Foreign Trade in Bangladesh

ASSIGNMENT
ON
Foreign Trade in Bangladesh
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Department of Business Administration
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Department of Business Administration
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Subject
Dear Sir:
Bangladesh is very dutiful

Acknowledgement
At first thanks to our Almighty Who gave us the concentration to prepare this assignment. Secondly we are thanking our honorable teacher for his good topics (Foreign trade in Bangladesh) that he given us. We didn’t know what is the present situation of foreign trade of Bangladesh especially Export and Import but after preparing this assignment now we know well what the present situation of foreign trade of our country.

Executive Summery
Bangladesh has climbed into a success story from the unbelievably humble beginning in December 1971.From at that time Bangladesh has made remarkable achievement in several sectors. It has been able to achieve self-sufficient in food to feed a population of around 130 million. At present economic growth rate is 4.8%. GDP during the year was US$ 47259 million. Per capital GDP was US$ 355. Total export earnings during the year 2001-2002 was US$ 5986.09 million. Import payment during the year 2001-2002 was US$ 8600 million and Total deficit during the year decreased to US$ 2614million. With a view to attaining favorable trade balance and gradual improvement in reserve situation, a five-year export policy was formulated along with more liberal five-year import policy framed in 1997-98. In the wake of the terrorist incident of September 11, 2001 in the USA and the subsequent event of the world, the export sector of Bangladesh suffered unexpectedly in the beginning of the FY2001-2002. In spite of the increase of the remittances of the expatriate Bangladeshis, the foreign currency reserve decrease as the exports suffered severe loss. Against the background, government adopted pragmatic export and import policies supported by appropriate fiscal and monitory polices to effectively face this adverse situation. As a result, the situation gradually improves after January 2002.

Objective:
The objective of this assignment is to know about the present economic situation of our country. From this assignment we will be able to know the present export and import situation and the balance of trade. By comparing the Export, import and others things related with this, we will be able to know which sector performing well and which sector performing very poor and which steps we have to take for improving our present economic condition.

Introduction:
Bangladesh is a least-development country. We are steeped in the vicious circle of poverty. Limited purchasing power in the country stands in the way to increase production and mercerization. In these circumstances, there is no alternative to increase in production and employment through export. Bangladesh has climbed into a success story from the unbelievably humble beginning in December 1971. With the inheritance of a war-ravaged infrastructure and economy, with an over whelming large population living line and insufficient access to education, health service and nitration, Bangladesh has made remarkable achievement in several sectors. Bangladesh geographical location gives the country an added advantage and importance.

Bangladesh Economy:
The economy of the country has achieved a growth rate of 4.8% during the year 2001-2002. GDP during the year was US$ 47259 million compared to US$ 46934 million during the preceding year. Per capital GDP was US$ 355 which was US$ 357 during the previous year. Inflation increased to 2.8% during 2001-2002, which was 1.6%during the previous year. Agriculture still holds an important position in our national economy in creating employment and increasing national income. The contribution of this sector in national income is about 24.6%. Growth in agriculture has decreased to 2.8%. Growth during the year 2000-2001 was 3.1%.Fish production has increased by 3%. Growth in the sector during the preceding year was 8.4% Target for food production during the year 2001-2002 was 28.1 million tons. Actual production during the time was 26.8 million tons compared to 26.9million tons in the year 2000-2001.Due to depression in the world economy, growth in the industry sector during the year 2001-2002 decreased to 6.1% compared to 7.2%during the previous year.

Gross national savings during the year was 22.8% of GDP compared to 22.3% during the previous year. Gross fixed investment increased by 7.4% in 2001-2002, compared to 7.2% in 2000-2001. Total investment during the year 2001-2002 was US$ 1886.83million. Out of which US$ 1833 million was registered with the board of investment. Investment made by Bangladesh Small & Cottage Industries Corporation was US$5.42 million. Investment in the EPZs was US$ 48.41 million compared to US$ 9363million during the year 2000-2001.Import expenditure declined by 8.1% due to decrease food grain import. In total import the contribution of capital goods were 28.3%, raw materials 19.1%, consumer goods 6.36% and others including EPZ 46.2%.Total export earnings during the year 2001-2002 was US$ 5986.09 million. The principal are – Woven garments 53%, Knitwear 24%, Frozen food 5%, Jute products4%, Leather 3%, Raw jute 1%, Chemical products 1%, others 9%.Total deficit during the year decreased to US$ 2614 million, which was US$ 2895.70million during the previous year. Remittance from expatriate Bangladeshis was US$2504 million compared to US$ 1882 during the preceding year registering an increaseof about 33%.

