2010 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
May 2010
Report

Openness to Foreign Investment

The Government of Bangladesh is actively seeking foreign investment, especially in power and transportation projects. Bangladesh offers a range of investment incentives under its Industrial Policy and export-oriented growth strategy, with few formal distinctions between foreign and domestic private investors. Although the 2007-2008 Caretaker Government made some progress in reducing corruption and improving government efficiency during its tenure, bureaucratic delays and corruption continue to hinder foreign investment. The lack of effective judicial or alternative dispute resolution mechanisms impedes the enforcement of contracts and the resolution of business disputes.

According to 2009 World Investment Report, Bangladesh received $ 1.09 billion US foreign investment in FY09. This is 63% more than that of the previous financial year, but a nominal amount compared to the $5.4 billion in foreign investment that Pakistan received in the last financial year, despite greater political instability. Many analysts believe that Bangladesh could attract far greater investment if it developed greater power generation capacity and improved its infrastructure.

The successful election in December 2008 set the stage for greater political stability after several years of political uncertainty. From 2006-2009, the country experienced three different governments leading to a discontinuity in dealing with investment proposals. Foreign investors were reluctant to push projects due to a fear that decisions might have been reversed. Since the current Awami League government won a resounding victory in 2008 elections, investors expect greater policy stability until elections scheduled for the end of 2013.

In 2009-2010, Bangladesh conducted three “road shows” for investors in London, Singapore and New York to encourage investment in energy and infrastructure projects. In 2009, the government launched an initiative with modest funding for public private partnerships (PPP) and began to develop a legal and regulatory framework to implement this initiative. The Government of Bangladesh (GOB) has ambitious plans for infrastructure development, particularly in the power sector, where it pledged to increase generation capacity from 5,000 MW to 7,000 MW by 2013. It also aims to formulate a Coal Policy to encourage investment in developing coal resources and coal-based power projects. Prolonged and contentious public procurement processes will challenge the GOB's implementation of these plans.

The Board of Investment (BOI) and the Bangladesh Export Processing Zones Authority (BEPZA) are the primary investment promotion agencies in Bangladesh. Companies must register with the BOI to obtain benefits such as tax incentives or preferential duties for imported equipment. The BOI also administers the approval of foreign loans and technology remittances on behalf of the Bangladesh Central Bank. Though the BOI is frequently touted as a one-stop shop for all investors, authority for managing foreign investment remains fragmented. The BOI can register investors in industrial projects outside the Export Processing Zones (EPZs) and assist them with tax inquiries, land acquisition, utility hook-ups, and incorporation. The BEPZA performs the same functions for companies investing in the EPZs. Investors in infrastructure and natural resource sectors, including power, mineral resources and telecommunications must seek approval from the corresponding government ministries. Although the BOI is housed organizationally in the Prime Minister's Office, regulatory and administrative powers remain vested in the line ministries.

Major laws affecting foreign investment include: the Foreign Private Investment (Promotion and Protection) Act of 1980; the Industrial Policy Act of 2005; the Bangladesh Export Processing Zones Authority Act of 1980; the Companies Act of 1994; and the Telecommunications Act of 2001. Legislation offers incentives for investors, including: 100% ownership in most sectors; tax holidays; reduced import duties on capital machinery and spares; duty-free imports for 100% exporters of ready-made garments; and tax exemptions. The Government of Bangladesh extended its tax holiday scheme for start-up industries through June 30, 2011. Beneficiary industries include agro-processing; diamond cutting, steel production, jute industries; some textile sector units; and underground railway, monorail, and telecom infrastructure except for mobile phones. A tax rebate facility to non-resident Bangladeshi investors was also extended to induce investment from abroad. Trade has gradually been liberalized over the past five years, although import duties and supplemental taxes remain high and constitute the largest single source of government revenue. Customs bonded warehouses enable companies located in EPZs to avoid duty payments on inputs for goods that will be exported.

There are few performance requirements, and these do not generally impede investment. Free repatriation of profits is allowed and profits are almost fully convertible on the current account; however, companies report that the procedures for repatriation of foreign currency are lengthy and cumbersome. Although discrimination against foreign investors is not widespread, some discriminatory policies and regulations exist. For example, 2006 licensing regulations governing freight forwarding agents impose higher bonding and capital requirements on foreign-owned companies. Land registration has historically been prone to disputes over competing land titles but the government has instituted legal reforms to address these problems.

The Government of Bangladesh has gradually privatized some state-owned enterprises (SOEs) during the past twenty years, but many SOEs retain an important role, particularly in the financial and energy sectors. The current government has taken steps to restructure several SOEs to improve their competitiveness. Biman Bangladesh Airline has been converted into a public limited company that initiated a rebranding and fleet renewal program, including the purchase of 10 aircraft from Boeing. Three Nationalized Commercial Banks (NCB), Sonali, Janata and Agrani have been converted to public limited companies. The GOB has delayed privatizing utilities and opening critical sectors to full competition. Bangladesh allows private investment in power generation and natural gas exploration, but efforts to grant autonomy in petroleum marketing and gas distribution have stalled. The previous Caretaker Government improved the efficiency of Chittagong Port and concluded agreements to transfer six land ports to the private sector. Two of these ports have been made fully operational on a Build, Own and Transfer (BOT) basis.

