Trade Policy of Bangladesh- A Critical

Analysis
 Term Paper On:
Trade Policy of Bangladesh- A Critical Analysis.

Course Code: EM: 535

Course Title: International Trade and Investment

Submitted To
Dr. Mohammad Thoufiqul Islam
Professor
University of Dhaka

Submitted By
Name ID No.
Syed Aziz Ahmed 3-19-41-016
Mesbah Uddin Mahmud Ratul 3-19-41-030
Anik Alom 3-18-39-004
Department: Management (EMBA),
Faculty of Business Studies

Date of Submission: 26-11-2020

 Acknowledgement

It is a real pleasure to thank those who made this term paper possible. First of all, our
humble gratitude goes to the Almighty for helping us stay dedicated towards creating this
term paper.

We would also like to convey special thanks to our course teacher, Dr. Mohammad
Thoufiqul Islam for giving us an opportunity to enhance our knowledge by working on
this term paper. We really want to express our gratitude to him for giving valuable advice
and time, which helped immensely in preparing this term paper.

Our warm gratitude also goes to ours friends for their enthusiastic encouragement and
help during the preparation of this term paper by sharing ideas regarding this subject and
proof reading this manuscript.
 Letter of Transmittal

26 November, 2020
Dr. Mohammad Thoufiqul Islam
Professor
Department of Management
Faculty of Business Studies, University of Dhaka

Subject: Solicitation for acceptance of the term paper

Dear sir,

With great pleasure and privilege, we are submitting the report on “Trade policy of
Bangladesh-a critical analysis”. This report consists of information about the trade policy
of Bangladesh.

Since this is our first term paper in International Trade and Investment, in-spite of our
best effort there may be fault in this term paper and we are ready for any suggestion.

We are grateful to you for giving us such an important assignment, which helped us to
understand the trade policy of Bangladesh; it will be helpful for our career. We tried our
best to make the term paper informative and fruitful.

Sincerely Yours,

Syed Aziz Ahmed 3-19-41-016

Mesbah Uddin Mahmud Ratul 3-19-41-030
Anik Alom 3-18-39-004
 Executive Summary
The subject matter of this term paper is Trade policy of Bangladesh-a critical analysis.
We will understand from this term paper what trade is and what the trade related policies
of Bangladesh are. We will also know the present trade condition of Bangladesh, how
Bangladesh is conducting trade, whether Bangladesh is facing any problem or not,
whether there is any necessity of changing the trade policy of Bangladesh, activities if
government related to trade policy etc. Basically government is the main trade policy
maker of Bangladesh.
 Table of Contents
Sl. Particulars Page
Chapter 1: Introduction

1.1 Origin of this report 1

1.2 Objective of study 1

1.3 Methodology of study 1

1.4 Significance of study 2

1.5 Limitations of this Study 2

Chapter 2: Literature Review

2.1 What is Trade 3

2.2 What is trade policy 3

2.3 Trade policy of Bangladesh 3

2.4 Bangladesh's Trade and Investment Regimes: A Historical Account 3

2.5 Import and Export Policy of Bangladesh 6

2.6 Impact of trade liberalization on Bangladesh economy 8

2.7 Recent trades of Bangladesh 10

Bangladesh in Different Bilateral, Regional and Multilateral Trade
2.8 10
Agreements
2.9 Trade Policy Reviews under WTO 11

2.10 Introduction to Generalized System of Preference (GSP) 12

GATT/World Trade Organization Rules on Generalized System of
2.11 13
Preferences
2.12 GSP Facilities Applicable for Bangladesh 15

2.13 Utilization of Market Access Preferences 17

2.14 Conclusion 20

References 21
 Chapter 1: Introduction

1.1 Origin of this report

This term paper “Trade policy of Bangladesh-a critical analysis” has been prepared for
completion of EM: 535 International Trade and investment course. The study was
supervised by our course teacher Professor Dr. Mohammad Thoufiqul Islam. We were
asked to prepare a term paper on Trade policy of Bangladesh –a critical analysis.

1.2 Objective of study

The main objective of this study is to know about the trade policy of Bangladesh.
The other objectives of this study are-

 To know the overall trade policy of Bangladesh.

 To know the trade policy related activities of Bangladesh.

 To know the role of government in making trade policy of Bangladesh.

 To know about the trade policy condition of Bangladesh.

 To know the situation of trade in Bangladesh.

 To know the trade related terms.

 To know about the success of trade policy of Bangladesh.

1.3 Methodology of study

 Used the websites related to trade policy and this was our secondary source.

 Visited the website of World Trade Organization (WTO).

 Used a report of Centre for policy Dialogue (CPD).

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1.4 Significance of study

 This term paper will help students and other professional to understand about the
trade policy of Bangladesh.

 This term paper will also help the policy maker for making policies related to trade
of Bangladesh.

