* EU ministers agree to lift all sanctions, except arms embargo
* Step could raise pressure on U.S. to follow suit
* Rights group accuses Myanmar authorities of crimes against humanity
By Adrian Croft and Justyna Pawlak
LUXEMBOURG, April 22 (Reuters) - The European Union agreed on Monday to lift all sanctions on Myanmar, except for an arms embargo, despite a Human Rights Watch report which accused authorities of complicity in the mass killing of Muslims in the west of the country last year.
Lifting the sanctions gives more certainty to European firms contemplating investments in one of the least developed markets in Asia. Myanmar, formerly known as Burma, has significant natural resources and borders economic giants China and India.
The EU’s 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 licence. Some American executives have urged Washington to go further and lift sanctions entirely.
The EU lifted its sanctions a year after suspending them in response to a dramatic series of reforms put in place since Myanmar’s military stepped aside and a quasi-civilian government was installed in 2011.
“In response to the changes that have taken place and in the expectation that they will continue, the council (EU governments) has decided to lift all sanctions with the exception of the embargo on arms,” EU foreign ministers said in a statement after a meeting in Luxembourg.
But Human Rights Watch accused authorities in Myanmar’s western Rakhine State of crimes against humanity in the ethnic cleansing of Rohingya Muslims last year, charges the government dismissed as one-sided and “unacceptable”.
Myanmar opposition leader and Nobel peace prize laureate Aung San Suu Kyi said however the clashes should not be tied to the economic embargo.
“I do not think that we should link the economic sanctions to the violence, which has a lot to do with rule of law and with other social political problems.”
British Foreign Secretary William Hague said the progress made was sufficient to justify lifting the sanctions despite the violence.
“It is absolutely vital to continue work ... to try to stop this ethnic violence and the European Union countries have a role to play in that, including in the training of police forces, where we can help, (and) in promoting dialogue between faiths,” Hague told reporters at the EU meeting.
“The problems of Burma are not over but the progress that has been made has been substantial enough, is serious enough, and the government there are sufficiently committed to that, for us to take this decision,” Hague 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.
Under President Thein Sein’s reforms, Suu Kyi, who spent 15 years under house arrest, has been allowed back into politics.
A succession of foreign leaders, including U.S. President Barack Obama, have travelled to Myanmar, and the country is attracting a surge of interest from overseas businesses keen to enter one of Asia’s last untapped markets.
But ethnic violence continues to be a problem.
Rakhine State was swept by sectarian violence last year that killed at least 110 people and left 120,000 homeless.
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.
New York-based Human Rights Watch said security forces were complicit in disarming Rohingya Muslims of makeshift weapons and standing by, or even joining in, as Rakhine Buddhist mobs killed men, women and children in June and October 2012.
Ye Htut, a presidential spokesman and Myanmar’s deputy Minister of Information, dismissed the report for only taking news from “one side” in a statement on his Facebook page. (Editing by Jon Hemming)