“Report on International Trade in Bangladesh, INCOTERMS,

Regional Trading Bloc (ASEAN) & Trade to GDP ratio of Selective

Country”
STRATEGIC HUMAN RESOURCE MANAGEMENT
EM-551

Submitted to
Professor Dr. Syed Golam Maola
Department of Management
Faculty of Business Studies
Dhaka University

Submitted by
SI Name ID
1 Al-Nahian Bin Hossain 3-20-44-001
2 Nahin Zaman 3-20-44-008
3 Shoriful Islam 3-20-44-001

Date of Submission
17th August, 2021
 LETTER OF TRANSMITTAL
17th August, 2021
Professor Dr. Syed Golam Maola,
Department of Management,
Faculty of Business Studies,
University of Dhaka.
Subject: Submission of the assignment/report on (Regional Trading bloc ASEAN, Trade to
GDP ratio on selective country and Global FDI)
Dear Sir,
It has been a great pleasure for us to work on this group assignment on (International Trade in
Bangladesh, Regional Trading bloc, INCOTERMS, Trade to GDP ratio on selective
country).This assignment has been prepared by a group of three members as a part of the course
(International Business, EM-516) requirement. It is prepared after having extensive overall
analysis of this assignment regarding our course concepts. We have tried our level best to follow
your guidelines in every aspects of preparing this assignment.
The assignment has given us an opportunity to apply theoretical knowledge in real world. It also
has given us a glimpse of our individual understanding and skills in various situations. We
sincerely hope that you will admire our teamwork
Sincerely yours,
Al-Nahian Bin Hossain
Nahin Zaman
Shoriful Islam

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 ACKNOWLEDGEMENT

Our first acknowledge goes to the almighty Allah for bestowing us the patience and courage to
finish this huge task within its deadline. Acknowledgments must go to the team members, whose
great patience and enormous capacity for creative work, and long hours made the repot both
possible and successful – under the pressure of knocking deadline.
This is to acknowledge for the support and the guidance of our honorable faculty, Professor Dr.
Syed Golam Maola, Department of Management, Faculty of Business Studies, University of
Dhaka. We are grateful to him for providing us the opportunity to undertake this
assignment/report on (International Trade in Bangladesh, Regional Trading bloc ASEAN, Trade
to GDP ratio on selective country and Incoterms).
His subject expertise has guided us adequately, without which this report would have not been
completed. We have learned various concepts of International Business practically, which made
us understand those concepts more clearly.

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 Table of Contents
SI Topic Name Page No
No
1 Introduction
2 Literature Review
2.1 Computation of Trade Indices
2.2 Unit Price Index (UPI)
3 Objectives of the Study
4 International Trade in Bangladesh
4.1 Evolution of Export Measures
4.2 Trade Policy Instruments of Bangladesh
4.3 Balance of Trade
4.4 Composition and Performance of Imports of Bangladesh
4.5 Composition and Performance of Exports of Bangladesh
4.6 Exports Performance Compared to Imports
4.7 Directions of Bangladesh’s Exports and Imports
4.8 Balance of Trade of Bangladesh
5 Trade-GDP Ratio of Bangladesh
6 Trade Policy Reform
6.1 Import Policy and Reform Program
6.2 Tariff Rationalization
6.3 Export Policy and Reform Program
6.4 Strategies and Export Promotion Measures
7 Challenges of Trade in Bangladesh
8 Overcoming the Challenges
9 Conclusion
10. Reference

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 ABSTRACT

Despite structural limitations in the Bangladesh economy, the export sector performed well
throughout the 1990s. The export growth rate of Bangladesh was higher than that of the world
and the SAARC countries. However, the balance of trade of Bangladesh was always in deficit
and the trade deficit with India is huge. The export share of primary commodities has decreased
while that of manufactured commodities has increased over the years. The growth rate of
manufactured commodities is better than that of primary commodities. The import share of
principal primary commodities has declined while that of principal industrial and capital goods
has slightly increased over the past years. The striking features of Bangladesh’s exports are
commodity and market concentration. To overcome the problem, there is no alternative but to
diversify exports and improve quality.

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v|Page
 1. Introduction:
Trade is an integral part of the total developmental effort and national growth of all economies
including Bangladesh. It particularly plays a central role in the development plan of Bangladesh
where foreign exchange scarcity constitutes a critical bottleneck. Export trade can largely meet
‘foreign exchange gap’, and export growth would increase the import capacity of the country
that, in turn, would increase industrialization, as well as overall economic activities.
Bangladesh’s import needs are substantial; hence the need to rapidly increase exports is
immediate. In order to finance the imports and also to reduce the country’s dependence on
foreign aid, the Government of Bangladesh has been trying to enhance foreign exchange
earnings through planned and increased exports. However, the global trade scenario has exposed
structural limitations of the Bangladesh economy, posing a variety of challenges for the country
that has underdeveloped technology and a low capital base.
In this paper we discuss the composition, performance and trends of foreign trade of Bangladesh.
In the process, we examine Bangladesh’s export and import performance compared to those of
various countries, regions and the world over the years. We also discuss the sources of
Bangladesh’s imports and directions of Bangladesh’s exports and the dynamic changes over the
years, and highlight the trends of export and import shares to GDP and trade balance positions
with different countries, regions as well as the world. Trade policy reforms of Bangladesh and
major issues, challenges and policy options are also discussed briefly.
International trade plays a significant role in economic growth of a country and in modern
economy both international trade and economic growth are the most popular concepts. The term
international trade is used to indicate the buying and selling of goods and services between
countries for satisfying the needs of its population. International trade enables the countries to
sell their domestically produced goods and services to other countries. Economic growth helps to
increase the real per capital income of a population of the country which can be sustained over a
long period of time.
The neo-classical and classical economists attributed so much relevance to international trade in
a development process of a nation which is regarded as an engine of growth. Over the past years,
the nations of the world have been immensely linked together through globalization and
international trade (Afolabi, Danladi, & Azeez, 2017). Economic growth is one of the most vital
determinants of economic growth of a country and the relationship between international trade
and economic growth is a frequent topic of discussion, when economists try to explain the
different levels of economic growth between countries as well as exports of goods and services
represent one of the most significant sources of foreign exchange income that ease the pressure
on the balance of payments and create employment opportunities for the population of a nation
that ultimately increase the socio-economic conditions of people(Shihab, Soufan, & Abdul-
Khaliq, 2014).