 This term paper will give an idea about trade policy of Bangladesh.

1.5 Limitations of this Study

 Some secrecy of the government related to trade policy.

 Short time frame

 Lack of vast knowledge about the trade policy of Bangladesh.

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 Chapter 2: Literature Review

2.1 What is Trade:

Trade involves the transfer of goods or services from one person or entity to another,

often in exchange for money. Economists refer to a system or network that allows trade
as a market. If the trade takes place between two countries, then it is called international
trade.

2.2 What is trade policy:

Trade policies, in general, define the standards, goals, and rules and

regulations of trade agreements between countries. Such policies are specific

to each individual country, being determined by the country’s public officials.

In some cases, they are employed to protect and promote local businesses.

2.3 Trade policy of Bangladesh:

During 1980s, a number of the developing countries were engulfed in a debt and
macroeconomic crisis. As a result, the inward-oriented, import-substituting policies
followed by many countries came under critical scrutiny from policy makers. Under this
backdrop, structural reform, especially reform of trade and industry related policies and
structures had been initiated in many developing countries under the pressure of the
World Bank and IMF. The impact of these reform measures has been analyzed in
different studies. In general, these studies found that economic liberalization is conducive
to higher growth.

2.4 Bangladesh's Trade and Investment Regimes: A Historical Account:

Since the Independence in 1971, Bangladesh has followed a public sector led, import
substituting industrialization strategy till the end of the decade. It started to take various
reform measures since early 1980s with the aim of improvement of competitiveness,
enhancement of economic efficiency, and dismantling state interventions to create

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conditions for promoting export-led growth. As a part of the process, significant reforms
have been implemented in terms of liberalization of external trade and foreign exchange
regulations and introduction of deregulatory measures to facilitate increased participation
of the private sector. Both tariff and non-tariff barriers have been reduced along with
dismantling of quantitative restrictions on imports and deregulation of import procedures.
Throughout the '90s and afterwards, the process of liberalization continued with the
objective of achieving adequate export growth with employment generation, which is
expected to have a direct impact on alleviation of poverty.

Bangladesh's trade and investment regimes can be broadly categorized into three phases
since its independence in 1971: First phase (1972-78); second phase (1979-1990); and
Third phase (1991-onward).

i. First Phase (1972-78):

After the independence Bangladesh followed a public sector dominated, import

substituting industrial policy. In 1972, Government nationalized most of the
industries consisting of jute, textile and sugar sectors as a result of which 86% of
country's industrial assets went to government's control. Domestic industries were
protected through maintenance of high tariff scheme on imported products.
However, public sector enterprises in most cases were found to be inefficient with
high debt and consequently, because of inefficiency of public sector led enterprises,
the government decided to limit public sector operation and de-nationalize a number
of enterprises. In the process, public sector operation was reduced to 18 sectors. In
1976, government further liberalized the industrial sector by abolishing moratorium
of nationalization allowing public-private partnership in the public sector enterprises
and also encouraged foreign investment in most of the reserved sectors.

ii. Second Phase (1979-1990):

Since early 1980s, various initiatives were undertaken in view of economic

liberalization. The decade started with the shift towards export-oriented industrial
policies from the earlier import substituting regime. A New Industrial Policy (NIP)
was announced in 1983, which was followed by a Revised Industrial Policy (RIP) in
1986. Consequently, private sector's ownership on industrial assets increased, from

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 25 per cent in 1981 to 59 percent in 1982. During the second five-year plan (1980-
85), government delimited the operation of public sector only in air transport,
telecommunication, nuclear energy, power and defense. Private investment was
encouraged in all sectors without any limit. Jute, cotton textile, sugar, paper, steel,
shipbuilding, heavy electrical and electronics, minerals, and oil and gas were also
opened either for public or private investment or for partnership of both. In 1980s,
government denationalized a total of 390 enterprises including a number of banks.
At the same time, a large number of new enterprises were established in different
sectors, especially in apparels and textiles sector.

iii. Third Phase (1991-onward):

Trade liberalization deepened in 1990s which was further accelerated after 2000.
Under the initiatives of trade liberalization, different types of customs duty and
number of tariff lines were reduced. The maximum tariff (customs duty) rate was as
high as 350 per cent in Financial Year (FY) 1991. Government drastically reduced
the import duty in the following years. The maximum tariff rate was lowered down
to 50 per cent in FY1996, which was further reduced to 37.5 percent in FY2000. In
FY2007, it was fixed at 25 per cent. At the same time, government took initiatives to
reduce average import duty in order to ensure availability of different kinds of raw
materials, machinery and equipment’s etc. Currently higher tariff rates are
applicable only for finished products, at 25 percent; while tariff rates for
intermediate and raw materials and machineries remain relatively low and even zero
for importing export-oriented materials. As a result, simple MFN applied average
tariff and import weighted average tariff rates came down to 13.5 percent and 9.8
per cent respectively in 2006 from 88.6 percent and 42.1 per cent in 1991.
The number of tariff slabs was also reduced gradually. In FY1993, there were 15
slabs; after 14 years, in FY2007, the number was reduced to four (0 percent, 10
percent, 15 percent, and 25 percent).

