Table of Contents
Abstract ................................................................................................................ 1
Chapter 1
Introduction
2
1.1
Background to the Study ........................................................................................ 2
1.2
Problem Statement ................................................................................................. 3
1.3
Objectives of the Study .......................................................................................... 3
1.4
Research Questions ................................................................................................ 4
1.5
Significance of the Study ....................................................................................... 4
1.6
Methodology .......................................................................................................... 4
1.7
Research Strategy ................................................................................................... 5
Chapter 2
Exchange of goods and investments in the view of theory of
6
economics
2.1
Preface................................................................................................................... 6
2.1.1 Concept of Exchange of Goods.............................................................................. 7
2.1.2 Concept of Investment ........................................................................................... 9
2.2
International Trade theory.................................................................................... 11
2.2.1 Classical Economic Theories ............................................................................... 11
2.2.1.1 Absolute advantage theory ................................................................................... 11
2.2.1.2 Comparative advantage ........................................................................................ 12
2.2.1.3 Economies of Scale .............................................................................................. 13
2.2.2 The Heckscher–Ohlin International Trade Theory............................................... 14
2.2.3 The Product Life Cycle Theory ............................................................................ 15
2.2.4 Jagdish Bhagwati contributions to the theory of international trade and
economic development ........................................................................................ 16
2.2.5 Consumer Theory................................................................................................. 18
Chapter 3
Trade agreement between the EU and Bangladesh
19
3.1
Bangladesh Economic State................................................................................... 22
3.2
COOPERATION AGREEMENT OF 2001......................................................... 23
3.2.1 Commercial and Trade Cooperation .................................................................... 24
3.2.2 Economic Cooperation......................................................................................... 25
3.2.3 Regional Cooperation .......................................................................................... 26
3.2.4 Cooperation in Technology and Science .............................................................. 26
3.2.5 Human Resource Development............................................................................ 26
3.2.6 Development Cooperation ................................................................................... 27
3.2.7 Stabilization and Association Agreements........................................................... 28
3.3
3.4
Chapter 4
Rules and Requirements for European Union Trading with Bangladesh............. 29
Future Goals of the Agreement ............................................................................ 30
Trade between the EU and Bangladesh
30
4.1
Trade items ...................................................................................................................... 31
4.1.1 Import items from Bangladesh to EU................................................................... 31
4.1.2 Export to Bangladesh from EU ............................................................................ 35
4.1.3 Recommended Trade items .................................................................................. 38
4.2
Yearly data on trade ......................................................................................................... 38
4.3
Challenges in expanding trade ......................................................................................... 41
4.4
Opportunities in trade ...................................................................................................... 42
4.5
Trade between Poland and Bangladesh............................................................................ 42
4.5.1 Export from Poland to Bangladesh ...................................................................... 43
4.5.2 Import from Bangladesh to Poland ...................................................................... 44
4.5.3 Comparative analysis ........................................................................................... 46
4.6
Trade relation with eastern European countries ............................................................... 48
Chapter 5
Investment flows from the EU to Bangladesh
49
5.1
5.2
5.3
5.4
Sectors of Investment ....................................................................................................... 49
Potential Sectors of Investment........................................................................................ 52
Incentives for FDI from Bangladesh............................................................................... 54
Sectors based current FDI Scenario ................................................................................. 55
5.5
5.6
5.4.1 Current FDI scenario European Union to Bangladesh ......................................... 55
Challenges in Investment in Bangladesh ......................................................................... 60
Recommendations ............................................................................................................ 62
Chapter 6
Conclusion
65
Bibliography and References ............................................................................66
Acronyms and Abbreviations
CEECS
Center Eastern European Countries
DANIDA
Danish International Development Agency
DFID
Department for International Development
EC
European Community
EU
European Union
FDI
Foreign Direct Investment
FTAs
Free Trade Agreements
GDP
Gross Domestic Product
GNP
Gross National Product
NATO
North Nations
SIDA
Swedish International Development Agency
UNCTAD
United Nations Conference on Trade and Development
WTO
World Trade Organization
List of Tables
Table 1: Clothing Items imported from Bangladesh to EU… ..................................................... 32
Table 2: Vehicle parts Items imported from Bangladesh to EU .................................................. 35
Table 3: Total Export from EU to Bangladesh ............................................................................ 36
Table 4: Trade between EU and Bangladesh from 2014 to 2017 based on items
(European Commission, 2018) ......................................................................................... 37
Table 5: Total Export Import Scenario between EU & Bangladesh .............................................39
Table 6: Trading Items between Poland & Bangladesh................................................................43
Table 7: Total Export from Poland to Bangladesh ....................................................................... 44
Table 8: Trade items between Bangladesh & Poland ................................................................... 45
Table 9: Trade Value between Bangladesh & Poland .................................................................. 45
Table 10: Total Export Import scenario between Bangladesh & Poland.......................................46
Table 11: A comparative analysis of export import between Bangladesh & Poland
to Bangladesh & EU ......................................................................................................... 48
Table 12: Frozen food investments from 2001-2002 to 2016-2017 ............................................. 50
Table 13: Sector based FDI Scenario (2008-2017) .......................................................................55
Table 14: Time Series Data on FDI Inflows (Net) by EU Countries .......................................57-58
List of Graphs
Figure 1: Total Export & Import Scenario from EU to Bangladesh ............................................ 39
Figure 2: Category wise Export Import scenario of Bangladesh and EU
(European Commission, 2018) ......................................................................................... 41
Figure 3: Total Export from Poland to Bangladesh ...................................................................... 44
Figure 4: Total export & import between Poland & Bangladesh ................................................. 47
Figure 5: FDI inflows (Net) by Major sectors during FY 2017.................................................... 49
Figure 6: Energy sector investments in Bangladesh estimated plan for 2018 onwards .................51
Figure 7: FDI Inflows during FY 2017......................................................................................... 51
Figure 8: amount of FDI inflows from the EU in Bangladesh ...................................................... 56
Figure 9: FDI Inflows (Net) by major countries during FY 2017 ................................................ 59
Figure 10: Bangladesh Corruption Index ...................................................................................... 61
THE EU-BANGLADESH ECONOMIC RELATIONS
Abstract
Globalization, which is spurred by improved telecommunication systems, developed
infrastructure, and transportation, has made the movement of goods and services across
borders speedy and thereby emerging different markets into a single complex market.
Countries with relaxed trade regimes and liberalized policies usually are better off meriting
from global trade. Undoubtedly, there has been a longstanding friendship and partnership
between the European Union and Bangladesh. A South Asian nation physically located
near economic powerhouses India and China. Exports growth builds import capacity and
industries engaged in exports production have the high intensity to absorb surplus of labor
force of developing country like Bangladesh. In particular, Bangladesh has been at the
forefront exporting products such as Knit or crochet clothing, accessories, miscellaneous
textiles, Footwear Paper yarn, woven fabric, Fish, Headgear, Leather/animal gut articles,
Raw hides, skins not fur skins, leather Plastics, plastic articles
Curiously the export of Bangladesh, especially the export of readymade garments, which
constitute more than three-quarters of the total export of the country, It is sold to the EU
and the USA.
It is worth noting that the Ready Made Garments has proven over the years to be the
predominant export products from Bangladesh, making up 90% of the overall exports from
Bangladesh, as well as contributing 20.4 % of the total Bangladesh’s GDP. Conversely,
European Union has been at the forefront exporting products such as machinery and heavy
equipment, cotton and electrical equipment. This paper will explore the trading association
and investment flow between Bangladesh and European Union countries from the
dimension of the classical economic theories. In particular, the objectives of this paper are
to first investigate the specific goods traded between Bangladesh and EU as well as Poland.
Secondly, to unpack the trading agreements ratified between Bangladesh and EU. Third, to
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THE EU-BANGLADESH ECONOMIC RELATIONS
assess the virgin industries where investors could channel their investments. This study has
substantiated the sectors which have proven to be ripe for investment over the years in
Bangladesh, most notably, the Ready Made Garment industry, frozen foods industry,
Energy sector, financial and banking industry, and the telecommunication industry. By
contrast, the untapped industries comprised sectors the bio-technology sector, insurance
sector, ceramic sector, Agribusiness sector as well as the IT sector.
Key Words:
European Union, Bangladesh Cooperation Agreement, Trade Agreement, Investment Flow,
RMG, FDI, GSP, GDP
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Chapter 1.0 Introduction
It is candid beyond any shadow of doubt that Bangladesh has a long-standing mutual
economic association with the European Union, which can be highly attributed to the diverse
trade agreements between these two entities. In fact, at the period of independence, following
the war of Liberalization as of 1971, subsequently, a preferential trading scheme was
formulated with Bangladesh. This initiative was under the Societies’ initial Generalized
Scheme of Preference (GSP), embraced after the United Nation’s Conference on Trade and
Development (UNCTAD), accredited the rationale of GSP programs for developing nations
in 1968. Within this paradigm, UNCAD decision, realized that the global economic order was
not working for the advantage of the developing nations and previous colonial authorities had
a duty to boost their economic development by providing them a relatively trade preferences.1
. Bearing that in mind, this paper will examine the trading association and investment flow
between Bangladesh and European Union countries from the dimension of the classical
economic theories.
1.1 Background to the Study
The significance attached to international trade by the government of Bangladesh has
escalated exponentially since early 1970s. In fact, the trade statistics by the world bank
showcased that between 1978 and 1991, Bangladesh’s imports had overshadowed the exports
by a margin of 120%. As a counter strategy to combat this shortcoming, the government of
Bangladesh has adopted various measures such as ratifying trade cooperation agreements
with the European Union and countries such as Poland, which in turn enabled Bangladesh to
export ready-made products such as the knit wear and garments which consequently has
elevated the level of exports as well as the level of economy. Since then to date, the readymade garment has remained to be the single industry dominating the exports, in particular
making up 90% of the overall exports to the European Union, and at the same time being the
largest contributor of Bangladesh GDP. Apparently, since mid-1970s to date, the trade
relations between Bangladesh and the European Union nations have advanced substantially.
A significant number of Foreign Direct Investment has been majorly channeled towards the
ready-made garment sector, meanwhile isolating other sectors which if granted adequate
resources, they would equally thrive.
1
Smith, H., 2002. European Union Foreign Policy: Wht it is and What it Does. 3 ed.
NewYork: Pluto Press.
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1.2 Problem Statement
Significant number of scholarly studies have showcased that a substantial amount of
Government investments, private investments as well as the Foreign Direct Investments have
been channeled towards a single industry, most notably, the Ready Made Garment sector. As
a consequence, this has led to the derailment or slow advancement of other potential
industries such as the fish products, pharmaceuticals, Shipping, Ceramics, IT industry as well
as tea and coffee industry. Among the objectives of this present study is to explore
comprehensively the investment flows between Bangladesh, Poland and the European Union
as well as showcase the virgin industries in Bangladesh upon which the investors could
channel their investments.
The European Union nations have proven to be escalating in influence and power as
far as international affairs are concerned, besides, the EU region is a relatively industrialized
region as compared to Bangladesh. In fact, presently the European Union is the second
largest market, accounting for over 40 percent of the overall global trade. Bearing that in
mind, balancing trade between EU and other developing nations such as Bangladesh, has
caught the attention of diverse international media houses.
1.3 Objectives of the Study

To understand explicitly the exact trade relations, exchange of goods and investment
flow between Bangladesh and the European Union nations between the period of 1970 and
2018.

To unpack the exact Trade Cooperation Agreements ratified between Bangladesh and
the European Union.

To ascertain the virgin industries in Bangladesh where the investors could channel
their investments.
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1.4 Research Questions
1)
What is the exact nature of trade relation between Bangladesh and European Union
since 1970-2018? This question is sub-categorized into two pertinent question
a)
What are the specific goods traded between Bangladesh and EU?
b)
How is the investment flow between Bangladesh, Poland and EU?
2)
What do the specific elements constitute the Cooperation trade agreement between
Bangladesh and EU?
3)
What are the under-exploited industries in Bangladesh where investors can channel
their investments?
1.5 Significance of the Study
This study is pivotal because it will contribute to the knowledge database with regards
to the trade relation between Bangladesh, Poland and the European Union, in which only a
handful of studies have been conducted so far. Moreover, this study aims at unveiling the
specific goods and investments exchanged between Bangladesh and the European Union. As
such, the foreign policy makers can formulate and adjust the foreign policies to facilitate
more exports and relatively minimal imports. Besides, this study equally targets at
ascertaining the investment flows between Bangladesh and EU, since 1970 to date, which in
turn could inform the investors with respect to the ripe and virgin industries which could be
leveraged.
1.6 Methodology
In order to attain the goals and objectives of this study and at the same juncture
guaranteeing the richness and accuracy of accuracy of data as well as facilitating the
transferability of the findings, comparative case studies and descriptive research designs were
employed. A case study affords the researcher with the prerogative of familiarizing
themselves with the data in its usual setting. Besides, case studies afford the researcher an in
depth and robust information with regards to the research problem. As such, a case study
research design is perfect when the investigator is targeting at filtering down a broad and
complex field of research into one or few manageable examples. Equally imperative, case
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THE EU-BANGLADESH ECONOMIC RELATIONS
studies are strategic when the investigator is trying to ascertain if a particular model or
framework is practical in the real world. On the other hand, descriptive research designs
facilitate in answering questions such as, what, why, who, how, when and how much, among
others. Furthermore, it facilitates in ascertaining the correlation that exist between elements
and the research problem in question. Descriptive research design is relevant in assembling
information with respect to the current condition of a phenomenon.
An intensive literature review of the present topic was undertaken which in turn laid a firm
foundation to comprehend the research problem. In particular, it granted a knowledge base
for the topic in question as well as picture of the present association between the EU and
Bangladesh. A robust analysis of the available secondary data was undertaken on the
available documents, statistical data, media publication.
1.7 Research Strategy
This study has diverse purposes: First, to paint a picture of the present trade
circumstance between Bangladesh and EU as well as between Poland and Bangladesh.
Second, to pinpoint the major elements influencing, determining the scope and direction
between these nations as well as examine the development aspects of trade between these
nations. As such, this study adopted the descriptive and exploratory research designs in order
to ascertain why certain events have occurred. In particular, both quantitative and qualitative
procedures were employed as complementary criteria. The combination of quantitative and
qualitative methods with the goal of interpreting and comprehend a phenomenon in its setting
via a detailed assessment of statistics and texts, fits perfectly with the goals of this study.
Bangladesh-EU trade association is a relatively sophisticated phenomenon, and alteration in
the nature of this phenomenon is highly shaped by the dynamics in the nature of community.
During the previous decades, the setting and fundamentals for bilateral associations have
changed significantly due to diverse factors such as the globalization of the international
economy, the expansion of the European Union as well as the reforms of the EU political and
economic system. By employing both quantitative and qualitative dimensions, the goals of
the present study will be served. In this study, qualitative approach was employed to interpret
the setting of Bangladesh and EU trade association in order to depict a detailed picture. In
order to affirm the reliability and validity, statistical data were referred to.
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Chapter 2.0 Exchange of goods and investments in the view of theory of
economics
2.1 Preface
The connection between international exchange of goods and investment to economic
prosperity has received meaningful attention in recent past2. Exchange of goods and
investment, as a major factor of interest, has made a rapid input to economic growth3.
Schneider contend that imports bring extra contest and mixture to local markets, assisting
consumers, and exports increase markets for local manufacturer,
benefiting
local
businesses. International exchange of goods and investment uncover domestic companies to
the best methods of foreign companies and to the demands of knowledgeable customers,
promoting efficiency. The exchange of goods offers businesses access to more advanced
capital inputs like machine equipment, building productivity and giving opportunities for
growth.
