Acknowledgement

Acknowledgement is not only a ritual but also an experience of indebtedness to all those
who help in the preparation process of the project One of the most pleasant aspects in
collecting the necessary information and computing it is the opportunity to thank those who
have actively contributed to it.
Many persons have contributed to the preparation of this report. Some of the names must
be remembered at this moment as without their assistance completion of this report would
not be possible.
At the outset, I would like to express my gratefulness to, Course Instructor – Syeda Khadiza
Akter mam for allowing us to do this report on International Trade between Bangladesh and
5 other countries thus allowing us to get a firsthand experience of the activities, as practiced
in the real world.
 Executive Summary
India is by far the largest single source for Bangladesh’s imports (15% of total in FY05), ahead of
China and Singapore. Bangladesh’s perennial large bilateral trade deficit with India might be a
cause for concern but it has not led to any balance of payments problem for Bangladesh as
consistent trade surpluses with such trading partners as US and EU compensate for these
deficits. Bangladesh exports a miniscule (<1%) share of India’s imports, a negligible share (1%)
of its own exports, and a small range of products (fertilizer and jute goods made up two-thirds
of exports). Bangladesh exports might have been restrained by (a) faster productivity growth in
India bolstering its comparative advantage in competing goods, and/or (b) tariff and non-tariff
barriers constraining Bangladesh’s major exports (RMG) or minor exports, which have
experienced rapid growth elsewhere. India uses WTO-compliant measures – e.g. anti-dumping,
standards – for “contingent” protection which could pose as non-tariff barriers to imports from
Bangladesh. The large volume of informal/illegal trade remains a problem magnified by poor
logistics and infrastructure at land border posts that prompts higher transaction costs for
formal imports. Cross-border and technical smuggling are further encouraged when both India
and Bangladesh restrict imports over land border via designated ports. The study finds that
preferences for formal trade will be influenced by the levels of Bangladesh protective tariffs,
rigor of customs administration, and the state of infrastructure at border posts (roads, storage,
technical and administrative capabilities). To reduce informal/illegal imports, both countries
need to (a) improve infrastructure – physical and administrative – at land border customs posts;
(b) streamline and harmonize customs procedures and administration; (c) expand facilities at
smaller customs border posts; and (d) for Bangladesh, bring down the high protective tariffs.
Trade Liberalization Programmed under SAFTA could facilitate this process. For Bangladesh:
Consumer welfare gains far outweigh losses in government revenue or producer surplus,
provided infrastructure and administrative capacities are expanded at the borders. Yet, welfare
gains could vanish if, after getting a captive protected market under an FTA, Indian producers
collude amongst themselves or with Bangladeshi importers. Bangladesh would be better served
in pursuing similar welfare gains from multilateral liberalization.
Table of Contents
Chapter 1: Introduction..............................................................................................................................4
Background of the Study........................................................................................................................4
Objective of the Study............................................................................................................................5
Limitations:.............................................................................................................................................5
Chapter 2.....................................................................................................................................................6
Methodology...........................................................................................................................................6
Chapter 3.....................................................................................................................................................6
Balance of Trade.....................................................................................................................................6
Chapter 4: Findings and Analysis.................................................................................................................8
Chapter 5:..................................................................................................................................................17
Recommendation..................................................................................................................................17
Conclusion.............................................................................................................................................18
References.................................................................................................................................................19
 Chapter 1: Introduction

Background of the Study

Bangladesh is one of the fastest growing economic countries among the LDC’s country.

According to the international Monetary Fund, Bangladesh ranked as the 42rd largest
economy in the world in 2011 in PPP terms and 57th largest in nominal terms, among the Next
Eleven or N-11 of Goldman Sachs and D-8 economies, with a gross domestic product
of US$269.3 billion in PPP terms and US$104.9 billion in nominal terms. The economy has
grown at the rate of 6-7% per annum over the past few years. More than half of the GDP is
generated by the service sector; while nearly half of Bangladeshis are employed in the
agriculture sector. Other goods produced are textiles, jute, fish, and vegetables, fruits, leather
and loath. An easy way to understand any country's economic scenario is through its Balance
of Trade (BOT) and Balance of Payment (BOP) figures. Balance of Trade shows the difference
between the total amount of incoming and outgoing currencies through import and export.
Balance of Payment (BOP) is a summary of economic activities between the residents of a
country and the rest of the world during a given period, usually one year. The main purpose of
keeping these records is to inform government authorities about the overall international
economic position of the country in order to assist them in arriving at decisions on monetary
and fiscal policy, on the one hand, and trade and payments policy on the other. Balance
of payments statistics are therefore helpful to government authorities charged with
maintaining macroeconomic stability.
 Objective of the Study

The study underscores the trend, structure and current picture of Bangladesh’s trade.
Bangladesh’s trade with different countries has increased tremendously especially in the 1990s.
The average annual growth rates of Bangladesh’s trade, during 1980 to 1995, were much higher
than those with the SAARC and the world. Bangladesh is suffering from the trade imbalance
which may make the relationship between these countries to fall in a bad situation. And
harmony of these counties may be hampered. From the Study we can get some idea how we
can minimize the problem.

