By Neil Chatterjee

SINGAPORE (Reuters) – The United States criticized the ASEAN group of Southeast Asian nations on Monday over its handling of military-ruled Myanmar as the group prepared to sign a charter that calls for respect of democracy and human rights.

U.S. Trade Representative Susan Schwab said that a free trade deal between Washington and the Association of South East Nations (ASEAN) was unlikely because of “the political situation in the region” and said ASEAN credibility had been called into question.

Schwab met ASEAN officials, including Myanmar, on Monday and said she had expressed concern on the “special responsibility” of ASEAN, the only international group to have Myanmar as a member.

“The credibility and reputation of ASEAN has been called into question because of the situation in Myanmar. Business as usual can’t be business as usual,” Schwab told reporters.

The United States expanded its sanctions against Myanmar’s rulers in October, adding 11 more military leaders to a list facing sanctions and tightened U.S. export controls. The U.S. Senate voted unanimously on Friday to urge ASEAN to suspend Myanmar until the regime showed respect for human rights.

But ASEAN has unanimously rejected calls for a suspension, saying there was a better chance that Myanmar would take the road to democracy if it stayed within the group. ASEAN has criticized sanctions, saying they would only hurt Myanmar’s civilians.

“It’s been tried in Iraq and nobody wants to have an Iraq in Southeast Asia,” Singapore Prime Minister Lee Hsien Loong was quoted as saying, echoing China, Myanmar’s closest ally.

Schwab indicated that ASEAN’s stance of non-interference in its members’ internal politics could have economic consequences for its trade with Washington, its fifth largest trading partner.

“It’s impossible to imagine a free trade agreement with ASEAN in the near term given the political situation,” she said. Asked if this meant Myanmar, she said: “For example.”

Diplomats say the ASEAN charter, which gives the group a legal identity, means that the current option of excluding Myanmar from deals will end.

Free trade talks between ASEAN and the European Union could also stall. Together, the United States and EU account for 27 percent of ASEAN’s exports and a third of its inward direct investment.

“There’s $168 billion of trade that we’re trying to address here,” said Schwab. “There’s no way I could come here without expressing our concern.”

In October the European Union also strengthened sanctions against Myanmar, including asset freezes on generals, an export ban on equipment, plus import and investment bans.

The ASEAN summit is the first major forum where all the major players in the Myanmar story have come face to face since the junta’s bloody crackdown on democracy protesters in September. So far it seems to have sharpened tensions rather than reduced them.

Japan, one of the strongest U.S. allies in Asia, said on Monday that it was neither for or against the sanctions.

“We do not want to side with our U.S. ally nor with Singapore on this. The Japanese position is more nuanced,” a Japanese government official told reporters in Singapore.

Japanese Prime Minister Yasuo Fukuda is to meet Myanmar Prime Minister Thein Sein on Wednesday, and is set to demand an explanation for the killing of a Japanese photographer by Myanmar soldiers in September, the official said.

Thein Sein was also meeting Chinese premier Wen Jiabao on Monday and was to brief ASEAN members at a dinner.

(Additional reporting by Koh Gui Qing, Vivek Prakash and Geert De Clercq; editing by Geert De Clercq and Roger Crabb)