Amount of goods and investments made by countries and individual is relocating the
global borders rapidly. In today’s world nearly $2.5 billion worth goods exchange
transactions take place. Figures indicate that almost $7.9 trillion worth of goods are
exchanged within borders and millions of investor’s ventures to available market
opportunities. Basically, economics main target is on transfer of goods and investors
attractions all over world4.
The concept of exchange of goods and investment in economic growth refers to the
system of bettering economic breakthrough, and quality of livelihood; and decrease in
poverty level. Better health care, education, clean surrounding and proper utilization of
available resources are considered to be the most significant element of economic
empowerment. Furthermore the authorized distribution of goods is crucial part of economic
growth and development. Well formulated allocation link that involves quality infrastructure
results great delivery of goods and development of manpower movability5.
2
Douglas J. Besharov Proceedings of the Academy of Political Science, Vol. 37, No. 1, New
Directions in Liability Law (1988), pp. 139-148
3
Marco Sanfilippo Istituto Affari Internazionali (IAI) (Dec. 1, 2014)
4
Martin Mandel, Vladimír Tomšík Eastern European Economics, Vol. 46, No. 4 (Jul. - Aug.,
2008), pp. 5-26
5
Jeffrey J. Reuer, Tony W. Tong Managerial and Decision Economics, Vol. 28, No. 8 (Dec.,
2007), pp. 863-877
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THE EU-BANGLADESH ECONOMIC RELATIONS
“Exchange of goods and investment is a field of economics which is associated with
economic growth and expansion. Despite goods exchange targeting on enhance
infrastructural advancement it also reconstructing capability to considerable portion of the
entire population; for instance, through use of education and appropriate work environment
conditions”. Exchange of goods has altered the wider perception of world economic structure,
through improving border to border trade, monetary exchange, Capital movement, migration
and movement of individual across borders. Massive international investment has brought the
idea of border-less and integrated international and regional economy. Hence the exchange of
goods and conducive environment for investors has given a new face to the businesses world
Investment has long been pointed as one of the contributing forces driving economic
growth. There have been a number of instances in the past of countries whose economic
achievement was negatively affected by fluctuations in investment platform. Market risks and
are serious block to investment decisions. There is a developing interest in economic risks
and its influence investor’s attractions.
2.1.1 Concept of Exchange of Goods
Exchange of goods, involves equal interchange between trading body. Where each
party involved in the trading relation is expected to incur an equivalent financial worth. The
relationship between the mutual setting and the resource to be exchanged has great impact on
the outcome of the exchange and, successfully, it affected by the economic environment or by
the level of technology advancement.
Mankew, N. (2012) defined export as the process of selling goods to a different
country in return of foreign currency. Export brings foreign currency that contributes to the
overall economy of the country. Export can have several factors included where the
production can be done in one country with raw materials from other countries and then
exporting to a different country. Moreover, there can be third party exports as well, where the
total production process is done in one country then it is exported to another country but the
importing county again export to other countries. However, countries today always try to
expand their export as it contributes toward the economy of a country with foreign
currencies.
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Import on the other hand is defined by Griffin, R. (2010) as the nature of business that
brings required goods and products from another country in order to meet the demand within
the country. Though import needs to send foreign currency to another country, but it keeps
the price of goods and products steady by bringing cheap and low rates products6. Moreover,
when the products are not produced locally, it requires bringing products from abroad
through the import process.
Balance of trade is the measurement of trade between 2 countries. The export and
import scenario between 2 countries represent the balance of trade. Mankew, N. (2012)
identified the total export and import scenario between 2 countries or 2 economic entity. For
example, Poland imported $833 million from Bangladesh whereas the export to Bangladesh
was only $23 million in 2015. This represents the negative balance of trade of $810 million
with Bangladesh.
FDI or foreign direct investment is investment by another country to own country7.
For example, if Poland invests in Bangladesh Garment industry, that is considered as Foreign
Direct Investment or FDI in Bangladesh.
In cases like bargaining power between potential consumer and supplier of goods,
economic theory speculates that choices are not influenced by possession. Thus, when
income influences and costs of transaction are less, the ability to pay for particular goods
should be equal to the willingness to accept.
The exchange of products from one country to another have impact on the overall
global economy of the world as it is commanded by the law of demand and supply which
makes goods available but not obtainable by customer globally. Interregional exchange of
good can be referred to exchange of capital and goods across regions borders. In most
countries, such exchange represents an important share of GDP.
International exchange of goods is, in principle, not distinct from local exchange as
the attitude and the motives of parties in a trade do not change regardless of whether trade is
across a border or within a country perimeter. The main variation is that international
exchange of goods is generally more expensive than local trade. The logic behind the
variation is that a border imposes additional charges such as tariffs and costs related to
country system and culture. International exchange of goods is also an associated of
economics, which, both with international money, forms the huge part of international
economics.
6
7
Griffin, R. W.,2010. Principles of Management. 9 ed. New York: Houghton Mifflin Company.
Mankiw, N. G., 2012. Macroeconomics. 8 ed. s.l.:s.n.
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2.1.2 Concept of Investment
Investment involves commitment of current monetary resources with an aim to
achieve greater gains. Investing is a wide spread activity globally and many people have
made their possessions through wise investment decisions. The origin point in this investing
activity is to establish the traits of the various investments and then pairing them with the
personal need and priorities. All individual or organizations investment is invented in order to
reach a certain goal8. These goals may be concrete such as establishment of branches for a
particular product and obscured goals such as social status and security; these goals may be
defined as financial or individual objectives9.
Portfolio investment is another term in economics that indicates a package of
investment including several sectors10. A portfolio investment is an investment made by an
investor who is not involved in the management of a company. This is in contrast to direct
investment, which allows an investor to exercise a certain degree of managerial control over a
company. In order to reduce the risk, large investors are suggested to invest in several sectors
that help to ensure success even without the control over management. For example, EU
investors invests in several sectors of Bangladesh that includes RMG, telecommunication,
power, energy etc. If the investment in one industry fails, then the other industries can be
successful and the loss will be minimzed, though there will be no control over management.
Portfolio investment is a tool for the investors to make the investment profitable with reduced
risk.
There is a difference between foreign direct investment and portfolio investment. FDI
is direct foreign investment by any company or individual where the control of the company
remains in the hand of investor. But in portfolio investment, the control is not in the hand of
the investor. Moreover, there can be investment in several sectors under the portfolio
investment. Most of the countries prefer FDI rather than portfolio investment as it is suitable
in terms of taxation and country revenue. Also it increases the employment rate in the
country.
8
Becker, G.S. (1981). A treatise on the family. Cambridge: Harvard University Press.
Monica L. SmithJournal of Archaeological Method and Theory, Vol. 6, No. 2 (Jun., 1999),
pp. 109-135
10
Griffin, R. W., 2010. Principles of Management. 9 ed. New York: Houghton Mifflin
Company.
9
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Linder Hypothesis is an economic hypothesis that posits countries with similar per
capita income will consume similar quality products, and that this should lead to them trading
with each other. According to this theory, countries should be specialized in producing high
quality products and should trade those products to those countries having higher demand11.
Investment
categorization
differs
depending
on
their
specific
objectives.
Categorization based on time standard is the most significant. Therefore, in a market where
short-term investment valuables are exchanged, and has ripeness one year minimum is
referred to a money market12.
Contrary, a market environment with investment tools that has a maturity of between
1-5 years is referred as capital market. Debt, deposits and other bank document which have
duration minimum of 1 year are considered one of the investment tools in the money
market13.Return on investment vary depending on categorization of the investment
condition14.
Return connected with risk are the major elements of the decision making, and this is
the outcome of the convenient relationship and aligned link between the two. The rise in risk
leads to increase in return in investment15.
There are also economic perils as a result of changes in macroeconomic element like,
inflation and government spending. These risks influence almost all sectors, but they differ in
the level of the effect depending on the importance in industry type to any of the overall
economic factors16. The changing levels of government expenditure in the United Kingdom.
Nevertheless, organizations and businesses working in construction relying on public projects
and contracts will be heavily affected in comparison to others. Also, when the state of
economy experience inflation, all economic sections will be affected causing a decrease in
the overall profitability of those sectors17.
11
Mankiw, N. G., 2012. Macroeconomics. 8 ed. s.l.:s.n.
JOHN A. WESTBERGThe Business Lawyer, Vol. 24, No. 4 (July 1969), pp. 1263-1273
The Review of Economics and Statistics, Vol. 78, No. 2 (May, 1996), pp. 221-231
13
Lars Buur, Malin J. Nystrand, RasmusHundsbæk PedersenDanish Institute for International Studies
(Jan. 1, 2017)
14
G. B. RoorbachAmerican Journal of Sociology, Vol. 34, No. 1 (Jul., 1928), pp. 50-61
David Aviel, JoAnn B. AvielManagement International Review, Vol. 22, No. 1 (1982), pp.83-96
15
Jean-Marie VIAENE Recherches Économiques de Louvain / Louvain Economic Review, Vol. 50,
No. 3/4, Investment in Europe II (1984), pp. 197-213
16
H. C. Trimble Science, New Series, Vol. 134, No. 3493 (Dec. 8, 1961), p. 1925
17
ibd
12
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2.2 International Trade theory
Since time immemorial the phenomenon of international trade has captured the
interests of a significant number of scholars and practitioners across the globe. As a result,
tremendous number of international theories has emerged with the aim of articulating
international trade between nations. But as far as this study is concerned, only a handful of
international theories, in particular, six of the relevant theories were selected which are
elaborated as follows.
2.2.1 Classical Economic Theories
The main theme of classical theory is heavily based on self‐dependent. Classical
experts uphold that economy is always able to achieving the normal level of expected output,
which is equivalent to actual Gross Domestic Product value that is gained when the
economy's resources are fully utilized18. The classical theory principle explains that economy
will always be neutral level of predicted GDP which is depends on two beliefs: belief that
product prices, wage bill, and interest rates are flexible19.
According to most economists they argue that when the economy generates a certain
level of predicted GDP it produces the income required for purchasing required level of GDP.
In simple terms, the economy is always capable of demanding all the outputs from workers
and firms produce. Considering, what occurs when the finances from saving surpasses the
needs of all borrowers in a given economy. During this circumstance, real GDP will decrease
to its normal level as a result of investment spending will be below the aggregate saving, the
theory majorly emphasizes on absolute and comparative advantage theory concept20.
2.2.1.1 Absolute advantage theory
Generally in the field of economic, the theory of absolute advantage is defined as the
ability of a country to generate more products in term of quantity compared to competitor at
the mean time using equivalent amount of resources. According to Adam Smith this implies
18
Review of Social Economy, Vol. 65, No. 3 (SEPTEMBER 2007)
Mihir Shah Economic and Political Weekly, Vol. 34, No. 46/47 (Nov. 20-26, 1999), pp. 32933298
20
Andrea Maneschi Cambridge Journal of Economics, Vol. 16, No. 4 (December 1992), pp. 421437
19
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the use of labor as the only input of production. The main reason for this assumption is based
on the concept that the overall productivity which is used to measure the absolute advantage,
therefore there are high chances that a certain country will have no absolute advantage in any
product. This implies that no trade can take place among the involved parties.
Absolute advantage is dormant international theories that specify that a nation can
manufacture goods more effectively than another. According to the theory country can
specialize in production of one product and use the funds gained from the sales to purchase
other products from other countries. The main aim of Adam Smith pioneering this idea was to
encourage division of labor.
A perfect exemplar from the economic viewpoint is that, if Bangladesh dedicates 70
hours to generate one unit of cloth, which is relatively lesser than that of Germany hours of
labor essential to generate one unit of cloth. This occurrence then implies that Bangladesh is
in a position to generate one unit of cloth with lesser hours of labor. As such, Bangladesh has
a relatively absolute advantage in the generation of cloths. By the same token, if Germany
dedicates 60 hours to generate one unit of wine, which is relatively lesser than that of
Bangladesh hours of labor essential to generate one unit of wine. This occurrence therefore
denotes that Germany has an absolute advantage in the generation of wine. If these two
nations capitalize in generating the product for which they possess absolute advantage an in
scenarios where they exchange part of the product with each other, both of the two nations
can culminate to having more of each product than they would have without the trade. With
zero trade between the two nations, each nation generates one unit of wine and cloth.
2.2.1.2 Comparative advantage
Comparative advantage theory holds that a country will manufacture more and
consume less of product which they have comparative advantage. This theory describes the
gains from country as a result of technological differences. In an economic situation agent
those countries that can produce goods at relative low cost compared to their competitors are
considered to have a comparative advantage. This implies that the opportunity cost of
manufacturing goods is more important that the resources cost.
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Those countries with comparative advantage make the trading activity outweigh the
disadvantage of economic condition. This implies that though a country may not be the best
in particular product production, but low opportunity cost enable it to carry out trading
activities efficiently compared to other nations.
In reference to, Ricardo’s Economic Model of comparative advantage where he
apparently articulated why nation’s participate in international trade even when one nation’s
workforce are more effective at generating every single product than workforce in other
nations. He showcased that if two nations capable of generating two products participate in
the free market, then each nation will maximize its overall consumption by exporting the
commodity for which it has comparative advantage while on the other hand importing other
product, provided that there exist distinctions in labor productivity among the two nations.
Seen in this light, Ricardo asserted that comparative advantage instead of absolute advantage
is in charge for a significant number of international trades.
Perfect illustration of comparative advantage can be articulated as follows, if a
country can generate wool for $17 and cotton for $1 a kilogram. Wool can be imported from
other countries for $5 and cotton can be sold to other countries for $2. As such, the country
profits from importing wool and exporting cotton. Still by the same token, if a country
generates model of aircraft for $130 million with 1 million hours of work, which
is
relatively lesser as compared to the competing nations. This symbolizes a productivity rate of
$130 per hour. This way, the country has a comparative advantage in the production of
aircrafts.
2.2.1.3 Economies of Scale
According to microeconomics, economies of scale refer to the cost benefits that a
state attains as a result of their distinct scale of operation, which is gauged by the output
generated. Economies of scale can equally mean the rate of doing things more efficiently
with escalating speed or size of operation. Economies of scale are applicable to diverse
business and organizational setting and at different levels, such as manufacturing, business or
an overall enterprise. In scenarios where average cost begins to reduce as output maximizes,
then in such circumstances it can be said that economies of scale are present. Yet another
avenue of scale economies is the potential of buying inputs at a less per unit cost as compared
to when they are bought in huge quantities. Within this paradigm, economies of scale are a
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pragmatic phenomenon in the international trade, in the sense that, it assists in articulating
why some industries in certain countries tend to grow faster as compared to others.
Furthermore, it provides a premise for free trade policies, because some economies of scale
may demand a bigger market than is available in a particular nation
2.2.2 The Heckscher–Ohlin International Trade Theory
The Heckscher–Ohlin theory states that nations will export goods that use it’s plenty
factors completely, and import items that utilize limited factors exhaustively. In the 2 cases, it
outlines that: "A capital-abundant nation will export the capital-intensive items, while the
labor-abundant nation will export the labor-intensive materials."
The main assumption of the Heckscher–Ohlin theory is that two nations are equal,
exempting the difference in resource funding. This signifies that the cumulative desires are
similar. The comparative supply in capital will lead to capital-abundant nation to generate the
capital-comprehensive good inexpensive compared to labor-abundant nations and vice
versa21.
For example certain nations have abundant oil stockpile but have minimal iron ore. At
the same time, other nations can smoothly access and stock precious materials but have
minimum way of carrying agriculture22. The Heckscher-Ohlin theory has not limitation to
goods that are traded but combine other manufacturing factors like labor. The value of labor
differ from one nation to another, so countries are considered to have access to cheap
manpower, according to the theory, should target primarily on manufacturing items that are
labor-intensive23.
The theory also emphasizes the importance of global trade, especially, the global
significance to all when each nation puts emphasize into exporting resources that is locally
abundant. Each nation profits when each one of them imports the resources that it naturally
have deficiency. Because in this case nation does not have to rely individually on internal
markets, it can take benefits of flexible demand24.
