Identifier
Created
Classification
Origin
07DHAKA195
2007-02-05 09:03:00
UNCLASSIFIED
Embassy Dhaka
Cable title:  

2007 INVESTMENT CLIMATE STATEMENT - BANGLADESH

Tags:  EINV OPIC KTDB USTR BG 
pdf how-to read a cable
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DE RUEHKA #0195/01 0360903
ZNR UUUUU ZZH
R 050903Z FEB 07
FM AMEMBASSY DHAKA
TO RUEHC/SECSTATE WASHDC 3132
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 1602
RUCPCIM/CIMS NTDB WASHDC
UNCLAS DHAKA 000195

SIPDIS

SIPDIS

STATE FOR EB/IFD/OIA
STATE PASS USTR

E.O. 12958: N/A
TAGS: EINV OPIC KTDB USTR BG
SUBJECT: 2007 INVESTMENT CLIMATE STATEMENT - BANGLADESH

REF: STATE 178303

Post is pleased to submit the Investment Climate Statement
for 2007. A copy will be emailed per reftel instructions.

BEGIN TEXT

Investment Climate Statement -- Bangladesh

Openness to Foreign Investment
--------------

The stated policy of the government of Bangladesh (GOB) is to
pursue foreign investment actively, and it has enacted a
number of policies to this end. There are no distinctions
between foreign and domestic private investors regarding
investment incentives or export and import policies.
Incentives for investors include: 100% ownership in most
sectors; tax holidays; reduced import duties on capital
machinery and spares; duty-free imports for 100% exporters;
and tax exemptions. There are few performance requirements,
and these do not generally present a problem for foreign
investors. Customs bonded warehouses assist exporters. Free
repatriation of profits is allowed and is almost fully
convertible on the current account. Although discrimination
against foreign investors is not widespread, some
discriminatory policies and regulations exist. For example,
advertisements for imported products are assessed a 60%
advertising surcharge for television spots on state-owned
television. Licensing regulations issued in 2006 governing
freight forwarding agents impose higher bonding and capital
requirements on foreign-owned companies.

The immediate past parliamentary government's term expired in
October, 2006. In accordance with the constitution, a
Caretaker Government was formed to organize and hold
elections within 90 days. In response to growing political
instability and the threat of violence during the elections,
the President of Bangladesh declared a State of Emergency
under the constitution on January 11, 2007. The initial
Caretaker Government resigned and was replaced by a new
Caretaker Government. Elections scheduled for January 22
were canceled. The current Caretaker Government has pledged
to create the conditions necessary for free, fair and
credible elections and to hold elections as soon as possible;
however, it had not announced a specific timeframe for
elections as of January, 2007.


Major laws affecting foreign investment are the Foreign
Private Investment (Promotion and Protection) Act, 1980, the
Industrial Policy Act of 2005, the Bangladesh Export
Processing Zones Authority Act of 1980, the Companies Act,
1994, and the Telecommunications Act, 2001. Trade has
gradually been liberalized over the past five years, although
import duties and supplemental taxes remain high and
constitute the largest single sources of government revenue.

The FY2004 budget reduced the maximum import duty rate by 5%
to 25%. In the FY2007 budget, the government reduced the
minimum duty rate to 5% instead of 6% and maximum duty rate
to 25%. The FY2005 budget adjusted supplementary duty at four
slabs on the imports of products of a general nature and the
government continues to revise supplemental duty rates from
time to time. See the section on Import Tariffs. The
government's fiscal year ends June 30th.

No prior approval is required for foreign direct investment
(FDI) except registration with the Board of Investment (BOI).
Registration with the BOI is necessary to obtain benefits
such as importing machinery at concessionary duty rates or
importing items on the "restricted list." The BOI also
administers the approval of foreign loans and technology
remittances on behalf of the Bangladesh Bank (the country's
central bank). Authority within the government for dealing
with foreign investments, however, is fragmented. BOI,
frequently touted as a one-stop shop for all investors, is
set up only to 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 corresponding EPZ authority is the
Bangladesh Export Processing Zones Authority (BEPZA).
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, and thus the BOI
has not proved to be an effective advocate for foreign
investors.

