Note:    This report is subject to restricted circulation and press embargo until the end of the first session of the meeting of the Trade Policy Review Body on Bangladesh.

CONTENTS

                                                                                                                                                                                                Page

I.              introduction 5

II.            BANGLADESH AND MULTI-LATERALISM                                                                                                       5

III.           ECONOMIC AND TRADE DEVELOPMENTS SINCE 2000                                                                                 5

III:1         Labour Force and Employment                                                                                                               11

III:2         Private Investment and Foreign Direct Investment (FDI)                                                                   12

III:3         Actual Local Investment                                                                                                                          13

III:4         Private Investment Registration                                                                                                              13

III:5         Foreign Investment Projected:  Registration Statistics                                                                      14

III.6         Agriculture Sector                                                                                                                                     14

III:7         Industrial Sector                                                                                                                                        15

III:8         Service Sector                                                                                                                                            16

III:9         Fiscal Policy and Fiscal Management                                                                                                    18

III:10       Advanced Value Added Tax (ATV)                                                                                                       19

III:11      External Sector:  Trade Liberalization                                                                                                    19

III:12       Import Policy and Programme                                                                                                                  19

III:13       Simplification of Tariff Regime                                                                                                                20

III:14       Tariff Reduction                                                                                                                                         20

III:15       Trade Openness                                                                                                                                        21

III:16       Export growth                                                                                                                                             21

III:17       Import Growth                                                                                                                                            21

IV.           REGIONAL TRADE AGREEMENTS (RTAs)                                                                                                       22

IV.1         The Agreement on South Asian Free Trade Area (SAFTA)                                                              22

IV:2         The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) FTA  22

IV:3         Asia Pacific Trade Agreement (APTA)                                                                                                 22

IV:4         D-8 Preferential Trade Agreement                                                                                                          23

IV:5         Trade Preferential System Among The Organization of Islamic Conference (TPS‑OIC)                23

V.            BANGLADESH IN WTO NEGOTIATIONS                                                                                                          23

VI.           CONCLUSION                                                                                                                                                            24

ACRONYMS                                                                                                                                                                              25

ANNEX                                                                                                                                                                                       27

I.                   introduction

1.                   Bangladesh is a liberal democracy, with a homogeneous society and a population with great resilience in the face of adversity. The people of Bangladesh irrespective of race and religion have been living in total harmony and understanding for thousands of years. The geographical location of the country is ideal for global trade and investment with easy access to international sea and air routes.

2.                   Bangladesh is a growing economy, which is now in the process of transition from a predominantly agrarian economy to industrial and service economy. The public sector concentrates mainly on the physical and social infrastructure, while the private sector is playing an increasingly important role in the economic activities of the country. The country is continuously pursuing a liberalized economic policy and following a pace of free market mechanism. This has fostered its economic growth, attracted FDI flows remarkably and expanded its export-base. Bangladesh is committed to the multilateral trading system (MTS), but at the same time it attaches importance to its regional and bilateral trade.

3.                   This is the third trade policy review of Bangladesh. The first trade policy review of Bangladesh was conducted in 1992 and the second one in 2000.

4.                   Government of Bangladesh believes that this review will play an important role in determining and guiding the economic development objectives to the right path. It will highlight our efforts to the world community and draw attention of the WTO Members to extend necessary support to integrate our economy meaningfully into the multilateral trading system.

5.                   The objective of this review is to reflect current economic and trade issues, external trade and foreign direct investment environment as well as the structural changes in major economic sectors, multilateral and bilateral trade situations. It will also highlight the country’s trade and economic endeavour.

II.                BANGLADESH AND MULTI-LATERALISM

6.                   Bangladesh is a founder member of WTO since its inception from 01 January, 1995. Since joining WTO, the country has been actively involved in multilateral trade negotiations to move forward the WTO negotiations. It considers that integration of the world community, particularly the LDCs-- the poorest segment of the international community into MTS will bring economic and social benefits for all. Bangladesh also believes that MTS will play a significant role in economic development, and thereby, improve the living standards of people. It will eventually benefit all the member countries of WTO and the share of benefits will, of course, reach to the least developed countries. The present trend of continuous marginalization of LDCs in the global trading system should be addressed to reverse the trend with meaningful support and cooperation from all countries of the world in the multi-lateral trading system; the share of LDCs in the global trade should be enhanced to a respectable position.