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International trade in recent decades has considerable growth and it is evident that most
conducted traded in this area is associated with monetary and financial system and many banks
and financial institutions do financing the exchange of goods and services(Levine & Renelt,
1992). Over the past years, it has been witness gradual development of integrated global
economic system and developing of science and technology in the various areas has followed
different conditions of business in these years (Sala-i-Martin & V Artadi, 2003).
Communications development and widespread access of customer to information, has changed
markets face and influenced their demands as well as production based on advanced technology
and improved methods provides possible of respond to the changing demands of
customers(Frankel & Rose, 1998).
International trade fosters innovation, the discrimination of technological progress through
exposure to new goods and imports of high-tech inputs and efficient production (Daumal, 2010).

2. Literature Review:
Several studies address the impact of international trade on economic growth of a country. The
findings of these studies indicate that international trade i.e. exports and imports has a
statistically significant positive impact on economic growth (GDP) of a country. Some of these
studies that have addressed the issue of causality between international trade and economic
growth as follows: International trade contains efficiency and welfare achievement to all
countries regardless of their initial conditions, technological capabilities, development level, and
resources endowments (Helpman, 1987).
International trade affects the economic growth of nations via the attraction of FDI. A study
found that the main boulevards through which FDI impacts positively to economic growth are
access to international market, job creation, technology transfer, capital accumulation, marketing
and managerial practices(Lall, 2003).
Researchers investigated the causal links between trade, economic growth and inward foreign
direct investment (FDI) in China at the aggregate level and the study found bidirectional
causality between economic growth, FDI and exports (Shan & Sun, 1998).A study on the long
run effect of FDI and trade on economic growth in Ghana for the period 1970 and 2002.The
researchers discovered a long-run relationship.

2.1 Systems of Trade

There are two systems of computing trade statistics:

 The special trade system and

 The general system of trade.

Special trade system is based on the concept of “clearance through the customs frontiers” which
is, in fact, the statistical boundary. Any commodity that is not cleared by the customs is excluded

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from such statistics. The general system of trade considers the national boundary as the statistical
frontier. It means that all goods and commodities except military goods, bullion, currency notes,
coins and goods in transit, entering or leaving the country are recorded in trade statistics. Earlier
Bangladesh followed the special trade system. For better coverage, Bangladesh is now applying
the general trade system. The main characteristics of the general trade system are summarized
below: The General Trade System
Imports:

 Imports “entering directly” for home consumption or use.

 Imports into customs bonded manufacturing plants.
 Imports into customs bonded warehouses and free area.

Exports:

 Exports of national produce.

 Exports from customs bonded manufacturing plants.
 Nationalized exports.
 Exports from customs bonded warehouses and free area.

Re-export is included after clearance from customs and falls under category mentioned above.

2.2 Computation of Trade Indices

Indices of imports and exports are designed to measure the overall position and direction of
movements of values, prices and quantities of commodities which are bought and sold in the
international market. Construction of indices is based on published data. Unit Price Index is
computed by taking 2002-2003 as the base year.

2.3 Unit Price Index (UPI):

It represents the overall direction of price movements of commodities bought and sold in the
international market. Prices are based on FOB values of exports and CIF values of imports. The
main reasons for selection of 2002-03 as base year are: i) It was considered a normal year for
business/trade activity. ii) HS coding system at 8 digit level was adopted in BBS in 2002-03. In
HS coding system, the total number of commodities is 8123. For better classification and
representation of new commodities in the index basket, the year of introducing HS code was
chosen as the base year. BBS has been computing various annual indices of foreign trade and
publishing them in its Monthly Statistical Bulletin and other monthly and annual publications.

3. Objectives of the Study:

The objectives of the study are:

 To determine the impact of international trade on economic growth in Bangladesh.

 To determine the overall Export-Import scenario of Bangladesh

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  To identify the challenges in international trade and economic growth of Bangladesh.
 To identify the solution to overcome the barrier of international trade in Bangladesh

4. International Trade in Bangladesh:

4.1 Evolution of Export Measures:
Since independence, the successive governments have put emphasis on expansion and
diversification of exports. Therefore, export policies are largely liberal allowing export of almost
all products excluding some unprocessed and partially unprocessed products. The government
also levied export duty on negligible items, such as is 15 per cent export duty on wet blue leather
in 1993 and cotton waste, rice bran, building bricks and unwrought lead in recent years. Major
focus of successive export policies since 1972 has been to promote export through improving tax
neutralizing schemes and providing various incentives. Table- 4 presents an overview of various
export promotion measures introduced by the Government since 1972.
4.2 Trade Policy Instruments of Bangladesh:
Since independence, the main instruments for regulating foreign trade remain Imports and
Exports (Control) Act 1950, Customs Act 1969 and Foreign Exchange Regulation Act 1947. The
Import Policy Order issued under the Imports and Exports (Control) Act 1950 regulates the
condition of import and is legally enforceable. Provisions of other Acts having bearing on import
status of any product are generally referred to in the import policy orders. However, Export
Policy is merely a statement of intent without any legal enforceability. Although Export Policy
defines the export status of certain products, export restrictions are imposed through the
Statutory Regulatory Orders (SRO) issued under the same Act. The Customs Act 1969 specifies
the customs duty through its first schedule and other border taxes and charges such as regulatory,
antidumping, countervailing and safeguards duties. Although import and export policies provide
for overall guidelines, detailed rules and procedures for import for the purpose of exports, such
as procedures for import under bonded warehouse, import for Export Processing Zones and duty
draw back facilities are issued under Customs Act 1969. Until 1982, sales tax was collected on 5
domestic and import products under the Sales Tax Act 1951, which was replaced by the Sales
Tax Ordinance 1982 with effect from July 1, 1982. This ordinance was later replaced by the
VAT Act, 1991 replacing the sales tax by VAT. Along with VAT, Supplementary duty is also
collected under this Act. Both VAT and supplementary duty are collected on imported products.
The VAT Act 1991 was placed by VAT and Supplementary Duty Act 2012 with effect from July
1, 2019. The Foreign Exchange (Regulation) Act 1947, which among others, regulates the
procedures foreign exchange transaction
4.3 Balance of Trade:
Foreign trade plays a vital role in achieving rapid economic development of a country. Since
Bangladesh is a developing country, foreign trade can be considered and given the pivotal
importance. But unfortunately, trade balance of this country is still very unfavorable. Each year
Bangladesh has to spend a huge amount of money for importing consumer goods and materials