21
HenrykKierzkowskiOxford Review of Economic Policy, Vol. 3, No. 1, INTERNATIONAL TRADE
& COMMERCIAL POLICY (Spring 1987), pp. 1-19
22
John H. WilliamsThe American Economic Review, Vol. 41, No. 2, Papers and Proceedings of the
Sixty-third Annual Meeting of the American Economic Association (May, 1951), pp. 418-430
23
A Survey of International Trade Theory by Gottfried Haberler
24
International Trade: Theory and Economic Policy by Jaroslav Vanek
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2.2.3 The Product Life Cycle Theory
The Product Life Cycle Theory is an international economic theory by Raymond
Vernon in response to the lack of success of the Heckscher-Ohlin theory to clarify observed
pattern of global trade25. The theory indicates that early in a material life-cycle all the pieces
and labor connected with that item come from the origin where it was made-up. After the
product becomes accepted and used in the global markets, manufacturing gradually moves
away from the point of origin. In some cases, the material becomes product that is imported
by its original nation of creation26. This theory has four levels
Level 1: Introduction
This is the introduction of the product into the market, the consumer are unaware
about the good. To develop demand, manufacturer promotes the new product to enhance
sales. At this level, returns are low and there exist very few competitors27.
Level 2: Growth
In this level, demand for the product improves sales. As a result, manufacturing costs
minimizes and returns are high. The product becomes widely acknowledged and competitors
venture the market with their own similar version of the product. To entice as many
customers as possible, the organization that created the original product maximizes
advertising spending28.
Level 3: Maturity
In the full growth stage of the goods life cycle, the product is broadly known and many
customer own it. In the maturity level of the product life cycle, demand levels off and
revenue volume improves at a slower rate29.
25
Anthony Y. C. Koo Journal of the American Statistical Association, Vol. 57, No. 297 (Mar.,
1962), pp. 261-262
22
International Trade Theory and Economic Policy by Jaroslaw Vanek
Review by: Erich Schneider
Weltwirtschaftliches Archiv, Bd. 89 (1962), pp. 57-58
28
James H. Cassing The Quarterly Journal of Economics, Vol. 92, No. 4 (Nov.,1978), pp. 535550
29
Illegal Transactions in International Trade : Theory and Measurement by Jagadish N.
Bhagwati
Review by: Sultan Hafeez Rahman
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Level 4: Saturation
It is at level in which there is neither improvement nor decline in the number of sale.
A through adjustment in the features of the product is required to bring new consumers.
Competitor’s goods at this level would have started attracting and securing its market
coverage30.
2.2.4 Jagdish Bhagwati contributions to the theory of international trade
and economic development:
It is undisputable that Jagdish Bhagwati has contributed substantially in the arena of
international trade and economic development. It is worth noting that Bhagwati has for
decades been a notable professor at the Delhi School of Economics, and Indian Statistical
Institute. He has authored as well as edited diverse books on the policy and theory of
international development and economics challenges encompassing migration and aid. For
instance, he authored the book titled, The Economics of Underdeveloped Nations, Foreign
Trade Regimes and Economic Development Furthermore, he has been the editor of the Series
of Journal titled, Journal of International Economic. Besides, for years he has served in the
editorial board of the American Economic Review31. Moreover, his contributions in the arena
of international trade models have affirmed him as an authority to reckon with in this arena.
The Bangladesh Development Studies, Vol. 3, No. 4 (October 1975), pp. 525-527
Wilson B. Brown Nebraska Journal of Economics and Business, Vol. 11, No. 3 (Summer,
1972), pp. 33-48
30
Walter Isard, Merton J. Peck The Quarterly Journal of Economics, Vol. 68, No. 1 (Feb.,
1954), pp. 97-114
31
Ibid.
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Bhagwati has challenged various International trade frameworks such as the
comparative advantage theory, For instance, in his article in the Economic Journal titled, The
Proofs of the Theorem on Comparative Advantage, contrary to the previous literatures which
mainly concentrated on the supply aspect of trading among diverse nations. In the sense that
previous theories asserted that if a nation has a low cost of production of a certain products
relative to another product, contrasted to its trading ally, as such with free trade it will
consequently export that product. By contrast, Jagdish introduced and subsequently
championed the component of demand, where he contended that goods in any nation as a
whole highly depends on prices in the same manner that demand by personal consumer
depend on prices. Another noteworthy contribution was his astounding survey of trade
framework. This survey comprised a robust exposition of both the Heckscher-Ohlin and
Ricardian models of the trend of trade
Jagdish further asserted that international trade provides an opportunity to market
goods and services that previously were not available. He explains that as a result of
international trade competition is created which eventually leads to competitive prices, and
finally availing cheaper goods to consumers. Jagadish Bhagwati also affirmed that
international trade gives countries a chance to utilize their resources such as labor, capital and
technology more effectively. One factor that facilitates trading is the difference in asset and
resources among different countries. Therefore due to efficiency in goods of various goods
country may sell them cheaper to other countries compared to the same good being offered
by a different countries.
In conclusion, taking everything into account, the phenomenon of international
Trading and exchange of investments has been made apparent by the diverse theories of
international trading. Most notably, the frameworks selected to articulate the concept of
international trade were, the absolute advantage theory, which contended that a nation would
be inclined to generate more products in term of quantity compared to competitor at the mean
time using equivalent amount of resources. Conversely, comparative advantage theory holds
that a country will manufacture more and consume less of product which they have
comparative advantage than its competitors. Moreover, The Heckscher–Ohlin International
Trade Theory, which states that nations will export goods that use its plenty factors
completely, and import items that utilize limited factors exhaustively. Besides, The Product
Life Cycle Theory by Raymond Vernon has equally been explored; the theory indicates that
early in a material life-cycle all the pieces and labor connected with that item come from the
origin where it was made-up. Last but not least, it was noteworthy to explore the
contributions of Jagdish Bhagwati as far as international trade is concerned, most notably
challenging diverse international theories such as the comparative advantage.
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2.2.5 Consumer Theory
According to the consumer theory, it is necessary to study the spending nature of
people, the preference of consumer and budget constraints. Hence, consumer theory studies
about this spending nature, preference of consumer and budget constraints in the economy.
So, the individual choice, income, spending capability, individual’s preference
and
limitations are discussed in this consumer theory. In example, consumer theory can be
illustrated as with the example of David. A consumer David has $200, and he has to allocate
this money between a burger and video games. If the price of the burger is $5 and the price of
the video games is $20, then how many burgers or video games will be bought by David? He
can take 40 burgers or 10 video games. Or he can take 20 burgers and 5 video games. Or no
burgers and 10 video games, or 40 burgers or no video games. This is difficult to predict.
Here comes the consumer theory. This theory analyzes the buying behavior and will predict
which items will be preferred by David. So, it is necessary to study the spending nature of
David, the preference of consumer and budget constraints and thus will predict the buying
behavior of the customers. There are some limitations of the consumer theory. The individual
and collective consumer behavior and spending pattern is studied in this the consumer theory
that enables the analysis over economic behavior and pattern. Moreover, the income and
expenditure in the economy and the factors influencing that pattern is also identifiable
through the consumer theory. In line with this, the budget constraints in economy is also
identified through the consumer theory. Individual and collective budget constraints can be
identified through the consumer behavior whereas the choice and preference of the
consumers are also analyzed in this theory.
Challenges to developing a practical formula for this situation are numerous. People
are not always rational, for example, and occasionally they are indifferent to the choices
available. Some decisions are particularly difficult to make, because consumers are not
familiar with the products, or the decision has an emotional component that isn't able to be
captured in an economic function. Consumer theory therefore makes several assumptions to
simplify the process. For example, in David’s case (above), economics can assume he
understands his preferences for burgers and video games and can decide how much of each
he wants to purchase. It also assumes there are enough video games and pizzas available for
David to choose the quantity of each he desires.
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Chapter 3.0 Trade agreement between the EU and Bangladesh
It is candid beyond any shadow of doubt that Bangladesh has a long-standing mutual
economic association with the European Union, which can be highly attributed to the diverse
trade agreements between these two entities. In fact, at the period of independence, following
the war of Liberalization as of 1971, subsequently, a preferential trading scheme was
formulated with Bangladesh. This initiative was under the Societies’ initial Generalized
Scheme of Preference (GSP), embraced after the United Nation’s Conference on Trade and
Development (UNCTAD), accredited the rationale of GSP programs for developing nations
in 1968. Within this paradigm, UNCAD decision, realized that the global economic order was
not working for the advantage of the developing nations and previous colonial authorities had
a duty to boost their economic development by providing them a relatively trade
preferences.32
In the light of the Generalized Scheme of Preference (GSP) agreement, the European
Union non-reciprocally and unilaterally provided relatively minimized tariffs to particular
developing nations for their distinct goods and products when joining the Union’s market 33.
In particular, it made it relatively less bureaucratic and cheaper for those nations to export
goods to the European Union and at the same time assist them to align with the international
trading system. Via the supplementary export revenue which is produced, the EU GSP
targeted at boosting economic growth and development Bangladesh by enhancing job
creation and diminishing poverty degree. In fact, as from 1995, the European Union
propagated for “Positive conditionality” by affirming “Special incentives”, titled GSP+, to
offer more advantageous trade preferences for nations prepared and dedicated to satisfy
specific human rights duties. 34In that respect, from 2001, there have been three forms of GSP
scheme, in particular, the ordinary GSP, which offers for minimized tariffs, the GSP+ which
offers more relatively generous tariff minimization in scenarios where the nations correspond
with human rights’ dimensions, as well as the Everything but Arms (EBA) Scheme, which is
the most advantageous arrangements of all the schemes.
32
Smith, H., 2002. European Union Foreign Policy: Wht it is and What it Does. 3 ed.
NewYork: Pluto Press.
33
Kenneth, P., 2001. Cooperation Agreement. Official Journal of the European Communities,
118(48), pp. 1-8.
34
Zahid, A. & Alam, H., 2016. Foreign Trade Associations of Bangladesh an Overview of
Trade *Pacts. International Journal of Technical Research and Applications, 4(4), pp. 104107.
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After the reforms and amendments of the GSP system, everything but arms has been
reinforced within the 2012 GSP framework, which in turn took effect as from 1s January
2014. Preferences have now been focused on the Least Developed nations because they
require tariff minimization the most35. More favorable and differential treatment of nations to
satisfy the financial, development and trade needs are expressly allowed under World Trade
Organization principles. After the execution of the reforms, the overall number of the GSP
beneficiaries was lowered substantially, from 178 to 92. As a result, the access to EBA has
been confined and the minimization in terms of GSP beneficiaries implies that there have
been a greater concentration on the Least Developed Nations such as Bangladesh, which are
in great need of trade preference, decreasing the competitive pressure on these countries.
Beneficiaries of these scheme are objectively examined and their qualification is reliant upon
categorization of the beneficiary nation by the United Nation as a Least Developed nation.
In the early 1980s and 1990s, Bangladesh had tremendous difficulty to leverage on
the EBA Scheme, since the garment industry had just begun to advance. This scenario was
majorly because of the principles of origin which constituted the tiny print of the GSP. The
principles were put in place to hamper short-cut access to preferences as goods would be
shipped via states and not beneficiaries of the scheme to graduate for the tariff preferences. In
Bangladesh, the regulation of origin was very rigorous by restricting imports of woven
garment by necessitating that the fabric should be processed locally. Slowly, as the industry
advanced, this became less of a challenge and currently the principles have been amended to
eliminate the problem.36
As of 2001, the EU-Bangladesh treaty was ratified which in turn further reinforced the
trade association between Bangladesh and the European Union. As a result, the European
Union granted Bangladesh duty free entry to the Union market, this occurred under
everything but Arms Initiative (EBA)37.It is noteworthy that, everything but Arms (EBA)
denotes a scheme of the EU which contends that all manner of imports to the Union from the
least developed nations such as Bangladesh are quota-free as well as duty-free, with the
exclusion of armaments. The goal of this initiative was to empower the economic growth and
35
Hagerty, D., 2007. Bangladesh in 2006: Living in 'Interesting Times'. Asian Survey, 47(1), pp. 105-112.
Zahid, A. & Alam, H., 2016. Foreign Trade Relations of Bangladesh an Overview of Trade
Treaties. International Journal of Technical Research and Applications, 4(4), pp. 104-107
36
37
Ark, M., Kenner, J., Lein, B. & Peake, K., 2016. Case Studies on the Intergration of EU Development, trade
and Human Rights Policies. Frame, 9(4), pp. 53-71
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development of the global poorest nations. Since then, European Union has emerged as
among Bangladesh’s biggest trading partner, in fact, it is approximated by the Bank of
Bangladesh that over 24% of the overall Bangladesh trade is directed towards the European
Union.38 Consequently, Bangladesh has been ranked as the 35th Union’s trading partner. In
particular, clothing accounts for approximately 90% of Bangladesh’s export to the European
Union. Conversely, the Union’s export to Bangladesh is estimated to be 49% which mostly
comprises transport equipment and machinery. It is imperative to note that everything but
Arms plan is anticipated to climax in 2021 when Bangladesh is projected to advance to the
developing nation bracket.39
As a result, Bangladesh has profited from the EBA Scheme since 2001, in fact,
Bangladesh goods make-up approximately 69.1% of the EBA overall preferential imports to
the European Union by 2014, making Bangladesh, by a close distance, the biggest beneficiary
of the EBA. In a great sense, this occurrence implicitly unveils the significance of the EU’s
trade mutual association with Bangladesh. Most especially, as the garments embodies 90% of
Bangladesh overall export to the EU, the Unions GSP has been a vital factor in boosting the
rapid economic growth and development of the Ready Made Garments (RMG) sector. As
such It can be asserted that the EBA scheme has established a mutual relationship of
economic reliance on the premise of garment export, which consequently positions a specific
duty on the Union to affirm that the RMG sector in Bangladesh is Human rights compliant40.
(Ark, et al., 2016)
Within the scheme of the international Europe blueprint the European Union (EU)
wants to enable European businesses to gain connection to new and fruitful markets in
developing nations by conferring Free Trade Agreements (FTAs) as over the next ten to 25
years 80% of the world demand will be created outside Europe41. The currently negotiated
FTA between Bangladesh and the EU can be considered as a part of this strategy. Bangladesh
wants to get access to new ventures and would like to accomplish a preferential coverage on
the European market in comparison to its competitor. I trade agreement the parties involved
38
Ibid
39
Zahid, A. & Alam, H., 2016. Foreign Trade Relations of Bangladesh an Overview of Trade
Treaties. International Journal of Technical Research and Applications, 4(4), pp. 104-107.
40
Lips, M. & Tabeau, A., 2003. Multilateral and Regional Trade Agreements: Alaternatives
for Bangladesh, The Hague: Global Economic
41
Delwar Hossain, Institute of Peace and Conflict Studies (Jan. 1, 2015)
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take a broad-based Bilateral Trade and Investment Agreement (BTIA) which leads to the farreaching minimization of limits to trading activity on both sides42. The talks for a bilateral
FTA between Bangladesh and the EU covering international investment, competition terms
and governmental institutions procurement additional on trade in goods have been going on
in the recent past. Even if both Bangladesh and the EU main aim is to accelerate the
negotiations there is conflict between the cooperation intended and actual reality on the
ground where EU Bangladesh relations is not working well, despite all the efforts made by
the two sides43.
There is a positive impact related to international trade agreement on economic
development and growth of the involved countries.EU commission understands that regional
integration is a crucial tool that promotes global trade and also enhances international trade
competition between countries and regions44.The main significant of trade agreements to
enable nations around the continent to enhance transformation of their small and micro
enterprise economies, market extension and also to gains the economies of scale for trade.