The telecommunications sector has been liberalized during the last decade primarily through the development of a competitive cellular phone market. The Government has been slow to allow greater competition for international connectivity, and internet telephony is still restricted. In 2007, the Caretaker Government revised the International Long Distance Telecommunication Services Policy 2007 to legalize VoIP. The first stage of the policy involves international gateways (IGW) hooked up to submarine cable and interconnection exchanges. The second stage would have interconnection exchanges (ICX) linked to the international gateways and access network service. In the final stage, the access network service would provide direct services to customers.

In February 2008, three local companies won bids along with state-run Bangladesh Telecommunications Company Limited (BTCL), formerly BTTB, to set up international gateways to handle international phone calls to and from Bangladesh. Along with IGWs, the Bangladesh Telecommunication Regulatory Commission (BTRC) in February 2008 also awarded licenses to two other local companies for interconnection exchange (ICX) services. Once implemented, these licenses are expected to expand the $2 billion market for international calls that is currently controlled by BTCL.

In a measure aimed at encouraging investments through equity markets, the Government has imposed a 45 percent tax on mobile phone operator companies unless they convert to publicly traded companies.

Administrative approval of the production plan of a foreign-owned open-cast coal mine in northwest Bangladesh has remained pending since November 2005 due to local opposition and political pressure from civil society groups. Opponents advocate the adoption of a national coal policy before proceeding to authorize coal production at the mine. To address these concerns, the caretaker government formed an independent coal policy review committee to prepare a draft coal policy. Following an election campaign promise, the current Awami League (AL) government has pledged to finalize its own coal policy before it will allow investors to use the country’s abundant high-grade coal deposits for energy production.

Investors frequently cite bureaucratic inertia and rent seeking as serious impediments to foreign investment. Companies often complain that ministries require unnecessary licenses and permissions. Additional problems include: an uncertain law and order situation, poor infrastructure, inadequate commercial laws and courts, uncertain legal protections, and policy instability (i.e., policies being altered at the behest of special interests, and decisions taken by previous governments being overturned when a new government comes to power). Corruption remains a serious impediment to efficient business operations.

Business Environment Indices:

-- Transparency International (TI) Corruption Index - 139 of 180 countries
-- Heritage Economic Freedom - 137 of 179 countries, (mostly unfree)
-- World Bank Doing Business - 119 of 183 countries
-- Millennium Challenge Corporation (MCC) Government Effectiveness - 55th percentile
-- MCC Rule of Law - 60th percentile
-- MCC Control of Corruption - 24th percentile
-- MCC Fiscal Policy - 25th percentile
-- MCC Trade Policy - 8th percentile
-- MCC Regulatory Quality - 40th percentile
-- MCC Business Start Up - 56th percentile
-- MCC Land Rights Access - 19th percentile
-- MCC Natural Resource Mgmt- 41st percentile

Conversion and Transfer Policies

The official currency of Bangladesh is the Taka. The Bangladesh Bank, the central bank of Bangladesh, does not fix the exchange rate of Taka against foreign currencies. Individual banks set their own buying and selling rates for foreign currency based on supply and demand. Taka is almost fully convertible for current account transactions, such as import trade and travel needs, but not for capital account transactions, such as investing or currency speculation. The Foreign Investment Act guarantees the right of repatriation of invested capital, profits, capital gains, post-tax dividends, and approved royalties and fees. The central bank's exchange control regulations and the U.S.-Bangladesh Bilateral Investment Treaty (in force since 1989) provide similar investment transfer guarantees. In practice, foreign firms are able to repatriate funds without much difficulty, provided the appropriate documentation is in order. Foreign firms in joint ventures, which are only able to remit profits in the form of dividends, also report no difficulties. However, companies report that the repatriation process is onerous and cumbersome. In some cases, foreign firms' profit remittances have been delayed for over one year pending tax clearance from the National Board of Revenue. Although there is no specific restriction on repatriation of capital gains in the Foreign Private Investment Act of 1980, one U.S. firm was denied permission to repatriate gains on share sales. The Board of Investment may need to approve repatriation of royalties and other technology transfer fees over 6% of sales.

Expropriation and Compensation

In the years immediately following independence in 1971, widespread nationalization resulted in government ownership of over 90% of fixed assets in the modern manufacturing sector, as well as all banking and insurance interests, except those in foreign (but non-Pakistani) hands. Domestically owned cotton textiles, jute, and sugar manufacturing units, none of which were owned by foreigners, were placed under government control. However, the Foreign Investment Act of 1980 banned nationalization or expropriation without adequate compensation, and there have been no instances of foreign property expropriation since the Foreign Investment Act was passed.

Dispute Settlement

A fundamental impediment to investment in Bangladesh is a weak and slow legal system in which the enforceability of contracts is uncertain. The judicial system does not provide for interest to be charged in tort judgments, and therefore there is no penalty for delaying proceedings. In a significant milestone, the Caretaker Government in 2007 separated the country's judiciary from the executive. Reforms of other pillars of the justice system including the police, courts, and legal profession are also necessary. In the lower courts, where cases are first brought, corruption is widely perceived as a serious problem. The High Court’s previous reputation for impartiality has also been brought into question in recent years. Bangladeshi law allows contracts to refer dispute settlement to third country forums for resolution.

