Page |i

Assignment on

Foreign trade of Bangladesh

Course Title: Management of International Trade and Finance

Course Code: MGT401

Submitted To
Mabia khatun
Assistant Professor
Department of Finance and Banking

Submitted By
Mridul Singha
Student ID: 17MGT009
BBA 4th year 1st semester
Department of Management Studies

Bangabandhu Sheikh Mujibur

Rahman Science & Technology University,
Gopalgonj-8100

Date of Submission: 25/08/2022

 P a g e | ii

Table of Contents

Introduction………………………………………………………………………01

What means foreign trade………………………………………………………..01

Size of foreign trade……………………………………………………………..1-2

Structure of Foreign Trade……………………………………………………….02

Characteristics of foreign trade………………………………………………….2-3

Balance of payment position……………………………………………………..4-5

Traditional and non-traditional export items……………………………………..5-6

Patterns of performance of foreign trade…………………………………………6-7

Problems hindering the foreign trade in Bangladesh……………………………..7-8

Export processing zones in Bangladesh…………………………………………..8-10

 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 allow capital base.

What means foreign trade?

Foreign Trade is the exchange of goods and services between two countries in the international
market. It helps in the availability of raw material/finished product in a country that either does
not have it or has it in scarcity.

Size of foreign trade:

Bangladesh is a country the size of Iowa, situated in the northeastern corner of the Indian
subcontinent and bordered by India and Burma, with a 2021 population estimated to be 165
million, according to the World Bank.  Bangladesh is the eighth most populous country in the
world, and the most densely populated other than city states.  Bangladesh represents an excellent
potential market for U.S. exports. Bangladesh has enjoyed consistent annual GDP growth of over
six percent since 2005, with an exception in 2020 as the economy slowed because of the
COVID-19 outbreak.  Much of Bangladesh’s economic growth continues to be driven by exports
from the $31.5 billion ready-made garment (RMG) industry and continued remittance inflows
from expatriate labor, which reached a record $24.8 billion in fiscal year (FY) 2020-21. (Note: 
the Bangladesh fiscal year is from July 1 to June 20.)

The government offers a range of investment incentives under its industrial policy and export-
oriented growth strategy.  According to the United Nations Conference on Trade and
Development (UNCTAD) Bangladesh received foreign direct investment (FDI) net inflows of
$2.9 billion in 2021.  Bangladesh’s central bank estimated foreign exchange reserves decreased
from $44.96 billion in May 2021to $42.2 billion in June 2022.
 Page |2

Bangladesh’s export economy is dominated by RMG manufacturing, but the country remains
largely rural with an urbanization rate of only 38.2 percent of the population.  While the
agriculture sector employs 40.6 percent of the population, it accounted for only 13.6 percent of
GDP in 2017, according to the Bangladesh Bureau of Statistics (BBS).  The industrial sector
accounts for 35.1 percent of GDP and employs 20.4 percent of the population, primarily in the
RMG and light manufacturing sectors.  The services sector accounts for 51.3 percent of GDP and
employs 39 percent of the population.

U.S. goods exports to Bangladesh totaled $2.35 billion while goods imports totaled $8.3 billion,
resulting in a U.S. goods trade deficit with Bangladesh of $5.95 billion in 2021.  The top import
categories in 2021 were: woven apparel ($3.89 billion), knit apparel ($2.06 billion),
miscellaneous textile articles ($268.5 million), footwear ($230.2 million) and headgear ($168.6
million).  The top export categories from the United States to Bangladesh in 2020 were:  ferrous
waste and scrap ($592.78 million), soybeans ($475.66 million), and cotton ($311.15 million).
Notable industrial goods exported to Bangladesh in recent years include turbines for power
generation, commercial aircraft and parts, and locomotives.

Structure of Foreign Trade:

 Page |3

Characteristics of foreign trade

Every foreign market has its own characteristics. It has own requirements, customs, traditions,
weights and measures, marketing methods, etc. An extensive study of foreign markets is required
to be successful in foreign trade, which may not be possessed by an ordinary trader.

International trade is characterized by the following features:

1. Territorial specialization:
International trade takes place basically due to geographical specialization. Every country
specializes in the production of goods and services in which it has a specific advantage.

2. International competition:
Producers from many countries complete with another to sell their products. Therefore,
there is intense competition in international trade. Here the quality, design, packing,
price, advertisement, etc., all play a significant role in deciding the winner in the market.

