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TRADE POLICY REVIEWS: FIRST PRESS RELEASE, SECRETARIAT AND GOVERNMENT SUMMARIES
Bangladesh:  May 2000

PRESS RELEASE
PRESS/TPRB/132

1 May 2000

“ In the face of severe political difficulties and civil unrest, the government of Bangladesh seems to have lost its impetus for structural reforms. Moreover, devastating floods, combined with infrastructural failings such as power shortages, inadequate port facilities and insufficient energy supplies, led to a sharp drop in export growth - from 17.1% in 1997/98 to 2.9% in 1998/99.

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See also:

Second press release
Chairperson’s concluding remarks


Bangladesh should continue trade liberalization and carry out major structural reforms Back to top

A new WTO Secretariat report on the trade policies of Bangladesh says that it has made considerable progress in reducing tariffs and quantitative restrictions on imports. While maintaining its liberal investment regime, Bangladesh should carry out further structural reforms in order to reap the full benefits from its trade liberalisation. Access in export markets are undoubtedly obstacles to Bangladesh's economic development; however, the main obstacles are home-grown.

The WTO Secretariat report, along with a policy statement by the Government of Bangladesh, will serve as a basis for the trade policy review of Bangladesh that will take place on 2 and 4 May 2000 in the Trade Policy Review Body of the WTO.

The report also notes that in the face of severe political difficulties and civil unrest, the government of Bangladesh seems to have lost its impetus for structural reforms. Moreover, devastating floods, combined with infrastructural failings such as power shortages, inadequate port facilities and insufficient energy supplies, led to a sharp drop in export growth - from 17.1% in 1997/98 to 2.9% in 1998/99.

The report says that textiles, and particularly clothing, have dominated Bangladesh's exports, with their combined share growing from 70.4% in 1992 to 83.5% in 1998. These exports have been a principal source of Bangladesh's economic growth in the 1990s. The exports are destined mostly for the U.S. and European Union markets, to which Bangladesh has privileged access. The report notes that such heavy dependence on a limited number of products makes the Bangladesh economy vulnerable to increased competition from other Asian countries that produce labour-intensive garments, as these countries recover from the recent economic crisis with substantially depreciated currencies. Moreover, the phasing out of preferential access to these markets and the full integration of all textile and clothing products into the GATT 1994, scheduled for 1 January 2005, will require Bangladeshi ready-made garments exporters to increase efficiency and improve product quality.

The report notes that since 1992, Bangladesh has continued making efforts to simplify and rationalize its trade regime. The customs tariff is now Bangladesh's main trade policy instrument. Nominal applied most-favoured-nation (MFN) tariffs have fallen by more than half, from an average of 58% in 1992/93 to 22% in 1999/2000. The tariff is also the Government's principal source of revenue, accounting for nearly one-third of total taxes. The number of trade-related quantitative restrictions has also been reduced. The report states, however, that the regime still lacks transparency in its application of certain trade and trade-related measures such as customs administration, tariff concessions, other border charges, subsidies and other assistance and the regulatory framework. Such lack of transparency allows considerable scope for administrative discretion, and even corruption, which in turn increases the uncertainty and costs of trade with and doing business in Bangladesh.

Despite a sharp reduction, the report says, tariff protection is still high and applied rates vary widely. Bangladesh's applied MFN tariff is characterized by escalation, with tariffs on raw materials lower than those on semi-processed and fully processed goods. In comparison to the tariff structure in 1992/93, that of 1999/2000 is much more clearly characterized by protection to domestic manufacturers, who can import raw materials at relatively low duty rates, and, after adding domestic value, are protected by relatively high tariffs on import of finished goods. The report states that the ready-made garment sector, Bangladesh's largest exports, has flourished because it has been insulated from the tariff regime.

On the investment front, the report notes, Bangladesh maintains one of the most liberal regimes in South Asia with few limitation on foreign equity participation and offers immense opportunities such as a relatively cheap and abundant labour. According to estimates by the World Bank, annual foreign direct investment (FDI) in Bangladesh, quadrupled from US$83 million in 1994/95 to US$386 million in 1997/98, with the bulk of FDI going to the gas sector, due to its considerable reserves. However, FDI in other areas has been discouraged by inadequate basic infrastructure, slow pace of privatisation, an inefficient financial system and a generally uncertain political climate. Thus, the report states, the cost of doing business in Bangladesh is unnecessarily high and impairs the competitiveness of firms operating there, both domestic and foreign. Furthermore, with the Government's decision to open up infrastructure and other services to private domestic and foreign investment, Bangladesh could enhance investor confidence by binding its market access within the GATS.