Aid Dependent to Trade Dependent Country:

As a result of the various reform measures undertaken in the last three decades,
Bangladesh is now a 'trade dependent country', from being an 'aid dependent

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 country'. The country's trade openness has substantially increased from 13.5 percent
in 1981 to 16.8 percent in 1991; which further increased after 2000- 33 percent in
2001 and 43.3 percent in 2007. Along with, the country's extent of globalization
reached at 55.6 per cent in 2007. Export of goods in 2007 passed the level of US$
12 billion, while import too and passed the level of US$ 17 billion. During July-
February, FY2008 total export was US$ 8.9 billion, an increase of 11.6 per cent
compared to the previous year. Country's major exportable product, readymade
garments stood at US$ 6.75 billion during this period with export of woven products
at US$ 3.3 billion and knit products US$ 3.5 billion. Foreign aid, once considered to
be the major source of foreign exchange, constituted only 2.4 per cent of GDP in
2007, which declined from 5.6 per cent in 1991.

2.5 Import and Export Policy of Bangladesh:

Since early1980s, the government introduced separate import and export policy on a
yearly basis. This was introduced in the first half of the 1980s and on a bi-annual basis in
the latter half of the 1980s, continued during the initial half of 1990s. Later on, a five
yearly import and export policy was announced for the period of 1997- 2002. After that,
the policy was prepared for a three-year period (i.e. for 2003-2006). Subsequently, the
Government announced a new import policy (2006-2009) on 14 May 2007, and a new
export policy (2006-2009) on 31 May 2007.

i. Import Policy of Bangladesh:

The import policy announced in the 1980s was targeted to rationalize and simplify
the trade regime through lowering the tariff rates, phasing out the quantitative
restrictions, streamlining import procedures and introducing tax reforms. Various
measures were introduced with a view to simplifying import procedures. In 1985-
86, two lists were introduced to replace the 'positive list' (which contained all goods
that could be imported into Bangladesh along with their constituent raw and packing
materials): all banned items were listed under a 'negative list' and those importable
under certain conditions were registered on a 'restricted list'. All other products
could be imported freely. Over the years, Import Policy Orders showed substantial
reduction in the number of banned and restricted items. Since 1990, the negative and

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 restricted lists of importable have been named as 'consolidated list'. As a result, the
extent of protection of the domestic economy declined due to changes in the tariff
structure. Total quantitative restriction was 315 in 1990, which was reduced to 120
in 1995-97 and further lowered down to 63 during 2003-06. The effective rate of
protection (ERP) declined from 76 per cent in 1992-93 to 25 per cent in 1999-2000
(Table 14.4).

Import Policy Order (IPO) 2006-2009:

Government had announced a new import policy named Import Policy Order 2006-
09 in May 2007 for the period of 2006-2009. Major objectives of the Import Policy
Order 2006-2009 are to:
a) Keep pace with globalization and the gradual development of a free market
economy under the WTO rules;
b) Facilitate imports of technology to expand use of modern technology;
c) Ease imports for export industries, in order to place them on a sound basis;
coordinate the import policy with the industrial policy, export policy and other
development programs;
d) Make available industrial raw materials by withdrawing restrictions and thereby
increase competition and efficiency;
e) Ensure supply of quality and hygienic products; and
f) Take necessary measures to import food and other necessary products on an
emergency basis in order to ensure their availability in the market.

The New IPO has relaxed restriction on import of all but 25 items as against 131 in
the previous IPO. The restricted items included firearms, health and environmentally
hazardous items and those that may hurt the religious sentiment of the people.

ii. Export policy of Bangladesh:

Over the years, the government attempted to promote exports through various
measures. The policies in this regard emphasized the need to diversify the export
base, stimulate higher value-added exports, improve the quality of exports, develop
backward linkage industries and undertake vigorous marketing efforts. Incentives
are provided to the exporters in the form of special bonded warehouses, export

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 processing zones (EPZs), duty drawback, and a number of other methods. Under the
Export Policy 2006-09, government has announced different incentives and facilities
to enhance export, such as sectors to be considered as special development sectors,
general and product specific export facilities etc.

