TICFA with the US & Bangladesh

Barrister Harun ur Rashid
Thursday, July 4th, 2013


Prime Minister Sheikh Hasina presiding over the cabinet meeting on June 17, which approved the Trade and Investment Cooperation Framework Agreement (Ticfa) with the US

Bangladesh seeks trade and investment from the US and other countries. Most economists say that investment up to 34% of GDP (currently GDP of Bangladesh stands at $130 billion) is needed in the next three to five years to cut poverty and to become a middle-income country by 2021.

 

Importance of FDI:

 

Private international capital flows, particularly foreign direct investment (FDI), are vital complements to national development efforts.

 

FDI contributes to financing sustained economic growth over the long term. It is particularly important for its potential to transfer knowledge, technology, create jobs, boost overall productivity, enhance competitiveness and promote entrepreneurship. Eventually it eradicates poverty through economic growth and social development.

 

Incentives for foreign investors:

 

Bangladesh may claim to be one of the most open economies among the developing countries. It continues to pursue a private sector- led export oriented growth strategy. To implement the free-market economy which has been a bipartisan policy, Bangladesh has taken appropriate steps in reducing the size of the public sector, almost free convertibility of currency, trade liberalisation by reducing tariffs and encouraging direct foreign investment. 100% percent foreign investment and joint ventures with local private partners and public sector (PPP) is encouraged with tax incentives.

 

The Export Processing Zones have been set up with attractive incentive package. For security and protection of foreign investors, Bangladesh is a signatory to the Multilateral Investment Guarantee Agency (MIGA), Overseas Private Investment Corporation (OPIC) of USA, International Centre for Settlement of Industrial Disputes (ICSID) and a member of World Intellectual Property Organisation (WIPO).

 

To assure the foreign investors, a new facility of International Arbitration has been set up in Dhaka in the recent years. The company law has been updated; the industrial relations law has been amended. A new labour law is being enacted to enhance labour market efficiency, including maintenance of health and safety regulations of workers.

 

Bangladesh Board of Investment is the coordinating government agency for foreign investment. The priority given by the government to promotion of foreign investment can be evidenced by the fact that the Prime Minister is the chairperson of the Board of Investment.

 

US Investment & Trade:

 

During the last forty two years, as per the latest Bangladesh Bank survey report, foreign direct investment (FDI) from the US stands 7th position with $25.6 million in January-June 2012. Majority of the FDI came in the gas and petroleum sectors ($13.5 million) followed by banking ($8.9 million).

 

The gas and petroleum sectors again received the highest FDI ($521.68 million) followed by banking sector ($123.6 million). FDI from the US is traditionally seen to be important for developing our energy sector, especially in the off-shore areas in the Bay of Bengal after the settlement of maritime boundary last year through International Tribunal.

 

There is an opportunity to invest more in telecommunications, gas, IT software and leather sectors. Large scope for investment exists in agro-based industries and food processing and canning in Bangladesh.

 

With regard to trade with the US, during the fiscal year 2011-12 the bilateral trade volume was reported to be $5.8 billion with the second-highest position with a trade surplus of $4.4 billion, constituting 25% of total exports and imported from the US goods worth about $1.09 billion. The balance of trade is heavily in Bangladesh’s favour.

The American Chamber of Commerce in Dhaka plays a key role in exploring economic opportunities between private sectors of the two countries. The annual US Trade exhibits in Dhaka which include American products in information technology, banking, insurance, soft drink, textile machinery, medicine and cosmetic items provide awareness to Bangladesh companies about the US products to be imported in Bangladesh.

 

FDI does not automatically come to a country. Profitability is the motive of FDI. The investors can pick and choose countries where to invest. Countries now compete with each other to attract foreign direct investment.

 

To promote trade and attract investment from the US, it is desirable to have an institutional bilateral forum in which both sides at least annually can sit to explore the potentials for furthering trade and investment in Bangladesh. In its absence the US argues that trade and investment to Bangladesh will be slow. They also argue that they have established such bilateral forums with many countries including Sri Lanka.