3. Separation of sellers from buyers:

In international trade sellers and buyers belong to different countries. They may have no
chance of ever meeting one another. Therefore, they have to depend upon middlemen for
transactions.

4. Long chain of middlemen:

The procedure of international trade is very long and complex. It is very difficult for
buyers and sellers to perform all the formalities themselves. They require the services of
expert middlemen such as, indent houses, forwarding agents, clearing agents, foreign
exchange banks, etc.

5. Mutually acceptable currency:

The currencies of importing and exporting countries generally are different. Therefore, it
is necessary to find out a mutually acceptable currency. Generally, dollar and pound
sterling are selected. These currencies are known as hard currencies because they are
acceptable all over the world.

6. International rules and regulations:

Businessmen engaged in international trade require knowledge of international laws and
trade restrictions.

7. Government control:
The government of every country exercises control over imports and exports for national
interest. In every country, government controls the foreign trade. It gives permission for
 Page |4

imports and exports may influence the decision about the countries with which trade is to
take place.

Balance of payment position:

The balance of payments is a statistical statement that summarizes transactions between residents
and nonresidents during a period. It consists of the goods and services account, the primary
income account, the secondary income account, the capital account, and the financial account.

According to the Bangladesh Bank, in the seven months between June and January this fiscal the
BoP deficit, which measures the flow of goods, services and investments into and out of the
country, stood at $10.06 billion.

In the 2020-21 fiscal year, there was a surplus of $1.55 billion in the same period, before it
dipped to a deficit of $4.58 billion at the end of the year. Before that, 2019-20 fiscal registered a
BoP deficit of $5.44 billion.

The latest deficit in the BoP exceeded the previous record of $9.56 billion from 2017-18 fiscal.

The BoP reflects the state of foreign transactions in the country. The expenses include import,
export, and other regular earnings and spending. Achieving a surplus in the BoP allows the
country to stay away from loans to fill in the gap, while a deficit forces a debt.

Analyst Zaid Bakht, chairman of Agrani Bank, said: “Exports have not increased as much as
imports have and that is a key reason behind the deficit. A decline in remittance growth is also
responsible for it.”

The first seven months of this fiscal year saw exports of $27.98 billion and imports of $46.67
billion, causing a trade deficit of almost $18.69 billion. In the corresponding period the previous
year, the trade deficit was $10.27 billion.

In 2021-22 fiscal, the first seven months yielded remittances of $12.33 billion, which is $2.99
billion less than the same period of the preceding year.

Zaid thinks the deficit will grow.

“The [Ukraine-Russia] war has compounded the cause for the deficit to widen. The war is
driving prices on the international market. The prices of oil have particularly risen. Bangladesh
will have to pay more in foreign currency for the same amount of oil than it did before. And that
will cause the deficit to widen further.”

But he thinks higher import expenses will not be a concern for too long.
 Page |5

“The pandemic halted investment in our country. Imports are going up as investments resumed.

“Besides this, more exports also mean more imports. If import increases to bring over capital
machinery and raw materials, that’s a good thing. Investment in the country is causing
production to expand."

Shedding light on the economic characteristics of the country, Zaid said the BoP reaches surplus
when remittance exceeds the trade deficit.

“The problem is we're not being able to settle the cost. We usually settle extra import costs with
remittances. It generates a surplus in the BoP.

“There's a bit of pressure right now. Foreign exchange reserves are pooled to balance out the
pressure. However, we have a reserve of $45 billion. There won’t be any problem if the reserves
slip to $40 billion.”

But if the situation persists, it will drive inflation, warned Zahid Hussain, former lead economist
of the World Bank’s Dhaka office.

“The government should pay more attention to the management of foreign exchange rates and
imports,” he said.

The government aims to keep inflation within 5.3 percent in 2021-22, but it has been rising since
August. According to the Bangladesh Bureau of Statistics, point-to-point inflation in January was
5.86 percent, although many have questioned the BBS data.

Traditional and non-traditional export items

Traditional export items in Bangladesh

Exports' refer to the value of goods and services produced by a country's firms in a given period
of time and which are sold abroad. Traditionally, exports referred to the sale of tangible goods,
including fuels, other commodities, parts and components and finished goods.