7.                   As regards bilateral and regional trade, the country by now has signed a number of regional and bilateral trade agreements for mutual benefit.

III.             ECONOMIC AND TRADE DEVELOPMENTS SINCE 2000

8.                   Bangladesh is a low-lying riverine country located between the foothills of the Himalayas and the Bay of Bengal. It is the most densely populated country in the world with an area of 147,570 sq. km and a population of 135.2 million in 2004. Bangladesh belongs to the group of least-developed countries (LDCs). In financial year (FY)   2004-05, its gross domestic product (GDP) was worth Taka 3684.76 billion at current market price (appr.US$ 52.64 billion), recording an increase from Taka 2,370.86 billion in FY 1999/2000 (appr. US$ 47.12 billion). During the last decade, GDP growth remained steady and fairly robust at an average annual rate of 5.0%, although there was a decline in GDP growth in FY 2001/02 mainly due to worldwide recession. This growth was 5.38% in 2004-05, which was mainly attributed to the industry and services sector. A pragmatic trade policy with significant liberalization of trade and phenomenal expansion of export, congenial domestic and foreign direct investment environment, increased involvement of the private sector in the economic activities and the country’s success in checking population growth, which stood at 1.48% in FY 2004‑05 have largely contributed to this growth. This growth in GDP, in turn, resulted in a secularly increasing trend in per capita GDP and a declining trend in the number of population below the poverty line. During this period per capita GDP increased steadily and stood at US$ 445 in FY 2004‑05. The number of population below the poverty line had declined from 46.2 percent in 1999 to 40.9 percent 2004. The incidence of hardcore poverty also showed a declining trend during the same period. Nonetheless, the country has been striving hard to increase its growth over 6 percent to achieve the millennium development goals of halving the number of proportion of the population living below the poverty line by 2015.

9.                   During the last five years both domestic saving and investment continued to increase. Increase in shares of domestic savings and total investment in GDP is mainly because of increased participation of private sector. 

Table 1:  Some Selected Macroeconomic Indicators

Source:    Bangladesh Economic Review, 2005.

Table 2:  GDP growth by sectors at constant prices (percent)

Source:    Bangladesh Bank.

10.               A closer look at the sectoral contribution to GDP reveals that there is a trend of transformation of the share of agriculture sector in favour of industrial sector, while the share of the service sector remained stagnant except minor variation from year to year. The share of agricultural sector in GDP was above 33.21 percent at the beginning of eighties. Thereafter, it experienced a declining trend and came down to 21.91 in 2004-05. On the other hand, the share of industrial sector was only 17.08 percent in the beginning of eighties and it has increased to 28.44 percent in 2004-05. This structural transformation of Bangladesh reflects the positive trend of industrialization.

Table 3:  Gross Domestic Product (GDP) at Current Prices

(crore Tk.)

Source:  Bangladesh Bureau of Statistics (BBS).

Table 4:  Sectoral Growth Rate of GDP at Constant Prices (Base:  1995-96)

Source:    Bangladesh Bureau of Statistics (BBS).

Table 5:  Sectoral Share of GDP (%) at Constant Prices (1995-96)

Source:    Bangladesh Bureau of Statistics (BBS).

Table 6:  The trend of structural transformation of broad sectoral share in GDP and growth rate at constant prices

(Base year: 1995-96)

Share (in percent)

Table 7:  Average growth rate of Sectors (in percent)

Source:    Bangladesh Bureau of Statistics (BBS).