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which are not a favorable for our country. Bangladesh also spends much more amount of money
for importing industrial raw materials, but it shows a positive signal for our economy as
industries production of the economy. The country’s requirement of petroleum products is
entirely met by imports.
During the last five years, trade balance of Bangladesh has followed previous trend of increasing.
It is observed from the last five year figures given in Table 4.1 that the trade gap is widening
gradually. Over the last few years, some non-traditional items have been enlisted in the
exportable commodities list. The trend of balance of trade of Bangladesh during the last 5 years
is shown below:
Table 4.1 Balance of Trade of Bangladesh during last five years.

Year Trade Balance Ratio of Exports & Imports

2015-16 -1234681 1:1.47
2016-17 -1708658 1:1.57
2017-18 -2423708 1:1.78
2018-19 -2241055 1:1.64
2019-20 -2629990 1:1.94

Source: National Board of Revenue (NBR)

Note: Trade balance is negative (-) for Bangladesh

Tra de ba la n ce o f ba ng ladesh (million Tk.)

0
2015-16 2016-17 2017-18 2018-19 2019-20
-500000

-1000000
-1234681

-1500000 -1708658

-2000000 -2241055
-2423708
-2500000 -2629990

-3000000

Figure 4.1: Balance of Trade in Bangladesh

It is evident from the table 2.1 that the trade gap in 2019-20 had been increased. In 2018-19, it
was 2241055 million which had been decreased to 2629990 million in 2019-20.\

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4.4 Composition and Performance of Imports of Bangladesh
4.4.1 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.
During the last five years, the average growth of imports was recorded to -4.91%, the lowest
decreased by -4.91% in 2019-20 and the highest 21.79% in 2016-17. Average import value
during 2015-16 to 2019-20 was Tk. 5051564 million. Total import value in 2019-20 was
5441658 million in taka and million in 64186 US dollars. Year wise imports are given in table
4.2.
Table 4.2: Imports of Bangladesh from 2015-16 to 2019-20

Year Imports (Million Imports (Million US % change (In Tk.)

Tk.) dollars)
2015-16 3869349 49436 5.41
2016-17 4712495 59561 21.79
2017-18 5511644 67133 16.96
2018-19 5722675 68103 3.83
2019-20 5441658 64186 -4.91

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 Imports of Bangladesh (Million USD)
80000
70000 67133 68103
64186
59561
60000
49436
50000
40000
30000
20000
10000
0
2015-16 2016-17 2017-18 2018-19 2019-20

Figure 4.2: Imports of Bangladesh

4.4.2 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).
Table 4.3: Import by Major Commodities (2015-16 to 2019-20)

Year Consumer Materials Capital Material for Total

Goods for Goods Capital (Million
Consumer Goods USD)
Goods
2015-16 373556 2879457 575570 40766 49607
2016-17 512090 3406441 732295 61669 60416
2017-18 888037 3716874 844755 61978 70662
2018-19 568881 4235415 870972 47407 73367
2019-20 540221 4160831 691419 49187 69764

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 Figure 4.3: Import by Major Commodities (2015-16 to 2019-20)

4.5 Composition and Performance of Exports of Bangladesh:

4.5.1 Export Earnings and Export Growth
The export sector performed rather well throughout the 1990s. This sector achieved a growth rate of
37.04% in the FY 1994-95. During the twelve years, 1991-92 to 2002-2003, Bangladesh experienced
negative export growth (-7.44%) only in FY 2001- 2002. The terrorist incident of September 11, 2001 in
USA and subsequent events may be blamed for this unexpected suffering of the export sector in the
particular fiscal year. However, the export sector achieved a 9.39% growth rate, an increase of US$
562.35 million, during 2002-2003, with total export earnings amounting to US$ 6,548.44 million
compared to US$ 5,986.09 million in 2001-2002. Charts 1 and 2 provide comparative year-wise export
earnings and export growth rates for twelve years.

Total value of exports in 2019-20 is Tk.2811668 million that reflects 19.24% decreased
comparing to that in 2018-19. As the volume of export of some goods, readymade garments, raw
hides & skin, footwear, made up textile articles, special woven fabrics, the total value of export
has gone up.
Table 4.4: Exports of Bangladesh from 2015-16 to 2019-20

Year Exports (Million Exports (Million % Change (Tk.)