Raw Jute Leather Tea (Bulk) Cut Flower &

Foliage

Fruits Vegetables Handicrafts & Handloom Knitwear

Jute goods Leather goods Fish Tobacco

Shrimp Raw Silk Spices (Local Raw material based) Knitted Fabrics

Non-traditional export items

 Page |6

Non-traditional items customarily refer to those exportable items that are less frequently shipped
to buyer countries and that they account for negligibly minimum percentage of the export
earnings.

Home Textile Plastic, Melamine Jute Instrument

Products
Spice PVC Bags Building Materials Electric Products
Cement, Stone Plastic Waste Ceramic Products Bicycle
Ores, Slag and Ash Wood Products Glass & Glass ware Stainless Steel ware
Petroleum bi Paper & Paper Engineering Engineering Equipment
Products Products Product
Chemical Products Printed Materials Iron Steel Electric Products
Pharmaceuticals Wool & Woolen Copper Wire Bicycle
Products
Chemical Fertilizer Cotton & Cotton Stainless Steel Ships, boats & floating
Product ware structures
Cosmetics Footwear Engineering Optical/Photographic/Medical
Equipment

Patterns of performance of foreign trade

Goods bought into a country are called imports, and those sold to another country are called
exports. Developed countries have a greater share of global trade than developing countries.
Usually developed countries export valuable manufactured goods such as electronics and cars
and import cheaper primary products such as tea and coffee. Trading blocks, such as
the European Union, dominate world exports. The greatest volume of trade occurs between the
developed, rich countries, especially between industrial leaders such as Germany, Japan, the
United Kingdom and the United States.

Developed countries no longer have as large a share of international trade as they once did.
Between 1995 and 2010 their share in world merchandise trade dropped while developing
countries increased their share. Over this 15-year period, China’s share alone increased from 2.6
per cent to about 10 per cent. Over the same period, the market share of Latin America and the
Caribbean increased from 4.5 per cent to 5.9 per cent.

The value of Africa’s merchandise exports rose from $100 billion in 1995 to $560 billion in
2010. Its share in world trade improved modestly from 2.0 per cent to 3.2 per cent.

East and South Asia include three of the most dynamic emerging economies: China, India and
the Republic of Korea.
 Page |7

Experts believe that rapid growth markets will become an even more dominant force in global
trade over the coming decade, with the Asia-Pacific region set to experience the fastest growth in
global trade to 2020. Trade will also be increasingly focused around Asia, the Middle East and
Africa, suggesting that the key geographical location for companies will change. Europe’s
exports to Africa and the Middle East by 2020 are forecast to be almost twice as large as
Europe’s exports to the US. China’s dominance in low cost manufactured goods will come under
pressure from countries such as Bangladesh, Vietnam and parts of Africa. The fastest-growing
trade route will be between India and China. Some experts believe trade between China and
India alone will account for almost one-fifth of global trade flows by 2020.

There is a huge amount of trade across borders. This however, may reflect trade within and
between companies, rather than flows to final consumers. Many companies export finished
goods across borders within their own organisation.

Problems hindering the foreign trade in Bangladesh:

In addition to high tariff rates and supplementary duties, Bangladesh has registration procedures
and other regulatory requirements which often impede market access.

Foreign companies are allowed to provide services in Bangladesh, except in sectors subject to
administrative licensing processes.  Yet, new market entrants face significant restrictions and the
process for establishing legal entities is subject to strict regulatory requirements.  There have
been reports licenses are not always awarded transparently.  Transfer of control – the ability to
control the board of directors or a majority of directors – of a business from local to foreign
shareholders requires prior approval from the Bangladesh Bank.

In 2016, the Bangladesh Investment Development Authority (BIDA) was formed from the Board
of Investment and the Privatization Commission merger to serve as Bangladesh’s primary private
investment promotion and facilitation agency.  In May 2020, BIDA announced rules to
implement the One Stop Service Act of 2018, which aims to improve the ease of doing business
in Bangladesh.  In addition to BIDA, the Government of Bangladesh has formed three other
Investment Promotion Agencies (IPAs) – the Bangladesh Export Processing Zone Authority
(BEPZA), Bangladesh Economic Zones Authority (BEZA), and Bangladesh Hi-Tech Park
Authority (BHTPA) – to promote investment and offer “one-stop” services to investors.