Countries that that engage in international trade agreement are referred as open economy
while those that oppose it are referred to as closed economy45.
With this that said, international trade agreement can be described as exchange of
goods between nations46. In circumstances where a country restrict itself from foreign
exchange of goods and services its is said to have economic independence as a policy which
in many instance it has negative impact on economic growth and international relationship
with neighbor countries47.
3.1 Bangladesh Economic State
The economic state of Bangladesh underwent a significant change during early 1990s.
After experience with local demand based import exchange strategy for almost two decades,
Bangladesh finally opted to adopt more open market-based approach where the private
42
Mohammad Yunus, The Bangladesh Development Studies, Vol. 32, No. 3 (September 2009), pp. 41-57
Supriya Singh, Institute of Peace and Conflict Studies (Mar. 1, 2007)
44
Nurul Islam,.Economic and Political Weekly, Vol. 39, No. 36 (Sep. 4-10, 2004), pp. 4069-4075
45
Harsh V. Pant, .Asian Survey, Vol. 47, No. 2 (March/April 2007), pp. 231-249
46
Zaglul Haider. Asian Survey, Vol. 45, No. 2 (March/April 2005), pp. 322-341
47
Bina D'Costa .Asian Survey, Vol. 51, No. 1 (January/February 2011), pp. 138-147
43
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industries would be given the first priority in development and growth of the economy48.
Relevant trade reforms were formulated that reduced tariff rates, minimized tariff slabs and
largely wide out quantitative constrains. Exports were motivated and as a result the trade ratio
steadily improved
This was a big set forward for Bangladesh as export demand for a country’s exports
relies on the import proclivity of the citizens of other countries. Such proclivities are
influenced by their economic growth. The recession that destroyed much of the world
economic agreement, especially that of Bangladesh, during 2008 and 2009 had serious
implications on economic development and growth of the world. As the European Countries
moved toward negative economic development zone, their imports crushed. As a result the
exports of the rest EU countries were negatively impacted49.
Originally, the economic state of Bangladesh was not much impacted giving false
hope that Bangladesh can escape the antagonistic impact of the recession. Indeed, many a
citizens thought that since Bangladesh majored in manufacturing cheaper clothing products,
and since the economic struggles a result of the recession would drive customers to the
western world for relatively cheaper goods50.
3.2 COOPERATION AGREEMENT OF 2001
As of 2001, the EU-Bangladesh treaty was ratified which in turn established a
foundation for trade association between Bangladesh and the European Union. As a result,
the European Union granted Bangladesh duty free entry to the Union market, this occurred
under everything but Arms Initiative (EBA).
51
It is noteworthy that, everything but Arms
(EBA) denotes a scheme of the EU which contends that all manner of imports to the Union
from the least developed nations such as Bangladesh are quota-free as well as duty-free, with
the exclusion of armaments. It is also imperative to note that, the 2001 Cooperative
48
Bina D'Costa.Asian Survey, Vol. 52, No. 1 (January/February 2012), pp. 147-156
Nurul Isam The Bangladesh Development Studies, Vol. 24, No. 1/2 (March-June 1996), pp. 1-23
50
Swapan K. Bhattacharya Economic and Political Weekly, Vol. 39, No. 48 (Nov. 27 - Dec. 3,
2004), pp. 5152-5162
51
Ark, M., Kenner, J., Lein, B. & Peake, K., 2016. Case Studies on the Intergration of EU
Development, trade and Human Rights Policies. Frame, 9(4), pp. 53-71.
49
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Agreement was established in order to strengthen and enhance the previous cooperation pact
established as of 16th November 1976 between Bangladesh and the EU.
3.2.1 Commercial and Trade Cooperation
The two entities agreed that within the boundaries of their distinct competences, the
parties are dedicated to undertake trade in accordance to the agreement establishing the
World Trade Organization. Each entity agreed to convey to the other party concerning the
initiation of anti dumping criteria against goods of the other party. In the sense that, the
parties are anticipated to comply with the World Trade Organization Agreements,
particularly, on anti subsidy and anti dumping measures, the parties were expected to grant
sufficient opportunity for consultation with regard to representations undertaken by either
entity with regard to anti dumping criteria. The two entities equally committed to promote,
within the model of their present legislation, diversification and expansion of trade between
them.
Third, the two entities committed towards discarding of barriers to trade and execute
measures to elevate transparency, in particular, via the timely elimination of non tariff
obstacles in accordance with task done in this light by World Trade Organization as well as
other global organizations. Within the boundaries of their specific competencies, to enhance
cooperation in terms of custom issues between the particular authorities, especially in
harmonization and simplification of customs criteria and the penalization, investigation and
prevention of customs offences. The parties also agreed to exchange knowledge regarding
mutually profitable market opportunities as well as competition issues. Pursue consideration
of re-export and transit issues.
Bangladesh confirmed that it will adopt all the essential measures to enhance the
conditions for effective and adequate safe guarding and enforcement of industrial, intellectual
as well as the commercial property rights. Without partiality to its dedication under the trade
associated components of intellectual property rights pact, Bangladesh committed to comply
with the relevant international conventions regarding industrial, commercial and intellectual
property. Furthermore, within the confinement of specific competences, the entities
concurred that they will work to enhance exchange of information as well as accessibility of
specific public procurement markets on the grounds of reciprocity52. In this light, the Union
52
European Union. (2001). Cooperation Agreement. Official Journal of the European Communities.
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encouraged Bangladesh to join the World Trade Organization Plurilateral pact on
Government procurement. With respect to global maritime transport services, the parties
aimed to affirm efficient application of the rationale of unrestricted access to the global
maritime market as well as traffic on commercial grounds. Besides, involved parties affirmed
their dedication to a relatively liberal competitive environment as being a vital component of
the liquid and dry bulk trade53.
3.2.2 Economic Cooperation
According to the distinct objectives and policies and to the degree of their available
resources, the two entities committed to promoting economic cooperation for mutual profit.
Both parties will decide together, to their mutual profit and within the confinement of their
distinct competences the arenas as well as priorities for economic cooperation activities and
programs and in the setting of explicit cooperation strategy. In particular, the involved parties
agreed to cooperate in terms of establishing creative competitive economic surrounding in
Bangladesh by enhancing the application of technology as well as know-how from the Union,
encompassing the sectors of packaging, design such as environmental and consumer
standards, products and new materials. Second, enhancing contacts among economic
operators as well as other measures crafted to elevate commercial investments and
exchanges. Within the boundaries of their distinctive competences, the two entities
committed to inspiring and amplification of mutually profitable investments by affirming a
relatively environment for private investments via better conditions for the exchange of
capital and strengthening where suitable, the climax of conventions on the protection and
promotion of investments among the member nations of the EU and Bangladesh.
Third, boosting transfer of information on policies associated to enterprise and to
medium-sized as well as small enterprises, specifically with perspective to boost the
investment and business environment and inspiring closer ties among SMEs, in order to
facilitate trade as well as maximize industrial cooperation opportunities. Reinforcing
management training in the Peoples Republic of Bangladesh, to establish business operators
who are capable to relate efficiently with the European business environment. Fourth,
facilitate dialogue between the European Union and Bangladesh in the arena of transfer of
technology and energy policy54.
53
Ibid.
54
European Union. (2001). Cooperation Agreement. Official Journal of the European Communities.
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3.2.3 Regional Cooperation
The two entities concurred that cooperation between them may entail activities carried
out under cooperation pact with other nations in the same region, provided that such activities
are in alignment with the present agreement. Without the exception of any sector, the two
entities agreed to grant specific concentration on the subsequent actions: (1) Technical help,
in particular, training of technical staffs in specific components of integration, (2) Enhancing
of intra-regional trade, (3) Empowerment of regional institutions, initiatives as well as joint
projects formulated under regional bodies such as, South Asian Agreement on Regional
Cooperation. (4) Enhancement of studies particularly on regional & sub-regional matters,
comprising communication, transport, human health, and environmental issues55.
3.2.4 Cooperation in Technology and Science
The two parties in reference to their distinctive competences and policies will
facilitate technological and scientific cooperation in sectors of joint interests. This comprised
cooperation in quality and standard control.
3.2.5 Human Resource Development
Both parties recognized that human resource development was a pivotal part of both
social and economic development. Moreover, the essence of protecting the basic rights of
employees by taking into consideration the rationales in the appropriate International Labor
Organization Apparatus, encompassing those on the prevention of coerced and child labor,
the liberation of association, the right to bargain and organize collectively and the rationale of
non-discrimination56. By the same token, the two entities acknowledged that both skill and
education development and enhancing the living conditions of the disadvantaged population,
with special underscore on women, will play a paramount role in establishing a relatively
favorable social and economic environment.
55
56
Ibid.
Ibid.
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3.2.6 Development Cooperation
The parties recognized the fact that there is a capability for an elevated EU
community contribution both in terms of impact and size, to the advancement efforts of
Bangladesh, more specifically in the strategic arena of poverty reduction. Within this
paradigm, in reference to the regulations, policies as well as the financial limits available for
cooperation, the involved parties concurred that cooperation will proceed to be developed
within the setting of apparent cooperation strategy and dialogue targeted at formulating
mutually agreed priorities and championing for sustainability and effectiveness. Second the
parties realized the need to boosted cooperation and concentration to the arena of AIDS and
drug control, taking into consideration the efforts undertaken in this regard by international
organizations. Reduction, monitoring and prevention of HIV & AIDS, by boosting
educational and information activities. Reinforcing treatment and health services capabilities,
especially in regard to victims of AIDS. Besides, health promotion, education, training as
well as rehabilitation of drug addicts
According to the World Trade Organization (WTO), European Union development
aid was estimated to be $500 million as of 2015, encompassing bilateral assistance from the
EU Nations. The main areas where the funds are channeled comprises: Social services such
as education and health, private and trade sector advancement, food security, governance,
disaster threat minimization, climate and environment changes57. DCI financing is guided by
multi-annual indicative programs (MIPs) as well as the annual action plans-all concurred and
coordinated between Bangladesh government, European Union, local stakeholders and other
development partners. Alongside European aid, some Union’s nations grant distinct aid to
Bangladesh via their own bilateral schemes. 58For instance, Denmark offers assistance via the
Danish International Development Agency (DANIDA), Netherlands via the Royal
Netherlands Embassy, Sweden via the Swedish International Development Agency (SIDA)
and United Kingdom through the Department for International Development (DFID). It is
necessary also to mention that European Union’s humanitarian arm backs the following
programs within Bangladesh vicinity: (1) Disaster preparedness, for instance, establishing
flood resistant infrastructure as well as early warning systems, (2) Emergency response
mostly for immense monsoon rains and tropical storms which have the potential of causing
severe loss of lives and properties.
57
Ark, M., Kenner, J., Lein, B. & Peake, K., 2016. Case Studies on the Intergration of EU Development, trade
and Human Rights Policies. Frame, 9(4), pp. 53-71.
58
Ibid
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Under the Cooperation Pact of 2001, which affirmed international and domestic
policies with regard to democratic and human rights principles? It has also vehemently
backed poverty alleviation by championing for sustainable social and economic development
The European Union’s dimensions is to adopt policy dialogue forums with Bangladesh’s
Government and subsequently connect outcomes to particular cooperation instruments and
programs. The Union and the Member nations share a development objective, which is
poverty eradication in the paradigm of sustainable development. Sustainable development is a
multi-dimension challenge for the European Union to integrate economic, political, good
governance, environmental as well as the social aspects. In particular, Sustainable economic
development has been defined by the United Nations as that development which satisfies the
need of the current generation without necessarily compromising the potential of the future
generation to satisfy their distinct individual needs59.
Under the European Union’s Agenda for transformation, established in 2011, the EU
aims to fashion its development partnerships in such a manner to attain the greatest
implication towards abolishing poverty or enhance aid efficiency. Aid efficiency has
amplified under cooperation and partnership compacts, upgraded financial tools and
apparatus crafted to elevate policy precision for growth. As such, Bangladesh proceeded
steadily towards attaining the Millennium Development Goals, thus, receiving recognition by
the United Nations, as among the advancing international MDG success narratives.
3.2.7 Stabilization and Association Agreements
In talks with countries and territories that have expressed a wish to join the European
Union, as well as partnership with Bangladesh. The EU typically concludes Association
Agreements in exchange for commitments to political, economic,
trade,
or human
rights reform in that country or territory. In exchange, the country or territory may be
offered tariff-free access to some or all EU markets (industrial goods, agricultural products,
etc.), and financial or technical assistance.
59
Ali, S., Noor, T. & Nirob, K. A., 2016. Brexit and the Implications on Bangladesh. Imperial
Journal of Interdisciplianary, 12(2), pp. 2454-1362.
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Stabilization and Association agreements are part of the EU Stabilization and
Association Process (SAP) with Bangladesh and European Neighborhood Policy (ENP). At
present, the countries and territories of the Western Balkans are the focus of the SAP.
Specific Stabilization and Association Agreements (SAA) have been implemented with
various Balkan countries and territories which explicitly include provisions for future EU
membership of the country involved. SAAs are similar in principle to
the Europe
Agreements signed with the Central and Eastern European countries in the 1990s and to the
Association Agreement with Turkey.
3.3 Rules and Requirements for European Union Trading with Bangladesh
Origin in this context denotes economic nationality of products traded in commerce.
The European Union preferential rules of origin with Bangladesh differentiate between
products fully obtained in non-European Union nation and products adequately transformed
in a non-European Union Nation. In particular, even if the product is originating, it is
essential to verify the good was sent from the originating nation and subsequently arrived to
the European Union without necessarily being manipulated in another nation, aside from the
sole procedure required for maintaining the product in good condition. Bangladesh
is
required to verify specific components on this matter as well as documents required to
substantiate the satisfaction of this rule upheld in the pertinent set of rules of origin.
Moreover, the European Union postulated the ‘Value added rule’ which contends that
manufacture of products where all materials are adopted should not surpass a specific
percentage ex work price of the goods.
In connection to the above paradigm, products fully obtained in a non-European
nation such as Bangladesh, are exclusively processed or produced only in the partner or
beneficiary nation and without incorporating materials of any other nation. For instance,
garments are said to have originated from Bangladesh because they are produced and
processed there. It is noteworthy that, in the scenario of fish products the European Union
rules of origin formulates a distinction between fish obtained within the circumference of the
territorial seas of the partnering nation and the fish obtained beyond the perimeters of the
beneficiary nation.
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All goods imported to or exported from Bangladesh to the European Union are
categorized under a tariff code, which holds information regarding duty rates as well as levels
on exports and imports, protective measures, exports and import formalities as well as other
non-tariff requirements. It is imperative to note that the European Union classification system
comprises three incorporated aspects, most notably, the Harmonized System which is a
nomenclature formulated by the World Customs Organization, encompassing approximately
five thousand categories, crafted in a hierarchical structure by chapters, sections, headings
and sub-headings. These components are backed by explanatory notes and implementation
rules. Second, the Combined Nomenclature, which denotes the Union’s eight digit coding
system, it entails the Harmonized System codes with further subdivisions. This serves the
European community’s common customs tariff and offers statistics for trade in the European
Union as well as the European Union and the entire world. Third, the consolidated tariff
offers information on all tariff measures and trade policies applicable to certain goods in the
European Union entity.
3.4 Future Goals of the Agreement
The principal goals and objectives of the 2001 Cooperation Agreement was to boost
the sustainable social and economic development of Bangladesh and specifically of the
poorest parts of its population, with principal underscore on women, taking into consideration
the present least developed nation status60. Second, to promote escalation and advancement of
two way trade among the parties involved, according to the agreement formulating the World
Trade Organization and to help Bangladesh in diversifying its products. Boost both
economic, cultural, investment and technical connections in their mutual interests. Moreover,
establish balance between policies for social development, sustainable economic growth,
conservation and protection of the natural surroundings61. By eliminating all forms of trading
barriers, the European aimed at enhancing the trade and economic relation With Bangladesh
in the long run. Furthermore, this agreement predicted that by 2025, Bangladesh would have
upgraded its status from a least developed nation, and subsequently into a middle income
economy.