Limitations:

 This extensive type of report needs much time to prepare. So lack of times is one of
the major limitations to prepare a reliable report.
 Business decision is totally a country’s confidential matter. And proper documents are
not available to make this report.
 Chapter 2

Methodology
All the information that we used are via secondary data which were collected were collected
from national and international books, articles, newspapers, published and unpublished thesis,
and browsing internet.

Chapter 3
Balance of Trade
The commercial balance or net exports (sometimes symbolized as NX), is the difference
between the monetary value of exports and imports of output in an economy over a certain
period, measured in the currency of that economy. It is the relationship between a nation’s
imports and exports. A positive balance is known as a trade surplus if it consists of exporting
more than is imported; a negative balance is referred to as a trade deficit or, informally, a trade
gap. The balance of trade is sometimes divided into a goods and a services balance.
Understanding Balance of Trade
Trade, in general connotation, means the purchase and sales of commodities. In International
Trade, purchase and sale are replaced by imports and exports. Balance of Trade is simply the
difference between the value of exports and value of imports. Thus, the Balance of Trade
denotes the differences of imports and exports of a merchandise of a country during the course
of year. It indicates the value of exports and imports of the country in question. If the value of
its exports over a period exceeds its value of imports, it is called favorable balance of trade and,
conversely, if the value of total imports exceeds the total value of exports over a period, it is
unfavorable balance of trade. The favorable balance of trade indicates good economic
condition of the country.
Policies of early modern Europe are grouped under the heading mercantilism. Early
understanding of the imbalances of trade emerged from the practices and abuses of
mercantilism in which colonial America’s natural resources and cash crops were exported in
exchange for finished goods from England, a factor leading to the American Revolution. An
early statement appeared in Discourse of the Common Wealth of this Realm of England, 1549:
“We must always take heed that we buy no more from strangers than we sell them, for so
should we impoverish ourselves and enrich them. “Similarly a systematic and coherent
explanation of balance of trade was made public through Thomas Mun’s 1630 “England’s
treasure by foreign trade, or, the balance of our foreign trade is the rule of our”

Definition
The balance of trade forms part of the current account, which includes other transactions such
as income from the net international investment position as well as international aid. If the
current account is in surplus, the country’s net international asset position increases
correspondingly. Equally, a deficit decreases the net international asset position.
The trade balance is identical to the difference between a country’s output and domestic
demand (the difference between what goods a country produces and how many goods it buys
from abroad; this does not include money re-spent on foreign stock, nor does it factor in the
concept of importing goods to produce for the domestic market).

Measuring the balance of trade can be problematic because of problems with recording and
collecting data. As an illustration of this problem, when official data for all the world’s countries
are added up, exports exceed imports by almost 1%; it appears the world is running a positive
balance of trade with itself. This cannot be true, because all transactions involve an equal credit
or debit in the account of each nation. The discrepancy is widely believed to be explained by
transactions intended to launder money or evade taxes, smuggling and other visibility
problems. However, especially for developed countries, it is likely the transaction statistics are
accurate.

Factors that can affect the balance of trade include:

 The cost of production (land, labor, capital, taxes, incentives, etc.) in the exporting
economy vis-à-vis those in the importing economy;
 The cost and availability of raw materials, intermediate goods and other inputs;
 Exchange rate movements;
 Multilateral, bilateral and unilateral taxes or restrictions on trade;
 Non-tariff barriers such as environmental, health or safety standards;
 The availability of adequate foreign exchange with which to pay for imports; and
 Prices of goods manufactured at home (influenced by the responsiveness of supply)
In addition, the trade balance is likely to differ across the business cycle. In export-led growth
(such as oil and early industrial goods), the balance of trade will improve during an economic
expansion. However, with domestic demand led growth (as in the United States and Australia)
the trade balance will worsen at the same stage in the business cycle.
Monetary balance of trade is different from physical balance of trade (which is expressed in
amount of raw materials, known also as Total Material Consumption). Developed countries
usually import a lot of raw materials from developing countries. Typically, these imported
materials are transformed into finished products, and might be exported after adding value.
Financial trade balance statistics conceal material flow. Most developed countries have a large
physical trade deficit, because they have a large ecological footprint. Civil society organizations
point out the predatory nature of this imbalance, and campaign for ecological debt repayment.
Since the mid-1980s, the United States has had a growing deficit in tradable goods, especially
with Asian nations (China and Japan) which now hold large sums of U.S debt that has funded
the consumption. The U.S. has a trade surplus with nations such as Australia. The issue of trade
deficits can be complex. Trade deficits generated in tradable goods such as manufactured
goods or software may impact domestic employment to different degrees than trade deficits in
raw materials.
Economies such as Japan and Germany which have savings surpluses, typically run trade
surpluses. China, a high-growth economy, has tended to run trade surpluses. A higher savings
rate generally corresponds to a trade surplus. Correspondingly, the U.S. with its lower savings
rate has tended to run high trade deficits, especially with Asian nations.