 

TICFA:

 

Given the above context, after many years of negotiations, (since 1999), it is reported that the Cabinet presided over by the Prime Minister of Bangladesh has recently approved the Trade and Investment Cooperation Framework Agreement (TICFA) with the US. Now the both governments may sign at an appropriate time

 

The TICFA is not a binding contract. It is a framework for establishing a forum between the US and Bangladesh to tap business and investment potentials of both countries. Bilateral meeting on commercial relations will be held between the two governments under this institutional platform

 

Benefits:

 

According to some economists, the TICFA will

• Work to remove impediments to bilateral trade and investment

• Increase US investment

• Promote technological know-how in Bangladesh

• Promote labour rights according to ILO standards

• Make efforts to curb corruption

 

Disadvantages:

 

Critics of TICFA argue that although word “Trade” occurs in the TICFA title, it seems the US has given more emphasis on services sector and TICFA will open service sectors to US investors in the country which remain a concern to Bangladesh investors.

 

The TICFA has not exempted Bangladesh, being a LDC from the obligation to enforce TRIPS (Trade Related Intellectual Property Rights) under the WTO rules, for which Bangladesh got relaxation until 2021 under WTO Agreements.

 

Critics argue that the enforcement of TRIPS under TICFA will adversely affect the pharmaceutical and ICT industries in the country with the result that costs of medicine and IT item will increase. Consequently it will curtail access of healthcare and ICT facility to majority of people in Bangladesh.

 

TICFA will be able to protect the intellectual property rights (IPR) for the US companies in the country. In its absence, the US companies have been losing profits through piracy of copyright

 

TICA will not enable Bangladesh for its goods  (garments and knit wear) duty-free access to the US market as the US has allowed African and Caribbean LDCs, because the US Congress has to pass a law and given the priorities of the US Congress, it will not come soon for Bangladesh.

 

Despite being a LDC, Bangladeshi garment exporters have to pay about 15.3% duties to the US. It is reported that in 2012, these tariffs have yielded Washington $749.7 million from Bangladesh which pays more to the US as duties than it gets aid annually from the US.  China and France pay much less tariffs (5%) for their goods to the US. It sounds illogical but it is true.

 

If Washington provides Bangladesh the duty-free and quota-free access to its products enjoyed by more than 30 other “least developed countries,” the U.S. would at a stroke contribute more to economic security and women’s empowerment than it has with years of aid shipments. There is no guarantee in the TICFA regarding duty free access of garments to the US.

 

Challenges for Bangladesh:

 

Foreign investment does not come automatically. The central challenge is to create the necessary domestic and international conditions to facilitate FDI flows.  Domestic investment will lead to foreign investment.

 

To attract and enhance inflows of productive capital, Bangladesh needs to continue its efforts to achieve a transparent, stable and predictable investment climate, with proper contract enforcement and respect for rule of law and property rights, embedded in sound macroeconomic policies which remain intact with the change of government, independent institutions, adequate supply of energy and infrastructure that allow businesses to operate efficiently and profitably.

 

Special efforts are required in such priority areas as economic policy and regulatory frameworks for promoting and protecting investments, including the areas of human resources development (skilled labour), avoidance of double taxation, good corporate governance, accounting standards, and the promotion of a competitive environment.

 

Although government has provided many incentives, some of the searching questions that investors would like to ask before they decide their capital to flow to a country. For instance, Is the country politically stable? How skilled is human capital? Has it good roads and transport system? Are the ports working at their best?  Will the investment policies be intact with the change of a government? Is there too much hassle in setting up a business office?

 

Some experts are of the view that investment promotion may be grouped into four areas:

 

(a) creation of investment climate, (b) investor servicing, and (c) investment policy advocacy. They further suggest Board of Investment needs reforms including the setting up of a new ‘Investment Wing’ which may provide demand and supply conditions in the market of a particular product or products in which investors are keen to invest.

 

Another idea floated around is the “new branding of Bangladesh”. The re-branding of Bangladesh as an attractive investment destination is important and some suggest government may set up a “Brand Bangladesh Taskforce” with all stakeholders-both government and private sectors. The task force may set up a sub-committee that can focus on providing training, guidance, and monitoring of commercial sections of embassies of Bangladesh in key markets

 

The National Skills Development Council, set up in 2009, may play an important role in ensuring imparting vocational educational programmes to youths through vocational training colleges in every district in the country. As a result skilled workers will be available in the country

 

While governments provide the framework for their operation, private sectors are to be engaged as reliable and consistent partners promotion of trade and investment.. The challenge has to be met in a robust way by government in cooperation with private sectors.

 

Barrister Harun ur Rashid, Former Bangladesh Ambassador to the UN, Geneva.

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