60
61
European Union. (2001). Cooperation Agreement. Official Journal of the European Communities.
Ibid.
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Chapter 4: Trade between the EU and Bangladesh
Bangladesh is considered as an emerging tiger in the 21st century economy, though
the current condition of the economy of this country is in risk. As a partner of Bangladesh in
trading, EU has opportunity to get benefit from the country in the form of trade, investment
and business. From the picture of 2015, it is perceived that EU is holding the position of top
trading partner of the country with 24% of country’s total foreign trade. However, the trade
relationship between EU and Bangladesh can be a beneficial relationship for both EU and
Bangladesh. As a country with cheap labour and high density, Bangladesh can generate
several benefits for the traders, businessman and investors of EU.
4.1 Trade items
A trade item between Bangladesh and EU is dependent on the nature of business. EU
exports heavy machinery items to Bangladesh while it imports readymade garment products,
jute items, agriculture, fisheries and other Industrial products from Bangladesh. EU exports
heavy machinery items that includes, manufacturing machinery, heavy parts, automobile
items and parts, technology items including mobile phone, telecommunication networking
items, processing machinery and lots of heavy equipment’s to Bangladesh(European
Commission, 2018). On the other hand, Bangladesh is providing a major portion of the
readymade garments products to many countries of EU including UK, Belgium, Germany,
Poland, etc. The major export import items between EU and Bangladesh includes vegetable
items, live animal and animal fats, tobacco, food staffs, readymade garment items, shrimp,
wood, wood pulp, leather items, ceramics, glass, textile items, etc.62
4.1.1 Import items from Bangladesh to EU
EU import several items including the following major items from Bangladesh –
62 Mirdha,
R. U. (2017). Maintain warm relations with EU to boost exports. The Daily Star.
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Fish items:
England, France, Germany, Poland and Scotland are some of the countries importing
Fish and crustaceans, molluscs and other aquatic invertebrates from Bangladesh. In 2015, a
total of $322,449,000 of fish and fish items were imported from Bangladesh to EU
(Trademap.com, 2018). Fish items include normally shrimp from Bangladesh. Beside shrimp,
hilsha, rui and some other fish are imported ensuring the hygiene and quality fro m
Bangladesh. However, there is a higher demand of fish items from Bangladesh, but the
insufficient supply couldn’t help increasing the trade.
Clothing items:
Different clothing and textile items are the major products imported from Bangladesh.
Some of the clothing items which are imported by France, Germany, Poland, England,
Scotland, Belgium, Denmark, and Holland etc. in 2017 are –
Items
Import value in
2017 ($)
Articles of apparel and clothing accessories, knitted or crocheted
6,765,350
Articles of apparel and clothing accessories, not knitted or crocheted 4,694,180
Other made-up textile articles; sets; worn clothing and worn textile
articles; rags
397,334
Footwear, gaiters and the like; parts of such articles
213,444
Total import of apparel and clothing items
120,70,308
Table 1 Clothing Items imported from Bangladesh to EU
Bangladesh is famous for textile and clothing items. The cheap labour and other factors have
contributed in the expansion of the clothing and textile industry in Bangladesh. Total value of
$120 million of clothing and apparel items were imported in the year of 2017 from
Bangladesh. The major advantage of the apparel products from Bangladesh is the quality with
cheap price. Though there is a criticism of child labour and other noncompliance with labour
law, but the expansion of clothing and readymade garment industry in Bangladesh is helping
in the increase of trade between EU and Bangladesh.
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Pharmaceutical products:
Many of the pharmaceuticals products from Bangladesh are imported which are of
high quality. Some of the pharmaceutical companies exporting to EU from Bangladesh
include Beximco Pharmaceuticals Ltd, Square pharmaceuticals Ltd, etc.63 In 2015, a total of
$6,175,000 of pharmaceutical products was imported from Bangladesh to EU
(Trademap.com, 2018). Bangladesh is producing world class pharmaceutical products having
USFDA and EU approval for these 2 companies. Hence, importing medicine items from
Bangladesh can contribute to the economy of EU and Poland as well.
Coffee, tea and spices:
Bangladesh is famous for tea production. Hence, England, Poland, Germany, France,
Belgium, Norway, Denmark etc. imports tea, coffee and spices from Bangladesh. Poland has
the opportunity to import tea from Bangladesh that can contribute in expanding the business
between these 2 countries. Moreover, the EU business on coffee, tea and species can be
expanded.
Dairy items:
Some of the European countries like England, France import Dairy produce; birds'
eggs; natural honey; edible products of animal origin, Products of animal origin, Edible
vegetables and certain roots and tubers (Trademap.com, 2018). In 2015, a total of
$71,879,000 of different dairy items was imported from Bangladesh to EU. Dairy items are
from Bangladesh is mostly from small initiatives of farming which are from different sides of
Bangladesh.
63
The Financial Express. (February 2018). EU imports 66pc from Bangladesh under EBA
trade scheme
34 | P a g e
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Live animals, Meat and edible meat offal
Many of the European countries import live animals, edible meat offal and meat from
Bangladesh. England, Germany, Belgium, France are some of the countries importing these
items from Bangladesh. In 2015, a total of $14,279,000 of live animals was imported from
Bangladesh to EU. Poland has the opportunity to import live animals, edible meat offal and
meat from Bangladesh that can contribute in expanding the business between these 2
countries. Moreover, the EU business on live animals, edible meat offal and meat can be
expanded.
Live trees and fruits:
France, Germany and Denmark imports Live trees and other plants; bulbs, roots and
the like; cut flowers and ornamental foliage, Edible fruit and nuts; peel of citrus fruit or
melons, etc. from Bangladesh. Poland can be one of the countries in trading of live trees and
fresh fruits from Bangladesh. Moreover, different nonconventional fruits can also be exported
from Poland to Bangladesh. This can contribute in extending the business between EU and
Bangladesh.
Tobacco:
Tobacco is another item imported from Bangladesh. Different tobaccos item including
iterates, and live leafs were imported in EU, which totally reached $23,717,000 in 2015
(Trademap.com, 2018). Bangladesh produces low and medium quality tobacco that can be
cost effective for the consumers in EU and Poland.
Vehicles parts
EU imports different vehicles parts from Bangladesh that includes motor parts, small
and medium size parts for vehicles that amounted $101,327,000 in 2015.
35 | P a g e
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A total import scenario from Bangladesh to EU from a period of 2001 to 2015 are shown
below–
Year
Total Import (Million$)
2001
2,389.80
2002
2,523.98
2003
3,535.77
2004
4,638.63
2005
4,800.61
2006
5,768.92
2007
6,725.95
2008
7,400.31
2009
8,008.25
2010
9,730.12
2011
12,945.77
2012
12,640.71
2013
12,857.68
2014
N/A
2015
17,295.39
Table 2: Vehicle parts Items imported from Bangladesh to EU
This import scenario from Bangladesh to EU shows that it increased from 2.389 billion to
$17.3 billion. This shows that the business is expanding faster during the 15 years.
4.1.2 Export to Bangladesh from EU
Some of the major items of export from EU to Bangladesh includes machinery,
vehicles, cotton, electric items and equipment’s, aircraft items, photographic items,
pharmaceutical items etc. Some of the data related to this export are –
Machinery and heavy equipment items
Bangladesh imports lots of heavy machinery items from EU. Some of the items EU
export to Bangladesh includes Machinery, mechanical appliances, nuclear reactors, boilers;
parts thereof etc. Germany, Belgium, England are the major exporters of these machinery
items to Bangladesh (Trademap.com, 2018). EU exported $1.019 billion of heavy machinery
items to Bangladesh in 2015. This heavy machinery items can also contribute to the economy
of Bangladesh as it includes mostly the capital machinery items.
36 | P a g e
THE EU-BANGLADESH ECONOMIC RELATIONS
Electrical items
Germany, England, Hungary, Belgium, France etc. exports electrical and electronic
items to Bangladesh. These countries from EU exported $390 million of electrical and
electronic items to Bangladesh in 2015 (Trademap.com, 2018). Poland has the opportunity to
take part in this electrical items export. Most of the electrical items exported to Bangladesh
includes mobile phones, computer parts, home appliances, television, etc.
Cotton items
Cotton is another item that is exported to Bangladesh from different EU countries.
Countries exporting cotton to Bangladesh includes England, Scotland, Belgium, France etc.
These countries exported $143 million of cotton items to Bangladesh in 2015.
A total export scenario from EU to Bangladesh from a period of 2001 to 2015 are shown
below –
Year
Total Export from EU
to Bangladesh ($m)
2001
794.12
2002
748.75
2003
884.03
2004
1,136.24
2005
1,386.33
2006
1,731.85
2007
1,708.83
2008
2,110.43
2009
1,708.73
2010
2,133.03
2011
2,765.45
2012
2,527.53
2013
2,278.11
2014
N/A
2015
2,991.11
Table 3: Total Export from EU to Bangladesh
This export scenario to Bangladesh from EU shows that it increased from 0.79 billion to $2.9
billion. This shows that the business is expanding faster during the 15 years.
37 | P a g e
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Trade flows by SITC product grouping 2014 – 2017
SITC Rev. 3 Product Groups
Total
I. Live animals; animal products
II. Vegetable products
III. Animal or vegetable fats &oils
IV. Foodstuffs, beverages, tobacco
V. Mineral products
VI, Products of the chemical
VII. Plastics, rubber and articles
VIII. Raw hides and skins
IX. Wood, charcoal and cork
X. Pulp of wood, paper and
paperboard
XI. Textiles and textile articles
XII. Footwear, hats and other
headgear
XIII. Articles of stone, glass
XIV. Pearls, precious metals
XV. Base metals and articles
XVI. Machinery and appliances
XVII. Transport equipment
XVIII. Optical and photographic
instruments, etc
XIX. Arms and ammunition
XX. Miscellaneous manufactured
articles
XXI. Works of art and antiques
XXII. Not classified
2014
12,373
322
15
0
52
0
6
23
119
3
1
Imports
Value Mio €
2015
2016
15,326 14,420
315
298
18
12
0
1
65
47
0
0
5
6
23
21
114
105
4
6
1
1
Exports
Value Mio €
2015
2016
2,456 2,613
64
62
119
11
11
5
109
107
12
12
366
382
52
67
19
18
1
2
75
78
2017
16,955
333
9
1
58
0
5
22
91
8
1
2014
1,997
49
20
4
71
11
247
44
15
2
66
11,455
248
14,270
350
15,376
397
15,823
432
88
7
95
6
101
7
102
11
25
0
17
4
56
5
26
0
14
5
74
4
23
0
8
5
65
7
27
0
13
5
66
8
7
2
177
1,024
37
72
11
0
131
1,126
103
94
12
0
217
1,183
98
128
11
0
227
1,597
179
108
0
14
0
26
0
37
0
48
0
9
1
9
0
13
13
10
0
7
0
10
0
7
0
7
0
42
0
51
0
109
1
135
2017
3,172
76
12
6
129
13
393
64
15
3
67
AMA / NAMA Product Groups
2014
2015
2016
2017
2014
2015
2016
2017
Total
12,373
15,326 16,420
16,955
1,997 2,456 2,613 3,172
Agricultural products ( WTO AoA)
57
76
52
62
173
318
212
249
Fishery products
333
323
308
340
0
1
1
0
Industrial products
11,983
14,926 16,061
16,553
1,823 2,137 2,400 2,922
Table 4: Trade between EU and Bangladesh from 2014 to 2017 based on items (European Commission,
2018)
As a Least Developed Country (LDC), Bangladesh benefits from the most favourable regime
available under the EU's Generalized Scheme of Preferences (GSP), namely the Everything
but Arms (EBA) arrangement. EBA grants the 48 LDCs – including Bangladesh – duty free
quota, free access to the EU for exports of all products, except arms and ammunition
(Trademap.com, 2018).
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Everything but Arms (EBA) Initiative
One of the major issues in the trade relationship between EU and Bangladeshis
everything but Arms (EBA) Initiative. EBA states to ensure trade relationship between
Bangladesh and EU for any product without arms and ammunition.
4.1.3 Recommended Trade items
There are several trading items which are not currently traded between EU and
Bangladesh, but has strong potential to be traded between these 2 parties. Some of the trading
items which are exported from EU to other countries includes automobile, heavy iron and
steel items, meet items, live tree, vegetable planting materials, Manufactures of straw, of
esparto or of other plaiting materials; basket ware and wickerwork, etc. There are some items
which are imported from Bangladesh by other countries includes Betel leaf, Lac; gums, resins
and other vegetable saps and extracts, umbrella, fertilisers, plastic items, etc.
4.2 Yearly data on trade
Bangladesh is considered as 35th largest trading partner of EU. This constitutes a
large amount of export import every year. EU, on the other hand is the largest trading partner
for Bangladesh. This small south Asian country has its highest overseas business with the
EU. Almost 24% of the total trade of Bangladesh is done with EU as per 2015 yearly data
(European Commission, 2018). EU exports diversified items to Bangladesh, whereas the
export of Bangladesh to EU is centralized to clothing items. Readymade garment items are
the major export item of Bangladesh to EU that consists 90% of the total export of this
country. Gradually the trading with EU and Bangladesh has increased where EU exports
almost double than the import from Bangladesh (Trademap.com, 2018). In 2017, EU
exported $3,172 million to Bangladesh whereas it imported $16,955 million from
Bangladesh64.
64
The Financial Express. (February 2018). EU imports 66pc from Bangladesh under EBA
trade scheme
39 | P a g e
THE EU-BANGLADESH ECONOMIC RELATIONS
Year
Total Export ($m)
Total Import ($m)
2001
2,389.80
794.12
2002
2,523.98
748.75
2003
3,535.77
884.03
2004
4,638.63
1,136.24
2005
4,800.61
1,386.33
2006
5,768.92
1,731.85
2007
6,725.95
1,708.83
2008
7,400.31
2,110.43
2009
8,008.25
1,708.73
2010
9,730.12
2,133.03
2011
12,945.77
2,765.45
2012
12,640.71
2,527.53
2013
12,857.68
2,278.11
2014
15,722.16
2.662.96
2015
17,295.39
2,991.11
Table 5: Total Export Import Scenario between EU & Bangladesh
So, the export to Bangladesh is almost double compared to the import from the country to
EU. Some of the key points of EU Bangladesh trading information are shown below 1.
The EU is Bangladesh's main trading partner, accounting for around 24% of
Bangladesh's total trade in 2015.
2.
In 2015, Bangladesh was the EU's 35th largest trading partner in goods.
3.
EU imports from Bangladesh are dominated by clothing, accounting for over 90% of
the EU's total imports from Bangladesh (European Commission, 2018).
4.
EU exports to Bangladesh are dominated by machinery and transport equipment
(49%).
5.
From 2008 to 2015, EU28 imports from Bangladesh have almost trebled from €5,464
million to €15,145 million, which represents nearly half of Bangladesh's total exports.