III:1      Labour Force and Employment

11.               It has been observed that the Bangladesh economy has been gradually transforming from traditional agricultural sector to the industrial and service sector, but agriculture still remains as the major source of services. The agriculture sector itself employs more than 51.69 percent of the total force, while 34.75 percent of our population is involved in the service sector, particularly in the hotel, tourism, construction, public administration, defense, industries, transport sector etc. According to Bangladesh Labour Force Survey 2002-03 conducted by BBS, a total of 44.3 million (male 34.5 million and female 9.8 million) is engaged in a variety of professions. Among these, 44.70 percent is engaged in self-employment, 20.09 percent as daily labourers and 13.77 percent in full-time employment.

12.               The share of employed labour force (above 15 years) by different sectors of the economy according to Labour Force Survey 1995-96, 1999-00 and 2002-03 is shown in Table 8.

Table 8:  Share of Employed Labour Force

(Above 15 years) by Sector

Source:    Labour Force Survey, 1995-96, 1999-00 & 2002-03 BBS.

III:2      Private Investment and Foreign Direct Investment (FDI)

13.               Bangladesh has shown an impressive growth of both local and foreign investment in recent years. The country intended to host private investment of any intensity both from local and foreign sources. Gradually, it is transforming towards a more competitive destination for FDI (Foreign Direct Investment). “The 15^th Survey of Investment-Related Cost Comparison in Major Cities and Regions in Asia” conducted by the Japan External Trade Organization (JETRO) in March 2005 found that “the investment cost in Bangladesh has become cheaper compared to the last year and Bangladesh succeeded to develop herself as more competitive than other countries which are potential from the investment point of view to foreign investors”. During FY2004-05, private investment registration at Board of Investment (BOI) grew by 16 percent. Simultaneously, actual FDI inflow into the country during Financial Year 2004 grew to US$ 660.8 million implying 49.7 percent growth over 2003. The import of capital machinery during the period from FY 2001-02 to FY2004-05 (Jul-Feb) stood at Tk. 199.80 billion, which is 119 percent higher than the aggregate of preceding five years. During FY2004 capital machinery grew at an accelerated rate of 62 percent. The manufacturing GDP growth is expected to reach 8.43 percent this year (2006). Owing to an impressive manufacturing growth, huge employment opportunities have been created across the various regions of the country.

III:3      Actual Local Investment

14.               Local investment projects are the principal component (80%-85%) in the total investment basket of Bangladesh. Sample surveys of the BOI shows that about 85 percent of the registered local projects are either implemented or at the different stages of implementation. Local investment proposals registered with BOI during FY2004-05 grew by 3.4 percent. In this period, 1,469 projects were registered with the total investment commitment equivalent to US$ 2,319 million. The sectoral analysis of the registered projects shows domination of manufacturing sectors like textiles, agro-based food & allied products, glass and ceramics, chemical and engineering. Sectoral detail is presented in the following graph 3:

III:4      Private Investment Registration

15.               Registration is the initial commitment of investment, which is implemented after conducting the detail feasibility studies. The time-series data of projects registered with BOI since FY 1991-92 shows that the total private investment registered in FY 1991-92 amounted to US$ 116 million, which has grown to US$ 3,204 million in the first nine months of FY2004-05.

Table 9:  Distribution of Private Investment Projects (Local & Foreign)

Registered with BOI from FY 1991-92 to FY 2004-05.

*              Provisional Data.

Source:    IIMC, Board of Investment, July 2005.

III:5      Foreign Investment Projected:  Registration Statistics

16.               Registration of foreign investment projects (100% foreign and joint venture) grew by 92.39 percent during FY 2004-05. Total registration in this period stood at US$ 885 million in 120 projects. Analysis shows that services, textile, agro-based, chemical and engineering are the leading sectors of investment. However, service sector is the principal constituent (77%) which includes telecom, power generation, oil and gas, hospitalities etc. (Graph 4).

III.6       Agriculture Sector

17.               Although agriculture has been playing a vital role in sustainable development of economy, ensuring food security and alleviation of poverty, the dominance of agriculture in the country’s economic activities is being decreased gradually. The combined contribution of all sub-sectors of agriculture (crop, livestock, forestry and fisheries) to GDP came down from 25.58% in 1999-2000 to 21.91 percent in 2004-05. However, judging from its contribution in the country’s total employment, which accounts for about 51.7% of the total employment, dominating role of agriculture is still prevalent in the country’s economic activities. Given the country'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.