Tk.) USD.)
2015-16 2634668 33661 9.37
2016-17 3003837 37966 14.01
2017-18 3087936 37612 2.8
2018-19 3481620 41433 12.75
2019-20 2811668 33164 -19.24

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 Export in Million USD
45000
40000
35000
30000
25000
20000
15000
10000
5000
0
2015-16 2016-17 2017-18 2018-19 2019-20

Export in Million USD

Figure 4.4: Export by Major Commodities (2015-16 to 2019-20)

4.5.2 Export Earnings and Export Growth by Commodities:
Readymade garments and knitwear are the main contributors to the export earnings of
Bangladesh. Their contributions are, respectively, 52.20% and 24.37% of total export earnings in
FY 2001-2002 and 49.75% and 25.26% in FY 2002-2003. The contribution of frozen foods, jute
goods and leather in FY 2002-2003 are 4.91%, 3.93% and 2.92% of total export earnings
respectively. The statistics reveal that tea, leather and handicraft experienced negative growth in
FY 2002-2003. In terms of positive growth, engineering products topped the list.
Table 4.5: Exports of Principal commodities during last five years

Principle 2015-16 2016-17 2017-18 2018-19 2019-20

Commodities
Readymade 2196542 2339245 2513449 2867433 2274744
Garments
Textile 63100 78677 82085 78051 65458
Articles
Vegetable 57374 70382 74119 61665 59228
textile fiber
Shrimps & 33708 40779 35094 34244 35094
Prawns
Footwear 55752 67977 66367 73819 61719
Hides, Skin 20240 19045 15118 13961 7978
& Leather
Raw Jute 13004 1308 12781 9451 12781

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 Special 4035 4536 4037 4759 3288
Woven
Fabrics
Fertilizer 1 441 1 - -
Hats & 10551 16025 15075 173581 14859
Headgear

Out of ten major items, the exports of two commodities have been increased and another eight
commodities have been decreased. Exports of Readymade garments have been decreased by
20.67%,Foot wear 16.39% Special woven fabrics 30.91% , Hats and other headgear 14.40 %
Hides, skins and leather 42.86%, , Fertilizer 100% , Made up textile articles 16.62%, Vegetable
textile fiber/yarn 3.95% and increased by shrimps and prawn 2.48%, Raw Jute 35.23.

4.6 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).

4.7 Directions of Bangladesh’s Exports and Imports:

4.7.1 Country-wise Exports of Bangladesh

The destination wise export figures reveal that the United States is the most prominent buyer of
Bangladesh’s products. Germany and UK occupied the second and third positions respectively.
These three countries accounted for 57.33% of Bangladesh’s total exports in FY 2002-03. The
increasing importance of USA and some European countries as the major export destination over
the past years indicates market concentration for Bangladesh’s exports along with commodity
concentration. The exports to USA, Germany, UK, France, Belgium, Spain and Canada have
continued to increase in recent years with a few exceptions.
Bangladesh exports more in terms of number of items and value to the United States of America
and European Countries. Following table shows the countries where Bangladesh exports more.

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 Figure 4.5: Country-wise Exports of Bangladesh (2018-19 to 2019-20)
4.7.2 Country-wise Imports of Bangladesh
There is a reverse trend of the Bangladesh’s imports with regard to the sources over time. While
industrial countries were the major source for Bangladesh’s imports during the 1970s, these
countries became a minor source for Bangladesh’s imports during 1980s and 1990s. Instead,
developing countries are now a major source for Bangladesh’s imports. While industrial
countries constitute 51.4% of Bangladesh’s total imports in 1978, their share in 2002 was only
25.4%. On the other hand, developing countries’ contribution to Bangladesh’s imports increased
to 63.2% in 2002 from 27.3% in 1978. Asian developing countries dominate as sources for
Bangladesh’s imports, raising its share from 14.6% in 1978 to 55.1% in 2002. Annual growth
rates of Bangladesh’s imports, in 1998 and 2002, are 3.4% and –12.9% from the world, -6.2%
and –12.8% from industrial countries, 6.7% and –7.7% from developing countries, and 8.7% and
–7.4 % from Asian developing countries.
Among the industrial countries, Japan and the United States are the leading countries for
Bangladesh’s imports. These two countries used to supply more than 50% of Bangladesh’s
imports in 1978. In 2002 their joint contribution was about 41% of Bangladesh’s imports from
the industrial countries. Other major sources for Bangladesh’s imports are the United Kingdom,
Australia, Germany, France and Canada (IMF various years). Among the developing countries,
India has now become the principal source of Bangladesh’s imports. India alone supplied 30.5%
of Bangladesh’s total imports from developing countries in 1998 though the figure was only
10.5% in 1978. The second largest supplier is China from which Bangladesh imported 18.4%, in
2002, of its total imports from the developing countries. Singapore and Hong Kong are also key

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countries for Bangladesh’s imports. Hong Kong’s contribution ranged from 10% - 15% of
Bangladesh’s imports during the 1990s. Singapore was the main source for Bangladesh’s imports
in the year 1990 (25%). Other major import sources are Korea, Indonesia, Thailand, the United
Arab Emirates, Saudi Arabia, Pakistan and Malaysia (IMF various years).
Figure 4.6: Country-wise Imports of Bangladesh (2018-19 to 2019-20)

4.8 Balance of Trade of Bangladesh:

The trade balance of Bangladesh is of great concern. It has always been in deficit over the
decades. Recent statistics show that the trade deficit of the country was US$ 3,109.56 million in
FY 2002-03, while it was US$ 1,262.08 million in FY 1983-84 (EPB 2004). Based on the data of
Export Promotion Bureau, Chart 3 shows the balance of trade position for 20 years (1983/84-
2002/03), which is quite unsatisfactory. The trade deficit has been increasing over the years.
Bangladesh’s trade balance with India is also disappointing and was US$ 81.3 million in 1988;
that became US$ 974.3 million in 1999, reflecting an increase of trade deficit by 1,098% during
1988-99. The trade deficit with Pakistan increased by 107.90% during the same period.
Bangladesh had trade surplus with Nepal in 1988, but the surplus has turned into deficits in 1999
by 180.44%. Bangladesh also had a trade surplus with Sri Lanka in 1988, but the country
experienced trade deficit in 1999, reflecting a decrease in trade surplus by 106.86% (IMF various
years).