Figure 1: Total Export & Import Scenario from EU to Bangladesh
40 | P a g e
THE EU-BANGLADESH ECONOMIC RELATIONS
Imports 2017
Exports 2017
AMA/NAMA product Groups
Product
Agricultural products
Fishery products
Industrial products
Total
Value Mio
€
62
340
16.553
16.955
% Total
0.4
2.0
97.6
100.0
Product
Agricultural products
Fishery products
Industrial products
Total
Value Mio
€
249
0
2,922
3,172
% Total
Value Mio
€
439
2,529
148
58
% Total
Value Mio
€
1,597
% Total
393
12.4
227
7.2
179
135
5.6
4.2
Value Mio
€
1,734
% Total
418
13.2
243
7.7
207
6.5
207
6.5
7.8
0.0
92.1
100.0
SITC product Groups
Product
Primary products
Manufactures
Other products
Other
Value Mio
€
428
16,520
5
2
% Total
2.5
97.4
0.0
0.0
Product
Primary products
Manufactures
Other products
Other
13.8
79.7
4.6
1.8
Top5 –HS sections
Product
XI. Textiles and textile
articles
XII. Footwear, hats and
other headgear
I. Live animals; animal
products
VIII. Raw hides and skins
XVII. Transport equipment
Value Mio
€
15,823
% Total
432
2.6
333
2.0
91
66
0.5
0.4
93.3
Product
XVI. Machinery and
appliances
VI, Products of the
chemical
XV. Base metals and
articles
XVII. Transport equipment
XXII. Not classified
50.3
Top5 –SITC sections
Product
8. Miscellaneous
manufactured articles
6. Manufactured goods
classified chiefly by
material
0. Food and live animals
7. Machinery and transport
equipment
1. Beverages and tobacco
Value Mio
€
15,978
% Total
467
2.8
357
2.1
71
0.4
43
0.3
94.2
Product
7. Machinery and transport
equipment
5. Chemicals and related
prod
6. Manufactured goods
classified chiefly by
material
2. Crude materials,
inedible, except fuels
0. Food and live animals
54.7
Figure 2: Category wise Export Import scenario of Bangladesh and EU (European Commission, 2018)
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THE EU-BANGLADESH ECONOMIC RELATIONS
4.3 Challenges in expanding trade
Though currently there is almost $5,000 million trading done yearly between
Bangladesh and EU, there are several challenges in this relationship. The challenges are from
international and local environment. EU, being the strongest free trade area in the world, has
to face challenge from different dimensions on its business with Bangladesh and other
countries. Poland, as a separate country also has to face limitations and challenges in this
business. However, some of the challenges in expanding trade between EU and Bangladesh
are –
1.
The growth rate of export to Bangladesh from EU is 21% while the import growth
from Bangladesh is only 3.3% in the year of 2017. This asymmetric growth rate is a
challenge for the trading relation between two parties. Though EU is in a beneficial position
due to higher export compared to import, but this is not a good indication for the two parties,
rather is a challenge for them.
2.
Centralization of product line from import of Bangladesh is a challenge for the trading
relation between two parties. Readymade garment items are the major export item of
Bangladesh to EU that consists 90% of the total export of this country (European
Commission, 2018). Any downfall in this product may hamper the trading between these 2
parties.
3.
The environmental issue is a big challenge for the trading relation between two
parties. EU is highly concerned about the environmental pollution, water pollution, air
pollution and other environmental issues relating to the production. Many of the Bangladeshi
manufacturers are not aware of these issues65. As a result, the trading requirement or import
requirement of EU is not fulfilled by many Bangladeshi exporters. This is reducing the scope
of trading between Bangladesh and EU.
4.
Dishonesty or fraudulent business in some cases is considered as threat for the
trading. It is found in some cases, manufacturers or importers deceive the customers with low
quality products. This create lack of trust among the traders. This is also a challenge for the
trading between Bangladesh and EU.
5.
Absence of any direct government and diplomatic relationship between Poland and
Bangladesh is a challenge for bilateral trade relationship between Poland and Bangladesh.
Beside the business relationship with EU and Bangladesh, the trade relationship between
Poland and Bangladesh is also necessary in order to expand the business.
6.
Political
65 Mirdha,
R. U. (2017). Maintain warm relations with EU to boost exports. The Daily Star.
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4.4 Opportunities in trade
In spite of a trading amount of $5,000 million between EU and Bangladesh, there are
several opportunities of trade and improvement (European Commission, 2018). With better
cooperation, the business relationship between Bangladesh and EU can be expanded by 2 or 3
times. However, some of the opportunities of improvement and trade are –
 Cheap labour of Bangladesh is a matter of strength and opportunity for the E
U
businessman. Using this cheap labour, the entrepreneurs and businessman of EU can get
advantage in production and service (Mirdha, R. 2017). This cheap labour can be used in FDI
or joint venture investment in Bangladesh or they can be recruited for manufacturing plants in
EU. This will create opportunity of expanding trade relationship between Bangladesh and
EU.
 Importing jute items from Bangladesh can be an opportunity for the importers of EU.
Jute products are highly environment friendly compared to polyphone, nylon and other
products. Again, these items are far better to use. Bangladesh was one of the top jute
manufacturers in the world (European Commission, 2018).
 Travel and tourism can be another scope of business for EU and Bangladesh. ManyEU
countries like UK, Belgium, Germany, Poland, etc. can be a good travel target for the
travellers of EU. On the other hand, the serenity and natural beauty of Bangladesh can be a
good attraction for the travellers of EU66. This can enhance the business relationship between
both the countries.
4.5 Trade between Poland and Bangladesh
Compared to the trade relationship between EU and Bangladesh, there is a very low
amount of trading found between Bangladesh and Poland? Like several EU countries, Poland
has trading relationship with Bangladesh, but the extent of business is too low compared to
the overall EU business. Even, the trading relationship between Bangladesh and Poland is not
of long duration. Bangladesh has long imported most of its dairy products as powdered milk
from Western Europe. In 1987 a 1600-ton shipment from Poland recorded radiation levels
over 300 Becquerel’s due to the Chernobyl nuclear disaster, causing a nationwide panic67. By
1997 bilateral trade was worth US$34.8 million. Bangladeshi exports were primarily tea
(70% by value), but also included plastic products, garments, jute, and fish (Mirdha, R.
2017). High value Polish exports were base metals, dairy products, ships, paper products,
machinery, equipment and chemicals. In 2015, this trading relation between Poland and
Bangladesh expanded a lot and reached to almost $856 million.
66
The Financial Express. (February 2018). EU imports 66pc from Bangladesh under EBA
trade scheme
67 Mirdha, R. U. (2017). Maintain warm relations with EU to boost exports. The Daily Star.
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4.5.1 Export from Poland to Bangladesh
Poland is one of the top European country having a strong economic and
manufacturing capability. According to the 2014 data, Poland exported $205 billion to the
world whereas the import from the world was $218 billion at the same year. However, the
export scenario from Poland to Bangladesh is very insignificant compared to the overall
export summary of Poland. In 2015, Poland exported to Bangladesh only $33 million
whereas the import was $833 million from Bangladesh.
Trading items
Major trading items between Poland and Bangladesh included food items, paper and
paperboard, dairy products, machinery items, mineral fuel, photographic items, etc. some of
the trading items between Poland and Bangladesh is shown below whereas the export to
Bangladesh is shown based on the 2015 data Product
Amount
($'000)
Residues and waste from the food industries; prepared animal fodder
8,185
Paper and paperboard; articles of paper pulp, of paper or of paperboard
4,502
Dairy produce; birds' eggs; natural honey; edible products of animal origin, not elsewhere
3,546
Machinery, mechanical appliances, nuclear reactors, boilers; parts thereof
1,792
Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical
...
Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral
808
Iron and steel
496
Tools, implements, cutlery, spoons and forks, of base metal; parts thereof of base metal
461
Organic chemicals
445
Raw hides and skins (other than furskins) and leather
421
Aircraft, spacecraft, and parts thereof
294
Electrical machinery and equipment and parts thereof; sound recorders and reproducers,
television
Miscellaneous chemical products
265
Products of animal origin, not elsewhere specified or included
144
Inorganic chemicals; organic or inorganic compounds of precious metals, of rare-earth
metals
Articles of iron or steel
139
Table 6: Trading Items between Poland & Bangladesh
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Trade value
From 2006 to 2015, the business between Poland and Bangladesh expanded at a
higher growth rate. In 2015, Poland exported to Bangladesh only $33 million whereas the
import was $833 million from Bangladesh. This export was only $5.21 million in 2006 that
increased by 6 times within only 10 years. However a year wise data on export to Bangladesh
from Poland is shown below Total Export From
Poland
To
Bangladesh ($m)
5.21
3.09
7.04
10.85
21.74
26.59
22.23
34.16
28.32
23.24
Year
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Figure 3: Total Export from Poland to Bangladesh
Table 7: Total Export from Poland to Bangladesh
4.5.2 Import from Bangladesh to Poland
Trade items
Bangladesh’s export items are solely based on the clothing and fashion items68. As
readymade garment industry is the major export sector of the country, most of the export
items are from this readymade garment sector (Mirdha, R. 2017). However, the major import
items from Bangladesh includes clothing and fashion items, footwear items, textile and
clothing items, plastic items, skin and leather items, tobacco, travel goods, handbags,
fisheries, toys and games items, vegetable items etc. The import items and scenario from
Bangladesh is shown based on the data of 2015(Textile Today, 2017) -
68
The Financial Express. (February 2018). EU imports 66pc from Bangladesh under EBA
trade scheme
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Product
Articles of apparel and clothing accessories, knitted or crocheted
Articles of apparel and clothing accessories, not knitted or
crocheted
Footwear, gaiters and the like; parts of such articles
Other made-up textile articles; sets; worn clothing and worn textile
articles; rags
Plastics and articles thereof
Raw hides and skins (other than fur skins) and leather
Amount
($'000)
4,19,737
3,46,240
22,130
20,201
5,808
3,229
Tobacco and manufactured tobacco substitutes
Articles of leather; saddler and harness; travel goods, handbags
and similar containers; articles
Fish and crustaceans, molluscs and other aquatic invertebrates
3,173
3,156
Toys, games and sports requisites; parts and accessories thereof
Other vegetable textile fibres; paper yarn and woven fabrics of
paper yarn
Optical, photographic, cinematographic, measuring, checking,
precision, medical or surgical
Headgear and parts thereof
Table 8: Trade items between Bangladesh & Poland
1,794
1,711
1,961
1,289
1,034
Trade values
The import scenario from Bangladesh is slightly opposite from the export scenario
from Poland to Bangladesh. Whereas the import from Bangladesh in 2006 was only $84
million, it increased to $833 million in 2015 within only 10 years (Textile Today, 2017). So,
the export growth to Bangladesh is only 6 times, but import growth from Bangladesh to
Poland is 10 times which is higher. However, a year wise import summary from Bangladesh
is shown below from 2006 to 2015 data –
Total Import From
Bangladesh To Poland ($m)
2006
84.08
2007
112.64
2008
255.71
2009
301.67
2010
380.31
2011
594.11
2012
538.26
2013
586.43
2014
823.38
2015
833.57
Table 9: Trade Value between Bangladesh & Poland
Year
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4.5.3 Comparative analysis
The trade relationship between Poland and Bangladesh increased from 2006 to 2015
at a great extent. The export to Bangladesh was $5.21 million in 2006 that reached to $23
million in 2015, whereas the import from Bangladesh in 2006 was only $84 million, it
increased to $833 million in 2015 within only 10 years (Trademap.com, 2018). So, the export
growth to Bangladesh is only 6 times, but import growth from Bangladesh to Poland is 10
times which is higher.
Total Export From Poland
Total
To Bangladesh ($m)
Bangladesh To Poland ($m)
2006
5.21
84.08
2007
3.09
112.64
2008
7.04
255.71
2009
10.85
301.67
2010
21.74
380.31
2011
26.59
594.11
2012
22.23
538.26
2013
34.16
586.43
2014
28.32
823.38
2015
23.24
833.57
Year
Import
From
Table 10: Total Export Import scenario between Bangladesh & Poland
Yet, the import from Bangladesh to Poland is too higher compared to the export to
Bangladesh. In 2015, the total import from Bangladesh to Poland was $833 million, but the
export to Bangladesh was only $23.24 million (Textile Today, 2017). This represents a
negative trade balance of $810 million.
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Figure 4: Total export & import between Poland & Bangladesh
Total Export Import Scenario between Poland & Bangladesh
Bangladesh and Poland have shown their deep interest to expand the bilateral
economic activities between the two countries and have been taking necessary steps in this
regard (European Commission 2018). Poland has become one of the new destinations for
manpower export of Bangladesh. Bangladeshi readymade garments, pharmaceuticals, jute
and jute goods, ceramics and leather and leather goods have been identified as products with
huge potential in the Polish market (Trademap.com, 2018). Besides, Polish firms have
expressed their interest to invest in the energy sector of Bangladesh (Rahman, F. 2017).
Comparison between EU and Poland trading with Bangladesh
A comparative study of trade between Poland and Bangladesh and EU and
Bangladesh from 2006 to 2015 shows that the export from EU to Bangladesh increased from
2006 to 2015 by almost 3 times, but the import from Bangladesh to EU has increased by 1.5
times.
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Year
Total Export From
Poland To
Bangladesh ($m)
Total Import
From Bangladesh
To Poland ($m)
Total Export
Total Import
From EU To
From Bangladesh
Bangladesh ($m) to EU ($m)
2006
5.21
84.08
5,768.92
1,731.85
2007
3.09
112.64
6,725.95
1,708.83
2008
7.04
255.71
7,400.31
2,110.43
2009
10.85
301.67
8,008.25
1,708.73
2010
21.74
380.31
9,730.12
2,133.03
2011
26.59
594.11
12,945.77
2,765.45
2012
22.23
538.26
12,640.71
2,527.53
2013
34.16
586.43
12,857.68
2,278.11
2014
28.32
823.38
N/A
N/A
2015
23.24
833.57
17,295.39
2,991.11
Table 11: A comparative analysis of export import between Bangladesh & Poland to Bangladesh & EU
At the same time, the export from Poland to Bangladesh increased from 2006 to 2015 by
almost 4.5 times, but the import from Bangladesh to EU has increased by 10 times
(Trademap.com, 2018). This indicates that the trade between Poland and Bangladesh has
increased at a faster growth compared to EU and Bangladesh trading, but yet the portion of
business between Poland and Bangladesh is low.
4.6 Trade relation with eastern European countries
Some eastern European countries like Latvia, Hungary, and Czech Republic, etc. has
some business relationship with Bangladesh. The data and products of the business
relationship between these countries with Bangladesh is shown below –
Bangladesh imported 6.27 million of products from Hungary in the year of 2017. The major
products in this import included pharmaceutical products, Electrical machinery and
equipment and parts, Machinery, mechanical appliances, etc. Bangladesh’s export to Hungary
was $6 million at the same time that included textile, apparels and clothing, tobacco, etc.
Czech Republic has a better trading scenario with Bangladesh. It imported $133 million from
Bangladesh in the year of 2017. The major products in this import included textile, apparels
and clothing, tobacco, footwear, garments etc. in return, the export of Czech Republic to
Bangladesh was only $35 million at the same year with dairy products, Electrical machinery
and equipment and parts, Machinery, mechanical appliances, etc.
Bangladesh imported $3.5 million of products from Latvia in the year of 2017. The major
products in this import included Electrical machinery and equipment and parts, Machinery,
mechanical appliances, iron & steel etc. Bangladesh’s export to Latvia was very insignificant
compared to the import.
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Chapter 5: Investment flows from the EU to Bangladesh
Bangladesh, for long since has been a partner in trade with the countries of EU.
Different countries of EU have trading relation with country (Trademap.com, 2018). Those
countries investment are also widely different from each other and as a result the FDI that
flows in the country also differs. In this part, I will discuss about different issues that arise
from the FDI of EU in Bangladesh, problems related with the FDI and probable solutions for
solving those challenges.
5.1 Sectors of Investment
Bangladesh, a country in South-East Asia has some lucrative sectors for the investors
to invest in. These sectors are as follows-
Figure 5: FDI inflows (Net) by Major sectors during FY 2017
Source: Bangladesh Bank
1. RMG: RMG, otherwise known as ready-made garments, is a multi-million-dollar
industry in Bangladesh. The demand for RMG in Bangladesh is also increasing dayby-day over the last few years or so. In 2015, RMG sector contributed to a percentage
of 28.1% of the total GDP of the country (Akter, A. 2017). The EU investors are also
being attracted by the future possibilities of this sector. This is evident by the fact that
EU is the largest investors in the RMG sector in Bangladesh69.