Notes to Editors

Trade Policy Reviews are an exercise, mandated in the WTO agreements, in which member countries’ trade and related policies are examined and evaluated at regular intervals. Significant developments which may have an impact on the global trading system are also monitored. For each review, two documents are prepared: a policy statement by the government of the member under review, and a detailed report written independently by the WTO Secretariat. These two documents are then discussed by the WTO’s full membership in the Trade Policy Review Body (TPRB). These documents and the proceedings of the TPRB’s meetings are published shortly afterwards. Since 1995, when the WTO came into force, services and trade-related aspects of intellectual property rights have also been covered.

For this review, the WTO’s Secretariat report, together with the policy statement prepared by Bangladesh, will be discussed by the Trade Policy Review Body on 2 and 4 May 2000. The Secretariat report covers the development of all aspects of Bangladesh’s trade policies, including domestic laws and regulations, the institutional framework, trade policies by measure and by sector.

Attached to this press release is a summary of the observations in the Secretariat report and parts of the government's policy statement. The Secretariat report and the government’s policy statement are available for the press in the newsroom of the WTO internet site (www.wto.org). These two documents and the minutes of the TPRB’s discussion and the Chairman’s summing up, will be published in hardback in due course and will be available from the Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.

Since December 1989, the following reports have been completed: Argentina (1992 and 1999), Australia (1989, 1994 and 1998), Austria (1992), Bangladesh (1992), Benin (1997), Bolivia (1993 and 1999), Botswana (1998), Brazil (1992 and 1996), Burkina Faso (1998), Cameroon (1995), Canada (1990, 1992, 1994, 1996 and 1998), Chile (1991 and 1997), Colombia (1990 and 1996), Costa Rica (1995), C˘te d’Ivoire (1995), Cyprus (1997), the Czech Republic (1996), the Dominican Republic (1996), Egypt (1992 and 1999), El Salvador (1996), the European Communities (1991, 1993, 1995 and 1997), Fiji (1997), Finland (1992), Ghana (1992), Guinea (1999), Hong Kong (1990, 1994 and 1998), Hungary (1991 and 1998), Iceland (1994 and 2000), India (1993 and 1998), Indonesia (1991, 1994 and 1998), Israel (1994 and 1999), Jamaica (1998), Japan (1990, 1992, 1995 and 1998), Kenya (1993 and 2000), Korea, Rep. of (1992 and 1996), Lesotho (1998), Macau (1994), Malaysia (1993 and 1997), Mali (1998), Mauritius (1995), Mexico (1993 and 1997), Morocco (1989 and 1996), New Zealand (1990 and 1996), Namibia (1998), Nicaragua (1999), Nigeria (1991 and 1998), Norway (1991 and 1996), Pakistan (1995), Papua New Guinea (1999), Paraguay (1997), Peru (1994), the Philippines (1993), Poland (1993), Romania (1992 and 1999), Senegal (1994), Singapore (1992, 1996 and 2000), Slovak Republic (1995), the Solomon Islands (1998), South Africa (1993 and 1998), Sri Lanka(1995), Swaziland (1998), Sweden (1990 and 1994), Switzerland (1991 and 1996), Tanzania (2000), Thailand (1991, 1995 and 1999), Togo (1999), Trinidad and Tobago (1998), Tunisia (1994), Turkey (1994 and 1998), the United States (1989, 1992, 1994, 1996 and 1999), Uganda (1995), Uruguay (1992 and 1998), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).

The Secretariat’s report: summary  Back to top

TRADE POLICY REVIEW BODY: BANGLADESH
Report by the Secretariat – Summary Observations

Economic Environment

During the early 1990s, Bangladesh made considerable progress in stabilizing and liberalizing its economy. As a result, inflation was much lower than previously, and average annual real GDP growth in 1992-98 was above 5%, largely led by exports involving ready-made garments (RMGs). Indeed, one of the most striking features of Bangladesh's trade is that textiles and particularly clothing dominate exports: their combined share grew from 70.4% in 1992 to 83.5% in 1998; by contrast, jute, which had previously been Bangladesh's main export, comprising around half of total exports through the mid-1980s, accounted for only 6% in 1998. This dramatic change in the composition of exports is the consequence of Bangladesh's increased integration into the multilateral trading system.