Privatization is another critical part of the government's
stated economic reform policy. After assuming power in 2001,
the immediate past government prepared a list of 94
state-owned enterprises (SOEs) for privatization by the
Privatization Commission (PC). The PC has privatized 30 SOEs
since 2001. Apart from these, three large industries -the
Adamjee Jute Mill, the country's largest and most costly SOE,
the Karnaphuli Chemical Mill, and the Chittagong Chemical
Complex were closed and their assets (principally land)
transferred to BEPZA for industrial development. The
government privatized six additional industrial units in
FY2005. For FY 2006 (ending June 30),the government had
planned to privatize 16 additional SOEs but did not so. The
PC is now working to complete these privatizations in FY2007.
Biman Airlines tried to sell a controlling interest but could
not find a willing partner due in part to the company's weak
financial condition. The government has agreed to sell
control of the state-owned Rupali bank to Saudi Arabian
investors and is pursuing privatization of the other three
state-owned commercial banks.

The government still resists privatizing utilities and
opening critical sectors to full competition, although that
is starting to change. Bangladesh allowed private investment
in power generation and natural gas exploration, but efforts
to grant autonomy in petroleum marketing and gas distribution
have stalled. The government has significantly reduced its
role in the provision of telecommunications services. Six
private firms, each of which includes foreign investors, are
licensed to provide cellular phone services. The government
has granted approximately 40 public switched telephone
network (PSTN) licenses to as many as 18 new private
operators to provide telephone services. Only one of these
firms is authorized to operate in the capital city. BTRC was
preparing to conduct competitive bidding for the award of
PSTN licenses to more companies to cover the Dhaka
multi-exchange area, but the process is now on hold due to
court proceedings among some PSTN companies and BTRC.

The government has selected a private firm to operate five
new container berths at the Chittagong Port. Final award of
the contract is suspended pending the outcome of litigation.
The government has also selected a private firm to manage the
Chittagong international airport; however, award of that
contract also remains pending due to opposition from some
existing operators, which led to renegotiation of the
contract terms. 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 a private
citizens' group that advocates adoption of a national coal
policy before proceeding to authorize coal production at the
mine.

According to central bank statistics, annual net FDI flows
averaged $520.6 million from FY2002 - FY2005, with inflows
rising significantly in FY 2004 ($776 million) and FY2005
(est. $675 million). According to the central bank, FDI
inflows for the first six months of FY2007 are estimated to
be $400 million.

The London-based Economist Intelligence Unit (EIU) in its
2006 report on "World Investment Prospects to 2010: Boom or
Backlash?" projected that Bangladesh will rank 77th among the
82 countries surveyed in terms of possible FDI inflow during
the 2006-2010 period. They added Bangladesh will receive a
yearly average of US $600 million in FDI during the period
between 2006 and 2010. The amount is only 0.05% of the
world's total FDI share of $1.16-trillion. Among the South
Asian nations, India and Pakistan were ranked 19th and 64th
respectively while Sri Lanka was ranked 81st, four positions
below Bangladesh.

Investors from the United States and from other countries,
however, continue to show interest in Bangladesh. At the end
of 2006, proposals for $10 billion in new FDI were at various
stages of negotiation for projects in the power, mining,
telecommunications, industrial, and transportation sectors.
Investors report both positive and negative experiences. Two
U.S. firms are pursuing investments in the power sector worth
over $1 billion. Most of these projects were carried forward
from 2005 and negotiations were generally inconclusive, in
part because the government became increasingly focused on
elections as it approached the end of its term in office
(October, 2006). Several foreign business delegations have
visited Bangladesh to explore trade and investment
opportunities including Indian, French, Turkish, Malaysian,
Taiwanese Chinese and Korean delegations.