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 Figure 4.7: Balance of Trade in Bangladesh
4.9 Comparative Performance of Bangladesh with other SAARC Countries

A healthy performance of Bangladesh’s imports 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. 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. Bangladesh's export to the SAARC nations has been rising year on year,
and it has swelled by 88 percent in the last five years. The growth of Bangladeshi products'
shipment to the eight-nation sub-regional block is much higher than the country's overall export
earnings growth from across the globe.

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 Country/Yea 2017-18 2018-19
r
Imports (in Exports (in % of the Imports (in Exports (in % of
Billion USD) Billion USD) total trade Billion USD) Billion USD) the
total
trade
Bangladesh 64.25 40.56 13.32% 64.86 46.36 13.49%

Afghanistan 0.44 0.34 0.06% 0.46 0.36 0.07%

Bhutan 1.37 0.75 0.35% 1.27 0.86 0.30%

India 639.01 538.64 56.44% 601.58 529.02 52.91%

Nepal 13.45 2.59 6.11% 14.18 2.66 8.40%

Pakistan 63.14 28.22 19.64% 56.53 28.15 20.70%

Srilanka 26.80 20.26 3.68% 24.57 19.42 3.76%

Maldives 4.44 3.72 0.40% 4.40 3.89 0.37%

Total 812.90 635.08 100% 767.85 630.72 100%

Table: Comparative Performance of Bangladesh and other SAARC countries

Bangladesh’s unexploited potential for exports to SAARC region is estimated at 93%. The
country’s actual export to SAARC countries was $532.7 million in 2014, while the potential was
$7.73 billion. Bangladesh had the highest unexploited proportion, followed by Maldives, whose
unexplored potential stood at 88%, Pakistan at 86%, Afghanistan at 83%, and Nepal at 76% in
2017. Bangladesh’s export to SAARC stood at $652.57 million for the period July 2016 to
March 2017, up from the previous fiscal year’s export of $572.75 million. It was expected that
Bangladesh export to the South Asian Association for Regional Cooperation (SAARC) region
could reach $24.65 billion by 2020.

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 5. Trade-GDP Ratio of Bangladesh:
When a country is importing goods, this represents an outflow of funds from that country. Local
companies are the importers and they make payments to overseas entities, or the exporters. A
high level of imports indicates robust domestic demand and a growing economy. If these imports
are mainly productive assets, such as machinery and equipment, this is even more favorable for a
country since productive assets will improve the economy's productivity over the long run.
The aggregate value of international trade in goods and services reflects countries’ integration
into the world economy. Small countries are generally more integrated: their exports tend to be
in a limited number of sectors and they need to import more goods and services than larger
countries in order to satisfy domestic demand. Nonetheless, size is not the only determinant of
trade integration. Other factors help to explain differences across countries: geography, history,
culture, trade policy, structure of the economy (in particular the weight of non-tradable services)
and integration in global production chains, where measured trade may include a significant
proportion of re-exports and intra-firm trade linked to the presence of multinational firms.
Trade is the sum of exports and imports of goods and services measured as a share of gross
domestic product.
• Bangladesh trade to GDP ratio for 2019 was 36.76%, a 1.49% decline from 2018.
• Bangladesh trade to GDP ratio for 2018 was 38.24%, a 2.94% increase from 2017.
• Bangladesh trade to GDP ratio for 2017 was 35.30%, a 2.65% decline from 2016.
• Bangladesh trade to GDP ratio for 2016 was 37.95%, a 4.13% decline from 2015.
• Bangladesh trade to GDP ratio for 2015 was 42.09%, a 2.43% decline from 2014.
• Bangladesh trade to GDP ratio for 2014 was 44.51%, a 1.78% decline from 2013.
• Bangladesh trade to GDP ratio for 2013 was 46.3%, a 1.81% decline from 2012.
• Bangladesh trade to GDP ratio for 2012 was 48.11%, a 0.69% increase from 2011.
• Bangladesh trade to GDP ratio for 2011 was 47.42%, a 9.62% increase from 2010.
• Bangladesh trade to GDP ratio for 2010 was 37.8%, a 2.29% decline from 2009.
The graph below shows the overall Trade-GDP ratio of Bangladesh:

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 Figure 5.1: Bangladesh Trade-GDP Ratio (2010-2019)

6. Trade Policy Reforms:

During the past three decades, Bangladesh carried out extensive trade policy reforms. In
particular, the country has been pursuing a liberal trade policy since the beginning of the 1990s,
which is consistent with the trends in the global market economy, Uruguay Round Accord and
agreement with the World Trade Organization. The government formulated a five-year export
policy along with a more liberal five-year import policy in 1997/98 with the objective of
attaining a favorable trade balance and gradual improvement in the foreign exchange reserve
situation (GOB 2002). The governments in 1990s really wanted to promote rapid export growth
by reducing and eliminating the anti-export bias prevalent in the economy. Keeping this goal in
mind, the government has been pursuing a limited protective policy only in consideration of
several important issues like public health, security and religious restrictions. Also, the
government has been adopting more liberal import and export policies and programs including
reduction and harmonization in tariff rates, and elimination of many quantitative restrictions on
imports (GOB 2002, CSB 2003).

6.1 Import Policy and Reform Program:

The trade regime has been rationalized and simplified through lowering the tariff rates, phasing
out quantitative restrictions, streamlining import procedures and introducing tax reforms. The
overall tariff structure has been changed by these reforms. A summary of these reforms is briefly
provided below.

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  In the new policy, industrial and import policies have been integrated in order to
reduce the administrative complexities for obtaining prior approval from different
Ministries, a requirement for industrialization and commercialization. The condition
for declaration about the country of origin for import of raw materials has been lifted
for export-oriented industries enjoying a bonded warehouse facility (GOB 2002).
Import licensing is no longer required for any import into Bangladesh. The role of the
Trading Corporation of Bangladesh (TCB), the state trading body, in import and
export has been reduced (CSB 2003, GOB 2001). In the import policy, quality
control of imported goods has also been strengthened.
 Bangladesh has reduced average tariff rates significantly. The mean tariffs on all
products were reduced from 114 percent in 1989 to 22 percent in 1999; and the
weighted mean tariff declined from 114 percent to 19 percent over the same period.
 Import taxes, for example development surcharges, regulatory duties and sales taxes,
were abolished in 1991 (Mujeri and Khondker 2002; World Bank 1999, 2000).