Bangladesh is a signatory to the International Convention for the Settlement of Disputes (ICSID) and it acceded (on May 6, 1992) to the United Nations Convention for the Recognition and Enforcement of Foreign Arbitral Awards. Bangladesh is also a party to the South Asia Association for Regional Cooperation (SAARC) Agreement for the Establishment of an Arbitration Council, signed November 13, 2005, which will establish a permanent alternative dispute resolution center in one of the SAARC member countries. A provision of the U.S.-Bangladesh Bilateral Investment Treaty permits submission of investment disputes to ICSID for third-party settlement.

The ability of the Bangladeshi judicial system to enforce its own awards is weak, and there is no reason to believe that enforcement of foreign judgments would be stronger. The Bangladesh Export Promotion Bureau is sometimes helpful in assisting in dispute settlement of export-related transactions. Major Bangladeshi trade and business associations can also help to resolve transaction disputes.

Many laws affecting investment in Bangladesh are old and outdated. Bankruptcy laws, which apply mainly to individual insolvency, are not being used because of a web of falsified assets and uncollectible cross-indebtedness supporting insolvent banks and companies. A Bankruptcy Act was enacted in 1997 but has been ineffective in addressing the insolvency and cross-indebtedness problem of borrowers.

Dispute settlement is also hampered by shortcomings in accounting practices and in the registration of real property. With the exception of those conducted by a few internationally affiliated accounting firms, audits of balance sheets and profit and loss statements often follow clients' instructions and fail to conform to international standards. Documents affecting title to real property are often not registered, complicating transfer of ownership and collateral agreements.


Performance Requirements and Incentives

The GOB's industrial policies emphasize manufacturing and labor-intensive industries that use local inputs. There are a variety of subsidies and other incentives provided to different industrial sectors, primarily the export sectors and, to a certain extent, import substitution sectors. The Government also provides loans at concessionary rates through its nationalized banks and government-owned development banks for exports, cottage industries, and agriculture. These incentives are available to both domestic and foreign investors.

With a view to simplify the tariff structure and generate more revenue through import duties in the FY2009 budget, the government proposed to transform the previous (FY2008) three-tier customs duty structure into a four-tier structure. The new structure reduced duty on capital machinery and spares, basic raw materials, intermediate raw materials and fixed the highest rate, for finished products, to remain at 25 percent. The government's fiscal year ends June 30th.

The government also provides a variety of tax incentives to selected sectors of the economy, including:

-- A 50% rebate for taxable income generated from export earnings;

-- An exemption on income tax on export earnings from handicrafts and cottage industries;

-- Tax holidays of four to six years (available until 2011), depending on location, for new industrial enterprises in these sectors: textile, pharmaceuticals, melamine, plastic, ceramics, sanitary ware, iron and steel industries, fertilizer, insecticide and pesticide, computer hardware, petrochemicals, drug chemicals and pharmaceutical raw materials, agricultural equipment, shipyard, boiler and compressor, textile machineries, and infrastructure facilities;

-- A 10-year tax holiday for enterprises in the EPZs;

-- Accelerated depreciation for enterprises not eligible for a tax holiday; and,

-- Income tax exemption for 15 years for power projects.

Right to Private Ownership and Establishment

Foreign and domestic private entities can establish and own, operate, and dispose of interests in most types of business enterprises. Four sectors, however, are reserved for government investment:

arms and ammunition and other defense equipment and machinery
forest plantation and mechanized extraction within the bounds of reserved forests
production of nuclear energy
security printing and mining

Protection of Property Rights

Although land, whether for purchase or lease, is often critical for investment and as security for loans, antiquated real property laws can complicate land transactions. Land registration records have been historically prone to competing claims. Instruments take effect from the date of execution, not the date of registration, so a bona fide purchaser can never be certain of title. Parties avoid registering mortgages, liens, and encumbrances due to the high cost of stamp duties and other charges.

The government is progressing slowly in bringing its intellectual property rights laws into compliance with the World Trade Organization's Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement. The government enacted a Copyright Law in July 2000, updating its copyright system and bringing the country's copyright regime into compliance with TRIPS. The Caretaker Government drafted legislation to implement its TRIPS obligations with respect to patents and design as well as trademarks. The Amendment of Trademark Act 1940 is undergoing inter-ministerial substantive review. The draft Patent and Design Act is ready for legal review by the Ministry of Law and Parliamentary Affairs.

These amendments are intended to bring the country's intellectual property laws into full compliance with WTO TRIPS requirements. Implementing regulations, however, must also be drafted.

The government has limited resources for IPR protection, and is experiencing a worsening IPR situation. The prevention and punishment of IPR violations is very low in proportion to the number of infringements. The government also sets a poor example by failing to account fully for software in its tenders. A number of American firms, including film studios, manufacturers of consumer goods, and software firms, have reported violations of their intellectual property rights. Some commercial establishments have adopted the trade name and trademarks of U.S. businesses without authorization. Bangladesh is a member of the World Intellectual Property Organization (WIPO); and acceded to the Paris Convention on Intellectual Property in 1991.