Foreigners often find that ministries require unnecessary
licenses and permissions. Added to these difficulties are
such problems as an uncertain law and order situation, poor
infrastructure, inadequate commercial laws and courts,
inconsistent respect for contract sanctity, 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). Authority and responsibility for decisions lacks
transparency and government decisions frequently lack a clear
rationale. Corruption remains a serious impediment to
efficient business operations. In 2005, Transparency
International for the fifth year in a row ranked Bangladesh
last on its Corruption Perception Index. Bangladesh ranked
156 out of 163 countries in 2006.

To a lesser extent, difficulty in attracting foreign
investment also results from Bangladesh's image as an
impoverished and undeveloped country subject to frequent and
devastating natural disasters. This is a partial
misconception, as the annual floods, which inundate up to
one-third of Bangladesh, are vital for agricultural
production each year. Prior to political instability and
warfare in the 1950s, Bangladesh had been one of the
wealthiest regions in Asia and its land is still considered
among the most fertile in the world.

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 the taka against foreign currencies.
Individual banks set their own buying and selling rates for
foreign currency based on supply and demand. The 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 of 1980 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 (entered into
force in 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. There are no specific
restrictions on repatriation of capital gains in the Foreign
Investment Act of 1980 or otherwise. 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 was owned by foreigners,
were placed under government control. However, the Foreign
Investment Act of 1980 has forbidden 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 hence there
is no penalty for delaying proceedings. While the Supreme
Court and High Court (appellate level courts) are
independent, the lower courts are part of the executive
branch of government. An interim government formed in January
2007 is undertaking the steps necessary to separate the lower
courts from the executive branch; however, practical
implementation could take more than a year to complete. It is
widely acknowledged that in the lower courts, where cases are
first brought, corruption is a serious problem. The highest
levels of the judiciary, including the Supreme Court, have
had a reputation for fairness and competence; however,
appointments to the court in 2005 were publicly criticized by
many Bangladeshis as politically motivated.

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 think
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 be helpful in assisting in transaction
disputes.

Many laws affecting investment in Bangladesh are old and
outdated. Some of these laws have been amended, but many
drafts of proposed new legislation produced by ad hoc
government committees are more than 10 years old and
themselves out of date. Resource constraints in the Law
Ministry are a major problem. The insolvency 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. It should be noted that one way companies have
dealt with legal issues is by including a clause in
arbitration agreements that allows for one of the parties to
bring a dispute before another nation's court. This practice
is allowed under Bangladeshi law.

Dispute settlement is also hampered by shortcomings in
accounting practices and 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 government'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.

There is a provision for full duty drawback at the time of
export on imported raw materials used in manufacturing
products for export. In lieu of the duty drawback, exporters
can use the special bonded warehouse facility to import raw
material duty-free. In order to qualify for the duty drawback
and special bonded warehouse schemes, the exported item must
have at least 25% domestic content. The government also
provides direct subsidies to export-oriented ready-made
garment manufacturers if their exports use 100% locally
manufactured raw materials or have paid duty on imported raw
materials. This cash incentive, designed to encourage
"backward linkages" in the textile sector, amounts to 10% of
the export value. A similar 5% export cash assistance
incentive is available for jute and 15% for leather products.
These incentives are designed to encourage exports with
domestic content.

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.

-- Export earnings from handicrafts and cottage industries
are exempted from income tax.

-- Tax holidays of five to seven years, 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. The tax holiday
is expected to be available up to 2008.

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

-- Accelerated depreciation for enterprises not eligible for
a tax holiday
-- Income tax exemption for 15 years for power projects

As of December 2006, the World Trade Organization was not
reporting any notifications alleging Bangladeshi violations
of the Agreement on Trade-Related Investment Measures.

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 ammunitions and other military equipment and
machineries

-- Production of nuclear power

-- Security printing and mining

-- Afforestation and mechanized extraction within the
boundary of reserved forests

Although inefficient SOEs continue to stifle Bangladesh's
potential for greater economic performance, the closing of
several enterprises shows that the government can take the
necessary actions to push for overdue economic restructuring.