6.2 Tariff Rationalization:

During the 1990s, Bangladesh not only significantly reduced its tariff rates but also rationalized
the tariff structure. The country progressively moved towards obtaining the goal of simplicity
and transparency of customs tariffs. The top custom duty rate came down to 32.5 percent in FY
2003 from 350 percent in FY 1992. The average (unweight) customs duty (CD) decreased from
57 percent in FY 1992 to 16.5 percent in FY 2003. The average protective tax also declined to 22
percent in FY 2003 compared to 61 percent in FY 1992. Bangladesh progressed a lot towards
achieving a degree of uniformity and removing some tariff anomalies that existed due to higher
tariffs on intermediate products compared to final products (Ahmed and Sattar 2004). It may be
noted that Bangladesh’s nominal import protection level is now the lowest in South Asia and
tariff reduction in the country during the early 1990s is ranked as one of the fastest amongst the
reforming countries (Mujeri and Khondker 2002, quoted from CPD 1997). Both nominal and
effective protection rates have also declined over the years due to changes in the tariff structure.
The effective protection rate declined to 26.8 percent in 1998/99 compared to 33.0 percent in
1995/96 and 75.7 percent in 1992/93 (Mujeri 2000). Tariff regime has also been simplified. The
applied MFN tariff (i.e. general exemption rate) of 2005/06 contains four tariff bands (zero, 6%
(basic raw materials), 13% (intermediate goods), 25% (finished goods)) as compared to five
tariff bands (zero, 5%, 15%, 25%, 37.5%) in 1999/2000 (GOB 2006).

6.3 Export Policy and Reform Programme:

With underdeveloped technology and a low capital base, Bangladesh faces great challenges for
its exports as the export industries have to compete with those of other countries in the
expanding global market. Domestic import-substitute industries are also facing increasing
competition as a result of gradual reduction of import duty rates (GOB 2002). So the export
industries must survive and expand in order to accelerate growth by generating employment,

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savings and investment. With this in view, Bangladesh adopted a three-year (2003-2006) Export
Policy to achieve certain objectives.

6.4 Strategies and Export Promotion Measures:

Some strategies have been incorporated in the new Export Policy to achieve the objectives.
Some useful export promotion measures have also been undertaken. These are briefly
highlighted.
a. Use of foreign currency:
The exporters can deposit a certain amount of their export earning in foreign currency under a
retention quota in their foreign currency account in the form of US dollar, pound sterling,
Japanese yen or euro. The amount of the retention (in terms of percentage) will be fixed by the
government/ Bangladesh Bank. This foreign currency can be used to fulfil real business needs
like business trips abroad, participation in export fairs or seminars in foreign countries, import of
raw materials and spare parts, and setting up of offices abroad (GOB 2003).
b. Export Fund:
Interest free loans will be provided under duty-drawback credit scheme for 180 days and 100
percent of the loan amount will be provided in advance; import process of raw materials and
related products will be made easier under the export promotion fund (EPF); facilities will be
provided to open back- to- back LCs for all exportable; and the proposals for importing capital
machineries with soft term loan with lower interest rate may be considered for export promotion.
c. Export Loan:
The exporters can get 90 percent of the LC amount from commercial banks under irrevocable
letter of credit or confirmed contract. The commercial banks will consider such cases on priority
basis; Bangladesh Bank will take steps to continue normal flow of loans in the export sector; the
cash credit limit of the exporters will be fixed in view of their success in the previous year; and
Bangladesh Bank will launch an export credit cell while commercial banks will set up special
units to provide funds for exports.
d. Other facilities:
Among these facilities, exemption of insurance premium, incentives for non-traditional industrial
products, bond facilities for export oriented industries, facilities for duty free import of capital
machineries for export-oriented industries, tax holiday, duty drawback scheme, easing VAT
return on export supplementary services, permission for selling rejected products of export
industries, strengthening export related training, setting up of world trade centers, country fair
with international standard, relaxing restrictions on importing raw materials for export products,
etc. are notable (GOB 2003).

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 7. Challenges of Trade in Bangladesh:
Despite relatively strong economic growth over the past decade, investment climate constraints,
deficiencies in energy and transportation infrastructure, and an opaque regulatory environment
have prevented Bangladesh from achieving higher growth.
Shortages of land, natural gas, and power remain major impediments to investment. Electricity
generation capacity has grown significantly over the last decade, but transmission and
distribution systems need additional work to ensure more reliable and inclusive access to
electricity. Corruption is also widely perceived to be endemic at all levels of society,
discouraging investments and inhibiting economic growth.
Reputable companies have complained the Bangladesh National Board of Revenue (NBR) is
inconsistently subjecting businesses’ prior year tax returns to renewed scrutiny. While this
process is taking place, normal business activities such as banking, immigration procedures, and
branch office licensing permissions may be slowed or stopped entirely. Some companies have
either exited the market or minimized their presence as a result of NBR’s actions.
Political unrest, largely stemming from local or national elections, has at times shut down
business operations and impacted supply chains, though not since 2014. Security challenges
have hampered some investment and trade opportunities. Bangladesh saw its biggest terrorist
attack in July 2016 (claimed by Islamic State of Iraq and al-Sham - ISIS) at the Holey Artisan
restaurant in Dhaka, where twenty people, mostly foreigners, were killed. Prior to July 2016
there were several incidents where foreigners and bloggers were targeted by ISIS and Al-Qaeda.
The government and law enforcement have implemented security measures and conducted raids
to restrain militant groups operating in Bangladesh. Although extremist attacks remain a concern
for the country, relatively high and steady GDP growth over the last decade has shown the
resilience of Bangladesh’s economy in weathering these challenges.
A series of RMG industry accidents, including the tragic deaths of more than 1,100 workers in
the Rana Plaza Complex collapse in April 2013, have highlighted the ongoing need for improved
worker safety and labor rights and prompted Western brand-led initiatives to improve factory
safety. Workers continue to protest low and delayed wages.
Economic weaknesses also include an undeveloped and undercapitalized financial sector, an
inefficient and chronically loss-making public sector, and a decision-averse bureaucracy that
often resists measures to improve the business climate. So the challenges are given below

