In The Anarchy by William Dalrymple, one learns about the official trading company set up by Tipu Sultan to trade with ports along the Arabian Sea and the Persian Gulf. The wealth of this company enriched the Sultanate of Mysore and enabled Tipu Sultan to equip 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 shipping base in the Mesopotamian port of Basra.

Tipu’s company was a sub-continental answer to the East India Company – the early modern harbinger of the modern multinational corporation. The official records of Tipu’s commercial department still survive and give us a glimpse into the trade in Chinese silk, South Indian spices and other commodities.

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Fast forward to Bangladesh in 2022. The Bangladesh Bank has introduced rules on outbound investment. The rules allow export-oriented companies to invest a portion of their revenue or net asset value abroad if permitted by the Bangladesh Bank. The government is encouraging investment in strategic sectors abroad that will complement Bangladesh’s domestic industry and export sectors.

Hypothetically, a Bangladeshi pharmaceutical company can now invest in a lab in Luxembourg with the goal of producing high-quality medicines back in Bangladesh, which would then be exported to many places.

If the Bangladeshi company faced obstacles to its operations in Luxembourg, ie, discriminatory treatment in taxes or property rights, then it should inform the ducal government of Luxembourg regarding any dispute. The Bangladeshi company can pursue the matter in the local courts of the grand duchy of Luxembourg. It also has another option.

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Global Bangladesh

Bangladesh has a bilateral investment treaty with the Belgium-Luxembourg Economic Union. The bilateral investment treaty was signed in 1981. It allows a waiver of the requirement to exhaust domestic 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 Centre for Settlement of Investment Disputes.

A bilateral investment treaty acts as a legal safeguard for the investor in the event of a dispute with a host state. The world is said to have a spaghetti bowl of bilateral investment treaties due to the sheer 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).

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

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

Investments can also be made under multilateral investment treaties. One of the existing multilateral investment treaties is the Organisation 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 Organisation of Islamic Cooperation treaty to arbitrate disputes in Africa, including disputes with Libya and Gabon. The Organisation of Islamic Cooperation treaty can be useful if Bangladeshi investors make inroads into the diverse member states of the Organisation of Islamic Cooperation in Europe, Asia and Africa.

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There has been talk of setting up a global multilateral investment court. The United Nations Commission on International Trade Law has been exploring the prospect of a multilateral investment court. The Comprehensive Economic and Trade Agreement between Canada and the European Union also envisages an investment court system.

The protection of the investor emanates from the concept in international law that a sovereign state must protect its nationals. Due to this concept, an embassy has to provide diplomatic counselling to a citizen in distress in a foreign country. For investors, matters are more complicated.

An investor can be a natural person, that is, a single individual, or an organisation, such as a corporation. Both the natural person and the corporate entity are entitled to protection by their state. A company can also have investors from different countries. In the Barcelona Traction case, Belgium argued against Spain on behalf of Belgian shareholders in a Canadian company. It was held that Belgium could not speak on behalf of the company itself, which was Canadian.

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Governments will not be interested in defending the bad practices of an investor. Hence, the adjudication of disputes is delegated under bilateral investment treaties to arbitral tribunals or to conciliation and mediation. Bilateral investment treaties provide the best possible legal safeguards for the investor, be it remedies in national courts or arbitration.

Bilateral treaties

International investment law enunciates principles like national treatment and most favoured nation. Essentially, the host state needs to treat the investor on par with local companies. Bilateral investment treaties provide a framework for one country’s investors to be treated on par with local companies 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 allowed an estimated $59.9 million in outbound investment. At least 16 Bangladeshi companies have opened subsidiaries in countries including Singapore, Kenya, Malaysia and Ethiopia.

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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 went to Ethiopia despite there being no bilateral investment treaty between Bangladesh and Ethiopia.

Bangladesh’s NGOs are also affected by conflict in foreign countries. For example, BRAC, an international development organisation based in Bangladesh, had to withdraw staff from Afghanistan amid the Taliban takeover. BRAC has been renowned for its contribution to the reconstruction of Afghanistan. Bangladesh has no bilateral investment treaty with Afghanistan.

Policymakers need to draft a model bilateral investment treaty. This model bilateral investment treaty can influence the negotiation of bilateral investment treaties with countries around the world. More bilateral investment treaties with more countries will provide the maximum legal protection for Bangladeshi investors and the country’s hard-earned capital.

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Innovating treaty-making

Bangladesh can introduce its own innovation in the treaty-making. For example, a Bangladeshi model bilateral investment treaty can cover the work of non-governmental organisations and charities which invest abroad. Social business, a concept pioneered in Bangladesh, can also be brought under the ambit of bilateral investment treaties.

Some African countries are emphasising on human and environmental considerations in bilateral investment treaties. The Morocco-Nigeria bilateral investment treaty in its preamble recognises the importance of sustainable development, reducing poverty, increasing productive capacity, raising economic growth, technology and knowledge transfer, upholding human rights and promoting human development.

Treaty drafters should also incorporate adequate tax provisions for legal clarity. The introduction of the global minimum corporate tax will potentially influence many future investment agreements.

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Prior to the pandemic, Bangladesh registered a GDP growth rate of 8.1%. In 2022, the economy is forecasted to grow at 6.4%. Export earnings in 2020-’21 hovered at around $38 billion. Forex reserves are estimated to be around $44 billion in the early part of 2022.

Bangladesh is one of the most densely populated countries in the world and has the eighth-largest population in the world. The scarcity of land 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 needs strategic support in terms of law and policy.

This article first appeared in Dhaka Tribune.