Bangladesh - European Union Trade Relationship

Course Title: International Finance & Banking

Course Code: FIN -603

Submit To

Mijanur Rhman joddar

Department of Business Administration

Submit By

Jabun Nahar; ID: MBA 05014443

Rajib Kumar Saha; ID: MBA 05014533

Md. Jahidul Islam; ID: MBA-05014570

Md. Anisur Rahmn; ID: MBA 05014481

Md. Shah Al Fardan; ID: MBA 05014583

Naeem Farhan Islam; ID: MBA 05014697

Date of submission

25th April 2013

Stamford University Bangladesh

Letter of Transmittal

April 25, 2013

To Mijanur Rhman joddar

Department of Business Administration

Stamford University Bangladesh

Subject: Submission of Assignment titled “Bangladesh-EU Trade Relationship”.

Dear Sir, This is informing you that I have done this assignment on “Bangladesh-EU Trade

Relationship”. It is a great pleasure for me to present you such type of assignment. To prepare

this assignment I collect essential data. I learnt a lot of unknown issues of Bangladesh-EU

trade, while preparing this assignment. This assignment was a challenging experiences for us a

theoretical as well as practical. I tried my best to make the assignment a sound one as per your

valuable counseling and proper guidance.

I express our gratitude to you for giving us the opportunity to making this assignment. I would be obliged if you kindly call me for any explanation or any query about the assignment as and when deemed necessary. Within the time limit, I have tried my best to compile the pertinent information as

comprehensively as possible and if you need any further information, I will be glad to

assist you.

Thanking you, On behalf of my group

___________________________

Md. Jahidul Islam

MBA: 05014570

Dept. of Business Administration

Stamford University Bangladesh

Executive Summary

The paper dwelt at length on Bangladesh-EU trade relationship by analyzing the dynamics of

exports to the EU, structures of the exports, the rate of EU GSP utilization and the dynamics of

imports from the EU. The first agreement signed between Bangladesh and the EU in 1976 was,

in principle, a commercial cooperation agreement. Since then the EU as a group has become the

foremost trading partner of Bangladesh. Bangladesh exported $ 2.46 billion worth of

commodities to the 15 EU member countries in 1998/99, which was 46.50 per cent of its total

annual exports and was a significant rise from the 32.4 per cent posted a decade earlier.

Amongst the 15 EU member countries, Germany topped the list (11.8 per cent) in terms of

market share followed by UK (9.3 per cent) and France (6.5 per cent).

The paper mentioned the fact that Bangladesh receives duty free access for its products into

the EU under the Generalized System of Preference (GSP) scheme which provides preferential

tariff treatment to Bangladeshi exports to the EU markets. However, since Bangladesh

sometimes has been unable to comply with the stringent EU rules of origin for GSP, it has been

difficult for exporters to take full advantage of the market access opportunity offered under the

EC GSP scheme.

The EU is the second largest trading partner of Bangladesh as far as imports are concerned. In

1998/99 the EU accounted for 9.5 per cent of total imports by Bangladesh, second only to India

(15.4 per cent) and far ahead of both the USA (3.7 per cent) and Japan (6.1 per cent). In terms

of form of transaction in 1998/99, more than 87 per cent of imports from the EU by

Bangladesh is done through payment in cash. As far as imports under loan component are

concerned, the EU's share is 12.5 per cent, second only to Japan, whose share is about 15.8 per

cent. Amongst the EU member states, the UK topped the list accounting for about 26.4 per cent

of Bangladesh's import in 1998/99 followed by Germany (20.8 per cent) and France (10.3 per

cent). Products of chemical and allied industries, machinery and transport equipment and base

metals constituted Bangladesh’s major imports from the EU in FY 1999.