Trade policy and reconstructing programs:
Now a day’s world is going to globalization so the trade is very easy but so muchcompetitive. So government has been pursuing limited protective policy only inconsideration of certain issues like public health, security and religious bindings. Side by side, more liberal import and export policies and program have been adoptedincluding reduction in tariff rates.Government pursued one-year export and import policies in the eighties and tow-year policies in the first half of nineties. Now five years export and import policies have been formulated with the goals and objectives of market economy in conformity withthe agreement under Uruguay round and WHO.In addition, more dynamic and pragmatic steps have been taken to maintain favorable balance between import- export supplying quality goods at reasonable price throughremoval of restriction imposed on movement of goods and services at internationallevel as far as possible, creating favorable environment for investment including directforeign investment and expansion and to make the policies more pragmatic,representative of private sector including the federation of Bangladesh Chamber of Commerce and Industries (FBCCI) have been involved in the process.

Export Policy:
1.To achieve optimum national growth through increase of export in regionaland international market.
2.To narrow down the gap between export earning and import paymentgradually by achieving the export target.
3.To endeavor for optimum benefit in accessing liberalized and globalizeinternational trade under the post Uruguay round environment.
4.To develop marketability of exportable through product diversification andquality improvement.
5.To take steps to establish backward linkage with the export oriented industriesand services sectors, introduction of newer products and export of high valueadded items.
6.To simplify export procedure, rationalized and strengthen export incentives.
7.To develop infrastructure for export trade.
8.To create skill manpower in the export sector.
9.To improve the quality and grading of the export items to the internationallyaccepted standard.To achieve the above objectives, following strategies and provisions have beenincorporated in the new export policy.

Among financial facilities:
Export credit guarantee scheme has been simplified and restructured. Beside, facilitieshave been provided for converting foreign exchange earned through export for import purpose and the limit to keep it own account increased to 40% from 20%. For production of goods, credit procedures have been simplified and repayment periodraised to 270 days from 180 days including lowering of interest rate.

Important fiscal facilities:
Custom duty and import license fee have been waived for import of wet blue leather and pickled leather used in the leather industry, deduction of tax at source has beenreduced and tax system as well as duty draw-back facility have been simplified; bonded warehouse facility for all export industries has been simplified. These facilitieswill be expanded to all cases of 100% export industries; 100% export orientedindustries outside EPZ have been allowed the facility to import capital machineryduty-free.

Among other facilities:
Minimum 80% Export oriented industries will enjoy facilities like 100% exportoriented industries; air freight at reduced rate has been allowed for export of all goodsincluding fruits under crash program beside in special cases facilities have been provided for import of capital and raw materials for export and export orientedindustries; restriction relating to LC and country of origin have been waived for importof capital and raw materials for 100% export oriented industries.Facilities for back-to-back LC and currency conversion have been simplified for readymade garments and knitting Industries. VAT has been rationalized in the case of import of samples and gray cloth.Leather and leather goods industry, high valued new and higher value added agro- processing sector earmarked as “Thrust Sector” in the new export policy. Higher rateof financial, fiscal concession and commercial and communication facilities have been provided to these sector.Following the September 11 shock and subsequent event of the world, the export of Bangladesh suffered unexpectedly in the beginning of FY 2001-2002. In spite of theincrease in remittances of the overseas of Bangladeshis, the foreign currency reservedecreased as the exports sustain sever loss.Given this adverse situation, government adapted pragmatic trade policies coupledwith appropriate fiscal and monetary policies to overcome the difficulties. As a result,export situation and external balance gradually improved after January 2002.