Export Policy 2006-09:

According to the Export Policy 2006-09, nine sectors have been announced as
special development sectors in order to boost their production and export in the
country; these are: finished leather products, frozen and processed fish products,
handicraft products, electronic products, fresh flower and foliage, jute products,
hand-woven textiles from hill areas (pahari taat bostro), uncut diamond, and herbal
medicine and medicinal plants. These sectors are to be considered for special
facilities, such as project loans with general interest rates on a priority basis,
consideration for export loans with soft terms and lesser interest rates, subsidies etc.
which are compatible with WTO Agreement on Agriculture, and WTO Agreement
on Subsidies and Countervailing Measures; reduced air fare for shipment of
products, duty draw back/bond facilities; privileges for the establishment of
backward linkage industries including infrastructural development so as to reduce
production cost; expansion of technical facilities to improve product quality;
assistance in product marketing; assistance in foreign market search; possible
financial benefits for utility services such as electricity, water and gas; and taking
necessary initiatives to attract foreign direct investments (FDI).

2.6 Impact of trade liberalization on Bangladesh economy:

According to a study of World Bank (1999), trade liberalization in general has positively
contributed to the economy, as manufacturing industries under the liberalized trade
regime have performed strongly. Although more foreign goods are in fact available, it
appears that increased supplies of cheaper raw materials/intermediate inputs and fixed
capital goods have generally stimulated faster expansion in exports and stronger GDP
growth to the benefit of the economy overall. According to this study, firms that perform
poorly in fields where activity is shrinking, the fault generally does not lie with trade
reform, but with failures to graduate from the comforting cradle of high and long-

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standing levels of protection. Such enterprises are, however, in the minority. Most firms
surveyed under the study experienced sizable productivity growth over a period of five
years, suggesting that trade liberalization has had a positive, not a negative, impact in the
manufacturing sector. On the other hand, it has been pointed out that trade reforms in
1980s and 1990s have not encouraged the development of an autonomous domestic
industrial capability. Among export industries, the jute sector had difficulties owing to
world market conditions and has not been able to stand up to sector based adjustment.
Although export growth is largest in the readymade garments sector, it continues to be
dependent on foreign buyers. Leather exporters have also generally suffered from an
inability to move to high end products and adopt necessary quality controls. Quality
standards pose a marketing problem for seafood producers as well. Furthermore,
environmental and labor safety issues persist in all these sectors. These problems are
particularly pervasive in import competing sectors such as textiles, chemicals, and metals
which have not been able to successfully compete with consumer goods imports. Also,
small firms have not benefited from the reforms to the extent that cost savings from lower
tariffs on imported inputs have rarely been passed on to them. While the reforms have led
to some resource shifts in the economy, growth and diversification in the industrial sector
has been limited. Marketing, technical, and entrepreneurial skills are yet to be developed
to allow such success.

In 2007, CPD in association with the ILO, carried out a study on 'Impact of Trade
Liberalization on Employment in Bangladesh'. The study revealed that because of tariff
liberalization over the last two decades a number of import substituting industries, for
example, sugar, yarn, edible oil, paper, pharmaceuticals, tobacco cigarette, cloth mill,
chemical fertilizer, iron and steel, metal products, machinery and transport equipment
industries have faced a decline in respective effective rates of protections (ERPs).
However, not all import substituting industries have performed badly during this period.
Sectors with negative growth were sugar, edible oil, paper, cloth mill and transport
equipment industries, whilst industries such as yarn, pharmaceuticals, cement,
tobacco/cigarette, chemical fertilizer, iron and steel and metal products experienced
positive growth during that period. The CMI data shows that export-oriented sectors were
more protected than non-export oriented sectors and labor-intensive sectors were more

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protected than non-labor intensive sector. It was also found that growth of production
workers in labor intensive sectors was higher than that of non-labor intensive sectors.

2.7 Recent trades of Bangladesh:

Bangladesh's earnings from merchandise exports in 2019 fell by 3.3 percent year-on-year
to $37.94 billion. Export receipts were $39.25 billion in 2018, according to the
World Trade Statistical Review 2020, published by the World Trade Organization (WTO)
on July 31. 2020.

2.8 Bangladesh in Different Bilateral, Regional and Multilateral Trade

Agreements:
Like many other developing countries, Bangladesh is facing the issue whether to
engage in bilateral trade agreements with industrialized countries, whether to engage
in regional trade agreements with neighboring countries and what position develop in
the WTO Doha Round. This paper investigates the relative merits of regional and
multilateral agreements. A special feature of Bangladesh’s foreign trade is its heavy
bias towards trade in wearing apparel. Around two third of Bangladesh’s exports are
generated in the trade of textile and wearing apparel. Apart from the European Union
(EU), the most important export market, Bangladeshi exporters are confronted with
export quotas and with considerable import tariffs in industrialized countries. Export
quotas are due to be phased out by December 31st, 2004 through the Agreement on
Textiles and Clothing (ATC) of the World Trade Organization (WTO). A change of
import tariffs might be a result of the implementation of the South Asian Free Trade
Association (SAFTA) a regional trade agreement. Furthermore, tariffs are an
important subject of the ongoing Doha Round of the WTO. Due to the worldwide
export quotas it can be assumed that production capacities are not entirely used in the
textile and wearing apparel sectors. It therefore seems likely that global economies of
scale can be realized when trade liberalization would take place. In order to capture
the possibility of exploiting hitherto unutilized economies of scale in the face of trade
liberalization, they are explicitly modeled.