Table of Contents

1.0 Bangladesh Trade: An Overview

History 1

Growth 1

Trade Openness and Integration 1

Tariffs and QRs 2

Export-Import Information (2001- 2009) 2

Bangladesh's Trade with Main Partners 2011 2

2.0 The European Union: A History and Overview

History 3

Member states of the EU 4

Modern-Day EU 4

How the EU Works 5

EU Trade Policy 5

3.0 Bangladesh Trade With EU

Bangladesh-EU Trade Relationship 7

EU Imports from Bangladesh 9

EU Exports to Bangladesh 11

EU trade balance with Bangladesh 13

Future Trade agreement 14

4.0 Conclusion

Conclusion 15

Bangladesh Trade

History

The value of imports doubled between 1971 and 1991 as compared to the value of exports. The trade

deficit has declined considerably owing to an increase in exports since 1991. A closer look at the

trade statistics of the country reveals that in 1989-90, imports exceeded exports by 120%. This

percentage came down to 56% in 1996 and 62% in 1997. The economy of Bangladesh was once

riding on jute, its major produce. In the late 1940s, its share of the world jute export market was

80%, which came down to 70% in the 1970s. Unfortunately, the trend of polypropylene products

across the globe led to a setback for the jute industry of Bangladesh.

Growth

The government of Bangladesh undertook significant steps during the 1980s. Consequently there

was a tremendous increase in the export of ready-made-garments and knitwear, which garnered

maximum foreign exchange for the country. Cheap labor and low conversion costs are the major

factors behind the growth of Bangladesh’s garment industry. Over 3 million Bangladeshis (90%

women) are employed in this industry. Bangladesh shares excellent trade relations with the US,

showing noteworthy trade surplus with the latter. The country is an active partner of the Asia Pacific

Trade Agreement and the World Trade Organization. A number of export processing zones have

been set up by the government to enhance economic growth by attracting foreign investment.

Trade Openness and Integration

Bangladesh launched a deep and wide-ranging trade reform strategy in the early 1990s. This

included substantial reduction and rationalization of tariffs, removal of quantitative restrictions,

move from multiple to a unified exchange rate system, convertible current account and an overall

outward orientation of trade policy regime. As a result, the country’s trade integration, measured by

the trade-GDP ratio, rose from 18% in 1990 to 43% in 2008.

Despite apprehensions that Bangladesh might lose out to exporters from China and India following

the phase-out of the MFA quotas, its share in global apparel and textile exports has remained stable

and export volumes have continued their robust growth. The country’s main markets are the EU and

the United States and its imports are dominated in general by machinery and textiles, with China and

India being the most important sources of imports. Bangladesh also has substantial unrecorded trade

with its neighbor India. Labor exports are also important, with remittance inflows at about 9% of

GDP.

Tariffs and QRs

Historically, like many other developing countries Bangladesh relied on tariffs and quantitative

restrictions to protect domestic activities and raise revenue. Roughly 40% of its total tax revenue still

comes from import taxes. Average protective tariffs are currently at 20.1%, with average agricultural

tariff at 28.8% and non-agricultural tariff at 18.5%. A noteworthy feature of the present tariff

structure is the significant application of para-tariff called supplementary duties, which account for

about 31% of the average protection. The average customs duty, which registers a decrease over

time, is currently 13.8% with four non-zero duty slabs of 3%, 7%, 12% and 25%. Food stuff,

fertilizer, seed, plastic trays used in poultry and dairy, medicines and raw cottons are not subject to

any custom duty. Some consumer goods, mainly the non-food luxury items, have high protective

rates even up to 463%- well beyond the top custom duty rate.

Export-Import Information

Year Import (Billion US $ ) Export (Billion US $ )

2001-02 8.54 5.99

2002-03 9.66 6.55

2003-04 10.90 7.60

2004-05 13.15 8.65

2005-06 14.75 10.53

2006-07 17.16 12.18

2007-08 20.37 14.11

2008-09 21.44 15.57

BANGLADESH'S TRADE WITH MAIN PARTNERS 2011

The European Union: A History and Overview

History

The European Union (EU) is an economic and political union of 27 member states that are located

primarily in Europe. The EU operates through a system of supranational independent institutions and

intergovernmental negotiated decisions by the member states. Institutions of the EU include the

European Commission, the Council of the European Union, the European Council, the Court of

Justice of the European Union, the European Central Bank, the Court of Auditors, and the European

Parliament. The European Parliament is elected every five years by EU citizens. The EU's de facto

capital is Brussels.

The EU traces its origins from the European Coal and Steel Community (ECSC) and the European

Economic Community (EEC), formed by the Inner Six countries in 1951 and 1958 respectively. In

the intervening years the community and its successors have grown in size by the accession of new

member states and in power by the addition of policy areas to its remit. The Maastricht Treaty

established the European Union under its current name in 1993. The latest amendment to the

constitutional basis of the EU, the Treaty of Lisbon, came into force in 2009.

