Remarks

US-Bangladesh Economic Relations

American Chamber of Commerce in Bangladesh

September 13, 2005

Thank you for that kind introduction, Aftab.

President Islam, distinguished guests, ladies and gentlemen, asalmu alaikum, welcome.

Before I begin, I would like to take a moment to thank you and the people of Bangladesh for your generous outpouring of support for the victims of hurricane Katrina.  The United States deeply appreciates the one million dollar pledge from the People's Republic of Bangladesh.  This practical and moral support means a great deal to the victims of this terrible natural disaster and to all Americans.  Thank you.

I would also like once again to convey my condolences to all Bangladeshis and especially the victims of the 500 bomb blasts that struck Bangladesh on August 17.  We Americans have just commemorated the fourth anniversary of the September 11 attacks that so dramatically changed our world.  Wherever and whenever terrorism occurs, we condemn it and stand ready with our partners to fight against it.

The United States and Bangladesh have historically enjoyed close economic and commercial relations.  Today, nearly 500 American companies are active in Bangladesh either directly or through representatives.  Many of those companies are, of course, represented here today.  U.S machinery is installed in your factories, including Caterpillar generators and GE gas turbines. U.S. banks and insurance companies, like Citibank and AIG, provide important financial services to government, businesses, and consumers.  U.S. energy companies, like Chevron/Unocal, are helping to develop Bangladesh's abundant natural gas resources.  U.S. farmers, through companies like Cargill, provide wheat, cotton and other agricultural products.  And a whole host of U.S. products and services – restaurants, health clubs, accounting services, personal care products, even stained glass window treatments – are available to Bangladesh's growing consumer market.

The United States is a major export destination for Bangladeshi products.  Ready made garments, of course, dominate -- $1 billion in the first six months of this year..  Indeed, Bangladesh's RMG sector has shown welcome resiliency following the end of quotas under the MFA.  Frozen food exports also remain strong – $420 million last year, reflecting eight percent growth.  It's not surprising, then, that Bangladesh maintains a sizable trade surplus with the U.S., selling nearly $8 in goods to the U.S. for every $1 it imports from us.

U.S. direct investment in Bangladesh also remains strong.  The United States is one of the largest investors in Bangladesh, second only to the UK.  Total stock of U.S. investment is $1 billion.  Investment in the energy and power sectors is, of course, sizable, led by Chevron/Unocal.  Indeed, over $2 billion in new U.S. investment is under negotiation for power plants, coal mines and fertilizer plants.

At the government level, the U.S. and Bangladesh last year signed a treaty for the avoidance of double taxation.  I am pleased to report that the treaty is now on its way to the U.S. Senate for ratification.  Earlier this year, we had very productive discussions on a Trade and Investment Framework Agreement, or TIFA.  The results of those discussions are under review in Washington.  Last month, the U.S. Trade and Development Agency, or USTDA, signed grants worth $608 thousand for technical assistance on the proposed Chittagong Port Secure Trade and Container Scanning Project and a feasibility study on the proposed American Standard International Hospital Project.  USAID will spend over $12 million in this fiscal year alone in direct support of economic growth and development, including rural electrification and assistance to small and medium sized enterprises.

U.S.-Bangladesh economic relations reflect and reinforce the underlying strength of the Bangladesh economy.  The Bangladesh economy has grown five to six per cent per year for several years now.  Industrial growth is estimated at more than seven percent.  Imports are heavily weighted in favor of capital goods, indicating Bangladesh continues to invest in future growth.  I need only look back over my past two years in Bangladesh to see with my own eyes the impressive economic changes here in Dhaka and throughout the country.

Economic growth is driving domestic and foreign investment.  It is creating new markets for U.S. goods and services.  It is creating new Bangladeshi entrepreneurs with goods and services to sell to the U.S.  Did you know, for example, that a Bangladesh firm developed the software used by the U.S. Postal Service to monitor and bill bulk mailers?

GDP growth of five to six percent is certainly quite respectable.  But it is not enough.  Many estimate that sustained growth of seven to nine percent will be needed if Bangladesh hopes to significantly raise the standard of living of its people.  Achieving that pace of growth will not be easy.  Already, the Bangladesh economy is under stress from high fuel and commodity prices.  Inflation is on the rise.  The taka has depreciated over 10% against the dollar.  And while the RMG sector, which generates over 75% of the country's export earnings, continues to perform well, its future remains uncertain as China, the U.S. and the EU continue the transition to a truly quota-free textile market.   

Increasing trend growth rates will require a new level of commitment from government and the private sector.  Just a few weeks ago, we heard an excellent presentation from ADB's Country Director, Hua Du, on the important role infrastructure development plays in economic growth and poverty reduction.  She highlighted the substantial infrastructure needs in Bangladesh, and the work of international development agencies to help meet those needs.

