Case 02: Closing Case – The Raise of Bangladesh’ s Textile Trade

1. Why was the shift to a free trade regime in the textile industry good for Bangladesh?

Prior to the movement towards free trade there was a quota system in place for the textiles
industry. A quota being a restriction implied on the amount of goods and services imported or
exported from and into a country. Quotas are used in international trade to restrict imports in order
to support domestic production. For countries such as Bangladesh , this meant that they were able
to take advantage by gaining access to rich countries such as US and European Union who would
have otherwise been importing from countries with larger economies of scale had there not have
been a restriction on the number of imports. (Hill, 2013)

In January 2005, the quota system was scrapped for one in favor of free trade principles. Prior to
the elimination of quantitative restrictions in Bangladesh’s textile trade was steadily growing. The
removal of quotas meant that nations such as China and Indonesia had no restrictions on the
number of exports into countries- resulting in Bangladesh having to compete for business to a
greater extent.

Employment and economic growth in Bangladesh depends upon exports of textile products which
were allowed through a preferential quota system for textile market export from poor markets to
rich markets. As soon as the shift to a free trade regime appeared along with the competition with
countries such as China and Indonesia the quick collapse of Bangladesh’s textile industry has been
predicted. However, the opposite occurred. We can highlight three major reasons to explain what
happened:

* Low labor cost

* Strong network of supporting industries

* Western importers want to diversify their supply sources

Total exports from Bangladesh in 2011 equated to $ 24.3 billion, and $ 19 billion of that being
exportation of in ready-made garments. After 2005 where free trade regime was implemented, the
garment industry in Bangladesh continued to grow. In 2006 Bangladesh’s export of garments were
$ 8.9 billion, increasing to $9.3 billion in 2007 and $ 10.7 billion in 2008 (Hill, 2013). The
continuation of growth of exports for Bangladesh after the implementation of free trade
contradicted expectations mentioned previously. The movement of Bangladesh toward free trade
regime in the textile trade industry increased exports hence leading to the generation of income,
employment, higer shares in the world market and economic growth.

Bangladesh’s textile industry continued to grow during the period where the rest of the world was
in an economic crisis. During that period big importers such as Walmart increased their purchases
of low cost garments from Bangladesh to better serve customer needs and low prices.