Agriculture still accounts for 30% of GDP while employing 63% of total labour force. The RMG-dominated manufacturing sector and services, accounting for 9% and 61% of GDP, respectively, have been the sources of the economy's growth.

A major development, in March 1994, entailed the liberalization of the exchange regime for current international transactions. However, an appreciating real effective exchange rate has threatened to undermine Bangladesh's export competitiveness, particularly vis-Ó-vis South-East Asian garment manufacturers, and therefore constitutes a threat to future export-led growth.

Whereas annual government expenditure has averaged around 14% of GDP during the review period, tax revenues have averaged only 7.5%, which is very low both by international and neighbouring countries' standards. (The ratio of taxes to GDP is even lower if one includes the underground economy, which is thought to account for roughly half of GDP.) With other sources of revenue amounting to approximately 2% of GDP, the outcome is a persistent central government budget deficit of around 5%. The weak revenue base jeopardizes the Government's ability to undertake essential social expenditures on health and education, etc., which would help to alleviate poverty, and to provide reliable basic infrastructure. The overall fiscal position of the public sector as a whole (that is, consolidated to take into account non-financial, state-owned enterprises) is even worse, owing to weak performance of these enterprises. Their operations are sustained largely through government-guaranteed borrowing from state-controlled banks, official external donors, and an accumulation of domestic and external arrears.

On the structural policy front, the Government has continued to pursue, inter alia, trade liberalization, financial sector reform, and privatization, while maintaining in legislative terms one of the most liberal foreign direct investment (FDI) regimes in South Asia. However, in the face of severe political difficulties and civil unrest, which manifested themselves in frequent nationwide strikes ("hartals") costing the country at least 30 working days in 1999 alone, the impetus for structural reform seems to have waned. Moreover, between 1997/98 and 1998/99, real GDP growth dropped from 5.3% to 4.2%. This was partly the consequence of a sharp drop in export growth (from 17.1% to 2.9%), which was initially due to the devastating floods that covered a third of the country, but exacerbated by recurrent power shortages, inadequate port facilities, and other infrastructural bottlenecks, as well as disruptions owing to nationwide strikes. At the same time, inflation increased owing to a surge in food prices, again caused by the floods. As the food supply situation improved and non-food inflation moderated, inflation began to fall.

Unfortunately, real annual GDP growth, averaging around 5% during the review period, has not been sufficient to make much of a dent in the poverty that pervades Bangladesh; GDP per capita in 1998/99 was only US$345, among the lowest in the world. More than one third of Bangladesh's population of 127 million still lives below the poverty line, and more than half is classified as poor. Given Bangladesh's high incidence of poverty, its dense population, and its vulnerability to natural disasters, including periodic flooding and cyclones, food security is a major policy objective of the Government. Bangladesh is a large recipient of foreign aid, a substantial portion of which entails food.

Trade Policy Framework

The Ministry of Commerce (MOC) is responsible for coordinating trade policy matters through its agencies, as well as in consultation with other Ministries and governmental bodies; national committees are formed to address specific issues on trade and industrial development. Private sector representatives, including business groups and academic institutions, are consulted in the policy-making process through their participation in the national committees. A major institutional change involves the upgrading of the Tariff Commission under the purview of the MOC; the Commission is now empowered to conduct anti-dumping and countervailing investigations.

Bangladesh extends most-favoured-nation (MFN) treatment to all trading partners and has taken steps to amend its legislation in the light of its obligations undertaken in the context of the Uruguay Round, including in the areas of customs valuation, anti-dumping and countervailing measures, and protection of intellectual property rights. However, Bangladesh has found it difficult to meet its WTO notification requirements. Bangladesh is a leading voice among least-developed Members in the WTO as regards their specific needs and concerns as well as the difficulties they face.

Trade Policy Measures

Since 1992, Bangladesh has continued to liberalize its trade regime, by, inter alia, greatly reducing tariffs and eliminating some quantitative restrictions on imports. It has also considerably increased the transparency of its trade regime. Nonetheless, the regime is still characterized by a certain lack of transparency (including ambiguity) as regards the application of certain trade and trade-related measures (notably customs administration, tariff concessions, advance income taxes on imports and exports, import surcharges, subsidies and other assistance, competition policy, and the regulatory framework). This provides considerable scope for administrative discretion, and even corruption, which in turn increases the uncertainty and costs of trading with and doing business in Bangladesh. At the same time, lack of transparency distorts market signals that are necessary to ensure an efficient allocation of resources, preventing Bangladesh from reaping the full benefits from trade liberalization and what would appear to be one of the most liberal FDI regimes in South Asia.

