VZCZCXRO5175
PP RUEHAST RUEHBC RUEHBI RUEHCI RUEHDA RUEHDBU RUEHDE RUEHDH RUEHGI
RUEHJS RUEHKUK RUEHLH RUEHNEH RUEHPW RUEHROV RUEHTRO
DE RUEHKA #0589/01 1611106
ZNR UUUUU ZZH
P 101106Z JUN 09
FM AMEMBASSY DHAKA
TO RUEHC/SECSTATE WASHDC PRIORITY 8987
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RHHMUNA/CDR USPACOM HONOLULU HI
RHHJJPI/PACOM IDHS HONOLULU HI
RUCNISL/ISLAMIC COLLECTIVE
RUEHFR/AMEMBASSY PARIS 0064
RUEHUL/AMEMBASSY SEOUL 0360
RUEHCP/AMEMBASSY COPENHAGEN 0080
RUEHSM/AMEMBASSY STOCKHOLM 0101
RUEHBS/USEU BRUSSELS
RUEHLO/AMEMBASSY LONDON 2115
RUEHGO/AMEMBASSY RANGOON 2869
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEHAAA/WHITE HOUSE WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

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