Transparency of Regulatory System

Starting from a position of extreme over-regulation, the government has gradually moved since 1989 to decrease regulatory obstruction of private business. Although some officials have shown genuine commitment to these reforms, in general, changes encountered broad-based resistance from many groups in the economy, including influential members of the business community. The official chambers of commerce include manufacturers in protected industries and well-connected commission agents pursuing government contracts. Chamber members have called for a greater voice for the private sector in government decisions and for privatization, but at the same time many support protectionism and subsidies for their own industries.

Policy and regulations in Bangladesh are often not clear, consistent, or publicized. Generally, the civil service, businesses, professionals, trade unions, and political parties have vested interests in a system in which confidentiality is used as an excuse for lack of transparency and in which patron-client relationships are the norm. Businesses must always turn to civil servants to get action, yet may not receive any action, even with the support of higher political levels. Traditionally, the country's poorly paid civil servants have often regarded business people with suspicion. Accounts from foreign investors of solicitation of bribes by public officials and politicians are common. Bangladesh's donors regard public administration reforms as central to overall economic reform.

In practice, government laws and regulations and their implementation do not reduce distortions or impediments to investment, but create them. Unhelpful treatment of businesses by some government officials, coupled with other negatives in the investment climate, raise startup and operational costs, add to risk, and tend to counteract the government's praiseworthy investment incentives. There is generally little opportunity for the private sector to comment on proposed regulations.

Efficient Capital Markets and Portfolio Investment

The Dhaka Stock Exchange (DSE) has steadily increased its business with turnover rising to a record volume of Tk 14 billion in January 2010. Investors bought bank shares on profit expectation after the Prime Minister promised to consider a cut in the corporate tax of the banking companies. The Chittagong Stock Exchange (CSE), the other bourse, also observed similar hikes in turnover and prices.

Foreign investors showed increased interest in the country’s stock market as it attained significant growth in the last couple of years. Due to infrastructural development over the years, the DSE also attracted foreign portfolio investors to the country’s capital market. However, according to stock market analysts, the present volume of foreign investment in Bangladesh is still a fraction of total market capitalization. As a result, the volume of the foreign portfolio investment has limited influence on market trends.

The government has offloaded its shares of a number of State-owned Enterprises (SOEs) and government shares of various private companies in order to increase the supply of shares in the capital market. As part of this process, the Caretaker Government approved the sale of government shares in 9 SOEs in the power sector, 10 SOEs in the industrial sector and 2 SOEs in the telecommunication sector. The Caretaker Government also took steps to strengthen accounting standards.

Foreign investors have access to local credit markets, but many seek offshore financing. If they finance locally, it is usually with a foreign bank branch. Four state-owned banks, known as nationalized commercial banks (NCBs), comprise a significant portion of the banking sector's total assets. The largest NCB has assets totaling approximately $4.6 billion. An estimated 30% of the country's total asset base is non-performing, primarily because of long-outstanding debts to the NCBs. The share of non-performing assets for private commercial banks ranges from two to eleven percent. The World Bank has approved a $250 million International Development Association (IDA) soft loan to Bangladesh for an ongoing enterprise growth and bank modernization project. As a part of the process, private management teams from international consulting firms have been put in charge of the four NCBs.

The Securities and Exchange Commission (SEC) was formed in 1993 to regulate the DSE and CSE and protect investors. In 1997, the SEC imposed new restrictions on the involvement of foreign investors in the Bangladesh capital market. The guidelines stipulate that 10% of primary issues are reserved for non-resident Bangladeshis. Major foreign investors have protested these measures. Foreign investors point out that this measure exacerbates the market's greatest drawback: the difficulty of buying or selling in volume over a reasonably short period. The SEC and the Institute of Chartered Accountants of Bangladesh have the task of enforcing reporting and audit requirements and bringing those requirements up to international standards.

Political Violence

Incidents of violence targeting foreign projects or installations have generally been isolated and criminal, rather than political, in nature. Following U.S. military action in Iraq in 2003, a number of sizeable anti-American demonstrations occurred (between 10,000 and 80,000 participants.) A few of these demonstrations resulted in minor property damage to U.S.- affiliated businesses. Calls for boycotts of American goods and services had limited impact and ended within a few months.

Extortion of money from businesses by thugs claiming political backing is common. Clashes between supporters of rival political parties and their student and youth wings and even factions within the same party are frequent occurrences. General strikes and blockades called by political parties mostly affect businesses by keeping workers away with the threat of violence and blocking transport, resulting in productivity losses. Vehicles and other property are at risk from vandalism or arson during such programs, and looting of shops has occurred.

Responding to public concern over law and order, the government in March 2004 created a special elite force, known as the Rapid Action Battalion (RAB) as part of its anti-crime initiative. The RAB is comprised of members of the armed forces, the police, and the Bangladesh Rifles and Ansars, both paramilitary groups. The RAB became operational in June 2004 and has been credited by many Bangladeshis with improving domestic law and order. Soon after its formation, however, the local media began reporting on "cross-fires", a euphemism for extrajudicial killings, particularly by the RAB.

