Chapter 3 FDI System in Bangladesh

Bangladesh is considered as one of the most open economies to foreign investment in the South Asian region in line with international benchmarks. The country has already presented itself as being fully open to FDI and offering high standards of treatment to foreign entities. Bangladesh has significantly liberalised its foreign direct investment policies since late 1970s. The government took a major initiative by enacting different legislation at different points of time; furthermore the open attitude of the country has been expressed in various governmental instruments and strategies. The consistent inclination of the country to sign and ratify many bilateral and multilateral investment treaties provides evidence that Bangladesh is open to foreign entities and protects foreign investment in accordance with international standards.

3.1 Investment laws of Bangladesh

Bangladesh is a signatory to the International Convention for Settlement of Investment Dispute（ICSID）and the Multilateral Investment Guarantee Agency（MIGA）. It is a member of World Intellectual Property Organisation（WIPO）and the World Association of Investment Promotion Agencies（WAIPA）. Hence, property and other rights of foreign investors are safeguarded according to international standards. Trade has been liberalised and duties reduced. However, in absence of any multilateral investment agreement at the international level, there is no single encompassing national investment law that regulate the entry or admission of foreign investment, establishment, treatment, protection, expropriation and compensation of FDI rather these issues are being regulated by a number of laws and most importantly:

·The Foreign Private Investment Promotion and Protection Act（FPIPPA）1980;

·The Investment Board Act 1989;

·The Bangladesh Export Processing Zones Authority Act 1980;

·The Small and Cottage Industries Corporation Act 1957;

·The Companies Act 1994;

·The Acquisition and Requisition of Immoveable Property Ordinance 1982.

The Foreign Private Investment Act was enacted to ensure legal protection to foreign investment in Bangladesh against nationalization and expropriation. It guarantees repatriation of profit, capital and dividend and equitable treatment with local investors. Intellectual property rights, such as patents, designs and trademarks and copyrights, are protected. Bilateral Investment Guarantee Agreements have been signed with a number of countries.

Customs and bonded warehouses assist exporters. Free repatriation of profits is allowed, and the Taka is almost fully convertible on the current account. No prior approval is required for FDI except registration with the Board of Investment（BOI）. Despite such policy reforms, Bangladesh could not attract handsome flow of FDI as yet. Bangladesh is also a signatory of MIGA, OPIC（Overseas Private Investment Corporation）of America, ICSID and WIPO. Bilateral agreements to avoid double taxation have been signed with negotiation. Several Government agencies like Board of Investment and Bangladesh Export Processing Zones Authority（BEPZA）have been formed to facilitate both foreign and local investment.

Bangladesh has significantly liberalized its foreign direct investment policies since late 1970s. The government took a major initiative by providing national treatment to them in 1980. This has helped the economy move towards a market economy. Recently more flexible rules and policies have been implemented to attract foreign investment. Many procedures and institutional processes for setting up businesses have been simplified or deregulated. A privatization commission was set up to facilitate governmental procedures and documentation.

3.2 Admission of foreign direct investment

The principal law regulating foreign investment in Bangladesh is Foreign Private Investment Act 1980, and this Act does not clarify the admission procedure of FDI in the country. Instead of enumerating steps of entry, the Act confers it upon the discretions of the government. The Investment Board Act（1989）provides additional guidance on entry and establishment procedures for foreign investors. The Act establishes the Board of Investment and defines its functions. It also puts in place regulatory requirements and mechanisms for the registration and approval（the“sanction”）of national and foreign investments in industrial undertakings. While the Foreign Private Investment（Promotion and Protection）Act 1980 does not explicitly require foreign investors to obtain regulatory approval prior to investing, the Investment Board Act stipulates that all industrial undertakings must be registered with the BOI, which is also authorised to grant industrial licences if eligibility conditions are met.

Registration and licensing of industrial undertakings with the BOI is not limited to foreign investors only rather it equally applies to national investors as well. The conditioning of different incentives with the registration process with BOI makes it indispensable.

Projects or industrial undertakings in EPZs are regulated and registered separately by the Bangladesh Export Processing Zones Authority, which was established under the BEPZA Act of 1980. This registration process is to enable the investors to avail themselves of the necessary government policy support and receive certification to relieve the difficulties often experienced in dealing with the various public enterprises.

Apparently FDI is welcome in all sectors, except five reserve sectors, namely:（a）arms, ammunition and other defence equipment and machinery,（b）production of nuclear energy,（c）forest plantation and mechanized extraction within the bounds of reserved forests,（d）security printing（currency notes）and（e）mining. This reservation is for the purposes of national security. Moreover, the Industrial Policy of 2010 establishes a list of 17“controlled industries”in which the Government sets maximum shares of foreign ownership and for which approval from the line ministry is required before registration with the BOI, BEPZA or BSCIC. This list includes important sectors of the economy, such as banking and finance, insurance, power, natural gas and coal, large-scale infrastructure projects, telecommunications and ports.