The private sector, including U.S. companies, recognizes the tremendous opportunities in infrastructure and has responded with investments or proposals in such sectors as power generation, steel, fertilizer production, telecommunications, and roads.  Bangladesh should seize these opportunities.  The fact remains, however, that doing business in Bangladesh is tough. 

As leading businessmen and women, you know the challenges, so let me just highlight a few key issues, in addition to infrastructure development. 

Top of the list is corruption.  Businessmen tell me they spend some seven to fifteen percent of gross revenues in various facilitation and protection payments.  Corruption at the ports means Bangladeshi ports are some of the most expensive in the world, imposing a double penalty on many firms that import raw materials and export finished goods.  In today's global competitive environment, Bangladesh can simply no longer afford this self-imposed penalty.

Closely related to corruption is transparency and efficiency in government.  I regularly read about government tenders, infrastructure proposals, and development projects cancelled after years of delay due to questions surrounding the conduct of the procurement or project approval.  We are often called on to intervene on behalf of U.S. firms who find themselves waiting months on end for simple decisions.  As Benjamin Franklin once said, "time is money."  Delayed decisions not only raise the costs of projects, they deny Bangladesh the economic benefits expected from those projects. 

Government procurement rules themselves often work against the best interests of the country, by placing undue emphasis on price, with only limited evaluation of technical merit.  Most countries recognize that total cost of ownership is an important factor in the overall value of a tender.  Their procurement systems score projects on technical merit and financial competitiveness, using a weighted average appropriate to the project to determine the winning bidder.  In Bangladesh, I've been dismayed to see U.S. bidders with decades of experience – world leaders in their product categories – lose tenders to competitors of dubious technical qualification, because relative technical qualification was not considered as part of the process.  Of course I want to see successful U.S. bidders.  But I also want Bangladesh to get the best possible value for its limited investment dollars.

The tax and customs system also bears close scrutiny.  Improving revenue collection is a high priority for the Bangladesh government.  Simplifying the tax system can help.  Experience in many countries has shown that reducing customs duties can increase revenues and reduce smuggling.  The ad hoc system of supplementary duties, many of which are several multiples of the customs duties, further distort competition, discourage investment and domestic job production, and add to inflationary pressures.  I encourage Bangladesh to be bold in its offers on tariff reductions and services commitments at the WTO Ministerial in Hong Kong later this year. 

Bangladesh must also address the broader governance issues that affect the overall investment climate.  Inefficiencies in the judicial system means commercial disputes may take years to resolve.  Often the costs far exceed any amount the parties might expect to recover.  The absence of an effective and efficient dispute resolution process raises the costs of doing business, as unscrupulous firms have less reason to abide by their obligations.

Protection of intellectual property rights is critical to fostering economic development and attracting foreign investment.  Bangladesh is making important progress updating its laws on protection of copyrights, patents and trademarks.  The government must move swiftly to adopt implementing regulations to bring these new laws into effect.  It must ensure that the offices charged with enforcing these laws are adequately staffed and given the resources they need to carry out their responsibilities.  This summer, the Embassy and AmCham sponsored a conference on intellectual property rights at which Bangladeshi entertainers and entrepreneurs eloquently described how important IPR protection is to the development of their businesses in Bangladesh.  The United States stands ready to provide technical training and assistance to Bangladesh in this important field.

More broadly still, Bangladesh must address the concerns of international business about the political stability of the country.  The August 17 attacks made international headlines and these reports of political and extremist violence tend to overshadow reports about economic growth and development in Bangladesh.  To counter these concerns that Bangladesh is volatile and unstable, that it is even a so-called failing state, the government must mount a credible and effective effort to bring to justice the perpetrators of these acts of political and terrorist violence. 

International confidence in the political process is also an important element of business confidence.  While Bangladesh is recognized for conducting generally free and fair elections in the past, it should address concerns that the next elections may be problematic.  Political parties must engage in the political process.  Government must ensure an environment that fosters constructive participation.  Political stalemate feeds uncertainty about the long-term viability of political institutions and undermines the stable and predictable political environment that is necessary for robust economic growth.

The United States is actively engaged with the government of Bangladesh on these and many other important issues.  Through our own assistance programs and in cooperation with our international development partners we are working hard to support Bangladesh as it develops a positive climate for economic growth and development.  Today I ask you, your companies and your trade associations to join us in this effort.  Working together, we can ensure a bright, prosperous future for the people of both our countries.

Thank you.

 

Note:  A Bangla translation of this article is also available from the American Center.  If you are interested in the translation, please call the American Center Press Section (Tel: 8813440-4, Fax: 9881677; e-mail: DhakaPA@state.gov; Website: dhaka.usembassy.gov