Exports of Primary and Manufacturing Commodities
EPB (2004) reports that out of the total export earnings of US$ 6548.44 million during the FY 2002-200,3 the share of primary goods stood at US$ 462.59 million and that of manufactured goods at US$ 6085.85 million i.e. 7.06% and 92.94% respectively as against US$ 390.30 million and US$ 5595.79 million i.e. 6.52% and 93.48% respectively during the FY 2001-2002. Another noteworthy feature of the export sector is that the share of primary commodities in total exports is gradually decreasing, whereas the corresponding share of manufacturing commodities is gradually increasing over the years. This change in export composition indicates a good sign for the economy, as the price of primary commodities is comparatively uncertain in the international market. In the fiscal year 1982-83, the shares of primary and manufactured commodities were 35.42% and 64.58% respectively. These shares stood at 7.06% and 92.94% in 2002-2003 representing 80.06% decrease for primary commodities and 43.91% increase for manufacturing commodities.

Export Value, Volume and Unit Price Index
The export growth of Bangladesh has occurred due to both price and volume increases over the years. Compared to FY 2001-2002, overall export during FY 2002-2003 increased, in dollar terms, by about 9.39%. Export price index during this period increased by 2.31%. This indicates that export volume increased by 7.08% in FY 2002-2003.

Exports in the primary commodities sector increased by 18.52%, in terms of US dollars, in FY 2002-2003 as against the increase in price index by 26.18%. Thus the primary commodities sector registered a decrease of 7.66%, in volume terms, in FY 2002-2003.

However, both export volume and export price in the manufactured commodities sector increased during FY 2002-2003 as compared to the preceding fiscal year. Export value in terms of US dollar reported an increase of 8.76% during this fiscal year, but the unit price index in this sector increased by 0.36% indicating a volume wise increase of 8.40% (EPB 2004).

Exports Performance Compared to Imports
The export earnings also continuously increased over the years with increased import payments. Though import payments are always higher than the export earnings in absolute terms, the percentage of Bangladesh’s export to imports is improving gradually and in recent years has been quite impressive. In FY 1983-84 the value of Bangladesh’s exports was US$ 811 million and the corresponding figure for Bangladesh’s imports was US$ 2073 million that represents export/import ratio of 39.12%. The export-import ratio increased to 70.09% and 67.80%, respectively, in FY2001-02 and FY 2002-03 (EPB 2004).

Import policy:
On June 14, 1998, the five years (1997-2002) import policy became effective. In thenew import policy, BEPZA, BACIC and Board of Investment (BOI) have been treatedas sponsors of concerned industries. Additionally industrial and import policies have been integrated. As a result administrative complexities for obtaining prior approvalfor different ministers, a requirement for industrialization and commercialization havealready reduced.In the new policy, quality control mechanism of imported goods has also beenstrengthened. Requirement for declaring country of origin for import of raw materialshas been withdrawn for export oriented industries enjoying bonded warehouse facility.Consequently raw materials import has been made easier for 100% export industries.Gold and silver policy has been formulated in keeping with the exchange control regulations of Bangladesh bank. Under the new import policy expatriate Bangladeshisand foreign investors, as pert of equity share, will be able to send any quantity of capital machinery and raw materials.Import of vehicles with 2/3 stroke engines has gradually been restricted for protectionof environment. In order to infuse dynamism and promote development, proceduresfor import of fertilizer, gray cloth, detra-methene cement, ethylene gas, raw materialsfor 100% garment industry have been simplified and in special cases requirement of LC opening has been withdrawn. In addition, some of the directives including in 1995-96 import policy still hold good in the five-year trade policy.Consistent with Uruguay Round Accord and Agreement with the WTO program for tariff reduction continued in 2001-2002. Maximum import duty of 15% in 1992-1993has been reduced to 75% in 1993-1994. Later on, it has been gradually reduced to37.5% in 1999-2000.Beside steps have been taken to rationalized tariff of different commodities andmaterials including withdrawal/ reduction of import duty in order to stabilize price of essential good at normal level. Following this measures the weighted and unweightedaverage rate of custom duty have gradually decline to 19.5% and 13.8% respectivelyon 1999-2000. In order to protect domestic industries and their development, the tariff rates and slabs of the previous financial year have been made in respect of certaincommodities. Both unweighted and weighted average rate of import duty have been presented the bellow table-

Table- Impact of tariff reforms on average rate of customs duty
Financial year
Unweighted average (%)
Import weighted average(%)
1996-97
21.5
18
1997-98
20.7
16
1998-99
20.3
14.1
1999-2000
19.5
13.8
2001-02
18.6
15.1
2002-03
18
14