Chapter 4: Findings and Analysis

Balance of Trade of Bangladesh:

Foreign trade plays an important role in achieving rapid economic development of a country.
Bangladesh as a developing country, foreign trade can be considered of paramount importance.
However, trade balance of this country has never been in a favorable position. Each year
Bangladesh has to spend a huge amount of foreign currency for importing consumer goods and
materials, which is not a positive sign for our country. Bangladesh also spends much more for
importing industrial raw materials, but it is a positive signal for our economy as it shows
enhanced production of the economy. The country’s requirement of petroleum products is
entirely met by import. Bangladesh had consecutive deficit balance of trade in the last 6 years
and the gap is increasing every year. Bangladesh imports mostly petroleum product and oil,
machinery and parts, soya bean and palm oil, raw cotton, iron and steel and wheat. Bangladesh
main imports partners are China (17% of total), India, Indonesia, Singapore and Japan.
Cost of export, import and trade balance (In million USD)

Fiscal Year Total Export Total Import Trade Balance

2004-05 8573 11870 -3297

2005-06 10412 13301 -2889
2006-07 12053 15511 -3458
2007-08 14151 19481 -5330
2008-09 15581 20291 -4710
2009-10 16233 21388 -5155
2010-11 23008 30336 -7328
Source: Bangladesh Bank

Chart: Balance of trade in Bangladesh

Export- Import ratio in term of Trade balance (In Million USD)

Fiscal Year Trade Balance Export-Import Ratio

2004-05 -3297 1:1.38
2005-06 -2889 1:1.28
2006-07 -3458 1:1.29
2007-08 -5330 1:1.38
2008-09 -4710 1:1.30
 2009-10 -5155 1:1.32
2010-11 -7328 1:1.32

On the above table we see that, last few fiscal years import ratio always higher than export
ratio; i.e. import is higher than export.

Here are the major export commodities of Bangladesh:

Bangladesh exports were worth 20313.8 Million USD in 2011. Bangladesh exports mainly
readymade garments including knit wear and hosiery (75% of exports revenue). Others include:
Shrimps, jute goods (including Carpet), leather goods and tea.

 Garments
 Frozen fish and seafood
 Jute and jute goods
 Leather 

The following were Bangladesh’s export partners:

 United States: 24%

 Germany: 15.3%
 United Kingdom: 10%
 France: 7.4%
 Spain : 5.5%

Total export and growth rate:

Year Export ( in million USD) Growth Rate

2004-5 8573 13.99%

2005-6 10412 21.45%

2006-7 12053 15.76%

2007-8 14151 17.41%

2008-9 15581 10.11%

 2009-10 16233 4.18%

2010-11 23008 41.74%

Source: statistic department of Bangladesh Bank.

Table -3(A)[Taka in crore] & 3(B)[In million US$] shows the comparative position of
export receipts from major trading partners during the years 2014-2015, 2013-2014 and
20122013 along with their comparative shares in the export earnings of Bangladesh.

2014-2015 2013-2014 2012-2013 Changes Changes

Country/Commodities Taka Taka Taka (1-2) (1-3)
1 2 3 4 5
1 U.S.A.