In February 2005 the government banned two extremist groups: Jama'atul Mujahedin Bangladesh (JMB) and Jagroto Muslim Janata Bangladesh (JMJB). On August 17, 2005, JMB, with the assistance of JMJB, exploded over four hundred small, improvised explosive devices (IEDs) in a coordinated attack in 63 of the 64 districts of Bangladesh. The devices were accompanied by leaflets demanding the establishment of Islamic law in Bangladesh. From September to early December 2005, JMB conducted several suicide attacks targeting local judges, courts and district government facilities. The government responded vigorously, arresting several high-ranking leaders of JMB and recovering detonators, explosives and related materials used to construct IEDs. As of February 2010, there had been no attacks by extremist groups on foreign diplomatic, commercial or social interests in Bangladesh, and the current Awami League government has demonstrated a strong commitment to combating terrorism..

Corruption

Corruption, including bribery, raises the costs and risks of doing business. Corruption has a corrosive impact on both market opportunities overseas for U.S. companies and the broader business climate. It also deters international investment, stifles economic growth and development, distorts prices, and undermines the rule of law.

It is important for U.S. companies, irrespective of their size, to assess the business climate in the relevant market in which they will be operating or investing and to have an effective compliance program or measures to prevent and detect corruption, including foreign bribery. U.S. individuals and firms operating or investing in foreign markets should take the time to become familiar with the relevant anticorruption laws of both the foreign country and the United States in order to properly comply with them; where appropriate, they should seek the advice of legal counsel.

The U.S. Government seeks to level the global playing field for U.S. businesses by encouraging other countries to take steps to criminalize their own companies’ acts of corruption, including bribery of foreign public officials, by requiring them to uphold their obligations under relevant international conventions. Any U. S. firm that believes a competitor is seeking to use bribery of a foreign public official to secure a contract should bring this to the attention of appropriate U.S. agencies, as noted below.

U.S. Foreign Corrupt Practices Act: In 1977, the United States enacted the Foreign Corrupt Practices Act (FCPA), which makes it unlawful for a U.S. person, and certain foreign issuers of securities, to make a corrupt payment to foreign public officials for the purpose of obtaining or retaining business for or with, or directing business to, any person. The FCPA also applies to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States. For more detailed information on the FCPA, see the FCPA Lay-Person’s Guide at: http://www.justice.gov/criminal/fraud/docs/dojdocb.html.

Other Instruments: It is U.S. Government policy to promote good governance, including host country implementation and enforcement of anti-corruption laws and policies pursuant to their obligations under international agreements. Since enactment of the FCPA, the United States has been instrumental to the expansion of the international framework to fight corruption. Several significant components of this framework are the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Anti-bribery Convention), the United Nations Convention against Corruption (UN Convention), the Inter-American Convention against Corruption (OAS Convention), the Council of Europe Criminal and Civil Law Conventions, and a growing list of U.S. free trade agreements. Generally all countries prohibit the bribery and solicitation of their public officials.

OECD Anti-bribery Convention: The OECD Anti-bribery Convention entered into force in February 1999. As of December 2009, there are 38 parties to the Convention including the United States (see http://www.oecd.org/dataoecd/59/13/40272933.pdf). Major exporters China, India, and Russia are not parties, although the U.S. Government strongly endorses their eventual accession to the Convention. The Convention obligates the Parties to criminalize bribery of foreign public officials in the conduct of international business. The United States meets its international obligations under the OECD Anti-bribery Convention through the U.S. FCPA.

UN Convention: The UN Anticorruption Convention entered into force on December 14, 2005, and there are 143 parties to it as of December 2009 (see http://www.unodc.org/unodc/en/treaties/CAC/signatories.html). The UN Convention is the first global comprehensive international anticorruption agreement. The UN Convention requires countries to establish criminal and other offences to cover a wide range of acts of corruption. The UN Convention goes beyond previous anti-corruption instruments, covering a broad range of issues ranging from basic forms of corruption such as bribery and solicitation, embezzlement and trading in influence to the concealment and laundering of the proceeds of corruption. The Convention contains transnational business bribery provisions that are functionally similar to those in the OECD Anti-bribery Convention and contains provisions on private sector auditing and books and records requirements. Other provisions address matters such as prevention, international cooperation, and asset recovery. Bangladesh is a party to the UN Convention.

OAS Convention: In 1996, the Member States of the Organization of American States (OAS) adopted the first international anticorruption legal instrument, the Inter-American Convention against Corruption (OAS Convention), which entered into force in March 1997. The OAS Convention, among other things, establishes a set of preventive measures against corruption, provides for the criminalization of certain acts of corruption, including transnational bribery and illicit enrichment, and contains a series of provisions to strengthen the cooperation between its States Parties in areas such as mutual legal assistance and technical cooperation. As of December 2009, the OAS Convention has 33 parties (see http://www.oas.org/juridico/english/Sigs/b-58.html).

Council of Europe Criminal Law and Civil Law Conventions: Many European countries are parties to either the Council of Europe (CoE) Criminal Law Convention on Corruption, the Civil Law Convention, or both. The Criminal Law Convention requires criminalization of a wide range of national and transnational conduct, including bribery, money-laundering, and account offenses. It also incorporates provisions on liability of legal persons and witness protection. The Civil Law Convention includes provisions on compensation for damage relating to corrupt acts, whistleblower protection, and validity of contracts, inter alia. The Group of States against Corruption (GRECO) was established in 1999 by the CoE to monitor compliance with these and related anti-corruption standards. Currently, GRECO comprises 46 member States (45 European countries and the United States). As of December 2009, the Criminal Law Convention has 42 parties and the Civil Law Convention has 34 (see www.coe.int/greco.)