The customs tariff is the main instrument of Bangladesh's trade policy. It is also the Government's principal source of revenue, accounting for nearly one third of total taxes. During the period under review, Bangladesh has made considerable efforts to simplify and rationalize the tariff structure by reducing the number of tariff bands from 15 in 1992/93 to 5 in 1999/2000, and lowering the maximum tariff rate from 300% to 37.5% during the same period. While nominal applied MFN tariffs have fallen by more than half, from an average of 58% in 1992/93 to 22% in 1999/2000, tariff protection is still high and applied rates vary widely. Thus, the tariff constitutes a potentially important impediment to competition and therefore an obstacle to the efficient allocation of domestic resources. At the same time, the wide dispersion in nominal tariff rates provides considerable scope for misclassification of imports by customs officials. Moreover, the lack of bindings and wide gaps between applied and bound rates impart a degree of unpredictability to the tariff regime. The existence of a number of tariff concessions, some based on end-use, may require importers to consult more than one document in order to ascertain the applicable tariff rate, which adds to the uncertainty and opacity of tariff assessment. Further protection and unpredictability has arisen because customs valuation has not always been based on transaction prices; recently, the authorities have taken steps aimed at bringing customs valuation into line with WTO norms.

Tariff reform has resulted in a considerable fall in the overall level of effective protection, and has also reduced the dispersion in effective rates of protection (ERPs). Nevertheless, ERPs still vary widely across sectors; the export-oriented textiles and clothing sectors, together with processed food and tobacco products, are accorded high levels of effective protection. The RMG sector, has flourished, however, because it has been insulated from the tariff regime; it has also greatly benefited from Bangladesh's export promotion measures and preferential access to U.S. and EU markets.

State involvement in trade has been greatly reduced, and all countertrade and special trade arrangements have been abolished since the last Review. However, tariffs are augmented by a multiplicity of other border charges and, in some instances, the discriminatory application of internal taxes, all of which are tantamount to tariffs and can raise nominal protection by one third. While the overall number of banned or restricted import items, including those for trade and non-trade reasons, has been reduced considerably, they account for 11.7% of HS 8-digit tariff lines in 1999/2000. Trade-related bans or restrictions remain on agricultural and textile products.

To mitigate the adverse impact on exporters' competitiveness of high tariffs, various other charges, and import restrictions, exporters benefit from an array of measures, including concessional tariffs, a duty drawback system, special bonded warehouses and export processing zones. As a result, the trade regime is complex. In addition, direct subsidies are provided to exporters of textiles and clothing, and were recently extended to exporters of some other products. Furthermore, tax relief of 50% is allowed for income generated by exports.

Since its last Review Bangladesh has further opened up many of the state-dominated sectors to private investment; the sectors include essential infrastructure, such as telecommunications, power generation, and transport. While the foreign investment regime is liberal, with no limitations on foreign equity participation or repatriation of profits, lack of investment in these and other sectors, has clearly hampered Bangladesh's economic development.

In an effort to encourage investment, the Government offers a wide range of open-ended tax incentives, notably tax holidays and accelerated depreciation. However, the effectiveness of such incentives in attracting investment is doubtful, particularly in the absence of fiscal transparency, which would involve a detailed account of tax revenues forgone, and systematic evaluation of the impact of these incentives in relation to forgone taxes. The existence of incentives complicates tax administration and taxpayer compliance, while increasing the scope for tax avoidance and evasion, both of which are reflected in Bangladesh's low overall level of tax collection relative to GDP.

Infrastructural Services

Inefficient provision of essential services has constituted a major impediment to the smooth functioning of the Bangladesh economy. A weak financial system hampers economic growth, for instance, by restricting access to the financing of exports and investment. Insufficient and unreliable telephone connections and energy supplies can disrupt production of goods and services, while poor transportation and port services hinder international trade and the domestic distribution of goods. This lack of reliable basic infrastructure discourages foreign investment in Bangladesh. Many of these basic infrastructural services have long been provided by state-owned enterprises, most of which are inefficient and often loss-making, employ outdated equipment, and are unable to meet the essential needs of the economy. Thus, the cost of doing business in Bangladesh is unnecessarily high, which impairs the competitiveness of firms operating there.

