Bhutan

Trade in Services

Multinational Trade Agreements

Active

• Bhutan-India Bilateral FTA: The agreement covers trade in goods and entered into force in July 2006. Hydropower is the mainstay of Bhutan's economy, accounting for over 40% of total exports, with almost 90% going to India. Market access and demand for Bhutan's goods and services are rather favourable due to the country's completely open access to the Indian market as part of one of the most liberal trade agreements in the world. This highly liberal bilateral FTA features duty-free and quota-free trade and, therefore, trade with India is not restricted by tariffs or rules of origin. Beyond hydroelectricity exports to India, overall exports remain minimal and of low value. Most imported goods travel overland through India to get to Bhutan, and India accounts for nearly 95% of Bhutan's exports and nearly 80% of its imports.


• South Asian FTA (SAFTA): SAFTA is a plurilateral FTA between Bhutan, Afghanistan, Bangladesh, India, Maldives, Nepal, Pakistan and Sri Lanka. The agreement covers trade in goods and originally entered into force in January 2006.

Under Negotiation

The BIMSTEC: BIMSTEC is a plurilateral FTA that is currently under negotiation. The agreement will focus on the trading of goods between Bhutan, Myanmar, Sri Lanka, Bangladesh, India, Nepal and Thailand. The bloc will bring together 1.5 billion people, or 21% of the world's population, and will have a combined GDP of more than USD2.85 trillion.

Source: WTO Regional Trade Agreements database

Foreign Direct Investment Policy

1. Bhutan currently does not have an investment promotion authority. In its place, a foreign direct investment (FDI) division has been established in the Department of Industry to provide focused support for FDI.


2. As of May 2018, Bhutan had approved 64 FDI projects worth BTN34.0 billion since the country allowed foreign investment in 2002. The economic affairs ministry commented that 19 projects had been approved in principle from 2017 to Q118; the total number of projects is 83. 65% of investors are from Asia, 25% from Europe, 9% from America the rest are from the Oceania region. According to the department's annual report, companies related to the FDI have created 4,871 jobs as of 2016, of which 93% have been filled by locals.


3. 100% foreign ownership is allowed in the sectors of education services (except technical and vocational institutions), private health, five-star hotels, infrastructure, research and development, head office services and information technology. Up to 51% foreign ownership is allowed in the financial services industry, while up to 74% foreign ownership is allowed in all other activities, except those in the Negative List, which include sectors such as media and broadcasting, the distribution of services in wholesale, retail and micro trade, and in mining and sales of minerals in primary or raw form.


4. Foreign investment is given the same treatment as similar domestic investment, unless otherwise specified as above.


5. Foreign firms may borrow from financial institutions in Bhutan and the debt-equity ratio shall be as per the provisions of the Royal Monetary Authority's prudential regulations.


6. Foreign investors have the right to repatriate their invested capital and any capital gains secured in the currency of investment.


7. FDI is encouraged in areas that contribute to the development of: the green and sustainable economy; the promotion of socially responsible and ecologically sound industries; the promotion of culturally and spiritually sensitive industries; investments in services that promote Brand Bhutan; and the creation of a knowledge society.


8. The mining sector in Bhutan has the potential to be a major driver of economic growth and development. However, mining activities are on Bhutan's Negative List, which means that foreigners are restricted from engaging in mining activities and sales of minerals in primary or raw form.

Sources: WTO – Trade Policy Review, ITA, US Department of Commerce, Kuensel

Foreign Worker Permits

Firms need approval from the Department of Labour to recruit foreign workers. Applications are approved within one week. Businesses hiring workers with Indian citizenship need to sign an agreement with their respective Regional Immigration Office. Approval for additional expatriate workers depends on whether a company made efforts to hire a suitable Bhutanese candidate. A firm needs to have documented two attempts to advertise and recruit for a Bhutanese worker locally.

Visa/Travel Restrictions

The policy 'High Value, Low Impact Tourism' makes travel to the Kingdom of Bhutan highly regulated to minimise the impact on the country's society and environment. Bhutanese policy ensures that only a limited number of tourists enter the country at any given time, preventing mass tourism and the alteration of the country's character.

Indian citizens do not need a visa to enter Bhutan due to the 1949 Treaty between the two states that allows for free movement of people between the two nations on a reciprocal basis.

Citizens of Bangladesh and the Maldives do not need a visa for Bhutan, as well as diplomatic passport holders of Switzerland and Thailand. All other passports require a visa to Bhutan.

Upon entry to Bhutan, all foreigners are issued a seven- or 14-day 'Entry Permit' that is valid for Thimphu and Paro only. The rest of Bhutan is considered a restricted area, and foreigners need a 'Restricted Area Permit' to enter.

Sources: Government websites, Fitch Solutions

Fitch Solutions Risk Summary

ECONOMIC RISK
Hydropower construction and supportive fiscal and monetary policy in Bhutan have contributed to solid growth. Nevertheless, structural challenges remain, including large current account deficits, an underdeveloped private sector and a high youth unemployment rate. Further delays in infrastructure projects, particularly hydropower construction raise risks for macroeconomic prospects over the medium term.

OPERATIONAL RISK
Attractive business opportunities, outside of the construction sector, remain limited in Bhutan relative to its peers in the region. 95% of Bhutan's manufacturing sector comprises small and cottage industries, which employ an average of four people per business. These businesses generally operate in publishing and printing, and the manufacturing of furniture, other wood-based products, and food and beverages. However, these firms lack economies of scale. The landlocked nature of the country, complex terrain and limited transport connections raise the cost of trade and risk of supply chain disruptions.  However logistics risks are easing over time, as according to the World Economic Forum, Bhutan has achieved 100% electricity access.

Source: Fitch Solutions
Date last reviewed: March 22, 2019

Fitch Solutions Political and Economic Risk Indices

Exchange Rate HK$/US$, average
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
7.83 (2018)
Sources: Hong Kong Census and Statistics Department, Fitch Solutions, Trade Map
Date last reviewed: March 22, 2019

Chamber of Commerce (or Related Organisations) in Hong Kong

Bhutanese Consulate in Hong Kong
Address: Room 2205, Universal Trade Centre, 3 Arbuthnot Road, Central, Hong Kong
Email: enquiry@bhutanconsulate.hk
Tel: (852) 2810 1720
Fax: (852) 2810 8840

Source: Hong Kong Protocol Division Government Secretariat

Visa Requirements for Hong Kong Residents

Hong Kong residents must obtain a visa clearance prior to travel to Bhutan. Visas are processed through an online system by a licensed Bhutanese tour operator directly or through a foreign travel agent.

Source: Tourism Council of Bhutan
Date last reviewed: March 22, 2019