Import Composition and Growth
To analyze the import composition of Bangladesh it is observed that the import share of principal primary commodities (in total imports) showed a declining trend in recent years. On the other hand, the shares of principal industrial goods and capital goods reported a slight increase. The import payments for principal primary commodities, in FY 1998-99, were US$ 1,448 million representing 18.06% of total import payments. These figures decreased to US$ 980 million and $ 1,098 million (11.66% and 11.73% of total import payments) in FY 1999-2000 and 2000-01 respectively. The import shares of principal industrial goods increased to 14.58% and 15.34% in FY 1999-2000 and FY 2000-01 from 13.77% in FY 1998-99. The share of import payments for capital goods in total imports increased to 25.63% in FY 2000-01 from 24.56% in FY 1998-99. Import payments for rice and wheat significantly decreased in FY 1999-2000 and FY 2000-01 compared to FY 1998-99, which implies that the country is making progress in food production. The share of import payments for petroleum products increased significantly in FY 2000-01 compared to FY 1998-99. Total import payments stepped up to US$ 9363 million in FY 2000-01 from US$ 8403 million in FY 1999-2000 recording an increase by 11.42% (GOB 2002; Bangladesh Bank 2002-03).

GOB (2002) also reports that against the total import growth rate of 4.80%, the import growth rates for primary, industrial and capital goods were –32.32%, 10.96% and 8.33% respectively in FY 1999-2000. The import growth rates for all categories have increased in FY 2000-01, where the figures were 12.04% for primary goods, 17.22% for industrial goods and 12.52% for capital goods. Among the primary products, crude petroleum and cotton recorded the higher import growth, 96.62% and 18.88% in FY 1999-2000 and 17.67% and 35.38% in FY 2000-01 respectively. The import growth rates of petroleum product were 50.37% and 41.63% in FY 1999-2000 and 2000-2001 respectively.

Import Shares of Consumer and Capital Goods
The variations in the share of consumer and capital goods are not notable for the period 1995/96-1998/99 except for consumer goods in FY 1996-97, when the share dropped to 28% from 39% in FY 1995-96. The shares of consumer goods dominate throughout the period recording 38% to 39% of total import payments. Capital goods, on the other hand, registered 13% to 16% of total import payments during this time. The share for combination of consumer goods and materials represented 63% to 68% of total import payments, whereas the same for capital goods and materials together was 32% to 37% during the stated period (BBS 2000: 251).

Comparative Performance of Bangladesh’s Export and Import Sectors
The performance of Bangladesh’s export sector in recent years is quite impressive especially in the 1990s when we compare it with that of world and SAARC1 countries. The average annual growth rate of Bangladesh export (11.91%) is higher than those of the world (9.48%) and SAARC countries (10.69%) during 1990-2003. Because of the lower export performance in the 1980s, annual average growth rate of this sector during 1980-2003 is not as impressive compared to other Asian countries and the world, though this sector shows competitiveness compared to other SAARC countries (IMF various years).

Over the period of 1980-2003 Bangladesh’s exports as a percentage of the world’s exports remain around 0.11% to 0.12% with the exception of 1984, when it was 0.14%, and 1990-1994, when the ratio was around 0.09%. Bangladesh’s exports as a percentage of SAARC countries’ exports show slightly increased trend especially in 2000 and 2001. For these two years Bangladesh’s exports are 11% and 12% of the SAARC countries’ exports respectively. Bangladesh’s share of SAARC countrys’ exports was the lowest, 7.72%, in 1983. Bangladesh’s exports share in the Asian developing countries, however, shows a decreasing trend in the 1990s compared to the1980s though the ratio is slightly higher in 1998 and 1999 compared to immediate earlier years. The ratio dropped to 0.59% in 2003 from 1.46% in 1980 though it was 0.75% in 2001 (IMF various years).

A healthy performance of Bangladesh’s import compared to the world and the SAARC countries is to be noted. Although Bangladesh’s import performance is behind that of the Asian developing countries, the average annual import growth rates of Bangladesh are much higher than those of the world during 1980-90, 1990-2003 and 1980-2003. These growth rates are also higher than those of the SAARC countries over the specified period. When average annual growth rates of the world and SAARC countries are 12.92% and 22.42% respectively, that of Bangladesh is 31.79% during 1980-2003. Even the average growth rate of imports is higher for Bangladesh (22.59%) than that of the Asian developing countries (21.25%) during 1990-2003.