Table 10:  Growth Rate of Agriculture and its Sub-sectors including Fisheries

(Base year 1995-96)

(In percent)

Source:    Bangladesh Bureau of Statistics.

III:7      Industrial Sector

18.               Over the years, the contribution of the industry sector is gradually increasing. Presently, the contribution of the manufacturing sector to GDP is 16.58 percent, which is 0.42 percent higher than that of the previous year. The manufacturing sector also shows a remarkable growth for the last six years (Table 11), which in turn has accelerated the overall economic growth and development of the country. This growth is mainly attributed by the RMG (Ready-made Garments) sector. Privatization initiatives, setting up of industrial and Special Economic Zones, facilitating SMEs (small scale enterprises), moderanization of custom procedures have all contributed to the growth of the industrial sector including the SMEs and ICT (information communication technology) sectors.

Table 11:  Contribution of Manufacturing Sector in GDP and Growth Rate (at constant prices of 1995-96)

(Tk. in crore)

Note:       Figures in parentheses indicate rate of growth.

Source:    Bangladesh Bureau of Statistics.

19.               The present industrial policy aimed to increase the contribution of the industrial sector to 30‑35% of GDP and absorb 35 percent of the labour force through strengthening agro-based and agricultural product processing industry, together with steps to face the challenges of globalization. To boost up industrial investment the nationalized commercial banks have reduced the rate of interest from 10.00-12.50 percent to 9 percent in the thrust industrial sectors, such as textile industry (including readymade garments), agro-based industries, computer software and information technology, production of artificial flowers, frozen food, (including frozen poultry and meat), gift items, 100 percent export oriented finished leather goods and jute goods, jewellery, diamond cutting and polishing, oil and gas, cocoon cultivation and sericulture and stuffed toys. The rate of interest has been reduced from 8-10 percent to 7 percent for pre-shipment and packaging credit for export of RMG, frozen food and agricultural commodities. Besides, bank rate has been reduced from 7 percent to 5 percent to induce reduction of interest rate of bank loans.

III:8      Service Sector

20.               By now, service sector has become the largest contributor to the GDP in Bangladesh.  Its share in GDP stood at 49.65% in FY 2004-05. Wholesale and retail trade constituted 14.12%, transport, storage and communication contributed 10.01%, real estate, renting and other business activities accounted for 8.14%, community, personal and social services accounted for 7.52%. However, its share in country’s total employment was only 34.75% in 2004-05, which suggests that the sector's labour productivity is considerably higher than the national average. During the Uruguay Round, Bangladesh had undertaken commitments in one sub-sector covering five star hotels and lodging services under tourism sector. Later in 1998, it also undertook commitment in telecommunication under communication services. Bangladesh has also opted for MFN exemption in telecommunication sector. In five star hotels and lodging services, Bangladesh undertook commitment to allow 100% foreign investment.  However, employment of foreign nationals in these hotels are limited to higher management and specialized jobs and is subjected to domestic Bangladesh's immigration and labour laws, regulations, guidelines and procedures. Bangladesh also allows foreign investment in telecommunication, power sector, insurance, banking, education and health sector. But these are not included in its schedule of commitments.

21.               Foreign employment and workers' remittances contribute significantly to the economic development of the country through reduction of unemployment and augmenting foreign exchange reserves and income. It may be noted that in FY 2004-05, the remittances from expatriate Bangladeshi workers as percent of GDP and commodity export stood about 6.43 percent and 44.47 percent respectively. A sizable portion of labour force of the country is employed in different countries of the world including Middle East. In order to increase workers' remittances, the government expanded the existing facilities for sending remittances through banking channel by providing various incentives and implementing of Money Laundering Prevention Act as well. This has increased the remittance flow remarkably (Table 12).

Table 12:  Number of Expatriate Bangladeshis and their Remittances