Bureaucratic inefficiencies often discourage investment in Bangladesh.  Overlapping

administrative procedures and a lack of transparency in regulatory and administrative systems
can frustrate investors seeking to undertake projects in the country.  Frequent transfers of top-
and mid-level officials in various Bangladeshi ministries, directorates, and departments are
disruptive and prevent timely implementation of both strategic reform initiatives and routine
duties.
 Page |8

Repatriation of profits and external payments are allowed under current law, but U.S. and other
international investors have raised concerns outbound transfers from Bangladesh remain
cumbersome and applications to repatriate profits or dividends can be held for additional
information gathering or otherwise delayed, if tax disputes arise.  Government officials cite
concerns that allowing even limited outward transfers would lead to a flood of capital from
Bangladesh, as reasons to delay or prevent repatriation of profits and external payments.

U.S. and other international companies have raised concerns that the National Board of Revenue
has arbitrarily reopened sometimes decades-old tax cases, with particular targeting of cases
involving multinational companies.

Extortion of money from businesses by individuals claiming political backing is common in

Bangladesh.  Other impediments to business include transportation blockades called by political
parties, which can both keep workers away and block deliveries, resulting in productivity losses. 
Vehicles and other property are at risk from vandalism or arson during such blockades and
looting of businesses has also occurred.

Land disputes are common, and both U.S. companies and citizens have filed complaints about
fraudulent land sales.  For example, sellers fraudulently claiming ownership have transferred
land to good faith purchasers while the actual owners were living outside of Bangladesh.  In
other instances, U.S.-Bangladeshi dual citizens have purchased land from legitimate owners only
to have third parties make fraudulent title claims to extort compensation.

Likewise, corruption remains a serious impediment to investment in Bangladesh.  While the

government has established legislation to combat bribery, embezzlement, and other forms of
corruption, enforcement is inconsistent.

Export processing zones in Bangladesh:

The Bangladesh Export Processing Zones Authority is an agency of the Government of
Bangladesh and is administered under the jurisdiction of the Prime Minister's Office. Its
objective is to manage the various export processing zones in Bangladesh. Their primary goals:
to provide foreign exchange earnings by promoting nontraditional exports, to provide jobs and
create income, and to attract foreign direct investment and attendant technology transfer and
knowledge spillover.

In order to achieve rapid economic growth of the country by increasing the inflow of foreign
investment, particularly through industrialization, special steps have been taken since 1980 by
setting up Export processing Zones (EPZ) in the country. Initially three special zones were set up
in Chittagong (Halishahar), Dhaka (Savar) and Khulna (Mongla) where favorable
facilities/assistance are provided to the potential investors both Bangladeshi and foreigners. The
 Page |9

Chittagong Export Processing Zone (CEPZ) started from 1983-84 while the Dhaka Export
Processing Zone (DEPZ) started from 1993-94. Later, EPZs have also been established in
Mongla of Khulna, Ishwardi of Pabna , Comilla, Uttara of Syedpur in the district of Nilphamary,
Adamjee of Narayanganj and Karnaphuli of Chittagong which are classified into three types i.e.
A-type (100% foreign investment), B-type (Joint venture between Bangladeshi and foreigners)
and C-type (100% Bangladeshi enterprises).

No. of No. of
No. of Investment Employment Employment
Name of EPZ Zones Operation in Million USD (Local) (Foreign)

Total :Type-A 363 3707 313104 1990

Chittagong 96 1124 94038 260

Dhaka 89 1249 74969 522

Mongla 33 55 3697 32

Ishwardi 17 64 6217 63

Comilla 45 245 24314 198

Uttara 15 163 22712 381

Adamjee 35 310 27806 160

Karnaphuli 33 497 59351 374

Total :Type-B 93 481 47097 131

Chittagong 24 124 20088 28

Dhaka 18 42 3231 21

Mongla 9 3 48 0

Ishurdi 5 29 544 0

Comilla 15 110 4768 33

Uttara 1 0 0 0

Adamjee 16 136 16534 49

Karnaphuli 5 38 1884 0
 P a g e | 10

No. of No. of
No. of Investment Employment Employment
Name of EPZ Zones Operation in Million USD (Local) (Foreign)

Total :Type-C 219 1102 101259 93

Chittagong 60 524 61749 31

Dhaka 33 234 7941 21

Mongla 18 27 470 2

Ishurdi 22 60 5912 15

Comilla 24 31 2567 3

Uttara 22 41 3908 4

Adamjee 24 108 10583 14

Karnaphuli 16 77 8129 3