Free Trade Agreements: While it is U.S. Government policy to include anti-corruption provisions in free trade agreements (FTAs) that it negotiates with its trading partners, the anticorruption provisions have evolved over time. The most recent FTAs negotiated now require trading partners to criminalize “active bribery” of public officials (offering bribes to any public official must be made a criminal offense, both domestically and trans-nationally) as well as domestic “passive bribery” (solicitation of a bribe by a domestic official). All U.S. FTAs may be found at the U.S. Trade Representative Website: http://www.ustr.gov/trade-agreements/free-trade-agreements. Bangladesh has a Double Taxation Treaty with the U.S.

Local Laws: U.S. firms should familiarize themselves with local anti-corruption laws, and, where appropriate, seek legal counsel. While the U.S. Department of Commerce cannot provide legal advice on local laws, the Department’s U.S. and Foreign Commercial Service can provide assistance with navigating the host country’s legal system and obtaining a list of local legal counsel.

Assistance for U.S. Businesses: The U.S. Department of Commerce offers several services to aid U.S. businesses seeking to address business-related corruption issues. For example, the U.S. and Foreign Commercial Service can provide services that may assist U.S. companies in conducting their due diligence as part of the company’s overarching compliance program when choosing business partners or agents overseas. The U.S. Foreign and Commercial Service can be reached directly through its offices in every major U.S. and foreign city, or through its website at www.trade.gov/cs.

The U.S. Departments of Commerce and State provide worldwide support for qualified U.S. companies bidding on foreign government contracts through the Commerce Department’s Advocacy Center and State’s Office of Commercial and Business Affairs. Problems, including alleged corruption by foreign governments or competitors, encountered by U.S. companies in seeking such foreign business opportunities can be brought to the attention of appropriate U.S. government officials, including local embassy personnel and through the Department of Commerce Trade Compliance Center “Report A Trade Barrier” Website at tcc.export.gov/Report_a_Barrier/index.asp.

Guidance on the U.S. FCPA: The Department of Justice’s (DOJ) FCPA Opinion Procedure enables U.S. firms and individuals to request a statement of the Justice Department’s present enforcement intentions under the anti-bribery provisions of the FCPA regarding any proposed business conduct. The details of the opinion procedure are available on DOJ’s Fraud Section Website at www.justice.gov/criminal/fraud/fcpa. Although the Department of Commerce has no enforcement role with respect to the FCPA, it supplies general guidance to U.S. exporters who have questions about the FCPA and about international developments concerning the FCPA. For further information, see the Office of the Chief Counsel for International Counsel, U.S. Department of Commerce, Website, at http://www.ogc.doc.gov/trans_anti_bribery.html. More general information on the FCPA is available at the Websites listed below.

Exporters and investors should be aware that generally all countries prohibit the bribery of their public officials, and prohibit their officials from soliciting bribes under domestic laws. Most countries are required to criminalize such bribery and other acts of corruption by virtue of being parties to various international conventions discussed above.

Corruption remains a serious impediment to investment and economic growth in Bangladesh. By some estimates, off-the-record payments by firms result in an annual loss of 2%–3% of GDP. The Caretaker Government attempted to address the culture of impunity that existed in Bangladesh by prosecuting corruption cases. It declared, and showed political willingness, to fight corruption and to institute needed systemic reforms. The Caretaker Government also took steps to improve administrative efficiency in public services such as law enforcement agencies, power generation and distribution, ports, and customs. The current Awami League-led government has also underscored its commitment to anti-corruption efforts and reaffirmed the need for a strong anticorruption commission. However, it has taken steps to loosen experience requirements in public procurement laws and reduce the independence of the anti-corruption commission, both measures widely criticized as weakening safeguards against corruption.

Anti-Corruption Resources

Some useful resources for individuals and companies regarding combating corruption in global markets include the following:

Information about the U.S. Foreign Corrupt Practices Act (FCPA), including a “Lay-Person’s Guide to the FCPA” is available at the U.S. Department of Justice’s Website at: http://www.justice.gov/criminal/fraud/fcpa.

Information about the OECD Anti-bribery Convention including links to national implementing legislation and country monitoring reports is available at: http://www.oecd.org/department/0,3355,en_2649_34859_1_1_1_1_1,00.html. See also new Anti-bribery Recommendation and Good Practice Guidance Annex for companies: http://www.oecd.org/dataoecd/11/40/44176910.pdf

General information about anticorruption initiatives, such as the OECD Convention and the FCPA, including translations of the statute into several languages, is available at the Department of Commerce Office of the Chief Counsel for International Commerce Website: http://www.ogc.doc.gov/trans_anti_bribery.html.