Bangladesh’s imports as a percentage of world and SAARC countries’ imports have also been increasing over the years, though this ratio varies with the Asian developing countries. While the ratio of Bangladesh’s imports to world imports was 0.04% in 1980, it reached around 0.1% in 2001, 2002 and 2003. The ratio of Bangladesh’s imports to SAARC countries’ imports reached 9.3% in 2001 from 4.7% in 1982 and 5% in 1983 (IMF various years).

Export and Import Shares to GDP
The contribution of the export sector to Bangladesh’s GDP has been gradually increasing over the years. While export share in GDP was 4.52% in 1980, this share has reached to 13.45% in 1999, reflecting 197.56% increase in GDP contribution in nineteen years (World Bank 2004). This ratio further increased in 2000, 2001 and 2002. The ratio was 15.38% in 2001.

The imports-GDP ratio of Bangladesh has also been increasing every year with a few exceptions. During 1980-2002 the ratio was the lowest; 9.09% in 1986; and the highest 21.50% in 2001.

The trade openness (trade/GDP ratio) was around 14% to 16% till 1989. After that the ratio increased to 28% in 1995. In 2001 the ratio has increased to 36.88% which implies that trade has been liberalized in Bangladesh to a great extent since 1980. Over the years trade deficits ranged from 2.23% to 7.37% of GDP (World Bank 2004).

Bangladesh’s exports share progressed convincingly compared to other SAARC countries during 1980-2002. Bangladesh’s exports share in GDP was the lowest, 4.52%, in 1980, but in 2002 this figure stood at 14.28%. This is the highest export growth rate (215.93%) among the SAARC countries. The import share was also the lowest, 11.89%, in 1980, but it became the second highest, 19.05%, in 2002 among the SAARC countries. Sri Lanka’s imports share in GDP was the highest (42.87%). The total trade share in GDP, the openness, was the lowest, 16.41%, for Bangladesh in 1980, but this ratio increased to 33.33% in 2002 which is higher than India’s ratio, 30.28% (World Bank 2001, 2004).

Recommendation:
1.As a least development country Bangladesh must try to convince the UnitedStates government to allow duty free and quota free access to export of Bangladeshi product as provided to Jordan, Sub-Sahara Africa and Caribbeancountry.

2.Bangladesh Embassy in Washington need to play a very crucial role treatingthe issue as a top priority in its agenda of action as pert of its responsibilityunder the policy of economic diplomacy. Continued persuasion should bemade through discussion with the United States trade representative, the statedepartment and concerned member of the congress. The BGMEA shouldcontinue to mobilized support through its appointed lobbyist and must work inclose contract with Bangladesh embassy in the USA.

3.Bangladesh government should undertake pro-active step to implement thedecision of the WTO ministerial conference and to mobilize support for dutyfree and quota free access to Bangladesh.

4.Bangladesh government should create sustainable enabling environment suchas ensuring political stability, development of infrastructures includingtelecommunication, power and port facilities etc. These will help to increaseefficiency and reduce cost enabling Bangladeshi exporters to face competitionin foreign market.

5.In order to reduce vulnerability to and absorb external shocks attempts should be made to broaden the industrial base and diversify products and markets.

6.Organize investor’s forum at home and abroad to attract investors to invest inBangladesh.

7. Bangladesh mission in EU, Japan, Middle East and North America and other important countries must undertake program to organize Bangladesh trade fair with a view to creating market of Bangladeshi product.

Conclusion:
Although the import situation of Bangladesh is higher than export but export earningof Bangladesh have grown rapidly over the past decades, the country’s export base hasreminded very narrow and is susceptible to possible sharp variation as a result of external shocks. Successful export diversification both in product and market coverageis the prime factors in attaining the over all objectives. The major requirements in thisregard are, to develop competitive backward linkage in RMG sector in order toincrease domestic content of output to withstand possible threat association with the phasing out after 2004, to develop new export sectors and to strengthen theimplementation of trade development policies and measures.

Bibliography:
1.Annual Report of Export Promotion Bureau (EPB) 2001-20022.Export Statistics (2001-2002)3.Dhaka International Trade Fair (Journal) 20024.Trade Information Journal (July-September 2001)5.Dhaka International Trade Fair (Journal) 20016.Bangladesh Economic Review (2001-2002)