A careful look at the openness of the Bangladesh economy generally measured through trade intensity reveals an astounding success. Trade intensity represents the sum of import payments and export earnings of a country as percentage of GDP. Now with an export target of $44 billion, the current trade intensity is over 40 per cent of GDP. The openness of the economy took a boost after 1990 and we gradually observe growth in a consistent manner; textile and apparel product from Bangladesh dominate markets in United States, Canada and many countries in Europe. The phenomenal growth in both export and import intensity is due to the structural change in economy; many of our export items now use imported raw materials. The share of manufacturing sector in GDP is now over 30 per cent. Trade liberalisation was initiated around the middle of 1980s under Structural Adjustment Reforms initiated by the World Bank and International Monetary Fund. Simplification of import procedures, gradual reduction of non-tariff measures, harmonisation of tariff structure and simplification on repatriation of profit and income from investment constituted important determinants in this openness drive. Trade Restrictive Indices (TRI), calculated by the World Bank, suggests that Bangladesh is the least restricted in South Asia (11.33 vs. 11.75).
When we look into the trade partners and the nature of transactions, we see a very peculiar structure. Given the recurrent imbalance between export earnings and import payments with major trade partners, we enjoy trade surplus with United States and many European countries but trade deficit with two of our major trading partners – China and India. With Canada, we have a balance trade. China and India is emerging as major trade partners while the relative share of United States in total trade is decreasing.Though the world is observing successive trade liberalisation through various institutional arrangements on regional and multilateral basis such as WTO, BIMSTEC and TPP, yet Bangladesh in many instances faces stiff trade restrictions in bilateral trade. Take the case of tariff regime with United States who topped the list as the major trading partners of Bangladesh but to utter surprise, Bangladesh exports to United Sates is historically facing the highest tariff. Bangladesh faces the highest imports duties that constitute 15.2 per cent of the total value of the country’s shipments to United States. Almost 95 per cent of the imports from Bangladesh are apparel, footwear, headgear and related items. Apparel exports are subjected to the stiffest tariff by the United States; average American tariff for knitwear or crocheted clothing is 18.7 per cent followed by 15.8 per cent for non-knitted clothing. Footwear is close behind with the average tariff rate of 11.9 per cent. Bangladesh also does not enjoin the Generalised System of Preference scheme that allows duty-free exports to the United Sates from the LDCs since June 2013 with Rana Plaza disaster. The higher tariffs compelled Bangladeshi garment manufacturers to lower prices with the aim of boosting the retailers' profitability and also of retaining competitive at the cost of very low wage of the garments workers. The new drive on protectionism by raising tariff on the exports of China and India by the Trump administration may help Bangladesh to gain access to US market.
The historical trade deficit to the tune of $ 6 billion with India is a manifestation of uneven trade. Though the trade with India in many instances is duty and quota free under SAFTA, but Bangladesh faces non-tariff barriers such as countervailing and anti-dumping duty in commodities such as jute and jute goods, ranging from $ 6.30 to $351.72 per ton, two major export items from Bangladesh.
The trade with France and Germany is moulded under the trade norm with European Union. Bangladesh benefits from the EU’s ‘Everything but Arms’ arrangement introduced in 2001 that grants duty free and quota free access for all exports, except arms and ammunition. Indeed, the trade with Germany is showing an increasing trend during the last few years. There are many joint ventures undertakings with Germany that could help Bangladesh to diversify the export base. One such attempt is the recent drive with Cube, the biggest bicycle manufacturer in Europe with Meghna Group that could boost Bangladesh’s export to the European Union. Bangladesh also enjoy duty free access of about 74 per cent of export value under JSP facilities with Japan and is one of the 33 countries that enjoy zero tariff treatment with China.
Both China and India assume an important position in trade with Bangladesh because of the huge trade deficit. The total trade deficit is over $ 12 billion. The complementary nature of economy between China and Bangladesh is observed when we look into the compositions of exports and imports. Transportation cost is a major impediment in trade creation; the trade with India and China may substantially be improved with development of trade facilitation in infrastructure and in trade concession by both the trade partners.
The writer is a Professor of Economics, United International University