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 Bangladeshs major imports from the EU in FY 1999.

Table of Contents
1.0 Bangladesh Trade: An Overview
History

Growth

Trade Openness and Integration

Tariffs and QRs

Export-Import Information (2001- 2009)

Bangladesh's Trade with Main Partners 2011

2.0 The European Union: A History and Overview

History

Member states of the EU

Modern-Day EU

How the EU Works

EU Trade Policy

3.0 Bangladesh Trade With EU

Bangladesh-EU Trade Relationship

EU Imports from Bangladesh

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 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 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 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 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.
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 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 Bangladeshs 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 countrys 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 countrys development partners to take cognizance of the fact about transformation of
Bangladeshs 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 Bangladeshs 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