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 create significant legal uncertainty. Land
registration records are unreliable. Parties avoid
registering mortgages, liens, and encumbrances because
certain stamp duties and charges have been set at high
levels. Instruments take effect from the date of execution,
not the date of registration, so a bona fide purchaser can
never be certain of title.

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 government is drafting
legislation to implement its TRIPS obligations with respect
to patents and design as well as trademarks. The Amendment of
Trademark Act 1940 is undergoing interministerial 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 fully compliance with WTO
TRIPS requirements. Implementing regulations, however, must
also be drafted.

The government allocates too few resources to IPR
enforcement, 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, trademarks and trade dress 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
trend since 1989 has been a gradual decrease of governmental
obstruction of private business. Many regulatory changes,
however, have not yet been politically possible to implement.
Although some civil servants and ministers have displayed
genuine commitment, reforms face 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 call 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, even with the support of higher political
levels. Traditionally, the country's poorly paid civil
servants have regarded business people as exploitative, and
regard themselves as having a near monopoly on economic
acumen and patriotism. 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
-------------- --------------

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.
One of the four is in the final stages of privatization.

The private sector can receive financing from leasing
companies and by issuing shares or debentures on the Dhaka
Stock Exchange (DSE) or the Chittagong Stock Exchange (CSE).
All CSE-listed shares are also listed on the larger and older
DSE. Among the world's smallest share markets, the
privately-owned Dhaka Stock Exchange (established in 1954)
lists 346 companies with a market capitalization of $4.5
billion; the Chittagong Stock Exchange (established in 1995)
lists 213 with a market capitalization of $4.3 billion.
Foreign portfolio investment, never more than $200 million,
has virtually disappeared. Both the CSE (July 1998) and the
DSE (August 1998) have automatic trading services.

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 politically directed damage to foreign projects
or installations have occurred, although violence targeted
against business concerns generally has been isolated and
criminal, rather than political, in nature. Following U.S.
military action in Iraq, 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 authorized 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 "crossfires." a
euphemism for extrajudicial killings, particularly by the
RAB. In 2006, law enforcement officials were responsible for
355 cases of deaths, 290 of which were attributed to
crossfire. The RAB was responsible for 181 crossfire deaths;
members of the police were responsible for 100; other
security forces were responsible for nine crossfire deaths.

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 several 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 December 2006, there had been no attacks by extremist
groups on foreign diplomatic, commercial or social interests
in Bangladesh.

Corruption
--------------

Corruption at all levels in the bureaucracy is rampant, and
should be taken into account by foreign investors considering
doing business in Bangladesh. The World Bank estimates that
corruption exacts a toll of 2-3% on annual GDP growth each
year. Transparency International's Corruption Perception
Index has ranked Bangladesh as the most corrupt nation for
five consecutive years (2001-2005) and ranked it 158 out of
163 countries in 2006. Local and foreign business persons
often report their experiences with petty corruption, such as
paying extra "fees" for obtaining government services (post
office boxes, telephone lines, licenses, customs clearance).
Complaints of higher-level corruption in the fair awarding of
public and private tenders are frequent, as are allegations
of insider trading in the stock market. In this regard,
business people consider Bangladesh Customs to be among the
worst, a thoroughly corrupt organization in which officials
routinely exert their power to influence the tariff value of
imports and to expedite or delay import and export processing
at the ports. A mandatory pre-shipment inspection system of
import valuation was introduced in 2001 to help reduce
discretionary power of customs officials and lower costs and
improve efficiency at Bangladesh's trade entry points.
However, Bangladeshi Customs officials are often the first to
point out that the valuation system remains weak.

The Bangladesh Anti-Corruption Bureau (BAC) was well known as
an ineffective body due to reported corruption among its
officials and lack of independence from the political
authorities. Parliament passed legislation in February 2004
to create the Independent Anti-Corruption Commission of
Bangladesh (ACC),which was formally established in November

2004. Provisionally staffed with all of the employees of its
predecessor organization, the ACC was embroiled in
controversy within a few weeks of its formation. It remains
an ineffective organization two years after its establishment.

