Bangladesh - European Union Trade Relationship

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Bangladesh - European Union Trade Relationship

Course Title: International Finance & Banking Course Code: FIN -603

Submit To

Mijanur Rhman joddarDepartment 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 TransmittalApril 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 SummaryThe 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 Bangladeshs major imports from the EU in FY 1999.

Table of Contents1.0 Bangladesh Trade: An OverviewHistory Growth Trade Openness and Integration Tariffs and QRs Export-Import Information (2001- 2009) Bangladesh's Trade with Main Partners 2011 1 1 1 2 2 2

2.0 The European Union: A History and OverviewHistory Member states of the EU Modern-Day EU How the EU Works EU Trade Policy 3 4 4 5 5 7 9 11 13 14

3.0 Bangladesh Trade With EUBangladesh-EU Trade Relationship EU Imports from Bangladesh EU Exports to Bangladesh EU trade balance with Bangladesh Future Trade agreement

4.0 ConclusionConclusion 15

Bangladesh TradeHistoryThe 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.

GrowthThe 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 Bangladeshs 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 IntegrationBangladesh 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 countrys 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 countrys 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 InformationYear 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Import (Billion US $ ) 8.54 9.66 10.90 13.15 14.75 17.16 20.37 21.44 Export (Billion US $ ) 5.99 6.55 7.60 8.65 10.53 12.18 14.11 15.57

BANGLADESH'S TRADE WITH MAIN PARTNERS 2011

The European Union: A History and OverviewHistoryThe 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. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

Austria (1995) Belgium (1952) Bulgaria (2007) Cyprus (2004) Czech Republic (2004) Denmark (1973) Estonia (2004) Finland (1995) France (1952) Germany (1952) Greece (1981) Hungary (2004) Ireland (1973) Italy (1952) 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 EUThroughout 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 WorksWith 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 PolicyThe 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 diff...

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