The natural gas and power sectors have attracted large FDI inflows in recent years and offer great potential to the Bangladesh economy. Given its considerable reserves, the gas sector could boost industrial and agricultural production through increased power generation and fertilizer production, and may eventually offer the opportunity for exports of gas in various forms. Bangladesh's scarce power generating capacity, which has impeded the country's production capacity, has been increased by FDI in the sector.

Despite the Government's decisions to open up infrastructure (and other) services to private domestic and foreign investment, it has so far failed to make use of the GATS framework, which could help build investor confidence with regard to Bangladesh's commitments to liberalization of state-dominated services. While it has made some commitments in the tourism and travel-related services and telecommunications, these were merely a commitment to the status quo.

Outlook

While barriers to access in export markets are undoubtedly obstacles to Bangladesh's economic development, the main obstacles are home-grown. Notwithstanding the immense opportunities offered by Bangladesh, including its relatively cheap and abundant labour, potentially large market, and one of the most liberal FDI regimes in South Asia, FDI continues to be discouraged by a number of problems. These include frequent strikes, inadequate basic infrastructure (notably power, telecommunications and transportation facilities) and resulting bottlenecks, slow pace of privatization, an inefficient financial system, an institutional environment that is bureaucratic and corrupt, political uncertainty, and a worsening law and order situation. These factors tend to increase the cost of doing business in Bangladesh, thereby impairing the competitiveness, not just of foreign-owned enterprises, but also of domestically owned enterprises. Clearly, there is a pressing need to create the broad political consensus necessary to address these problems through structural reforms. Such reforms might usefully include further trade liberalization, although Bangladesh appears to be reluctant to undertake such reforms because of what it views as the slower pace of liberalization by some of its main trading partners.

While Bangladesh has escaped the worst effects of the Asian crisis, the depreciation of the crisis-hit countries' exchange rates may well mean that it will face intensified competition from these and other countries, particularly in respect of labour-intensive RMGs. With textiles and clothing dominating its exports, and the bulk of those exports going to the European Union and the United States, there is a need for Bangladesh to diversify both its export base and export markets. At the same time, the phasing out of preferential access to these markets and the full integration of all textile and clothing products into the GATT 1994, scheduled for 1 January 2005, will require Bangladeshi RMG exporters to increase efficiency, improve product quality, and ensure that their products are competitively priced.

Government report Back to top

TRADE POLICY REVIEW BODY: BANGLADESH
Report by the Government - Part I and III

I. The Extent of trade liberalization

1. Bangladesh along with other developing countries joined the WTO at the culmination of the Uruguay Round (UR) in order to avail the advantages of an open and liberal trading system. This was to strengthen the domestic production base and competitive position and to, inter alia, avail the opportunity to negotiate for enhanced market access in major developed and newly industrialized countries. In Bangladesh, the trade liberalization process started in the mid 1980s. The Government has since undertaken a number of bold steps, which include liberalization of the trade and foreign investment regime, strengthening the financial sectors, legislative and regulatory framework, closing and privatizing some loss-making state-owned enterprises (SOEs), adjusting or abolishing some administered prices, broadening the base of VAT collection and taking steps to improve governance.

2. In respect of trade liberalization, export diversification and import liberalization received the highest priority in the earlier years. This consisted in permitting the exporters of non-traditional items to convert some of their export earnings at the higher exchange rate in the secondary market, reduction of the tariff level and tariff dispersion, simplification and rationalization of the tariff structure, and deregulation of the import process. The result was reduction of QRs and some tariff cuts by the mid 1980s. These reforms led to higher growth of non-traditional exports and the emergence of a more diversified export structure. The "positive list" carried over from the pre-liberalization days was replaced with a smaller "negative list", which specified items not to be imported without official sanction.

3. Towards the end of the 1980s, import liberalization leapt forward stimulating the export sector with some additional incentives. The number of items on the negative list was progressively reduced. As far as import items subject to QRs were concerned, about two thirds of HS 8-digit items for the whole economy in 1987 had been made eligible for free entry into the country and only about one eighth of the items remained banned. This was a substantive progress when set against the highly protected trade regime in place at the beginning of the 1980s.