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 is effective for most taxpayers beginning
in their 2007 tax year.

OPIC and Other Investment Insurance Programs
--------------

The U.S. Overseas Private Investment Corporation provides
insurance coverage for some U.S. firms currently doing
business in Bangladesh. In recent years, government
authorities have been cooperative in approving requests for
OPIC insurance. OPIC and the government 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. In Bangladesh, only the Bangladesh Government is
eligible for ExIm Bank cover with a sovereign guarantee. The
bank does not lend or provide cover to private enterprises in
Bangladesh purchasing U.S. exports except in the following
case: ExIm Bank can provide a guarantee to the lender to
enable a private firm to buy U.S. products to construct a
processing facility whose output will be sold offshore for
hard currency where such funds can be captured offshore.

Labor
--------------

Bangladesh has a population of about 144 million people. The
labor force is 65.5 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. Foreign managers report that
Bangladeshi workers generally respond well to training.

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 $4.8 billion in foreign exchange to
Bangladesh in FY2006 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, 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. As of November, 2006, workers
are permitted to form unions at firms located in the export
processing zones.

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 be expected to cause some of the
most serious and confrontational labor disputes. Labor
disputes do not necessarily need to be heard before a legal
court. Many companies have found it effective to resolve
issues before a Labor Tribunal. Labor in private sector
enterprises is mostly not unionized and comparatively more
productive. Productivity in Bangladesh has been affected by
hartals (general strikes) called by political parties and
movements. These hartals, enforced by political activists,
essentially close down business throughout the country and
raise the cost of doing business in Bangladesh due to the
downtime they impose on commercial activity.

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 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 in an effort to eradicate child
labor in all sectors.

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). A private EPZ reserved for Korean investors has
been set up in Chittagong, but is waiting for final licenses
to be issued.

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. Due to increased demand by
investors, the government has doubled the capacity of the
Dhaka EPZ. Investors seem generally satisfied, although there
has been occasional labor unrest associated with the
introduction of workers associations in the EPZs.

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 U.S. 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 2006, total
inward foreign direct investment to Bangladesh was $692
million in 2005, a 50% increase over figures for 2004.
Outward foreign direct investment flows were negligible.
UNCTAD estimates the stock of inward foreign direct
investment was $3.5 billion in 2005. UNCTAD figures show that
the stock of inward direct investment grew 62% from 2000 to

2005.

UNCTAD reports the following annual FDI inflows (in millions)
for Bangladesh:

1990-2000
(Annual Average) 2002 2003 2004 2005
190 328 350 460 692

According to UNCTAD, the stock of inward FDI was:

2000 - $2,162 million
2004 - $3,098 million
2005 - $3,508 million

Figures from the Bangladesh Bank (the central bank) show
total net FDI flows (in millions) for the fiscal years
2002-2005 (ending June 30) as follows:

2002 2003 2004 2005 2006
$391 $376 $385 $776 $675

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 U.S.
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, banking
operations of a U.S. commercial bank, and various U.S.
services and marketing firms.

Web Links
--------------

Foreign Private Investment (Promotion and Protection) Act,
1980
http://www.vakilno1.com/saarclaw/bangladesh/g uidetoinvestment/
guide to investment in banglades.htm

Industrial Policy Act of 2005,
http://www.jetro.go.jp/bangladesh/eng/pdf/
bdIndustrialPolicy.pdf

Companies Act, 1994
http://www.vakilno1.com/saarclaw/bangladesh/c ompanies act.htm

Bangladesh Bank
http://www.bangladesh-bank.org/

Bangladesh Export Processing Zones Authority (BEPZA)
http://www.epzbangladesh.org.bd/

Board of Investment - Bangladesh
http://www.boi.gov.bd/

Chittagong Stock Exchange (CSE)
http://csebd.com/

Dhaka Stock Exchange (DSE)
http://www.dsebd.org/

Privatization Commission (PC)
http://www.pc.gov.bd/
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BUTENIS