The EU has developed a single market through a standardized system of laws that apply in all

member states. Within the Schengen Area (which includes 22 EU and 4 non-EU states) passport

controls have been abolished. EU policies aim to ensure the free movement of people, goods,

services, and capital, enact legislation in justice and home affairs, and maintain common policies on

trade, agriculture, fisheries and regional development.

A monetary union, the eurozone, was established in 1999 and is composed of 17 member states.

Through the Common Foreign and Security Policy the EU has developed a role in external relations

and defense. Permanent diplomatic missions have been established around the world. The EU is

represented at the United Nations, the WTO, the G8 and the G-20.

With a combined population of over 500 million inhabitants, or 7.3% of the world population, the

EU, in 2011, generated the largest nominal gross domestic product (GDP) of 17.6 trillion US dollars,

representing approximately 20% of the global GDP when measured in terms of purchasing power

parity. The EU was the recipient of the 2012 Nobel Peace Prize.

Member states of the EU (year of entry) 1. Austria (1995)

2. Belgium (1952)

3. Bulgaria (2007)

4. Cyprus (2004)

5. Czech Republic (2004)

6. Denmark (1973)

7. Estonia (2004)

8. Finland (1995)

9. France (1952)

10. Germany (1952)

11. Greece (1981)

12. Hungary (2004)

13. Ireland (1973)

14. Italy (1952)

15. Latvia (2004)

16. Lithuania (2004)

17. Luxembourg (1952)

18. Malta (2004)

19. Netherlands (1952)

20. Poland (2004)

21. Portugal (1986)

22. Romania (2007)

23. Slovakia (2004)

24. Slovenia (2004)

25. Spain (1986)

26. Sweden (1995)

27. United Kingdom (1973)

The Modern-Day EU

Throughout the 1990s, the "single market" idea allowed easier trade, more citizen interaction on issues

such as the environment and security, and easier travel through the different countries. Even though

the countries of Europe had various treaties in place prior to the early 1990s, this time is generally

recognized as the period when the modern day European Union arose due to the Treaty of Maastricht

on European Union which was signed on February 7, 1992 and put into action on November 1, 1993.

The Treaty of Maastricht identified five goals designed to unify Europe in more ways than just

economically. The goals are:

1) To strengthen the democratic governing of participating nations.

2) To improve the efficiency of the nations.

3) To establish an economic and financial unification.

4) To develop the "Community social dimension."

5) To establish a security policy for involved nations.

In order to reach these goals, the Treaty of Maastricht has various policies dealing with issues such as

industry, education, and youth. In addition, the Treaty put a single European currency, the euro, in the

works to establish fiscal unification in 1999. In 2004 and 2007, the EU expanded, bringing the total

number of member states as of 2008 to 27. In December 2007, all of the member nations signed the

Treaty of Lisbon in hopes of making the EU more democratic and efficient to deal with climate

change, national security, and sustainable development.

How the EU Works

With so many different nations participating, the governance of the EU is challenging, however, it is a

structure that continually changes to become the most effective for the conditions of the time. Today,

treaties and laws are created by the "institutional triangle" that is composed of the Council

representing national governments, the European Parliament representing the people, and the

European Commission that is responsible for holding up Europe's main interests. The Council is

formally called the Council of the European Union and is the main decision making body present.

There is also a Council President here and each member state takes a six month turn in the position. In

addition, the Council has the legislative power and decisions are made with a majority vote, a qualified

majority, or a unanimous vote from member state representatives. The European Parliament is an

elected body representing the citizens of the EU and participates in the legislative process as well.

These representative members are directly elected every five years. Finally, the European Commission

manages the EU with members that are appointed by the Council for five year terms- usually one

Commissioner from each member state. Its main job is to uphold the common interest of the EU. In

addition to these three main divisions, the EU also has courts, committees, and banks which participate

on certain issues and aid in successful management.

