GOB THREATENS INDEPENDENCE OF FOREIGN SHIPPING FIRMS IN

UNCLAS SECTION 01 OF 02 DHAKA 000589 SENSITIVE SIPDIS NEW DELHI FOR A/S BLAKE AND FAS DEPT FOR SCA/INSB WHITE HOUSE FOR USTR VKADER COMMERCE FOR SLEWIS-KHANNA, DFONOVICH TREASURY FOR YWONG E.O. 12958: N/A TAGS: ETRD EINV PREL EAGR BEXP BG SUBJECT: GOB THREATENS INDEPENDENCE OF FOREIGN SHIPPING FIRMS IN BANGLADESH SUMMARY -------------- ¶1. (SBU) Embassy Dhaka, other diplomatic missions and foreign shipping companies like U.S. firm APL continue a full-court press on Government of Bangladesh (GOB) leaders to prevent a change in ownership rules for foreign shipping firms operating in Bangladesh. The Ambassador and several other chiefs of mission called on the Finance Minister June 7 to highlight the deleterious effect such a change could have on Bangladesh's exports as well as its investment climate. Despite pressure at the highest levels, including on the Prime Minister, the GOB continues to consider forcing foreign shipping firms to sell a portion of their business to Bangladesh shipping agents - and is unwilling to acknowledge the implications such a move would have for foreign investment in Bangladesh. Background -------------- ¶2. (SBU) Since late 2008 Embassy Dhaka and others have fought a GOB proposal that would require foreign shipping firms like APL and Maersk to sell a portion of their operations to local shipping companies. Certain GOB officials, as well as key local shippers, have proposed the GOB only permit foreign shippers to operate as 49 percent minority shareholders in joint ventures. Despite the fact that companies like APL and Maersk have operated independently in Bangladesh for more than a decade and ship some 60 percent of the nation's exports to markets around the world, the GOB has placed on hold APL's and Maersk's applications to renew their licenses. (Note: The GOB has permitted firms with their license applications on hold to continue operations, thanks in part to USG advocacy. End note.) Pressure at the highest levels -------------- ¶3. (SBU) Such a move would make Bangladesh's exports more expensive and would send a bad signal to foreign investors about their ability to do business in Bangladesh, the Ambassador and representatives from the French, South Korean and European Union missions told Finance Minister A.M.A. Muhit June 7. The Ambassador said large U.S. firms like WalMart and Target, which source apparel in Bangladesh, had registered concern about this proposal and had noted that any increase in costs resulting from forced joint shipping ventures would compel U.S. garment buyers to re-evaluate their business in Bangladesh. ¶4. (SBU) The South Korean and French Ambassadors said foreign investors were watching this issue closely as a measure of the new Awami League government's commitment to outside investment. The South Korean Ambassador noted that such a move would prevent diplomats from portraying Bangladesh as an attractive destination for new investment, given the possibility that vested interests could threaten foreign investments later. The French Ambassador warned that this uncertainty would mean foreign companies in a range of sectors would be less likely to invest in Bangladesh. GOB still missing the point -------------- ¶5. (SBU) The Finance Minister disputed the claim that requiring foreign shipping firms to enter joint ventures would negatively impact Bangladesh's investment climate. "We have always been open to foreign investment," Muhit said. "Our policies have not changed." ¶6. (SBU) Muhit argued that Bangladeshi shipping firms were strong competitors in the sector and could add value to the foreign companies. He acknowledged that changing the rules could impact Bangladesh's exports in the short term, in terms of delivery speeds, costs and service interruptions, but said the GOB was looking for DHAKA 00000589 002 OF 002 ways to address these concerns. Finally, Muhit noted that Bangladesh had no international obligations requiring it to permit 100 percent foreign ventures in service sectors like shipping. The Ambassador expressed doubt that Bangladeshi companies had the IT and logistical expertise to compete in the international marketplace and stressed that the Bangladeshi companies simply did not have the ships necessary for high-volume, long distance runs. ¶7. (SBU) According to Muhit, the Prime Minister would make the final decision on this issue. Her decision was not likely to come before June 30, however, which is the end of the GOB's fiscal year. (Note: Parliament is set to start debate June 11 on the government budget for the upcoming fiscal year, so most government business will be on hold as GOB leaders focus on the budget. End note.) Comment -------------- ¶8. (SBU) We have argued repeatedly the highly negative effects this proposal would have both on Bangladesh's exports and its investment climate. We have highlighted these points on numerous occasions with the Prime Minister, Finance Minister, Commerce Minister and many other members of the Cabinet, as have our diplomatic colleagues. We have mobilized Bangladesh's exporters and key local businessmen to urge the GOB not to reward a handful of Bangladeshi shippers at the expense of the main driver of Bangladesh's economy, garment exports. The Office of the U.S. Trade Representative has registered its concern with the Bangladesh Embassy in Washington and visiting GOB delegations. ¶9. (SBU) Despite all these efforts and the real threats to Bangladesh's exports and business climate from such a proposal, the GOB appears reluctant to protect the national welfare and reject the demands of a small interest group. One GOB official described this as a "nationalist" issue, adding that government leaders here wanted to support the development of the Bangladesh shipping industry, regardless of the fact that Bangladeshi shippers have nothing like the capacity or networks of foreign shippers. The bottom line, one of the Prime Minister's advisers told us privately, was that Bangladeshi firms wanted a cut of what they perceive to be the lucrative business of getting goods to key markets in the United States and Europe. Key decision-makers fail to understand that the continued debate over this issue already calls into question their commitment to foreign investment in Bangladesh. Moriarty