(16.7) (17.7) (18.7)

Readymade Garments 29812.4 29896.1 27833.1 -83.7 1979.3
Fish,Shrimps & Prawns 282.2 400.4 287.3 -118.2 -5.1
Home Textiles 342.5 278.3 390.2 64.2 -47.7
Jute Manufactures 141.5 130.6 135.3 10.9 6.2
Leather & Leather Manu. 111.6 92.8 85.8 18.8 25.8
Raw Jute 11.9 14.3 11.5 -2.4 0.4
Handicrafts 15.2 11.2 11.2 4.0 4.0
Others 755.0 744.0 965.6 11.0 -210.6

2 Germany

(16.0) (16.1) (15.8)

Readymade Garments 27503.6 26404.8 23042.2 1098.8 4461.4
Fish,Shrimps and Prawns 412.8 468.8 362.8 -56.0 50.0
Home Textiles 759.8 751.1 665.4 8.7 94.4
Jute Manufactures 21.9 24.8 53.9 -2.9 -32.0
 Leather & Leather Manu. 875.1 667.0 505.2 208.1 369.9
Raw Jute 20.8 22.8 15.7 -2.0 5.1
Handicrafts 6.1 9.2 6.0 -3.1 0.1
Others 394.2 449.2 453.8 -55.0 -59.6

3 U.K.

(9.9) (9.8) (10.2)

Readymade Garments 16681.8 15460.8 14337.8 1221.0 2344.0
Fish,Shrimps and Prawns 610.7 659.8 643.5 -49.1 -32.8
Home Textiles 365.0 481.4 454.4 -116.4 -89.4
Jute Manufactures 34.2 30.8 34.1 3.4 0.1
Leather & Leather Manu. 54.2 44.8 37.8 9.4 16.4
Raw Jute 8.9 8.2 13.5 0.7 -4.6
Handicrafts 8.8 5.2 6.0 3.6 2.8
Others 813.0 754.9 707.9 58.1 105.1

4 France

(6.1) (6.3) (6.2)

Readymade Garments 10625.6 10281.1 9013.0 344.5 1612.6
Fish,Shrimps and Prawns 193.2 248.2 162.0 -55.0 31.2
Home Textiles 315.0 448.4 365.7 -133.4 -50.7
Jute Manufactures 7.8 10.6 6.0 -2.8 1.8
Leather & Leather Manufactures 103.1 121.4 147.0 -18.3 -43.9
Raw Jute 0.1 0.3 0.3 -0.2 -0.2
Handicrafts 1.6 3.0 1.0 -1.4 0.6
Others 148.4 195.1 167.0 -46.7 -18.6

5 Spain

(5.6) (4.8) (4.6)

 Readymade Garments 9935.0 8249.2 6961.0 1685.8 2974.0
Fish,Shrimps and Prawns 16.4 2.4 11.0 14.0 5.4
Home Textiles 79.9 57.3 56.5 22.6 23.4
Jute Manufactures 37.5 32.7 25.0 4.8 12.5
Leather & Leather Manufactures 199.0 158.2 146.0 40.8 53.0
Raw Jute 3.5 1.6 2.0 1.9 1.5
Handicrafts 0.8 1.3 1.0 -0.5 -0.2
Others 207.8 146.1 99.5 61.7 108.3

Sector wise contribution in exports of Bangladesh:

Commodity group 2010-2011 2009-2010 2008-2009

Amount % Amount % Amount %

Readymade 96440 77.1 67247 77.1 67257 79.7

garments

Jute manufacturers 4777 3.8 3655 4.2 2391 2.8

Fish, shrimps and 4149 3.3 3211 3.7 3123 3.7

prawns

Leather 3367 2.7 2430 2.8 1962 2.3

Furnance oil 707 0.6 993 1.1 661 0.8

Raw jute 1977 1.6 1330 1.5 931 1.1

Handicrafts 33 0.0 114 0.1 61 0.1

Tea 19 0.0 37 0.0 82 0.1

Fertilizers 181 0.1 237 0.3 711 0.8

Others 13356 10.8 8016 9.2 7245 8.6

 Source: statistic department of Bangladesh Bank.

The major import commodities of Bangladesh:

 Machinery and equipment

 Chemicals
 Iron and steel
 Textiles
 Foodstuffs
 Petroleum products
 Cement 

The following were Bangladesh’s import partners:

 China: 32%
 India: 17%
 Singapore: 8.5%
 Malaysia: 3.3%
 Japan: 3.1% 

Importable commodities during 2011:

Major items Amount (in billion USD) % of total import

Food grains 1911 6
Edible oil 1067 3
Sugar 654 2
Crude Petroleum 923 3
POL 3186 9
Chemical 1254 4
Fertilizer 1241 4
Plastic and rubber articles 1302 4
 thereof
Raw cotton 2689 8
Textile and articles thereof 2680 8
Iron, steel and other metals 2004 6
Capital machinery 2325 3
Others 12422 37
Total 33658 100

Problems of foreign trade in Bangladesh:

1. Legal Constraints: The first and the foremost problems in foreign exchange operations arise
due to legal constraints. Since foreign trade indicates exchange of goods and services between
two countries and each country has its own laws, rules and regulations, which are different
from other countries, so problems arise in foreign exchange operations.