4. In the 1990s the liberalization process was accelerated. A major thrust of change was the substitution of the multiple-rate sales tax by a 15% VAT. The successive budgets also announced progressive reduction of tariff and non-tariff barriers. By 1994, the share of free import items rose to 94% of all HS 8-digit items and only 0.4% remained banned. During this process, the pace of liberalization in the import of intermediate and capital goods moved much faster than for consumer goods. 76% of intermediate and 73% of capital goods were already allowed unrestricted import in 1987; this share increased to 97% and 93%, respectively, in 1994. In addition to the dismantling of non-tariff restrictions, there has also been a drastic cut in nominal protection rates over the years. Tables 1 and 2 summarize the reductions in tariff and non-tariff barriers as a result of this liberalization process.

Table 1 Back to top
Trends in average and dispersion of tariffs, FY1991-2000
(Per cent)

Description

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

Number of tariff rates

17

17

14

11

5

6

6

6

6

4

IDS (Infrastructural Development Surcharge)

--

--

--

--

--

--

--

2.5

2.5

2.5

Average licence fee

--

1.2

1.4

1.5

1.5

1.2

1.3

1.3

1.0

--

Top customs duty rate

350

350

300

300

60

50

45

42.5

40.5

37.5

Source: BBS; NBR.

Table 2 Back to top
Average import-weighted tariff in Bangladesh, FY1991-1999
(Per cent)

Import categories

1991

1992

1993

1994

1995

1996

1997

1998

1999

Intermediate inputs

24.1

24.1

23.6

22.9

26.3

22.43

21.40

20.95

21.45

Capital goods

18.7

18.7

18.4

16.1

12.5

9.61

10.81

8.38

8.57

Final Consumer goods

47.3

47.3

36.5

36.7

26.4

23.57

24.85

17.56

11.19

All imports

24.1

24.1

23.6

24.1

20.8

17.01

17.90

16.06

14.68

Source: NBR.

II. The structure of tariffs

5. It can be seen from information in the above table that the maximum tariff (customs duty) rate was reduced from 350% in FY91 to 40% in FY99. Under the FY2000 Budget, the maximum tariff rate was reduced further to 37.5%. In contrast to the vary high tariff rate that prevailed in the early 1990s, reductions achieved in the maximum as well as the average tariff rates are significant. However, the average rate is pulled down substantially because many of the non-competing imports – such as locally unavailable raw materials and machinery/equipment – enter at zero or very low rates. Competing imports face higher tariff rates, nearly 25% of tariff lines (mainly finished products) face the maximum tariff rate.

Table 3 Back to top
Phased removal of quantitative restrictions, FY1990-2002
(Number of 4-digit HS Codes)

Trade reasons

Banned

Restricted

Mixed

1990-91

239

93

47

39

60

1995-97

120

5

6

17

92

1997-2002

129

7

9

17

96

Source: Ministry of Commerce.

6. The percentage of items subject to trade-related quantitative restrictions has been reduced from 40% to 2%, at the HS 8-digit level. Most of these developments have taken place since 1992. As a result of these reforms, the unweighted average tariff has fallen from 89% in 1990/91 to about 20% in 1998/99, while the import-weighted average tariff has declined from 30% to about 16%.

7. The lowering of tariffs and the withdrawal of quantitative restrictions has, over the years, contributed to reducing the spread between the official exchange rate and the market exchange rate. The foreign exchange market was unified in 1992, and Bangladesh accepted the obligations of Article VIII of the IMF in 1994, making the taka fully convertible for current account transactions.

8. Trade liberalization in Bangladesh appears to have progressed at a faster rate than in many neighbouring countries. Bangladesh exporter have been very successful in penetrating the highly competitive markets of the European Union and the United States. In some cases the quota utilization rate for different categories of apparel has recently been nearly 100% in Bangladesh. Over the years, Bangladesh has been able to improve product quality and has gained greater acceptance in international markets, with apparel exports increasing from 5.2% of total world imports in 1995 to 6.8% in 1997. Garment exporters have gradually moved up-market in recent years and are increasingly exporting sophisticated items like high quality suits, jackets and branded items. In recent years some exporter have also been successful in penetrating Japan's extremely quality conscious market. As a result, merchandise exports, led by the garments industry, grew at an impressive annual average rate of 17% in US dollar terms between 1990/91 and 1997/98. However, the export base has been very narrow, with bulk of the foreign exchange earnings coming from a few sectors. The removal of the Multi-Fibre Arrangement quotas in 2004, under the Uruguay Round Agreement on Textiles and Clothing, might result in Bangladesh losing its preferential access in these markets. While Bangladeshi exporters have started competing effectively in global markets, the phasing out of preferential access and the abolition of quotas, scheduled for 2005, will require them to increase their efficiency, improve product quality and ensure that their products are competitively priced.