69
Mahmood, M. (2017). Bangladesh exports face emerging challenges in EU.
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2. Frozen foods: Frozen food industry, a subsector of agriculture industry, is the second
largest exportable industry in the country (Ahmed, M). This industry employs more
than 1.1 million people and provides 3.78% of the total GDP of the country. This
industry consists of products like frog legs, craves, shrimps and different oceanic and
non-oceanic fishes. Among those, shrimp is the largest exportable of all and consists
of the lion share which is almost 93% of the total share of this industry (Rahman, M
& Hossain, M. 2009).
Frozen Shrimp & Fish Exported From Bangladesh (2001-2002 to 2016-2017)
Item
Qty
Value
Taka (Core)
( Million Lbs)
(Million $)
2001-2002
Shrimp & Fish
88.36
276.11
1585.25
2002-2003
Shrimp & Fish
73.57
321.81
1863.27
2003-2004
Shrimp & Fish
84.48
390.25
2300.92
2004-2005
Shrimp & Fish
96.11
420.74
2587.90
2005-2006
Shrimp & Fish
107.86
459.11
3200.00
2006-2007
Shrimp & Fish
112.15
515.32
3558.78
2007-2008
Shrimp & Fish
111.35
534.07
3663.70
2008-2009
Shrimp & Fish
117.31
454.53
3127.16
2009-2010
Shrimp & Fish
129.81
437.40
3.25.93
2010-2011
Shrimp & Fish
179.94
611.36
4351.02
2011-2012
Shrimp & Fish
212.23
579.72
4585.60
2012-2013
Shrimp & Fish
203.45
543.84
4241.95
2013-2014
Shrimp & Fish
170.12
638.19
5105.52
2014-2015
Shrimp & Fish
183.75
568.03
4430.63
2015-2016
Shrimp & Fish
165.74
535.77
4286.16
2016-2017
Shrimp & Fish
150.27
526.45
4211.60
Year
Table 12: Frozen food investments from 2001-2002 to 2016-2017
Hundreds and thousands of small as well as big firms have spawned in the coastal
areas of the country and the total investment by both local and foreign investors is
increasing as well70. There are several frozen foods processing farms around the
country backed up by the investment of EU.
3.
Energy sector: For about 16 million people residing in the country, providing energy
is always a big issue. It is also a potential sector for investors to invest. In addition to
that, new plan is being devised to bring more and more investments in this sector and
the overall demand for the electricity is going to be triple by the next couple of
decades. So overall, so, I recent years investors from different countries of EU are
bringing their technology and investment to build new power plants through private
joint ventures and also consulting the government71. Investors of Germany are playing
the dominant role in that sector and are expected to bring sustainable development
into the sector.
70
Mahmood, M. (2017). Bangladesh exports face emerging challenges in EU.
Mirdha, R. U. (2017). Maintain warm relations with EU to boost exports. The Daily Star.
71
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Figure 6- Energy sector investments in Bangladesh estimated plan for 2018 onwards
4. Bank and financial sectors: Investors of EU has made a strong mark in the baking
and financial sector of the country. An example of this would be the Dutch-Bangla
Bank which has the most number of ATMs and a vast network within the country. In
stock market, the investment is also huge by the EU investors which was around
3,967 thousand crore takas in 2017.
Figure 7: FDI Inflows during FY 2017
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5. Telecom Industries- Even though Telecom sector has a huge potential for growth,
FDI in this sector is decreasing as operators’ are unwilling to invest more in the
Bangladeshi market. These significant growth potentials failed to help 4 out of 6
mobile operators to come out from loss in last the five years. There are restrictions on
the access to the telephone connections, non-competitive price, poor quality of
services are linked to the old telephone exchanges and transmission links public
monopoly in fixed lines, have imposed a high costing on the economy. Due to these
reasons the cost of doing business has been increased.
6. Other industries: EU Investors have also invested in lather industries, which is
backed up by an abundant source of raw materials and cheap labour. There are
engineering farms that are operated and run by the EU investors with the joint venture
of Bangladeshi companies. Investors from Germany have also invested in cement
industry in Bangladesh. Besides all these, in processed food industry, EU investors
have made a mark which can be illustrated by the Danish food Industry in the
country72.
5.2
Potential sectors for investment
There are some potential sectors where the countries of EU can potentially invest.
These ares1. Biotechnology: Biotechnology is an emerging sector all over the world and the
potential market this industry has in Bangladesh is huge. Because of the everincreasing population of the country, the development in the biotechnology will open
up a market for inserting this technology in foods, medicine and so on. Recently in
2017, there was a success in biotechnology industry where a Bangladeshi scientist
developed the formula of producing polythene from jute73. Investment in such
environment friendly technology will be a good opportunity for Poland and other EU
countries.
2. Insurance companies: In recent years, people are becoming more and more aware
about the importance of insurance and hence this industry in Bangladesh has been
stated to grow in an incredible rate. While there are American insurance companies in
72Mirdha,
R. U. (2017). Maintain warm relations with EU to boost exports. The Daily Star.
Mahmood, M. (2017). Bangladesh exports face emerging challenges in EU.
73
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Bangladesh, investors from UK haven’t yet looked into this industry. So, this can be a
place for the investors to possibly invest.
3. Agribusiness: Bangladesh, still being a highly agricultural country, relies naturally on
agriculture. The GDP in turn also is agriculture oriented. There is huge scope for more
and more investment in this sector as most of the agriculture here is done by without
using any modern tools so per hector yield is significantly lower than the developed
country. The country is abundant in the natural factors of production. From this
perspective, it can give an incentive for the investors of EU to invest here and in turn
utilize the yield of technology. It is to be noted that, there have
4. Shipping: Shipping industry in Bangladesh is a newly emerging industry in
Bangladesh. As being a labour-intensive industry, ship building requires a lot of
manpower. For Bangladesh, it is a huge opportunity as the labour in this country is
very cheap compare to the other countries doing business in this line such as China
and Japan. In recent years, Bangladesh is getting a lot of ship building offers that
spiked in 2013 as shown in the chart. This industry is open for the investors to take
and if can utilized properly, it will be beneficial for the investors. UK & Germany has
invested in the shipping sector of Bangladesh. Poland can also have the opportunity in
investing this sector74.
5. IT industry: It took a while to figure it out, but IT industry is possibly becoming the
next frontier for the investors in the country. IT has making its mark in other
industries too where technology-driven production is taking its place, for example the
garment industry (Ovi, I. 2018). Outsourcing also has a huge market in the country
and is expected to grow tenfold in the upcoming years. So, in a result, it is expected
that investment in technology will take a hold in the country in the upcoming days.
6. Ceramic: Geographically, Bangladesh is abundant with the raw materials that is
needed to produce the products of ceramic industry. Globally, this industry is worth of
almost $20 billion and Bangladesh is perfectly equipped with the right materials75,
cheap and skilled manpower to facilitate new investments in this industry (Jahan, N.
2010). Some of the Bangladeshi ceramic manufacturers including Shinepukur
Ceramics, Monno ceramics are exporting porcelain, Bone China products to many EU
countries. Investing in this sector can be a very good opportunity for Polish investors.
74
Mahmood, M. (2017). Bangladesh exports face emerging challenges in EU.
R. U. (2017). Maintain warm relations with EU to boost exports. The Daily Star.
75Mirdha,
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Many of the countries of the world had already invested in Bangladesh as a potential
market. China, Thailand, South Korea, Hong Kong, Taiwan, Malaysia, Bermuda,
Singapore, Japan, India, Pakistan, Sri Lanka, Saudi Arabia has already invested over
US$ 100 during last years in these sectors. I believe these sectors can be crucial and
potential market for EU to invest. For instance in Agro Business industry China alone
invested around US $ 170 Million in 2017, this will keep increasing as they are also
country with a huge population. For insurance sector we can say, only USA alone
invested over US $ 100 million in 2017 in Bangladesh in this sector. Interestingly
Malaysia invested the highest in IT the sector which is over US $ 120 million in 2017.
5.3 Incentives for FDI from Bangladesh
Bangladesh facilitates investors all around the world, and to do that Bangladesh
provides generous incentives for all the FDIs in the country in all but four sectors; arms and
ammunition, forest plantation, nuclear energy production and mining (Bangladesh Bank,
2018). Foreign investments, naturally are bounded by the rules that they can’t operate in
areas other than the authorized one. The incentives that they are given is as follows1. Foreign investors are allowed full equity participation in business and is authorised to
invest portfolio on stock exchange.
2. There is no celling for the FDI, which means investors can invest as much as they can
in Bangladesh (Rahman, M. &. S. 2015).
3. Any technicians employed in foreign industry won’t be subjected to tax for his
income for up-to 3 years.
4. Capital invested in Bangladesh can be fully taken back to the home country by the
investors and any profit or dividend accruing from the FDI can also be fully
repatriated.
5. If any foreign loan is taken for the FDI, it will also be tax exempted.
6. Reinvestment of remit table dividend accruing from FDI will be considered as new
capital investment.
7. Foreign company registered and doing business in the country will be considered as
being on the same ground as a local company.
8. Companies with FDI will get reduced duty on the products imported.
9. Reduced tax rate is imposed on certain industries for certain years.
10. Companies belonging in different industries get and tax exemption period for up to 57 years.
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11. Special facilities and also venture capital opportunities are given for the industries
such as agro-based industries, frozen foods, textile, tourism; industries that fall under
thrust industry.
12. Investment with $500000 or more is given the citizenship in Bangladesh76
13. From the income that generates from FDI, royalty and technical fees will be exempted
These incentives, with the legal structure of protection for the foreign investors against
nationalisation are giving under the Promotion & Protection Act 1980. Sector wise,
government also gives different kind of incentives for different products and countries.
Investors from the EU also get the same facilities (Rahman, M. &. S. 2015). These facilities
allow the investors to invest more freely and in a relaxed way than they would in a taximposed environment.
5.4 Sectors based current FDI Scenario
Sector
2008-09
2009-10
2010-11
2011-12
2012-13
1. Agro based
22.55
22.23
122.51
96.90
94.38
2. Food &
1.99
0.10
12.83
98.91
3. Textile
36.40
72.52
160.14
4. Printing &
0.0
2.69
0.0
2.15
13.66
6. Chemical
5.60
7. Glass &
2013-14
2014-15
2015-16
2016-17
75.24
29.67
38.19
25.01
13.12
4.69
0.12
6.80
33.12
249.50
54.63
62.66
8.35
16.10
23.46
0.75
0.0
0.0
0.00
1.84
6.06
5.98
17.52
57.29
32.55
17.49
11.35
3.49
61.69
69.53
165.30
29.66
20.50
63.29
51.51
88.24
17.69
0.0
26.37
6.44
1.68
0.78
0.19
7.00
0.58
121.40
17.36
1285.93
3574.13
20.76
237.73
244.04
222.23
3807.68
9. Service
1863.84
651.19
3431.52
88.60
2481.99
1687.08
54.38
107.97
927.07
10. Misc.
0.0
0.09
0.73
13.35
46.57
7.12
5.12
51.98
5595.80
Total
2071.68
841.55
5115.58
4311.51
2800.11
2128.32
422.69
515.02
1051.92
name
Allied
publishing
5. Tannery &
Leather
Ceramics
8.
Engineering
Table 13: Sector based FDI Scenario (2008-2017)
Source: Investment Implementation Monitoring Cell, Bangladesh Board of Investment
Bangladesh has a long trading relationship with the EU. For the FDI, the country encourages
the investors from the EU extensively and gives them different offers exclusively. So, overall
Bangladesh has a huge amount of FDI in the recent years, though the number fluctuated for
several reasons in the previous years. In Bangladesh, foreign direct investment has a greater
76
The Financial Express. (February 2018). EU imports 66pc from Bangladesh under EBA
trade scheme
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implication than that it might have on the other countries77. After the independence, the
country was torn into pieces, so the government at that time took a flexible policy to attract
the foreign investment (Rahman, F. 2017). Bangladesh has come a long way since the
independence, and still the country provides huge opportunities for the foreign investors to
come and invest in the country which in turn creates economic benefit by providing physical
capital formation and boosting the GDP of the country78. FDI from the EU has been a major
part of the overall FDI of the country and is contributing in many sectors within the country.
FDI BY SECTOR
20%
(Telecom)
27%
(Textile and
Weaving)
22%
(Others)
20%
(Banking)
2% (Agriculture & Fishing)
3% (Food)
6% (Power, Gas & Petroleum)
Figure 8: amount of FDI inflows from the EU in Bangladesh
Source: Board of Investment
The pie chart in the above shows the amount of FDI inflows from the EU in Bangladesh. As
we have discussed previously, EU has their share of investment in different sectors in
Bangladesh79. The most dominant part of their investment is the textile sectors which is
marked by numerous joint venture firms in the country. Another major position jointly goes
to banking and telecom sectors80. In the part described as other sectors, there are food
industries, agriculture and fishing industries, power, gas and petroleum sectors and others.
The share of the overall FDI in certain sectors are increasing. One of these sectors are energy
industry. In recent years we have seen heavy investment in this industry and as a result a
significant amount of inflow of FDI in the country. Likewise, investments have been made in
different capital-intensive projects in Bangladesh.
77
The Financial Express. (February 2018). EU imports 66pc from Bangladesh under EBA
trade scheme
78Mirdha, R. U. (2017). Maintain warm relations with EU to boost exports. The Daily Star.
79
Mahmood, M. (2017). Bangladesh exports face emerging challenges in EU.
