Foreign Trade

Foreign Trade The history of foreign trade in Bengal reveals its economy as an export-oriented one since the beginning of the eighteenth century. The low price of raw silk, textiles and foodgrain attracted traders of other parts of Asia and of far away countries as well. Already in the 17th century, Bengal had foreign trading houses (kuthi) established by businessmen from Britain, Holland, France, Belgium, Denmark and many other countries. They exported goods from Bengal to Europe and other parts of the world in exchange of mainly gold and silver. The British east india company established its office in Bengal in 1650 AD.

British traders faced difficulties in expanding export from India through sea especially because of Portuguese dominance, which was later curtailed by expulsion of the Portuguese from Hughli in 1632 by Subedar Kashim Khan under the instruction of Emperor shahjahan. British traders had enjoyed tax and other facilities in exports from Bengal since the period of Subedar shah shuja (1651) although they were given the privilege of conducting duty-free trade only in 1717 by a special order issued by Emperor farrukh siyar. The French and Dutch companies, however, were never eliminated as exporters from Bengal. Commodities exported from the region by European companies included textiles, raw silk, salt-petre and opium. Other products exported in relatively smaller quantities were sugar, rice, wheat, butter oil and mustard oil, wax, borax, lax, cowrie and gunny bags. Europeans, however, did not export products from Bengal to Europe only; a substantial part of export commodities went to the Middle-East also. Association with traders from abroad lead to gradual development of indigenous traders, whose business remained confined largely to shipping of local products to foreign countries. Many such traders went to Middle-Eastern and also some African countries to open business houses there and conduct trading based on exports from Bengal.

The export-oriented foreign trade of Bengal had little impact on the economy in terms of development of a local market or of an improved production base to meet increasing demands for export products. Meanwhile, as the population continued to increase local consumption and development needs started pushing import demands. Nevertheless, the territory did not receive adequate attention as far as the local production capacity was concerned. The Industrial Revolution in England and the advent of science and technology in other parts of the world resulted in a situation when products of Bengal gradually lost the international market, while at the same time, the territory became dependent on import of manufactured products from abroad. East Pakistan was victim of this process that continued throughout the British period and even after 1947, when the central government of Pakistan pursued a policy of exporting raw materials and primary/agricultural products from the territory without giving adequate attention to the development of an indigenous manufacturing base.

The share of international trade in the GDP of Bangladesh has historically remained small. In 1969-70, the year preceding the war of liberation, Bangladesh exported goods worth $350 million and her import payments were $381 million. These figures exclude trade with West Pakistan conducted in very distorted prices. Damages caused by the war lead to a rapid increase in import demands and the import payments in early 1970s were even higher because of the oil crisis and the resulting international price hike. Export receipts in 1974-75 were only $383 million, while import payments were $1,403 million. The import payments remained at levels about three times the export receipts over the next fifteen years and this contributed to a continuous growth of the trade gap, which was Tk -3.25 billion in 1972-73, Tk -51.56 billion in 1991-92 and Tk -116.03 billion in 1996-97. Major growth items in export during the period were garments, frozen food, and leather. About one-third of the import bill accrued to capital goods. Other major items of import were foodgrain, edible oil, cotton, petroleum products, textiles and cement. There were some shifts in the structure of exports and imports, terms of trade, and geographical direction of trade during the last decade.

A more or less representative picture may be presented by figures for 1996-97, when import payments (Tk 541.8 billion) were about 1.9 times export receipts. Of the total import payments, the payments under cash, barter, wage earners'; fund, and loans and grants constituted 80.5%, 0.5%, 9.9% and 9.1% respectively. Major commodities imported on cash basis included cotton (18%), machinery and mechanical parts thereof (8.2%), mineral fuels and products of their distillation (7.6%), iron and steel (5.2%), manmade staple fibres (4.3%), salt, sulphur, earth and stone, lime and cement (4.2%), animal and vegetable fats (4%), electrical machinery and equipment (3%), ships, boats and floating structures (2.8%), knitted and crocheted fabrics (2.7%), plastics and articles thereof (2.6%), vehicles other than railway or tramway rolling stock and parts and accessories thereof (2.4%), paper and paper board articles (2.1%), organic chemicals (1.9%), cereals (1.8%), and fertiliser (1.6%). The top fifteen countries from whom cash imports were made were India (17.2%), Peoples Republic of China (10.2%), Hong Kong (7.6%), Republic of Korea (6.6%), Japan (5.9%), Taiwan (5.6%), Singapore (5.5%), USA (5%), Malaysia (3.9%), UK (3%) Australia (2.8%), Germany (2.5%), Indonesia (2.4%), Saudi Arabia (1.6%) and Pakistan (1.2%). Russia, China and Hungary were the main trading partners in imports of Bangladesh under commodity exchange agreements (barter) and the goods imported included mainly machinery and equipment and parts thereof, and railway locomotives. Imports under wage earners'; fund took place mainly from India, Republic of Korea, and USA, and the major items were machinery and mechanical appliances, edible oil, electrical goods, beverage and tobacco and manufactured tobacco substitutes. Of the total imports of Tk 54.2 billion under loans and grants, approximately 40% were under grants to cover mostly the import of food items, while loan/credit financed the import of non-food items only.

