear Asian rivals are securing a foothold and already boosting their presence.

The U.S. Treasury on Tuesday relaxed sanctions on Myanmar to permit financial transactions to support certain humanitarian and development projects. (Reporting by Justyna Pawlak; additional reporting by Adrian Croft in London; editing by Rex Merrifield)