 Legal Constraints:
The first and the foremost problems in foreign exchange operations arise due to legal constraints.
Since foreign trade indicates exchange of goods and services between two countries and each
country has its own laws, rules and regulations, which are different from other countries, so
problems arise in foreign exchange operations. For example, an exporter of Bangladesh receives
an L/C from the importer of England in which the goods will be shipped in American ship and

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delivered in China. In this case according to which country’s law the dispute, if arise, will be
settled, is a problem.
 Geographical Location:
From the geographical viewpoint, Bangladesh is not located in such a place to trade vigorously.
We have encompassed by India from three sides. And India enjoys a strong industrial base
compared to us. Due to economy of scale India can produce the same quality products at a
cheaper price. So this is a problem in foreign exchange operation.

 Limited Skilled Manpower:

Performing the foreign exchange activities is a very tough job because it involves proper
communication with the client, various banks of the country as well as abroad. A single error
may cost thousands of dollars. In Bangladesh there is limited skilled manpower, who can
understand and handle the foreign exchange dealings well.
 Limited Export Base:
Bangladesh has a very limited export base. It does not have the sufficient supply of raw materials
needed to use in the production process. If Bangladesh has the local raw materials, it would be
able to use them in the production process. But unfortunately the country has to import the raw
materials required in various production processes. As a result, production cost increases and
consumers has to spend more to avail that particular product.
 Lack of Stable Policy:
Policy and structure are an integral part of any kind of operation. It will suggest us how to
perform the operation. But if the policy continues to change frequently it is not easy to plan and
perform also. With the changes of Government new policies are formed, which is very difficult
to cope with. It is hard for the business organizations and businessmen to settle themselves. They
are always deviated from the old track, and have to run after the new track. This is another
problem of our country. 6. Political Instability: Another major problem to conduct foreign
exchange business is the political instability of a country, as the political stability is essential for
smooth foreign exchange operations.
 Problems in UCPDC Guidelines:
According to the Article – 4 of the Uniform Customs and Practices for Documentary Credit
(UCPDC), all parties concerned with L/C must deal with documents not with goods. This may
cause problem, as the bank must have to make payment after the presentations of necessary
documents, whether or not the goods are delivered to the importer.
 Absence of Islamic Money Market:
There is no Islamic money market in Bangladesh as well as in the world to deal with Foreign
Exchange Operations. Rules and Regulations of Foreign Exchange Operations as per Islamic
Sharia. There is no international Policy, Rules and Regulations of Islamic Banking Regarding
Foreign Exchange Operations, so the Islamic Banks has to face problems in foreign exchange
operations.

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  Other Problem:
Whenever an importer comes to the bank to issue a L/C in his favor, he has to deposit a certain
amount, known as “L/C margin”. After receiving of the export documents from the exporter the
importer pays the rest amount. But up to this time this L/C margin amount is kept by the bank
without giving any return to the importer, so it is a loss for the client. He could invest this money
anywhere else and could earn some return. The importer adds this loss this loss with his
production cost so the product price goes up that has to borne by the ultimate customers.

8. Overcoming the Challenges:

Our investment promotion agencies could consider the following steps to attract foreign
investment in an effective manner:
 Priority sectors for inviting foreign investment have to be selected:
Because today Bangladesh do not need foreign investment to establish a RMG industry but it
could be welcome to develop a world class amusement park, sea or hill station, five star hotel, to
construct an alleviated express way, establish a modern laboratory, high-tech medical facilities
etc. Therefore we have to select priority sectors for foreign investment.

 Complete project proposals (fiscal & technical) shall be prepared:

Promising projects could be listed and preparing project proposals in terms of capital, technology
required, potential markets, with payback period etc.

 A long list of global investment giants could be made:

Sectorial list of multinational or transnational investment companies could be drawn and
approached with specific project proposals. This approach could be given one to one basis or
organizing investment summits into global corporate hubs like Singapore, Dubai, Geneva, Paris,
Frankfort, London, New York etc.
 Providing One Stop Investment Facility Services to the Investors:
One stop investment services like Trade License, TIN, VAT registration, Environment
Clearance, Boiler Clearance, Joint Stock Registration, Export / Import, Registration, Copyright,
Patents, Trade Marks, Industrial Designs etc. has to be offered digitally to avoid corruption and
delay in decision making.
 Post investment services:
A package of thousand days post investment services could be offered for the foreign investors
to monitor and guide sustainable investment.
 Appropriate macroeconomic policies including price stability and an appropriate exchange
rate must be ensured. Bangladesh Bank, the central bank of Bangladesh, must take
appropriate steps independently in this regard. The government must also contribute by
playing a helping role to maintain the price stability. Prudent fiscal policy, for example,
would be helpful in this regard.