9. The Government is taking a number of steps to improve trade-related infrastructure, both physical and institutional, to meet the challenge of the dynamics of the present and future trends in trade. Addressing these constraints should enable the private sector to diversity into higher-value-added products and decrease the economy's dependence on a few items. The Government is aware of the urgent need for building trade management capacity and in this respect has launched a long-term Customs and Tax Modernization Program. Initiatives are also in progress for strengthening the capacity of the Bangladesh Tariff Commission to provide effective assistance to the Government and the private sector in meeting obligations of WTO rules and various regional cooperation agreements. Over the medium term, customs is expected to evolve into a trade-facilitating agency.

III. Economic preformance

10. Economic performance is the result of the influence of a host of factors – quantitative and qualitative. It is rather difficult to disentangle precisely the contribution of trade liberalization to economic performance. However, the significance can be indicated by associating trade liberalization to the change in some macroeconomic indicators like GDP growth rate, the rate of inflation, export performance, current account balance, etc. Thus, trade liberalization appears to have contributed, together with other market-oriented reforms and sound macroeconomic management, to improved macroeconomic performance. The people of Bangladesh have benefited from the improvement in policies, with growth in GDP per capita accelerating to 3.2% per annum during 1991-98 compared with 1.7% during 1984-90. Per capita GDP growth rates in both periods would have been higher had it not been for the disaster proneness of the country, which saw the devastating floods of 1987, 1988 and 1998 and the catastrophic cyclone in 1991. Financial year 1999 has been a difficult year for Bangladesh. The floods of 1998 imposed hardship on the lives of millions of people and caused colossal losses to the economy. The adverse impact of the floods, notwithstanding, actual perfomance of the economy was far better than expected after the floods. Timely initiative of the Government and the courage of the people have played an important part in the process of recovery.

11. It is expected that GDP growth rate will reach 5.47% in FY2000 compared with 4.88% during FY99. Long-term trends of changes in sectoral composition of GDP show that the relative share of the agriculture sector declined from about 30% of GDP in the early 1990s to around 25% in the late 1990s. On the contrary, the share of the manufacturing sector increased from 12-13% to 15-16% of GDP during the corresponding period. The shares of other sectors of the economy remained relatively stable over the same period. These changes indicate that while output of agriculture has increased on a sustained basis, its relative contribution has been declining and those of the industry

and the services sector have been increasing over the years. The recent variations do not indicate reversal of the trend, but the impact of temporary shocks.

12. The agriculture sector, which provides about one fourth of the GDP, overcame the impact of the floods. The progressively liberalized trade-policy environment and the resulting increase in exports in the 1990s have improved Bangladesh's external position. The current account deficit excluding grants improved from 2.2% to 1.2% of GDP from 1996/97 to 1997/98.

13. The budget deficit during FY99 has been estimated at 5.3%, up from 4.2% of GDP in the previous year. An expansionary monetary policy was pursued with Broad money (M2) increasing by 12% in the twelve months ending April 1999 compared with an increase of 8.7% in the preceding year. During the first two quarters of FY99 there was an upward pressure in prices but after the new harvest, the inflation rate declined. Primarily due to lower food prices, the quarterly adjusted inflation rate fell from 12.7% in December 1998 to 7.5% in April 1999.

14. The FY2000 Budget has emphasized mobilization of domestic resources, promoting export-led industrial expansion, and poverty alleviation. It has introduced changes in taxation to expand revenues and improve efficiency in the tax system. To encourage private investment in the export sector, floating government bonds amounting to about US$200 million have been offered to attract resources for industrial investment. Progress has also been made in enacting laws and setting up special courts to deal with loan defaulters, opening up the telecommunications and energy sectors to private investment, and improving cost recovery for public services.

Tables on this page:

> Trends in average and dispersion of tariffs, FY1991-2000
>
Average import-weighted tariff in Bangladesh, FY1991-1999
>
Phased removal of quantitative restrictions, FY1990-2002