Raihan, S. (2016). “Foreign Trade”. Chapter 14 in Riaz, A. and Rahman, M. S. (eds). Routledge Handbook of Contemporary Bangladesh. Routledge. Oxford.

Bangladesh pursued an import-substituting industrialization strategy in the 1970s, the key objectives of which were to safeguard the country’s infant industries, reduce the balance of payments deficit, use the scarce foreign exchanges efficiently, ward off international capital market and exchange rate shocks, lessen fiscal imbalance, and to achieve higher economic growth and self-sufficiency of the nation. However, in the face of the failure of such an inward-looking strategy’s delivering the desire outcomes along with rising internal and external imbalances, trade policy reforms were introduced in the early 1980s. Since then trade liberalization has become an integral part of Bangladesh’s trade policy. Bangladesh has been able to reduce its protection for the domestic sectors quite significantly by undertaking substantial reductions in quantitative restrictions, drastic opening up of trade in many restricted items, significant rationalization and diminution of import tariffs, a move to a freely floating exchange rate system, and considerable adjustments to monetary and fiscal policies. Another important element of trade policy reform was the introduction of generous promotional measures for exports. While import and exchange rate liberalization were intended to correct the domestic incentive structure in the form of reduced protection for import-substituting sectors, export promotion schemes were undertaken to provide exporters with an environment in which the previous bias against export-oriented investment could be reduced significantly. The reform measures and export incentives have witnessed an impressive export performance. However, one important concern is that the export growth has been overwhelmingly dominated by the readymade garment (RMG) sector alone, which grew taking advantage of the MFA quotas and preferential access in foreign markets. Export responses of all other major commodities have been rather weak. Therefore it is not clear to what extent the policy of liberalization benefited the diversification of the export sector. The government has introduced a number of incentives for export-oriented sectors. However, the RMG sector appears to be the prime beneficiary of these incentives, and for the non-RMG sectors such schemes have been proved to be less effective. Therefore export diversification remains a critical challenge for Bangladesh. This chapter analyzes the challenges and potential of the foreign trade of Bangladesh. Section II of this chapter provides an overview of the import policies and import regimes in Bangladesh; Section III presents and overview of the export policies and export regimes in Bangladesh with an emphasis on the RMG industry; Section IV highlights the importance of a comprehensive trade policy; and finally Section V concludes.

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