Both imports and exports of Bangladesh had increased substantially over the years. But the growth of imports had been much larger than that of the exports. Total imports of the country in 2003-2004 accounted for US$ 10695.0 million, while the corresponding figure for 2009-2010 was US$ 21388.0 million. In 2003-2004 the total exports of the country was US$ 7416.0 million and the figure for exports in 2009-2010 was US$ 16204.7 million.

Exports from Bangladesh take place mainly under cash payments. Barter trade accounted for only 0.5% of total exports in 1996-97. The main items of export on cash terms included garments and hosiery (66.3%), jute manufactures (8.7%), shrimps and prawns (8.2%), leather and leather manufactures (5.9%), raw jute (3.5%), fish (1.1%) and tea (0.9%). Export of consumer goods and materials for consumer goods were 87.5% and 12% respectively, while export of capital goods and material for capital goods accounted for only 0.5%. The major importers of products from Bangladesh were USA (31.5%), UK (10.3%), Germany (9.8%), France (7.1%), Netherlands (5.2%), Italy (5%), Belgium (4.8%), Hong Kong (2.8%), Japan (2.5%) and Canada (1.7%). Imports constituted about 11% of GDP in 1991-92. The ratio increased to 15.4% in 1995-96, and the comparative figures for share of exports in GDP were 6.2% and 8.8%. The composition of imported commodities has remained stable over the last few years and the share of consumer goods, material for consumer goods, capital goods and material for capital goods account for 39%, 29%, 14% and 18%. Approximately one-fourth of the imports are made by private sector importers while the remaining three-fourths are imported by government and semi-government agencies. Exports, however, are dominated by the private sector, which claimed 99.4% in the same year.

The lion';s share of foreign trade of Bangladesh is carried through the sea route. Imports by sea, air and land in 1995/96 constituted 81.5%, 5.2% and 13.3%, while 98.4% of exports were by sea and 1.6% were by air. Trends in import and export prices over the last few years show an overall increase in import prices as compared to the prices of exports and the terms of trade experienced a decline by 2.6% in 1989-90, when it was 92.8. It stood at 100.1 in 1994-95.

Government regulations of foreign trade in Bangladesh are characterised by changes following shifts in national policy from a strong public sector economy to a laissez faire one and promotion of private entrepreneurs, and implementation of the provisions of the industrial policies and the principles outlined in the five-year plans. Import control measures have the objectives of promoting the country';s industrialisation and efficiently utilising scarce foreign exchange reserves. The government attaches top priority to increase of export of newly developed non-traditional and higher value added products in order to accelerate economic growth, to create jobs, and to increase earnings to reduce the import-export gap. In addition to products traditionally exported by Bangladesh, the items that have high export potential include tropical fruits, vegetables, cut flowers, fresh water shrimps, computer software products services, stuffed toys and jewellery.

In the past decade, the trade regime of Bangladesh underwent substantial transformation with gradual unfolding of an environment conducive to export-oriented development. But in 1985, the average nominal protection was above 100%, which dropped to 22% in 1996. The coverage of quota restrictions was reduced from 42% of imports in 1985 to only 2% in 1996. Officially, the government follows a course of trade and exchange liberalisation to promote competitive efficiency in production and achieve neutrality of incentives between production for exports and import substitution, while gradually making trade facilitation the centerpiece of customs administration. The major elements of the policy reforms intended to be implemented by the government include liberalisation of imports and simplification of import procedures, rationalisation of tariff structure, reduction in tariff rates and quantitative restrictions, pursuit of a flexible exchange rate policy, allowing IMF-consistent counter trade, and provision of specific and transparent export promotion measures. The export policy adopted by the government during the fifth Five-Year Plan period (1997-2002) had the objective of developing marketability of exportables through product diversification and quality improvements, establishing backward linkages with export-oriented industry and service sectors for more utilisation of local inputs, attracting entrepreneurs for setting up export-oriented industries, and expanding and consolidating existing markets for Bangladeshi exportables.

The government has established a National Commission for Export headed by the Prime Minister. In addition, a Task Force and the Export Promotion Bureau (EPB) under the chairmanship of the Minister for Commerce also active. Bangladesh is facing difficulties in withstanding the effects of opening trade in agriculture commodities and service to global competition. Moreover, it is having to copy with the constraints in trade related investment measures. To solve these problems, the country is seeking increased access to markets of neighbouring countries and intensified regional and sub-regional cooperation. [S M Mahfuzur Rahman] [Rahman, S M Mahfuzur Professor of International Business, Dhaka University]