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  • 1

    Revised and Final Draft

    January 2015

    Not to be quoted

    Strategy for Export Diversification 2015-2020

    Breaking into new markets with new products

    Dr. Zaidi Sattar

    Policy Research Institute of Bangladesh

    Prepared as a Background paper for the Seventh Five Year Plan

  • i

    Table of Contents

    List of Tables ............................................................................................................................. ii

    List of Figures ........................................................................................................................... ii

    List of Boxes .............................................................................................................................iii

    Acronyms .................................................................................................................................. iv

    I. INTRODUCTION ................................................................................................................ 1

    II. CHALLENGE OF EXPORT DIVERSIFICATION ....................................................... 1

    III. EXPORT PERFORMANCE AND PROGRESS OR LACK IN

    DIVERSIFICATION .................................................................................................... 3

    Exploiting Non-traditional Markets for Exports ............................................................................... 14

    IV. INTERNATIONAL EXPERIENCE AND LESSONS LEARNT ............................... 18

    V. CONSTRAINTS TO EXPORT DIVERSIFICATION IN BANGLADESH ............... 21

    Key Constraints to Export Expansion and Diversification ............................................................... 21

    VI. TRADE POLICY AND EXPORT DIVERSIFICATION............................................ 30

    Protection Policy and Export Diversification ................................................................................... 34

    VII. EXPLOITING EMERGING TRADE PATTERNS FOR EXPORT

    DIVERSIFICATION .................................................................................................. 41

    VIII. ROLE OF FOREIGN DIRECT INVESTMENT (FDI) IN EXPORT

    DIVERSIFICATION .................................................................................................. 47

    Potential Role of FDI in Promoting Exports ..................................................................................... 47

    The Empirical Evidence .................................................................................................................... 47

    Bangladesh Experience with FDI ..................................................................................................... 50

    IX. DIVERSIFYING INTO SERVICES EXPORTS ......................................................... 53

    The Remittance Boom in Bangladesh ............................................................................................... 54

    Downside Risks to Excessive Reliance on Remittances ................................................................... 55

    Diversifying Services Exports to Non-Factor Services .................................................................... 56

    X. THE INSTITUTIONS FOR EXPORT DIVERSIFICATION ..................................... 57

    Trade Promotion Organizations (TPO) ............................................................................................. 57

    Export Processing Zone (EPZs) ........................................................................................................ 59

    Trade Finance and Subsidies ............................................................................................................ 59

    Special Economic Zones (SEZ) ........................................................................................................ 60

    XI. STRATEGY AND POLICY FOR EXPORT DIVERSIFICATION .......................... 62

    References ............................................................................................................................... 63

  • ii

    List of Tables

    Table 1: Bangladesh: 2013 Trade Openness in Asia .......................................................................... 4

    Table 2: List of countries offering Preferential tariffs to Bangladesh ............................................... 12

    Table 3: MFN Applied Tariff Rates in potential export destination ................................................. 13

    Table 4: RoO for Preferential tariffs to Bangladesh ......................................................................... 13

    Table 5: Non-Traditional markets for RMG exports ........................................................................ 14

    Table 6: Bangladesh's RMG Exports to Japan .................................................................................. 16

    Table 7. The Enabling Trade Index 2014; Bangladesh ..................................................................... 23

    Table 8: Trade Logistics Performance (LPI 2014) ........................................................................... 23

    Table 9: Comparison of Infrastructure Quality, 2010-11 .................................................................. 24

    Table 10: Ease of Doing Business (2012) ......................................................................................... 25

    Table 11: Snapshot of Bangladesh Trade Regime FY2014 .............................................................. 32

    Table 12: Tariff Trends FY01-14...................................................................................................... 35

    Table 13: Exports of Goods and Services expressed as share (%) of GDP ...................................... 39

    List of Figures

    Figure 1: Export Concentration Trends (FY1980-2014) .................................................................... 2

    Figure 2: Rising share of trade in GDP ............................................................................................... 3

    Figure 3: Export performance since 1990 ........................................................................................... 4

    Figure 4: Growth of RMG exports exceeds that of Non-RMG exports .............................................. 4

    Figure 5: Relative Export Concentration 2011 ................................................................................... 5

    Figure 6: Export Concentration Trend by ECR .................................................................................. 6

    Figure 7: Number of Export items; H.S. 4 digit .................................................................................. 7

    Figure 8: Export items>US $ 500,000; H.S. 4-digit ........................................................................... 7

    Figure 9: RMG Export by Number of 6-digit H.S. Code.................................................................... 8

    Figure 10: Export Concentration (%) ECR(15) in RMG at H.S. 6-Digit............................................ 8

    Figure 11: Export Concentration Trend (ECR); Top 15 Countries (%) .............................................. 9

    Figure 12: Number of Countries Exported, Exports >US $1 million ................................................. 9

    Figure 13: Trend in RMG Export Destination; ECR Top 5 Countries (%) ...................................... 10

    Figure 14: RMG exports to countries, Exports >US $1 million ....................................................... 10

    Figure 15: Geographical Diversification of RMG exports FY2001-14 ............................................ 11

    Figure 16: Exchange Rate Movements FY03-14 .............................................................................. 29

    Figure 17: CD and Para Tariff Trends .............................................................................................. 36

  • iii

    Figure 18: Trends in Output and Input Tariffs: Bangladesh and India ............................................. 38

    Figure 19: A Tariff Regime of the Future ......................................................................................... 40

    Figure 20: Average Tariff Trend for Outputs and Inputs, S. Korea .................................................. 41

    Figure 21: Global FDI Flows 2005-2011, Billion US$ .................................................................... 50

    Figure 22: Regional Distribution of FDIs 2011, US$ Billions ......................................................... 50

    Figure 23: FDI Inflows in East and South Asia 2011, US$ Billion .................................................. 51

    Figure 24: Trend of FDIs in Bangladesh 1996-2011 ........................................................................ 51

    Figure 25: Sectoral Distribution of FDIs in Bangladesh ................................................................... 52

    Figure 26: Distribution of FDI in Bangladesh by Activities ............................................................. 52

    Figure 27: Sources of Total Export Earnings FY12.......................................................................... 54

    Figure 28: Remittance Flows in South Asia FY 2012 ...................................................................... 54

    F

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