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Bilateral Free Trade Agreements (FTAs) and Regional Trade Agreements (RTAs) signed
by developed and developing countries have significantly increased in recent years. Slow
progress in multilateral trade negotiations under the World Trade Organization (WTO)
and global economic slowdown since the financial and economic crisis in 2008 are some
of the major reasons for proliferation of regionalism (Kawai and Wignaraja 2010).
Bangladesh is by and large less active in this process; more concretely, Bangladesh is still
at the ‘recipient’ end. Such approach of Bangladesh has a number of limitations and may
have adverse implications on the overall economic welfare of the country. Firstly, its
trade preferences are likely to be eroded in major markets due to their gradual tariff
liberalization; secondly, its trade preferences are likely to be eroded further with the
proliferation of FTAs between developed and developing countries where Bangladesh has
export similarity in these markets (Winters 2009). Besides, a number of countries have
expressed interest to sign bilateral FTAs with Bangladesh; it has yet to complete
economic analysis on these markets, and hence no progress is made regarding the
political stance on those issues. Thus, a proactive role is urgently needed with regard to
overall stand of the government regarding bilateral FTAs.

2.9 Trade Policy Reviews under WTO:

Surveillance of national trade policies is a fundamentally important activity running
throughout the work of the WTO. At the center of this work is the Trade Policy Review
Mechanism (TPRM). The reviews take place in the Trade Policy Review Body which is
actually the WTO General Council comprising the WTO’s full membership operating
under special rules and procedures. The reviews are therefore essentially peer-group
assessments, although much of the factual leg-work is done by the WTO Secretariat. All
WTO members are reviewed, the frequency of each country’s review varying according
to its share of world trade. The WTO General Council meets as the Trade Policy Review
Body to undertake trade policy reviews of Members under the TPRM and to consider the
Director-General's regular reports on trade policy development. The TPRB is thus open to
all WTO Members. The current chair is Ambassador Mr. Harald ASPELUND (Iceland).

The aims of the TPRM are to:

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  Increase the transparency and understanding of members' trade policies and practices
through a regular review process. The Mechanism constitutes an objective,
independent evaluation of the trade and economic situation of individual members and
acts as a forum where trade policies can be discussed, information sought and
concerns expressed;

 Improve the quality of public and intergovernmental debate on trade issues - the
review process allows members to strengthen their inter-agency coordination on trade-
related policies. It also plays an important role in helping developing and least-
developed countries identify technical assistance needs that can be followed up later.

 Enable a multilateral assessment of the effects of a member's policies on the world

trading system. The process can assist governments in pursuing desirable trade policy
reforms and can highlight other areas of WTO obligations which may have received
insufficient attention, thus helping to ensure these issues are addressed.

2.10 Introduction to Generalized System of Preference (GSP):

The Generalized System of Preferences, or GSP, is a preferential tariff system which
provides tariff reduction on various products. The concept of GSP is very different from
the concept of "most favored nation" (MFN). MFN status provides equal treatment in the
case of tariff being imposed by a nation but in case of GSP differential tariff could be
imposed by a nation on various countries depending upon factors such as whether it is a
developed country or a developing country. Both the rules comes under the purview
of WTO. GSP provides tariff reduction for least developed countries but MFN is only for
not discriminating among WTO members. The idea of granting developing countries
preferential tariff rates in the markets of industrialized countries was originally presented
at the first UNCTAD conference in 1964. The GSP was adopted at UNCTAD in New
Delhi in 1968 and was instituted in 1971. There are currently 13 national GSP schemes
notified to the UNCTAD secretariat.

The following countries grant GSP preferences

1. Australia;
2. Belarus;
3. Canada;

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4. European Union;
5. Iceland;
6. Japan;
7. Kazakhstan;
8. New Zealand;
9. Norway;
10. Russian Federation;
11. Switzerland;
12. Turkey; and
13. United States of America.

Benefits of Generalized System of Preference

 Economic growth and development in the developing world by helping
beneficiary countries to increase and diversify their trade with the developed
nations.

 Employment – Moving GSP imports from the docks to consumers, farmers, and
manufacturers supports tens of thousands of jobs in the developed nation.

 Company Competitiveness is boosted by GSP as it reduces costs of imported

inputs used by companies to manufacture goods.

 GSP promotes Global values by supporting beneficiary countries in affording

worker rights to their people, enforcing intellectual property rights, and supporting
the rule of law.