Transparency International (TI) publishes an annual Corruption Perceptions Index (CPI). The CPI measures the perceived level of public-sector corruption in 180 countries and territories around the world. The CPI is available at: http://www.transparency.org/policy_research/surveys_indices/cpi/2009. TI also publishes an annual Global Corruption Report which provides a systematic evaluation of the state of corruption around the world. It includes an in-depth analysis of a focal theme, a series of country reports that document major corruption related events and developments from all continents and an overview of the latest research findings on anti-corruption diagnostics and tools. See http://www.transparency.org/publications/gcr.

The World Bank Institute publishes Worldwide Governance Indicators (WGI). These indicators assess six dimensions of governance in 212 countries, including Voice and Accountability, Political Stability and Absence of Violence, Government Effectiveness, Regulatory Quality, Rule of Law and Control of Corruption. See http://info.worldbank.org/governance/wgi/sc_country.asp. The World Bank Business Environment and Enterprise Performance Surveys may also be of interest and are available at: http://go.worldbank.org/RQQXYJ6210.

The World Economic Forum publishes the Global Enabling Trade Report, which presents the rankings of the Enabling Trade Index, and includes an assessment of the transparency of border administration (focused on bribe payments and corruption) and a separate segment on corruption and the regulatory environment. See http://www.weforum.org/en/initiatives/gcp/GlobalEnablingTradeReport/index.htm.

Additional country information related to corruption can be found in the U.S. State Department’s annual Human Rights Report available at http://www.state.gov/j/drl/rls/hrrpt/.

Global Integrity, a nonprofit organization, publishes its annual Global Integrity Report, which provides indicators for 92 countries with respect to governance and anti-corruption. The report highlights the strengths and weaknesses of national level anti-corruption systems. The report is available at: http://report.globalintegrity.org/.

Bilateral Investment Agreements

The Foreign Investment Act includes a guarantee of national treatment. National treatment is also provided in bilateral treaties for the promotion and protection of foreign investment. Treaties have been signed with: the United States, Austria, Belgium, Canada, China, Democratic Peoples Republic of Korea, France, Germany, Indonesia, Iran, Italy, Japan, Malaysia, Pakistan, Philippines, Poland, Republic of Korea, Romania, Switzerland, Thailand, The Netherlands, Turkey, and the United Kingdom, Uzbekistan. The U.S.-Bangladesh Bilateral Investment Treaty, signed on March 12, 1986, entered into force on July 23, 1989.

A bilateral treaty between the United States and Bangladesh for the avoidance of double taxation was signed on September 26, 2004 and ratified by the United States on March 31, 2006. The parties exchanged Instruments of ratification on August 7, 2006. The treaty has been effective for most taxpayers beginning in their 2007 tax year.

From 2001-2010, Bangladesh has successfully negotiated several regional trade and economic agreements, including the South Asian Free Trade Area (SAFTA), the Asia-Pacific Trade Agreement (APTA), and the Bay of Bengal Initiative for Multi-Sectoral, Technical and Economic Cooperation (BIMSTEC). Bangladesh has taken steps to strengthen bilateral economic relations with India. As a founding member of the WTO and as a Least-Developed Country (LDC), Bangladesh has been an active advocate for LDC interests in WTO negotiations.

OPIC and Other Investment Insurance Programs

The U.S. Overseas Private Investment Corporation (OPIC) provides insurance coverage for some U.S. firms currently doing business in Bangladesh. In recent years, Bangladesh authorities have been cooperative in approving requests for OPIC insurance and, in one case, for a loan. OPIC and the GOB signed an updated bilateral agreement in May 1998. Bangladesh is a member of the Multilateral Investment Guarantee Agency. The Export-Import Bank of the U.S. (ExIm Bank) is an independent U.S. government agency that helps finance the overseas sales of U.S. goods and services. It provides export credit insurance policies to cover political and commercial risk and loan guarantees to banks for medium and long-term loans. For more information on the ExIm Bank’s current coverage policy for Bangladesh, please consult www.exim.gov.

Labor

Bangladesh has a population of about 155 million people and a labor force of 70 million people, with 63% working in the agricultural sector, 11% in industry and the remaining 26% in the services sector. Low official unemployment statistics obscure a huge and growing under-employment problem in Bangladesh. Bangladesh's comparative advantage in cheap labor for manufacturing is partially offset by low productivity due to low skills, poor management, and inefficient infrastructure and machinery.

Skilled Bangladeshis often seek and find employment in the Middle East and East Asia at substantially higher wages than they would receive in Bangladesh. Over the past 20 years, Bangladesh has become a reliable source of labor. Expatriate workers remitted over $10 billion in foreign exchange to Bangladesh in 2009 through official banking channels. Remittances have become an important source of foreign exchange in recent years and now exceed aid provided in the form of concessionary loans and grants.

All employers are expected to comply with the government's labor laws, which specify employment conditions, working hours, minimum wage levels, leave policies, health and sanitary conditions, and compensation for injured workers. Freedom of association and the right to join unions is guaranteed in the Bangladesh Constitution. There are over 6,400 registered trade unions in Bangladesh, with over 1.9 million union members.

In July 2004, the Bangladesh parliament enacted a law granting limited freedom of association rights in the export processing zones. Workers of the industrial units are allowed to form a welfare council to develop and grow into organizations, defending their welfare through collective bargains, according to the law.