Bangladesh offers generous opportunities for investment under its relaxed industrial policy and export-oriented, private sector-led growth strategy. Foreign entities are permitted to establish wholly owned subsidiaries that can be as a private limited or public limited company to be registered under the Company Act 1994. Foreign investors are allowed to own up to 100 percent of the equity in Bangladeshi companies except for certain regulated entities and there are also no restrictions on ownership of land by 100 percent foreign-owned companies.

As with wholly owned subsidiaries, foreign companies may incorporate joint venture companies with Bangladeshi partners. Foreign companies may also carry out their business activities in Bangladesh through branches/liaison/representative offices. These offices are expected to confine their activities to the boundaries set by the National Board of Investment.

Branches/liaison/representative offices will be required to submit documents to BOI including a filled, signed, and stamped application form, the memorandum of association（MOA）and the articles of assocition（AOA）of the head company, and the nationalities of the directors along with accounts of the immediately preceding financial year.

Prospective international investors may apply for visas for periods ranging from one month to five years. Branches/liaison/representative offices must obtain a work permit from the BOI. Such offices however are free and encouraged to hire employees locally. The number of expatriate employees in an industrial enterprise cannot exceed the ratio of 1∶20（foreign∶local）for industrial settings and 1∶5（foreign∶local）for commercial establishments. In addition, Bangladesh offers citizenship, permanent resident and multiple entry visas for the foreign investors.

3.3 Investment promotion agencies

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

3.4 Currency convertibility

Free repatriation of profits is allowed and profits are almost fully convertible on the current account; however, companies report that the procedures for repatriation of foreign currency are lengthy and cumbersome. When rising fuel imports helped swing balance of payments from surplus to deficit in 2010-2011, scarcity of foreign exchange and currency depreciation temporarily increased convertibility risks. Since 2011, the balance of payments has swung back into surplus, foreign reserves reached an all-time high at the end of 2012, and convertibility risks have declined.

3.5 Privatisation

The Government of Bangladesh privatised some state-owned enterprises（SOEs）during the past twenty years, but many SOEs retain an important role in the economy, particularly in the financial and energy sectors. The current government has taken steps to restructure several SOEs to improve their competitiveness. Biman Bangladesh Airline was converted into a public limited company that initiated a rebranding and fleet renewal program, including the purchase of 10 aircraft from Boeing. Three nationalised commercial banks（NCBs）—Sonali, Janata and Agrani—have been converted to public limited companies. Bangladesh allows private investment in power generation and natural gas exploration, but efforts to allow full foreign participation in petroleum marketing and gas distribution have stalled.

The telecommunications sector was liberalised during the last decade, leading to the development of a competitive cellular phone market. The Government has been slow to allow greater competition for international connectivity and internet telephony. In 2007, the Caretaker Government revised the International Long Distance Telecommunication Services Policy of 2007 to legalise VoIP, but the government has not yet implemented this policy.

3.6 Preferential treatment and protection of foreign investment

The Government of Bangladesh actively seeks foreign investment, particularly in energy, power and infrastructure projects. It offers a range of investment incentives under its industrial policy and export-oriented growth strategy, with few formal distinctions between foreign and domestic private investors. The policy eases the process of setting up a business by simplifying the process of leasing and buying private land, incorporating an entity, allowing corporate tax holiday for seven years（15 years in the power sector）and implementing an exemption of income tax of foreign employees for up to three years in some respects.

In 2014, BOI approved 5,694 work permits. Among these,43.05 percent were in the commercial offices and the rest 56.95 percent were in the industrial projects. Besides,41.08 percent were new and 58.92 percent were extension of the existing permits.

Bangladesh has been committed to providing non-discriminatory treatment to foreign investors over the past decades on a post-establishment basis. The existing legal framework of the country guarantees fair and equitable treatment for foreign investment. The FPIPPA provides some indications as to the meaning of this concept by stipulating that foreign investment shall not be accorded less favourable treatment than what is accorded to similar private investment by nationals in the application of relevant laws and regulations.

Broadly, the various generations of the Industrial Policy repeat this stance. Version 2010 for example mentions that foreign investors are entitled to the same conditions as national investors in terms of tax holidays, royalty and technical fees and others. Access to courts is provided on a non-discriminatory basis.

Bangladesh has signed almost 30 BITs, all of which guarantee MFN and National Treatment（post establishment）. These two principles systematically ensure non-discrimination as the standard of treatment accorded to foreign investors. None of the treaties has conditioned these two principles to the protection of public policy by the country.