2.11 GATT/World Trade Organization Rules on Generalized System of

Preferences:
By its very nature as a trade preference, the GSP concept posed a problem under the
GATT, because granting preferences to particular countries is inconsistent with the
fundamental nondiscrimination obligation placed on GATT Parties (GATT Article I:1) to
grant MFN tariff treatment to the products of all other GATT Parties. However, since
preference programs were viewed as a means of transitioning developing countries to

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greater trade liberalization and economic development, GATT Parties accommodated
them in a series of joint actions.

First, in 1965, the GATT Parties added Part IV to the General Agreement, an amendment
that recognizes the special economic needs of developing countries and asserts the
principle of no reciprocity. Under this principle, developed countries may forego the
receipt of reciprocal benefits for their negotiated commitments to reduce or eliminate
tariffs and restrictions on the trade of less developed contracting parties.

Second, because of the underlying MFN issue, GATT Parties in 1971 adopted a waiver of
Article I for GSP programs to allow developed contracting parties to accord more
favorable tariff treatment to the products of developing countries for 10 years. The GSP
was described in the decision as a "system of generalized, non-reciprocal and non-
discriminatory preferences beneficial to the developing countries."

Enabling Clause
At the end of the Tokyo Round of Multilateral Trade Negotiations in 1979, developing
countries secured adoption of the so-called Enabling Clause, a permanent deviation from
MFN by joint decision of the GATT Contracting Parties. The clause states that
notwithstanding GATT Article I, "contracting parties may accord differential and more
favorable treatment to developing countries, without according such treatment to other
contracting parties," and applies this exception to the following:

(a) Preferential tariff treatment accorded by developed contracting parties to products

originating in developing countries in accordance with the Generalized System of
Preferences;

(b) Differential and more favorable treatment with respect to the provisions of the
General Agreement concerning non-tariff measures governed by the provisions of
instruments multilaterally negotiated under the auspices of the GATT;

(c) Regional or global arrangements entered into amongst less-developed contracting

parties for the mutual reductions or elimination of tariffs and, in accordance with criteria
or conditions which may be prescribed by the contracting parties for the mutual reduction
or elimination of non-tariff measures, on products imported from one another;

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 (d) Special treatment on the least developed among the developing countries in the
context of any general or specific measures in favor of developing countries.

Additional Commitment to Least Developed Countries

When launching the Doha Development Agenda (DDA) negotiations in November 2001,
World Trade Organization (WTO, successor to the GATT established in 1995) members
committed themselves to provide "duty free/quota free" (DFQF) access to the products of
least-developed countries in keeping with the shared objective of the international
community as expressed in the Millennium Development Goals.

During DDA negotiations at the sixth WTO Ministerial Conference in Hong Kong in
December 2005, developed country WTO members and "developing country members
declaring themselves in a position to do so" agreed to deepen this commitment by
providing DFQF access to at least 97% of products originating from least developed
countries (LDCs) by 2008, "in a manner that ensures stability, security and
predictability."

Many developed countries continued to implement these provisions despite the failure of
the DDA. As of the WTO Nairobi Ministerial in October 2015, most developed countries
granted either full or near full access to LDCs, and several developing countries had also
taken concrete steps to provide duty-free access to products from LDCs.

2.12 GSP Facilities Applicable for Bangladesh:

Bangladesh is getting GSP facilities from 38 countries;

European Union – 28 countries.

Others - Australia, Belarus, Canada, Liechtenstein, Japan, New Zealand, Norway,

Russian Federation, Switzerland and Turkey – 10 countries.

EU GSP

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Generalized System of Preference to developing countries and LDCs which was
adopted in 1968 and became effective in 1971. EU GSP offers either lower tariffs or
completely duty-free access for imports from 90 developing countries and territories
into the EU market.

EU GSP scheme also grants duty free access for the 50 least developed countries
under “Everything but Arms (EBA)” scheme. EBA grants duty-free quota-free access
to all products, except for arms and ammunitions, covering 99% of all tariff lines.EU
adopted a reformed GSP law on 31 October 2012, which made applicable from 1
January

Rules of Origin: Rules for identification of origin of goods (Two types)

 Wholly obtained: Products are wholly obtained in a single beneficiary country (or
in the EU, in the case of bilateral accumulation) if only that country has been
involved in their production.

 Substantially transformed – requires substantial/sufficient production activities

to be done in the exporting country. Substantial transformation can be ascertained
mainly by three criteria:

 Value addition criteria: Minimum domestic content or maximum import

content.

 Specific process criteria: Minimum manufacturing processes to be

undertaken.

 CTH (Change of Tariff Heading) criteria: Change of Chapter, Change of

Tariff Heading (CTH), Change of Tariff Sub-heading (CTSH) etc.

