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Legal Protection of Foreign Investment

Table of Contents

Foreign investors in Bangladesh benefit from a framework of legal protections primarily anchored by the Foreign Private Investment (Promotion and Protection) Act of 1980. This legislation, along with a network of bilateral and multilateral agreements, provides a secure environment for foreign capital. The Government of Bangladesh explicitly guarantees these legal protections.

Key Legal Protections for Foreign Investors#

  • Protection against Nationalisation and Expropriation: The 1980 Act ensures that foreign private investment will not be nationalised or expropriated except for a public purpose, against adequate, prompt, and freely transferable compensation. The compensation is determined based on the market value of the investment immediately before the expropriation.
  • Non-Discriminatory Treatment: The Act guarantees non-discriminatory treatment between foreign and local investments, ensuring a level playing field.
  • Repatriation of Capital, Profits, and Dividends: Foreign investors are guaranteed the right to repatriate their invested capital, profits, dividends, and, in the event of liquidation, the proceeds from such liquidation. This is subject to procedural requirements by the Bangladesh Bank.
  • Protection of Investment Terms: The terms of sanction, permission, or licence granted by the government to an industrial undertaking with foreign investment cannot be unilaterally changed to adversely alter the conditions under which the investment was made.
  • Compensation for Losses: In the event of losses due to civil commotion, insurrection, or riot, foreign investments are accorded the same treatment as domestic investments with regard to indemnification, compensation, restitution, or other settlements.
  • Fair and Equitable Treatment: The government is mandated to accord fair and equitable treatment to foreign private investment, which shall enjoy full protection and security in Bangladesh.

Government Guarantees
#

The Government of Bangladesh actively guarantees these legal protections through several mechanisms:

  • The Foreign Private Investment (Promotion and Protection) Act, 1980: This is the cornerstone of the government’s commitment to protecting foreign investment.
  • Bilateral Investment Treaties (BITs): Bangladesh has signed numerous BITs with various countries (approximately 29-33, according to different sources). These treaties typically reinforce protections against expropriation, ensure fair and equitable treatment, grant Most Favoured Nation (MFN) status, and provide frameworks for dispute resolution, often including international arbitration.
  • Multilateral Agreements: Bangladesh is a signatory to international conventions that further safeguard foreign investments. These include:
    • The Multilateral Investment Guarantee Agency (MIGA): As a member of MIGA (an arm of the World Bank Group), Bangladesh offers foreign investors protection against non-commercial risks such as political risk, currency transfer restrictions, and breach of contract.
    • The International Centre for Settlement of Investment Disputes (ICSID): Membership in ICSID provides a neutral international forum for the conciliation and arbitration of investment disputes between foreign investors and the host state.
  • Institutional Support: Government bodies like the Bangladesh Investment Development Authority (BIDA), Bangladesh Bank, Bangladesh Export Processing Zones Authority (BEPZA), and Bangladesh Economic Zones Authority (BEZA) play crucial roles in facilitating foreign investment and ensuring adherence to the protective legal framework.

Dispute Resolution
#

In addition to the protections against expropriation and unfair treatment, Bangladesh has established mechanisms for resolving disputes involving foreign investors:

  • The Arbitration Act, 2001: This Act governs domestic and international arbitration in Bangladesh.
  • New York Convention: Bangladesh is a signatory to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), which facilitates the enforcement of foreign arbitral awards in the country.
  • Bangladesh International Arbitration Centre (BIAC): This is the country’s first international arbitration institution, offering a formal venue for resolving commercial disputes.
  • Bilateral Investment Treaties: Many BITs signed by Bangladesh include provisions for investor-state dispute settlement (ISDS) through international arbitration.

While the Foreign Private Investment (Promotion and Protection) Act of 1980 forms the primary domestic legal basis, some legal analysts suggest that certain aspects, such as its scope concerning modern service industries and specific definitions of terms like “fair and equitable treatment,” could benefit from updates to meet contemporary global investment standards. Nevertheless, the existing framework, bolstered by international agreements, provides significant legal security for foreign investors in Bangladesh.

Key Contact

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