EU Trade Policy

The EU has a common trade policy. This means that the EU and its 27 EU Member States act as one

single jurisdiction in all trade-related matters. International agreements concluded by the EU are

binding on the EU Institutions and on its Member States. The legal basis for the EU's trade policy is

Article 133 of the European Community (EC) Treaty. On this basis, the European Commission

negotiates on behalf of the Member States in consultation with a special committee, the so-called "133

Committee". The 133 Committee is composed of representatives from the 27 Member States and the

European Commission. Its main function is to coordinate the trade policy of the EU. The 133

Committee discusses the full range of trade policy issues affecting the EU, from the strategic issues

surrounding the launch of rounds of trade negotiations at the WTO to specific difficulties with the

export of individual products (e.g., textiles), and considers the trade aspects of wider EU policies in

order to ensure consistency of policy. In this Committee, the European Commission secures

endorsement of the Member States on all trade policy issues. The major formal decisions (for example

agreement to launch or conclude negotiations) are then confirmed by the Council of the European

Union. The objective of the EU's Common Commercial Policy is to contribute, in the common

interest, to the harmonious development of world trade, the progressive abolition of restrictions on

international trade, and the lowering of customs barriers. The EU's Common Commercial Policy

covers all the main measures affecting trade in goods and services and almost all trade-related issues.

Trade-related areas partially covered by the common trade policy include: company law, indirect

taxation, standards and other technical regulations, and enforcement of intellectual property rights.

One of the most important aspects of the EU trade policy is that the EU is a customs union. The same

import duties are charged on imports from third countries regardless of the country of entry. The main

principles of customs law are regulated at EU level, although the customs authorities of the EU

Member States are in charge of their application. In addition, trade remedies against unfair trade

practices (i.e. anti-dumping and countervailing measures) and safeguards are adopted by the EU and

imposed on the imports concerned regardless of the country of origin. Import regulations and export

controls are also applicable EU-wide.

Bangladesh Trade with EU

Bangladesh-EU Trade Relationship

The paper dwelt at length on Bangladesh-EU trade relationship by analyzing the dynamics of exports

to the EU, structures of the exports, the rate of EU GSP utilization and the dynamics of imports from

the EU. The first agreement signed between Bangladesh and the EU in 1976 was, in principle, a

commercial cooperation agreement. Since then the EU as a group has become the foremost trading

partner of Bangladesh. Bangladesh exported $ 2.46 billion worth of commodities to the 15 EU

member countries in 1998/99, which was 46.50 per cent of its total annual exports and was a

significant rise from the 32.4 per cent posted a decade earlier. Amongst the 15 EU member countries,

Germany topped the list (11.8 per cent) in terms of market share followed by UK (9.3 per cent) and

France (6.5 per cent).

Sectoral analysis of Bangladesh's exports by destination reveals that the EU is the single most

important importer of knitwear from Bangladesh. The EU accounted for 69.2 per cent of total knitwear

exports of the country in 1998/99. In case of woven-RMG, the EU ranks second, after the USA,

accounting for 46.6 per cent of total exports of woven- RMG. Within the EU, Germany was the

premier export market of Bangladesh in both woven (15.6 per cent) and knit-RMG (14.1 per cent). In

case of export of leather, the EU ranked first with a share of 35.6 per cent of total export in FY 1999.

Here Italy was the foremost importer, accounting for 22.8 per cent of total exports in FY 1999. The

EU accounted for 35.2 per cent of total exports of frozen food, mainly shrimp, from Bangladesh in FY

1999, a close second to the USA whose share was 36.1 per cent. Among the EU countries, the UK was

the largest importer of frozen food with a share of 13.1 per cent of the total exports from Bangladesh,

followed by Belgium with 9.8 percent.

The paper mentioned the fact that Bangladesh receives duty free access for its products into the EU

under the Generalized System of Preference (GSP) scheme which provides preferential tariff treatment

to Bangladeshi exports to the EU markets. However, since Bangladesh sometimes has been unable to

comply with the stringent EU rules of origin for GSP, it has been difficult for exporters to take full

advantage of the market access opportunity offered under the EC GSP scheme.