GSP Scheme of Japan and Bangladesh

Japan originally established its Generalized System of Preferences scheme (GSP) on

August 1, 1971. Japan’s GSP scheme includes a general preferential regime and a
special preferential regime. Japan grants preferential tariff treatment under its GSP
scheme to 137 developing countries and 14 territories. LDCs are granted duty free and
quota free market access in 5415 products of which 1383 are agricultural products and
4034 are industrial products.
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Rules of Origin

Recognized as originating in that country under the origin criteria of the Japanese
GSP scheme, and Transported to Japan in accordance with its rules for transportation.

RMG from Bangladesh is getting one stage policy in determining Rules of Origin to
Japanese market.
GSP Scheme of Australia

Duty-free and quota-free entry from the 49 LDCs and East Timor (treated as an LDC)
with effect from 1 July 2003.

The preferential scheme GSP-50 for LDCs offers duty free treatment to all LDCs in
case of all tariff lines.

Rules of Origin

The final process of the imported good must have been carried out in the beneficiary
country. At least 50% of the total cost of the final product must consist of
labor/material from one or more developing countries (or Australia).

GSP Scheme of New Zealand

Duty free quota-free (DFQF) access for all least developed countries on 1 July 2001.
The preferential scheme GSP-50 for LDCs offers duty free treatment to all LDCs in
case of all tariff lines.

Rules of Origin

Wholly obtained in a LDC/LLDC, or

Partially manufactured in a LDC/LLDC.

The final process of the imported good must have been carried out in the beneficiary
country. At least one-half of the factory works cost of the finished products is
represented consist of labor/material from one or more developing countries or from
New Zealand.

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2.13 Utilization of Market Access Preferences:

Bangladesh’s present level of success in export expansion, as noted earlier, has been
achieved primarily due to opportunities available under the twin global preferential
arrangements of (i) MFA quota facility and (ii) the GSP facility. Fortunately for
Bangladesh both these important initiatives in the international arena were launched (to
assist the developing nations to enhance their market access into the developed country
markets) at about the time she started her journey as a sovereign nation. Of these two, the
MFA quota arrangements was specific to one sector: the readymade garments. The other
facility GSP covered many items (including sometimes readymade garments) as in EU
but not in US markets which were declared to be covered by the scheme. The MFA quota
facility which came into being in 1974 as a special trading arrangement and had
controlled world trade regime in readymade garments till it ended on 2004. Under this
regime, each importing country had the authority to establish on a bilateral basis an
annual but renewable quota for import from each exporting country.

An assured quota level acted like a great market access opportunity for the exporting
country’s companies. Bangladesh and other countries developed a RMG industry to
service the assured market. In case of Bangladesh, the RMG industry has now over 4000
units employing 1.8 million workers (about 80 percent being women). Under the ATC
(Agreement on Textile & Clothing) signed in 1994 as a part of the Uruguay Round
Agreements package, the MFA had a ten year phasing out period. Since 01 January
2005, the world RMG trade is a quota-free one similar to all other commodities and a part
of WTO liberal and open trade regime. Bangladesh had certainly benefited from the
operation of quota arrangements: firstly to enter into the world garments market and
secondly to become an important player. There would always be a debate that we could
do still better. Now all this is history and since the quota facility is gone we need to look
ahead to stay and prosper in this sector on our own strength. Since every arrangement
gives rise to its specific group of beneficiary, getting out of that world and to chart path
for a smooth change over to a new regime always creates a problem.

The GSP (Generalized System of Preference) is the other global preferential arrangement
granted by developed countries to the imports from the developing countries for specified
period. (It was started in early seventies by the then EEC and other countries followed

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suit). And this type of facility is in still in operation. Under the GSP the developed
countries individually applied lower than MFN rate of customs duty on specified goods
originating from designated developing including LDCs countries while similar goods
from the developed countries attracted the MFN rate. The margin of preference thus
available to the LDC exporters could be considered as the commercial advantage for a
LDC exporter.

The GSP facilities have by now underwent a number of revisions in regard to the (i)
coverage of the goods (ii) the time period i.e. up to which year the preference system
under reference will remain in operation and (iii) the Rules of origin (ROO) i.e. the
qualification establishing the origin of the preference enjoying items must possess.

Most of the GSP scheme cover the garments and foot wear sectors-our two important
items of export. However, the GSP facility offered by USA does not cover the RMG and
the leather shoes. With the expiry of quota of the MFA regime, the RMG products of
Bangladesh in the US market does not enjoy any preference rather the garment items
attract very high level of MFN rate of tariff. In the EU (the 25 country group) and in other
important markets like Australia, Canada etc. Bangladesh 17 RMG products -in fact all
most all products of present and future interest of Bangladesh-enjoy duty free (EBA of
EU) entry. All these facilities are available to Bangladesh due to her being a LDC. Most
GSP facilities now provide an extra-facility to the LDCs in relation to preference granted
to developing countries.

