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DE RUEHKA #0195/01 0360903
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FM AMEMBASSY DHAKA
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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