Over the recent years, GSP utilization rate of Bangladesh has deteriorated significantly - from 43.2 per

cent in 1994/95 to only 27.3 per cent in 1996/97. This has been mainly due to Bangladesh's inability to

comply with the three-stage conversion requirement for woven-RMG. The GSP utilization rate for

knit-RMG has registered considerable improvement since 1999, thanks to the EC's change of rules of

origin under the two stage conversion which now allows imported yarn for knit fabrics to qualify for

GSP. The facility of quota-free access is critically important for Bangladesh since exports from all

major competitors of Bangladesh in the EU market have restricted entry because of quota. Such quotas

are scheduled to be eliminated in the year 2005 under new WTO- initiated rules.

The EU is the second largest trading partner of Bangladesh as far as imports are concerned. In 1998/99

the EU accounted for 9.5 per cent of total imports by Bangladesh, second only to India (15.4 per cent)

and far ahead of both the USA (3.7 per cent) and Japan (6.1 per cent). In terms of form of transaction

in 1998/99, more than 87 per cent of imports from the EU by Bangladesh is done through payment in

cash. As far as imports under loan component are concerned, the EU's share is 12.5 per cent, second

only to Japan, whose share is about 15.8 per cent. Amongst the EU member states, the UK topped the

list accounting for about 26.4 per cent of Bangladesh's import in 1998/99 followed by Germany (20.8

per cent) and France (10.3 per cent). Products of chemical and allied industries, machinery and

transport equipment and base metals constituted Bangladesh’s major imports from the EU in FY 1999.

EU Imports from Bangladesh (by Sitc Section)

EU Exports to Bangladesh (by Sitc Section)

EU trade balance with Bangladesh

EU Trade with Bangladesh

Future Trade Agenda

Despite the trade liberalization reforms initiated in 1990s, Bangladesh is still saddled with one of the

least liberal trade policy regimes in the world. Although half of the country’s GDP comes from the

service sector, liberalization of this sector leading to export of services is not satisfactory yet.

Bangladesh faces a more favorable market access in developed markets because of its LDC status, but

is yet to fully exploit this opportunity. Cumbersome customs and border procedures and an inefficient

duty drawback system, in addition to the high import duties, contributed to this outcome.

The remaining trade barriers work against the emergence of new export activities and expansion of the

export activities to non-enclave areas. It is no surprise then that the export base is heavily

concentrated in garments, the sector facing the most liberal import regime largely because of its access

to bonded warehouse facility. RMG exports account for about 75 percent of merchandise exports. The

extension of the bonded warehouse facility in 2008 to all hundred percent export-oriented sectors

should help promote greater export diversification. Recent measures to liberalize the banking and

telecommunication sectors are also welcome.

Future trade liberalization program needs to focus on (a) reduction in the dispersion and average level

of protection, (b) promotion of services export, (c) reduction of the reliance on limited number of

goods through diversification of exports, (d) promotion of more efficient handling of custom and

border procedures, and (e) a more efficient duty drawback system.

Conclusion

The country’s development partners to take cognizance of the fact about transformation of

Bangladesh’s economy from an aid-dependent one to a trade-dependent one while tuning their external

policies. We emphasised this point by arguing that trade should not be viewed as a political privilege

but as a matter of shared economic opportunities based on mutual benefits between two trading

partners. We hoped that Bangladesh-EU relations would be guided by this motto. At the same time he

also made it clear that Dhaka was not asking for significant gestures of charity, but urging upon the

EU to create a level playing field by rendering Bangladesh a degree of preferential access into their

markets - the opportunities they had been offering to the ACP countries, Eastern Europe and EU

member countries themselves, in order to compensate for our historically inherited least developed

status.

The argument that the country would have to first put its political house in order and suggested that the

major political parties of the country should communicate with each other and initiate a collective

political response to Bangladesh’s external relations and the emerging process of globalisation. We

end by asserting that such a political response would create a conducive environment where the people

of Bangladesh would be able to adequately equip themselves in order to address the challenges and

also realise the opportunities stemming from the evolving global order.

References

http://www.google.com.bd/

http://en.wikipedia.org/wiki/

http://www.wto.org/english/tratop_e/markacc_e/namachairtxt_dec08_e.pdf

http://eeas.europa.eu/bangladesh/

http://www.epb.gov.bd/

http://www.boi.gov.bd/

http://www.ipdcbd.com/board_investment.html

http://www.economywatch.com/world_economy/bangladesh/export-import.html