For example, an exporter of Bangladesh receives an L/C from the importer of England in which
the goods will be shipped in American ship and delivered in China. In this case according to
which country’s law the dispute, if arise, will be settled, is a problem.

2. Geographical Location: From the geographical viewpoint, Bangladesh is not located in such a

place to trade vigorously. We have encompassed by India from three sides. And India enjoys a
strong industrial base compared to us. Due to economy of scale India can produce the
same quality products at a cheaper price.
3. Limited Skilled Manpower: Performing the foreign exchange activities is a very tough job
because it involves proper communication with the client, various banks of the country as well
as abroad. A single error may cost thousands of dollars. In Bangladesh there is limited skilled
manpower, who can understand and handle the foreign exchange dealings well.

4. Limited Export Base: Bangladesh has a very limited export base. It does not have the
sufficient supply of raw materials needed to use in the production process. If Bangladesh has
the local raw materials, it would be able to use them in the production process. But
unfortunately the country has to import the raw materials required in various production
processes. As a result, production cost increases and consumers has to spend more to avail that
particular product.

5. Lack of Stable Policy: Policy and structure are an integral part of any kind of operation. It will
suggest us how to perform the operation. But if the policy continues to change frequently it is
not easy to plan and perform also. With the changes of Government new policies are formed,
which is very difficult to cope with. It is hard for the business organizations and businessmen to
settle themselves. They are always deviated from the old track, and have to run after the new
track. This is another problem of our country.

6. Political Instability: Another major problem to conduct foreign exchange business is the
political instability of a country, as the political stability is essential for smooth foreign exchange
operations.

7. Problems in UCPDC Guidelines: According to the Article – 4 of the Uniform Customs and
Practices for Documentary Credit (UCPDC), all parties concerned with L/C must deal with
documents not with goods. This may cause problem, as the bank must have to make
payment after the presentations of necessary documents, whether or not the goods are
delivered to the importer.

8. Absence of Policy, Rules and Regulations of Foreign Exchange Operations as per Islamic

Shariah: There is no international Policy, Rules and Regulations of Islamic Banking Regarding
Foreign Exchange Operations, so the Islami Banks has to face problems in foreign exchange
operations.

9. Absence of Islami Money Market: There is no Islami money market in Bangladesh as well as

in the world to deal with Foreign Exchange Operations.

10. Other Problem: Whenever an importer comes to the bank to issue a L/C in his favor, he has
to deposit a certain amount, known as “L/C margin”. After receiving of the export documents
from the exporter the importer pays the rest amount. But up to this time this L/C margin
amount is kept by the bank without giving any return to the importer, so it is a loss for the
client. He could invest this money anywhere else and could earn some return. The importer
adds this loss this loss with his production cost so the product price goes up that has to borne
by the ultimate customers.

Chapter 5:

Recommendation
 The government should focus on the infant industries which are trying to produce the
goods that are imported. Thus they can become an alternative of importing goods
resulting trade surplus.
 Since Bangladesh does not have many export bases the government should invest on
this sector so that our local businessmen are encouraged to increase their production
and export goods overseas without much concerns.
 The dying industries should be subsidized, given low interest loans and tax breaks to
compete with the foreign imports.
 The consumers are very much sophisticated now-a-days. So the standard of the local
products should be upgraded which will encourage the consumers to use local products
rather than foreign imports.
 The local products need to be promoted more frequently.
 Conclusion

The Balance of Trade of Bangladesh indicates economic scenario of Bangladesh. The balance of
trade has been deficit for the past many years and the gap is increasing considerably. Export
growth has been satisfactory though the major portion of export income comes from RMG
sector but major portion of raw materials for RMG sectors are imported goods. To increase
export growth, the export oriented industries should be diversified and variety should also
come. Balance of payment had been surplus for the past 5 years, but it has been deficit in the
year 2011, due to the low rate of foreign remittance inflow, low FDI and foreign aids. The
overall scenario of the economy reflects the impact of global recession, huge import payment
pressure and scarcity of foreign currency reserve through the Balance of trade of Bangladesh.
 References

1. http://www.assignmentpoint.com/business/economics/balance-trade.html
2. http://www.economywatch.com/world_economy/bangladesh/export-import.html
3. https://www.scribd.com/doc/102662960/International-Business-Assignment-Balance-
of-Trade-and-Balance-of-Payment-With-Special-Reference-of-Bangladesh
4. https://en.wikipedia.org/wiki/Balance_of_trade