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 Hassle-free regulatory framework in terms of transparent business regulations and simplified
export and import procedures must be determined.
 Adequate infrastructure must be built to facilitate the country’s exports. Sufficient
investments, both from internal and external sources, are vital to improve the existing
infrastructure facilities. Foreign direct investment can play a contributory role in this regard.
The government must create a favorable investment environment by improving law and order
situation and controlling corruption.
 Proper quality of exportable items must be maintained to meet foreign demand. Better
education and training to the workers and managers in the export industries, establishment of
more technical schools and colleges, import of improved technology for export industries,
and closed and regular product supervision can ensure the quality of exportable items.
 Government backed trade related services, such as export financing scheme, marketing and
distribution services and trade promotion activities are essential. The government must be
more supportive of these efforts.
 Close partnership between the Government and the business community is crucial. Honest
businessmen, who are really contributing to the economy, deserve all kinds of cooperation
from the government. A clear and constructive understanding between these two groups can
undoubtedly improve the country’s export performance.
 Effective negotiations must be undertaken to have zero-tariff market access with the three
developing countries of the SAARC, especially with India. Bangladesh can persuade India by
raising the point that Bangladesh is a big market for Indian commodities. India is the largest
import trading partner of Bangladesh. So the import capacity of Bangladesh must be
increased for more trade with India. Easy access of Bangladesh’s exportable items to the
Indian market will increase Bangladesh’s export earnings and enhance import capacity,
which will be beneficial for the Indian economy, as Bangladesh can use these earnings for
increased imports from India. ix) Policy must be pursued for removal of all non-tariff barriers
with respect to trade amongst countries of South Asia.
 The government and the business community must work hard for export and market
diversification. Efforts must be made to increase the export of traditional items. Frequent
export fairs through the foreign missions can be helpful to introduce new exportable items to
foreign buyers. The search for new markets for Bangladesh’s exports should be a continuous.

9. Conclusion:
Despite the structural limitations of the Bangladesh economy, the export sector performed well
throughout the 1990s. The export growth rate of Bangladesh was higher than the export growth
rate of the world and the SAARC countries. The import growth rate of Bangladesh was also
higher than that of the world and the SAARC countries during the 1980s and 1990s.
Bangladesh’s import share as percentage of world and SAARC countries’ imports has also
increased over the years.

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The export-GDP ratio, import –GDP ratio and trade-GDP ratio have increased over the years.
The growth rate of export- GDP ratio of Bangladesh was the highest during 1980-2002 among
the SAARC countries. However, the balance of trade of Bangladesh remained in deficit. The
country also had trade deficits with all SAARC countries while the trade deficit with India is
huge.
The export composition of Bangladesh has been changing over the years. The share of primary
commodities has decreased, and that of manufactured commodities has increased over the years.
In terms of growth rate the performance of manufactured commodities is better than that of
primary commodities.
The analysis of import composition revealed that import share of principal primary commodities
has declined while that of principal industrial and capital goods has slightly increased over the
past years. The import growth rate for principal industrial goods is the highest, followed by
capital goods and principal primary goods in FY 1999-2000 and 2001-01. The import share of
consumer goods and materials is around two-thirds of total imports and that of capital goods and
materials is around one-third of total import over the years. Though import payments also
increased with export earnings, the import growth was not as robust as export growth.

The striking features for the Bangladesh’s exports are commodity and market concentration. This
is the main concern. To address it, there is no alternative but to initiate diversification and quality
improvements. New markets for the country’s exports must also be explored to secure more
stability in the export sector.
To reduce the dependence on imported inputs for the readymade garments and knitwear
industries, Bangladesh must make massive investments in both yarn and fabric manufactures.
This would create forward and backward linkages; and current trade deficit would improve.
Furthermore, openness of Bangladesh and its trading partners, infrastructural development,
adequate trade related services, appropriate macroeconomic policy and close partnership
between the government and the business community are crucial to improve the country’s
overall trade balance. To improve the trade balance with the SAARC countries, especially with
India, further currency devaluation, measures to stop border smuggling, removal of tariff and
non-tariff barriers on Bangladesh’s exports, arrangement for more Indian investment in
Bangladesh and political harmony in the region are vital. A customs union within the SAARC
region is likely to offset many of the existing trade related problems.

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 References
 Ahmed, S. and Sattar, Z. (2004). “Trade Liberalization, Growth and Poverty
Reduction: The Case of Bangladesh,” Working Paper, World Bank, South Asian
Region. May 01, 2004. The paper was also presented in the ABCDE Bangalore
Conference in May, 2003.
 Bangladesh Bank. (2019-2020). Annual Report 2019-2020, Dhaka, Bangladesh.
 BBS. (2000). Statistical Pocketbook of Bangladesh, Bangladesh Bureau of Statistics,
Dhaka, Bangladesh. CPD. (1997). Growth or Stagnation? A Review of Bangladesh’s
Development 1996, Centre for Policy Dialogue/University Press Limited, Dhaka.
 CSB. (2003). Country Study of Bangladesh, A Paper Presented at the Country
Studies Workshop on ‘Trade Cooperation and Economic Policy Reform in South
Asia’, Bangladesh Institute of Development Studies, Dhaka, Bangladesh, March 30.
 EPB (Export Promotion Bureau). (2004). Bangladesh Export Statistics 2002-2003.
Export Promotion Bureau, Dhaka, Bangladesh. www.epbbd.com/ExportStat.html
 GOB. (2001). Country Presentation, A paper presented by the Government of
Bangladesh in the Third United Nations Conference on ‘The Least Developed
Countries’, Brussels, 14-20 May.
 GOB. (2002). ‘Foreign Trade, Exchange Rate Management and External Sector’,
Bangladesh Economic Review, Finance Division, Ministry of Finance, the
Government of Bangladesh, Dhaka.
 GOB. (2020). Export Policy 2019-2020, Ministry of Commerce, Government of
Bangladesh, December, 2003.
 GOB. (2020). Trade Policy Review by Bangladesh, World Trade Organization,
Report No. 06-3754. Downloaded on 10/8/21.
 IMF. (Various Years). Direction of Trade Statistics Yearbook, International
Monetary Fund, Washington D.C.
 Islam, M.A. (2003). “Exchange Rate Policy of Bangladesh: Not Floating Does Not
Mean Sinking,” Paper 20, CPD Occasional Paper Series, Centre for Policy Dialogue,
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