Most of the BITs which Bangladesh has signed contain provision on the avoidance of double taxation. Having accorded statutory protection to foreign investments and ensured equal treatment for local and foreign investors, Bangladesh welcomes foreign investments and guarantees equal, and in many respects, favourable treatment to foreign investors. The government assures protection against nationalisation and expropriation through the Foreign Private Investment Act of 1980 which inclusively assures the repatriation of capital and dividend for foreign investors. The FPIPPA stipulates that foreign investments may be expropriated or nationalized only for a public purpose and against adequate compensation paid“expeditiously”and freely transferable. The law, however, does not refer to nondiscrimination of expropriation. Adequate compensation is defined as the market value immediately prior to the announcement of expropriation or nationalisation. Bangladesh has also made adequate legislative provisions to protect intellectual property rights.

3.7 Relationship between IIAs-BITs-FTAs and local laws

All BITs, IIAs and FTAs, to which Bangladesh is a contracting State, are part of international law and the approach of the judiciary towards implementation of international law would be analysed in the present section of the report.

Bangladesh adheres to the theory of dualism or incorporation in relation to international treaties according to which no international treaty will become part of Bangladeshi law, unless it is incorporated into its domestic law by legislation. While this represents the strictly technical position an examination of the relevant provisions of the constitution and the case law clearly establishes that the Bangladeshi judiciary has been receptive to the indirect incorporation of international law into domestic law, that is, in the absence of express incorporation of international law by local legislation.

Part II of the Bangladesh Constitution sets out fundamental principles of state policy to guide the State, which however do not have binding effect. Article 8（2）sets out the position:“The principles set out in this Part shall be fundamental to the governance of Bangladesh, shall be applied by the State in the making of laws, shall be a guide to the interpretation of the Constitution and of the other laws of Bangladesh, and shall form the basis of the work of the State and of its citizens, but shall not be judicially enforceable. ”The last of the principles set out in Part II of the Constitution is found in Article 25, which states as follows:“The State shall base its international relations on the principles of respect for national sovereignty and equality, non-interference in the internal affairs of other countries, peaceful settlement of international disputes, and respect for international law and the principles enunciated in the United Nations Charter, and on the basis of those principles shall:a. strive for the renunciation of the use of force in international relations and for general and complete disarmament; b. uphold the right of every people freely to determine and build up its own social, economic and political system by ways and means of its own free choice; and c. support oppressed peoples throughout the world waging a just struggle against imperialism, colonialism or racialism. ”

Fundamental principles of state policy, while not judicially enforceable, are not to be easily disregarded. In fact, interpretation of the Constitution and national laws must be in conformity with the basic principles of international law. The approach of the Court is reflected in the case of BNWLA v. Government of Bangladesh and others , where the Court declared:“Our courts will not enforce those Covenants as Treaties and Conventions even if ratified by the State, as they are not part of the corpus juris of the State unless those are incorporated in the municipal legislation. ”

The application of international instruments including the Universal Declaration of Human Rights（UDHR）in the domestic arena has been reaffirmed by the Supreme Court in BNWLA v. Government of Bangladesh and others where the Court observed as follows:“It has now been settled by several decisions of this subcontinent that when there is a gap in the municipal law in addressing any issue, the courts may take recourse to international conventions and protocols on that issue for the purpose of formulating effective directives and guidelines to be followed by all concerned until the national legislature enacts laws in this regard. ”

The High Court Division of the Supreme Court of Bangladesh has held that:“Where there is a gap in the municipal law in addressing any issue, the courts may take recourse to international conventions and protocols on that issue for the purpose of formulating effective directives and guidelines to be followed by all concerned until national legislature enacts laws in this regard. ”

The judicial approach has clearly been that if there is no provision in national legislation regarding a particular matter, relevant international conventions and protocols may be taken into consideration which implies that there is no bar to directly applying international law to resolve a question of law or principle, although such international instrument has not been expressly incorporated in the domestic law.

Moreover, guidelines provided by the Court on the basis of provisions of UDHR have significant value and importance. The Court in BNWLA v. Government of Bangladesh and others, 2001,40 CLC（HCD）, para 23, declared as follows:“We hold that the definition and directive guidelines given, and/or to be given by this Court in this case, are law of this country, and in view of Article 111 of the Constitution [which states that Supreme Court decisions are binding on all subordinate courts], they are binding on all concerned and are to be implemented everywhere until an effective legal measure is evolved and/or enacted by our legislature. ”

Bangladeshi legal system is a common law system and is not significantly different from other common law countries. Bangladeshi position in relation to domestic application of international law is characterized by paucity of case laws, ambiguity of constitutional and statutory provisions and reluctance of our judges as well as the lawyers to refer to international instruments. These characteristics are largely the results of traditional and stereotype thinking of our legal community, lack of willingness to know more of international legal developments, lack of sufficient emphasis on international law in law school curriculum, and finally rigid adherence to common law principles with little or no interest in taking anything from the civil law system, or even with little interest to learn from other common law jurisdictions which are now devoting more time and effort to accommodate international law within domestic law. So far as international treaties are concerned, member states cannot defend any national law which violates international law. The judicial practice of Bangladesh hints that where trade and investment treaties are concerned the country is keen to comply with its international obligations.