African Reserves

For Bangladesh to realize its potential as a nation, it must look beyond its borders

In The anarchy by William Dalrymple, we discover the official trading company created by Tipu Sultan to trade with the ports of the Arabian Sea and the Persian Gulf. The wealth of this company enriched the sultanate of Mysore and enabled Tipu Sultan to provide his army with the latest French artillery. The company built a factory in Muscat and sought permission from the Ottoman sultan in Constantinople to establish an overseas maritime base in the Mesopotamian port of Basra.

Tipu’s business was a sub-continental response to the East India Company – the modern precursor to the modern multinational corporation. Official records of the commercial department of Tipu still survive and give us insight into the trade in Chinese silk, South Indian spices, and other commodities.

Fast forward to Bangladesh in 2022. Bangladesh Bank has introduced rules on overseas investment. The rules allow export-oriented companies to invest part of their earnings or net asset value overseas if permitted by the Bangladesh Bank. The government encourages investment in strategic sectors overseas that will complement Bangladesh’s domestic industry and export sectors.

In theory, a Bangladeshi pharmaceutical company can now invest in a laboratory in Luxembourg with the aim of producing high-quality drugs in Bangladesh, which would then be exported to many places.

If the Bangladeshi company encountered obstacles to its operations in Luxembourg, i.e. discriminatory treatment with regard to taxes or property rights, then it had to inform the ducal government of Luxembourg of any dispute. The Bangladeshi company can take the case to the local courts of the Grand Duchy of Luxembourg. It also has another option.

Global Bangladesh

Bangladesh has concluded a bilateral investment treaty with the Belgo-Luxembourg Economic Union. The bilateral investment treaty was signed in 1981. It allows an exemption from the obligation to exhaust local remedies. This means that the hypothetical Bangladeshi investor can pursue arbitration instead of going to court. The Bilateral Investment Treaty allows for arbitration at the World Bank’s International Center for Settlement of Investment Disputes.

A bilateral investment treaty serves as legal protection for the investor in the event of a dispute with a host state. It is said that the world has a spaghetti bowl of bilateral investment treaties due to the number of several thousand treaties. The first bilateral investment treaty in history was signed in 1959 between West Germany and Pakistan (including East and West Pakistan).

Bangladesh’s first bilateral investment treaty was signed in 1980 with the UK. A United Nations Conference on Trade and Development database shows that Bangladesh has at least 31 treaties, the latest being signed with Cambodia.

A garment factory in Bangladesh. Photo credit: Mohammad Ponir Hossain/ Reuters

Investments may also be made under multilateral investment treaties. One of the existing multilateral investment treaties is the Organization of Islamic Cooperation Investment Agreement of 1981, to which Bangladesh is a state party. Investors from Turkey, the United Arab Emirates and Tunisia have used the Organization of Islamic Cooperation treaty to arbitrate disputes in Africa, including disputes with Libya and Gabon. The Organization of Islamic Cooperation treaty can be useful if Bangladeshi investors enter the various member states of the Organization of Islamic Cooperation in Europe, Asia and Africa.

There has been talk of creating a global multilateral investment court. The United Nations Commission on International Trade Law is studying the possibility of a multilateral investment court. The Comprehensive Economic and Trade Agreement between Canada and the European Union also contemplates an investment court system.

Investor protection stems from the concept in international law that a sovereign state must protect its nationals. Due to this concept, an embassy must provide diplomatic advice to a citizen in distress in a foreign country. For investors, things are more complicated.

An investor can be a natural person, ie an individual, or an organization, such as a company. Both the natural person and the legal person are entitled to the protection of their State. A company can also have investors from different countries. In the Barcelona pull In this case, Belgium argued against Spain on behalf of the Belgian shareholders of a Canadian company. It was judged that Belgium could not speak on behalf of the company itself, which was Canadian.

Governments will not be interested in defending an investor’s bad practices. Therefore, dispute resolution is delegated under bilateral investment treaties to arbitration tribunals or conciliation and mediation. Bilateral investment treaties offer the best possible legal guarantees to the investor, whether it concerns recourse before national courts or arbitration.

Bilateral treaties

International investment law sets out principles such as national treatment and most favored nation. Essentially, the host state must treat the investor on an equal footing with local businesses. Bilateral investment treaties provide a framework for investors in a country to be treated on an equal footing with local businesses and other foreign investors. Bilateral investment treaties can also set out conditions and exceptions if states agree on the need to do so.

Between 2014 and 2022, the Bangladesh Bank authorized outward investment estimated at $59.9 million. At least 16 Bangladeshi companies have opened subsidiaries in countries like Singapore, Kenya, Malaysia and Ethiopia.

Last year, news emerged that a Bangladeshi textile company had to withdraw its staff from Ethiopia due to the civil war in Tigray. The investor traveled to Ethiopia although there is no bilateral investment treaty between Bangladesh and Ethiopia.

Bangladeshi NGOs are also affected by conflicts in foreign countries. For example, BRAC, an international development organization based in Bangladesh, had to withdraw its staff from Afghanistan amid the Taliban takeover. BRAC is renowned for its contribution to the reconstruction of Afghanistan. Bangladesh does not have a bilateral investment treaty with Afghanistan.

Policy makers should draft a model bilateral investment treaty. This Bilateral Investment Treaty model can influence the negotiation of Bilateral Investment Treaties with countries around the world. More bilateral investment treaties with more countries will provide maximum legal protection for Bangladeshi investors and the country’s hard-earned capital.

Innovating in treaty-making

Bangladesh can introduce its own innovation in treaty-making. For example, a model Bangladeshi bilateral investment treaty can cover the work of non-governmental organizations and charities that invest overseas. Social enterprise, a concept pioneered in Bangladesh, may also be subject to bilateral investment treaties.

Some African countries emphasize human and environmental considerations in bilateral investment treaties. The Morocco-Nigeria Bilateral Investment Treaty in its preamble recognizes the importance of sustainable development, poverty reduction, increased productive capacity, economic growth, transfer of technology and knowledge, respect for human rights and the promotion of human development.

Treaty writers should also incorporate adequate tax provisions for legal clarity. The introduction of the Global Minimum Corporate Tax will potentially influence many future investment agreements.

Before the pandemic, Bangladesh recorded a GDP growth rate of 8.1%. In 2022, the economy is expected to grow by 6.4%. Export earnings in 2020-21 hovered around $38 billion. Foreign exchange reserves are estimated at around $44 billion at the start of 2022.

Bangladesh is one of the most densely populated countries in the world and has the eighth largest population in the world. Land scarcity means that Bangladeshi companies will inevitably invest abroad to supply the domestic market with much-needed agricultural, industrial and consumer products. This expansion of the supply chain requires strategic support in terms of legislation and policy.

This article first appeared in the Dhaka Tribune.