Bangladesh's labor unions, most of them associated with political parties, can be militant. Violence and the threat of violence by some trade unions have produced wage increases in excess of productivity increases, raising unit labor costs. Worker layoffs, or the mere threat of reductions-in-force, can cause some of the most serious and confrontational labor disputes. Labor disputes do not necessarily need to be heard before a court. Many companies have found it effective to resolve issues before a Labor Tribunal.

Bangladeshi laws do not uniformly prohibit the employment of children or set a minimum age for employment. Numerous laws prohibit child labor in certain sectors, ranging from transport workers to tea plantation labor, but these have not addressed the informal sectors, such as agriculture and domestic work, where the majority of children are employed. As a result, child labor in Bangladesh has historically been a fact of life. On July 4, 1995, Bangladesh's garment exporters association signed a memorandum of understanding (MOU) with the United Nations Children's Fund (UNICEF) and the International Labor Organization (ILO) under which child laborers in the EPZ textile factories were removed and enrolled in education programs. ILO-assisted monitoring teams, which found child laborers in 43% of EPZ factories in 1996, found them in fewer than 5% in 2001. The MOU program has been phased out, and the U.S. Embassy considers the project a success, with most child labor now eradicated from the EPZs. Child labor laws outside of the EPZs are not effectively enforced. Bangladesh, however, is working to comply with ILO conventions on child labor and eradicate child labor in all sectors.

In response to a petition from U.S. labor groups, the office of the U.S. Trade Representative (USTR) is reviewing labor practices in Bangladesh to determine whether insufficient enforcement of labor rights could disqualify Bangladesh from eligibility for preferential U.S. market access under the Generalized System of Preferences (GSP).

Foreign-Trade Zones/Free Ports

Under the Bangladesh Export Processing Zones Authority Act of 1980, the government established an EPZ in Chittagong in 1983. Additional EPZs now operate in Dhaka (Savar), Mongla, Ishwardi, Comilla, and Uttara. In addition, two new EPZs are being established: Karnaphuli EPZ (Chittagong) and Adamjee EPZ (Dhaka). Korean investors are developing a private EPZ in Chittagong.

Investments that are 100% foreign-owned, joint ventures and 100% Bangladeshi-owned companies are all permitted to operate and enjoy equal treatment in the EPZs. In terms of investment, employment and exports, the country's EPZs have been extremely successful. Investors are generally satisfied with the operation of Bangladesh's EPZs, though labor unrest occasionally affects them.

Approximately a dozen U.S. firms - mostly textile producers - are currently operating in Bangladesh EPZs. South Korea is the largest foreign investor in the Dhaka and Chittagong EPZs; Japan, Hong Kong, Singapore, the United Kingdom, Sweden, Thailand, India, Malaysia, Germany, Taiwan, China, U.A.E., France, Italy, Denmark, Panama and Pakistan are the other foreign investors in the EPZs. The remaining EPZ industries are Bangladeshi. The United States is the top destination of exports from EPZs. Industries range from garments and textiles to electronics, sporting goods, steel chains, and services (including equipment leasing and container repairs and handling).

Foreign Direct Investment Statistics

According to the United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2009, total inward foreign direct investment to Bangladesh was $1,086 million in 2008, a 63% increase from 2007 [$666 million]. Outward foreign direct investment flows were negligible. UNCTAD estimated the stock of inward foreign direct investment was $4.8 billion in 2008.

-Annual FDI inflows for Bangladesh (UNCTAD estimates):
1990-2000 - $218 million (annual average)
2004 - $460 million
2005 - $845 million
2006 - $793 million
2007 - $666 million
2008 - $1,086 million

-Estimated stock of FDI (UNCTAD estimates):
2000 - $3,848 million
2004 - $3,098 million
2006 - $4,189 million
2007 - $4,404 million
2008 - $4,817 million

-Bangladesh Bank (the central bank) estimates for total net FDI inflows for the fiscal years (ending June 30):
FY2004 - $276 million
FY2005 - $800 million
FY2006 - $743 million
FY2007 - $793 million
FY2008 - $748 million
FY2009 - $941 million

Note: discrepancies with UNCTAD data reflect calendar year versus fiscal year accounting. UNCTAD figures show FDI inflows; central bank figures are for net FDI.

There are no reliable figures in Bangladesh on country-specific stocks or flows of foreign direct investment. Studies by various organizations rank the United States among the five largest foreign investors in Bangladesh, together with Norway, Malaysia, Japan, and the United Kingdom. The second tier of investors is Singapore, India, Thailand, Hong Kong, Germany, and South Korea. U.S. investment in Bangladesh includes power and energy companies, numerous manufacturers, a life insurance company, a U.S. commercial bank, and various U.S. services and marketing firms.

Web Resources

Bangladesh Bank
Bangladesh Export Processing Zones Authority (BEPZA)
Export-Import Bank of the United States (EX-IM)
Overseas Private Investment Corp. (OPIC)
Foreign Private Investment (Promotion and Protection) Act,1980
Industrial Policy Act of 2005,
Companies Act, 1994
Bangladesh Bank
Board of Investment - Bangladesh
Chittagong Stock Exchange (CSE)
Dhaka Stock Exchange (DSE)
Privatization Commission (PC)
Asian Development Bank
World Bank
Ministry of Finance-Government of Bangladesh


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