RMG products- in fact all most all products of present and future interest of
Bangladesh-enjoy duty free (EBA of EU) entry. All these facilities are available to
Bangladesh due to her being a LDC. Most GSP facilities now provide an extra-facility to
the LDCs in relation to preference granted to developing countries. It can thus be
discerned that the international community attached a certain degree of importance to
improve and expand market access opportunities for the exporters of LDCs. In this
context the adoption of United Nations Millennium Development Goal (No.8) for
achieving duty-free and quota –free market access into the developed country market can
be recalled. All these measures helped the LDCs- as a group-to post an export growth
rates of 8 and 13 percent in 2002 & 2003 respectively. In 2003, the LDCs accounted for
0.67 percent of the world exports. Despite this picture, it should however be noted that

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the relative global share of LDCs export has been dwindling despite all the useful
measures of the international community. The factors for such poor showing are manifold
and beyond the scope of this paper. Despite the great need for all types of help to expand
export, the LDCs are not utilizing the GSP facilities to its full potential. UNCTAD (2003)
reports that the aggregate utilization of GSP schemes by LDCs in the Quad (Canada EU,
Japan & the US) countries varied from 36 percent to 96 percent. Many reasons have been
identified as to why utilization rates vary across products for a given scheme. The most
important reason is the difference in product eligibility criteria, such as rules of origin
(UNCTAD 2003). These differences in criteria make it easier to produce eligible products
in some countries while it may have made it more difficult in other cases. Further, some
countries offer schemes which discriminates across beneficiaries even if they meet the
criteria for LDC status. Two examples of such schemes are: the US’s African Growth and
Opportunity Act (AGOA) and the EU’s Everything But Arms (EBA) initiatives. Both
schemes discriminate among beneficiary LDCs. AGOA offers special market access
benefits to a group of sub-Saharan African countries as its name suggest but not the
countries like Bangladesh. This form of discrimination is different from that which is
applied by the EU. EU offers the same level of access to all LDCs, as measured by the
preferential duty, but applies different rules governing how products are eligible for that
access. Thus there is discrimination on the basis of eligible products through not on the
basis of eligible exporting country. The EU’s EBA program is an amendment of the GSP
scheme and it is available to all LDCs. However, LDCs that meet the EU eligibility
criteria for the Contour agreement, which applied to countries from the ACP regime, and
eligible to export under any one of the schemes. Non ACP–LDC countries can export
only under the GSP and the present EBA scheme. Both schemes provide essentially duty-
free quota-free access into EU, however rules governing the access differ. Therefore, it is
not surprising that utilization rates differ across beneficiaries despite the same preferential
duty rate and preferential margin. Data shows that the utilization rate for textiles and
RMG into the EU for ACP-LDC countries is approximately 95 percent whereas for non
ACP-LDC countries it is approximately 50 percent. Now coming to our important
concern for prospects of Bangladesh RMG’s in the preference giving regions/markets, it
is comforting to note that GSP facility is available in EU, Canada, Australia and Japan.
But the eligibility for GSP facility is contingent upon compliance of stringent Rules of

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Origin criteria. Bangladesh had been unable to comply with the EU rules of origin for
GSP in many cases. So the main challenge in the EU for Bangladesh RMG industry
would be our ability to comply with the ROO so as to avail the zero duty facility by our
garment industry. To access the EU market through entry under GSP (by complying with
ROO) would enable them not only to survive but also to prosper further because of
the preference margin presently available (12-18 percent). Bangladesh has also the
advantage of having better penetration in the EU market achieved through the quota-free
unrestricted entry over the years alongside the benefit of having the quota restriction
imposed upon her competitors. We should be able to strengthen our competitive position
over the next few years by which time the lowered MFN rate & GSP normal rate erodes
the margin enjoyed by us. Further we should be looking for export of others items to EU
under zero-duty facility. Unfortunately, because of our pre-occupation with RMG sector,
we have almost overlooked all these years the opportunity provided to other items (except
probably bicycle) covered by zero duty under GSP and where ROO requirements are less
restrictive. It may be recalled that GSP utilization rate of our garments sector-which was
between one fifth to one third until 1999-increased significantly in later years as the rules
of origin was relaxed in respect of the knit fabric allowing use of imported yarn in
knitwear to qualify for GSP benefit.

Coming back to the issue of margin of preferences for other items, it is important to take
note that the margin of preferences (as per WTO, 2004) in the EU ranges from (i) 12.0
percent for prepared fruits and vegetables, (ii) 11.8 percent for footwear and (iii) 10.8
percent for tobacco. For a number of items, the margin is however less than 5 percent.

2.14 Conclusion:

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 References

1. Center for Policy Dialogue (CPD), March 2008, Training Manual on WTO and
Bangladesh Trade Policy, Dhaka, Bangladesh;
2. World Trade Organization (WTO), 31st July 2020, World Trade Statistical Review;
3. Bilaterals.org;
4. UNCTAD; and
5. Wikipedia.

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