The Financial Express. (February 2018). EU imports 66pc from Bangladesh under EBA
trade scheme
80
57 | P a g e
THE EU-BANGLADESH ECONOMIC RELATIONS
5.4.1 Current FDI scenario European Union to Bangladesh
Cyprus
Denmark
Finland
France
Germany
Hungary
Ireland
Italy
--
30.60
-
54.81
2.41
--
--
0.18
--
--
--
--
6.53
-
69.89
1.96
--
--
--
0.54
2003-04
--
--
--
--
19.45
-
0.68
5.86
--
--
0.22
0.68
2004-05
--
--
--
--
14.91
-
0.94
1.02
--
--
--
2.44
2005-06
--
--
--
--
19.97
-
0.80
1.57
--
--
--
0.39
2006-07
--
--
--
--
10.07
-
--
6.18
--
--
--
0.09
2007-08
--
--
--
--
7.27
-
0.37
6.23
--
--
--
0.36
2008-09
--
--
--
--
4.14
-
4.84
5.60
--
--
0.07
2.54
2009-10
--
0.01
--
--
7.57
-
2.25
5.75
--
--
--
3.15
Jul-Dec
--
--
--
--
4.10
2.60
0.48
--
--
--
0.05
1.15
Jan-Jun
--
0.01
--
--
4.71
1.59
1.98
2.64
--
--
0.05
--
2010-11
2011-12
Jan-Jun
2012-13
Total
--
0.01
--
--
8.81
4.19
2.46
2.64
--
--
0.10
1.15
Jul-Dec
--
0.60
--
--
7.39
2.41
0.79
0.98
--
--
0.10
0.10
Jan-Jun
--
0.96
--
--
14.63
8.82
3.47
--
--
1.93
--
Total
--
1.56
--
--
22.02
5.80
9.61
4.45
--
--
2.03
0.10
--
0.35
--
0.08
9.59
3.21
6.06
6.47
--
0.36
0.74
---
Jan-Jun
--
0.43
--
--
4.91
0.62
6.83
10.58
--
3.12
9.46
---
Total
--
0.78
--
0.08
14.50
3.83
12.89
17.05
--
3.48
10.20
---
Jul-Dec
0.19
0.55
--
0.02
4.06
3.29
5.85
12.04
0.01
1.90
0.57
0.39
Jan-Mar
-
0.07
--
-0.02
4.42
1.52
3.30
9.46
--
0.87
0.78
---
Apr-Jun
0.05
-
--
0.02
0.55
0.87
2.46
7.13
--
1.74
0.73
0.32
Total
0.05
0.07
--
--
4.97
2.39
5.76
16.59
--
2.61
1.51
0.32
0.24
0.62
--
0.02
9.03
5.68
11.61
28.63
0.01
4.51
2.08
0.71
Jul-Dec
Jan-Jun
Jul-Sep
0.02
0.24
--
-0.02
6.45
0.64
0.32
4.55
---
0.35
-0.76
0.50
Oct-Dec
---
0.20
--
0.03
9.21
2.10
0.98
5.74
---
-
0.21
0.02
Total
0.02
0.44
--
0.01
15.66
2.74
1.30
10.29
---
0.35
-0.55
0.52
Jan-Mar
0.03
0.24
--
-0.02
6.55
0.59
2.92
5.41
---
0.36
0.76
0.17
Apr-Jun
0.08
0.34
--
0.01
8.48
2.04
4.71
3.24
---
0.41
0.60
0.06
Total
0.11
0.58
--
-0.01
15.03
2.63
7.63
8.65
---
0.77
1.36
0.23
0.13
1.02
--
--
30.69
5.37
8.93
18.94
---
1.12
0.81
0.75
Jul-Sep
0.04
0.06
--
-0.02
0.60
2.16
2.84
3.66
---
---
0.96
0.04
Oct-Dec
0.03
0.18
--
0.01
4.17
1.81
1.72
2.80
---
---
0.09
0.02
Jan-Jun
Jul-Dec
Total
2015-16
Total
0.07
0.24
--
-0.01
4.77
3.97
4.56
6.46
---
---
1.05
0.06
Jan-Mar
0.02
-0.02
--
-0.01
2.76
0.70
2.21
4.67
---
0.05
0.77
0.01
Apr-Jun
0.02
--
0.01
-0.01
3.67
-1.71
4.20
6.29
---
0.19
0.75
0.02
Total
0.04
-0.02
0.01
-0.02
6.43
-1.01
6.41
10.96
---
0.24
1.52
0.03
0.11
0.22
0.01
-0.03
11.20
2.96
10.97
0.24
2.57
0.09
Jul-Sep
0.10
--
0.10
0.06
1.17
1.52
3.61
Oct-Dec
0.05
0.11
0.01
-0.02
0.59
1.27
Total
0.15
0.11
0.11
0.04
1.76
2.79
Jan-Mar
0.14
-0.01
0.00
-0.02
5.36
Apr-Jun
0.02
0.00
0.00
-0.02
Total
0.16
-0.01
0.00
-0.04
0.31
0.10
0.11
0.00
Jan-Jun
Jul-Dec
Total
2016-17
Total
58 | P a g e
3.39
Jul-Dec
Total
2014-15
Croatia
0.40
--
Belgium
--
2002-03
Austria
2001-02
Period
2013-14
Luxembourg
Country
17.42 --8.78
---
0.24
-0.83
4.48
3.68
2.13
---
0.94
1.62
0.37
7.29
10.91
---
1.18
0.79
4.85
0.43
2.97
9.62
---
0.71
1.13
0.02
1.39
-1.45
4.38
4.31
---
6.75
-1.02
7.35
13.93
8.51
1.77
14.64
24.84
0.93
1.10
1.47
---
1.64
2.23
1.49
---
2.82
3.02
6.34
-------
------
---
Ukraine
0.99
0.35
0.77
5.09
5.86
---
U.K.
----------------4.98
Turkey
----------------0.99
Switzerland
---------------
Sweden
11.14
32.82
33.14
59.53
53.42
77.35
6.74
62.37
55.89
---
Spain
88.50
24.52
17.62
10.71
14.90
18.21
22.09
39.93
48.75
40.98
30.43
Russia Federation
-------
Romania
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
Jul-Dec
Jan-Jun
2010-11
Portugal
Period
Norway
Malta
Country
Netherlands
THE EU-BANGLADESH ECONOMIC RELATIONS
---------
0.39
0.38
0.29
0.17
67.55
41.95
79.62
153.50
77.88
123.70
149.80
105.60
66.50
74.22
70.42
0.32
0.06
2.16
4.73
1.64
10.55
0.61
0.05
1.81
2.89
4.22
2.62
6.12
2.81
6.92
68.25
17.12
24.09
1.88
4.96
1.86
-0.09
6.84
5.79
20.19
0.46
0.04
0.03
144.64
45.90
82.29
2.22
-0.04
2.58
1.11
1.70
0.09
3.92
3.29
25.98
24.48
7.90
0.07
0.03
0.63
128.19
54.65
104.84
0.04
-0.21
4.98
0.27
0.03
0.03
2.81
0.26
-0.58
0.72
1.30
7.21
0.51
8.28
0.15
8.43
32.38
18.84
2.25
9.60
11.85
0.66
0.68
0.27
1.16
1.43
159.49
86.51
49.31
10.07
59.38
0.21
2.14
0.07
0.07
6.21
0.92
0.20
1.12
-0.24
0.38
0.14
0.30
0.03
0.03
0.06
0.11
0.17
1.56
-0.37
0.27
-0.10
0.44
0.51
0.95
8.94
2.75
0.17
2.92
2.68
0.93
3.61
30.69
4.08
5.29
9.37
11.01
10.79
21.80
2.11
0.53
0.57
1.10
0.55
0.37
0.92
145.89
62.07
56.81
118.88
88.53
66.14
154.67
2.21
0.08
1.67
1.75
-0.35
-0.19
-0.54
1.26
0.86
0.20
0.46
0.85
6.53
31.17
2.02
0.17
0.03
0.20
0.09
14.91
15.00
2.84
-2.56
0.28
0.27
-0.36
-0.09
273.55
86.72
1.21
--
59.41
146.13
86.27
1.04
1.04
--
74.56
160.83
0.11
0.11
0.41
-----1.36
----2.58
0.24
-----
0.07
0.14
71.41
86.32
33.38
-24.26
0.05
2012-13
Total
Jul-Dec
Jan-Jun
0.21
0.47
2.17
119.70
46.44
38.52
24.31
7.88
0.68
Total
Jul-Dec
Jan-Mar
Apr-Jun
Total
2.64
1.04
1.29
0.48
1.77
84.96
78.09
30.15
22.11
52.26
8.56
20.48
37.07
0.04
37.11
Total
Jul-Sep
Oct-Dec
Total
Jan-Mar
Apr-Jun
Total
2.81
0.18
0.16
0.34
2.82
2.53
5.35
130.35
20.27
14.97
35.24
45.19
17.34
62.53
57.59
38.49
27.80
66.29
40.95
0.03
40.98
Total
Jul-Sep
5.69
1.53
97.77
23.78
107.27
0.02
------------------
Oct-Dec
Total
Jan-Mar
0.02
1.55
7.27
10.89
34.67
27.42
36.60
36.62
40.00
----
1.31
2.17
0.51
0.32
0.78
0.23
Apr-Jun
Total
16.74
24.01
16.58
44.00
36.63
76.63
0.53
1.04
0.20
0.43
0.44
0.14
0.58
2.91
1.17
4.08
10.49
6.69
17.18
0.85
0.65
1.50
Total
Jul-Sep
Oct-Dec
Total
Jan-Mar
Apr-Jun
Total
25.56
20.27
0.46
20.73
0.45
0.24
0.69
78.67
13.70
31.17
44.87
14.04
31.13
45.17
113.25
46.00
37.63
83.63
48.18
55.60
103.78
----------------
3.21
0.96
0.96
1.92
1.39
--1.39
1.21
0.11
0.78
0.89
0.29
0.43
0.72
0.78
0.05
0.94
0.99
0.30
1.80
2.10
19.08
6.61
0.69
7.30
6.16
4.74
10.90
17.46
7.31
1.81
9.12
7.14
5.43
12.57
1.41
0.47
0.38
0.85
0.40
0.07
0.47
306.96
76.43
93.06
169.49
70.28
74.10
144.38
1.15
-------------
Total
21.42
90.04
187.41
---
3.31
1.61
3.09
18.20
21.69
1.32
313.87
---
2016-17
Jan-Jun
Jul-Dec
2015-16
Jan-Jun
Jul-Dec
2014-15v
Jan-Jun
Jul-Dec
2013-14
Jan-Jun
2011-12
Total
Jul-Dec
Jan-Jun
Table 14: Time Series Data on FDI Inflows (Net) by EU Countries
59 | P a g e
THE EU-BANGLADESH ECONOMIC RELATIONS
In recent years, several EU countries are going through severe financial crisis. So, FDI from
those countries have been lowering ever since. An example of this would Belgium. This
country is pulling back its investment from the country and is not inclined to make any new
investments further. In that list of on-going crisis there are countries like France, Greece,
Spain and some others; all having significant FDI in the country in different projects. To
make the situation complicated, UK has already decided to leave the EU which will have an
unfathomable implication since the UK is the second largest provider of FDI in Bangladesh81.
On the other part of the spectrum, if we look into countries like Germany and Denmark, we
will see that their overall increase and commitment in different sectors of investment in
Bangladesh. Germany for example, has invested in GIZ Bangladesh that pushes for
sustainable energy development, agriculture business and many others to name of.
Heidelberg Cement is a joint that is heavily invested in Bangladesh. Danish companies are
also bringing more and more FDIs into the country. Some example will be Danish foods
Limited, Dan Cake, Danish Bangla Emulsion Ltd; to name a few82. So, some countries of EU
are pushing forward to bring in more FDI in the country, and most of the companies is
emphasizing on sustainable projects like green energy and sustainable developments.
Top 5 European Union Investor Countries in Bangladesh during FY 2017
Figure 9: FDI Inflows (Net) by major countries during FY 2017
81
Mahmood, M. (2017). Bangladesh exports face emerging challenges in EU.
The Financial Express. (February 2018). EU imports 66pc from Bangladesh under EBA
trade scheme
82
60 | P a g e
THE EU-BANGLADESH ECONOMIC RELATIONS
In recent years EU is thinking of investing in different sectors of Bangladesh which are
science, technology, space application and blue economy. We all know that in recent times
Bangladesh has launched the first satellite, I believe if EU keeps investing in Bangladesh
regarding the space application and high end technology, we would be able to advance our
nation as a whole in technical aspect. Ambassador Mayaudon thinks that it is better to invest
in strategic sectors rather than investing only in projects because Bangladesh has changed a
lot over few years and it’s a very prospective country for investment. According to him
Bangladesh is in high need of FDI from EU as it is a good thing for Bangladeshi economy as
well as for the people. Among all the countries from EU, UK, Norway, Netherlands invested
the highest amount in Bangladesh. Alongside EU assistance, DANIDA from Denmark, GIZ
KfW from Germany, Royal Netherland Embassy, SIDA from Sweden these organizations
helping in shaping our economy.
Besides EU investment Bangladesh is in the top priority for FDI for the world and is a
potential investment ground. Among all the countries, from the rest of the world Singapore
made the highest investment in Bangladesh. The second place goes to USA. IN addition,
South Korea, Hong Kong, India, China, Thailand and Switzerland also made FDI in
Bangladesh. According to World Investment Report 2016 of the United Nations Conference
on Trade and Development (UNCTAD), in 2015 FDI inflows to Bangladesh was $2.23
billion, which rose to 4.38% in 2016 and it was $2.33 billion in 2016 . Top FDI receiving
sectors were: telecommunication, Power, Gas and Textile. According to Bangladesh Bank,
the central bank of the country, Bangladesh received $2.45 billion7 in FDI during FY17 (it
was $2 billion in FY16 and $1.48 billion in FY14). Singapore (telecommunication and
energy), UK (banking and food) and USA (power and energy) were the top investors in
FY17.
5.5 Challenges in Investment in Bangladesh
In case of FDI inflow in Bangladesh, the country has come a long way since it’s the
inception. Several improvements can be seen when talking about the gross amount of FDI
inflow in Bangladesh, though investors still face a lot of challenges while making investment
in the country. The obstacles they mainly face are as follows1. Bangladeshi people are one of the most welcoming people in the world, though they
don’t like foreign people making investments in the country. Investors in that case
face aren’t particularly welcomed while making investments in the country.
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THE EU-BANGLADESH ECONOMIC RELATIONS
2. Bangladesh has made some noteworthy achievements in building up the infrastructure
of the country since the independence given that most of the roads were being
damaged in the independence war of the country. However, significant improvements
are to be made in the case of building more and more infrastructure because
sometimes investors can’t invest in a certain area because of the lack of connectivity.
3. The population of the country is ever increasing, electricity generation in turn is also
increasing, but isn’t up to the demand. Some foreign investments require constant
power supply to keep the factories running. But because of the non-availability of
electricity, investors sometimes don’t want to invest in the country.
4. Corruption in the country is a major problem when come the question of FDI. In
2017, Bangladesh scored all-time high 28 points in 2017, as per as Transparency
International. This spike in corruption also dissuade the investors to invest in the
country. As all of the sectors of the country seems to be inflicted by the evil grasps of
corruption investors don’t seem to feel the interest to invest here.
Figure 10: Bangladesh Corruption Index (Source: Transparency International)
5. To invest in Bangladesh, investors have to pass through a series of tiresome red tape
process. Representative from EU said that, despite of the admirable growth in the
country, investors from EU doesn’t want to invest in Bangladesh because of the
hurdle they have to went through (UNB. 2018).
6. Government in Bangladesh are seen to change the fiscal policies over time. This
causes a problem for the investors because change in policy may mean the change in
tax rate or any other part of the business. For instance, if any change in the policy
enforces the investors from EU to give more tax on their return from the investment, it
won’t attract new investors anymore.
62 | P a g e
THE EU-BANGLADESH ECONOMIC RELATIONS
7. The labour union in the country isn’t exactly investor friendly, particularly towards
the investors from outside the country. So, when a new investor wants to invest in the
country, the leaders of the union creates problem through using various tactics.
8. Though there is abundant labour force in the country, most of them aren’t skilled
enough. That’s why it creates problem for investors when they come to Bangladesh in
sector where specialisation is needed.
9. There is often political unrest in the country. Investors from EU don’t particularly like
to invest in a country having political turmoil because it puts the whole investment in
risk.
10. The labour law in the country isn’t followed strictly and the use of child labour under
the age of 18 is prevalent here. This situation dissuades the investors from the EU to
invest here.
Investors from EU, wants to increase the amount of investment in the country. Though the
country preaches its lower marginal cost of investment, heightened liberty in case of
investment and ease of policy, the real scenario is somewhat different, as discussed in the
points above. In a recent press conference by the investors of the EU also highlighted on the
challenges that they face while doing investment in Bangladesh. Investors stated that the
country has huge potential, but the investment in the country is hampered by the bureaucratic
tendency of the officials and the rigidity of different laws and regulations. These challenges,
together, make it harder for the investors to invest in Bangladesh.
5.6 Recommendations
It is true that investing in Bangladesh throws a lot of challenges towards the investors.
At the same time, it is also true that the country is full of potentials that is ready for the
investors to utilize. Since the independence, the country has come a long way for proving a
safe environment for the investors and has taken numerous measures to ease up the
investment. There has been significant improvement regarding several challenges that the
investors used to face in the past. To improve the condition of investment for investors,
several challenges need to be given priority by the government. These are as follows1. RMG sector has long been the major source of FDI for the investors of EU in
Bangladesh. Investors want to invest in this sector as this sector provides with cheap
labour and abundant raw materials for production. This sector is one of the most
63 | P a g e
THE EU-BANGLADESH ECONOMIC RELATIONS
promising sectors in the country. But after the incident of Rana Plaza that took life of
hundreds of factory workers, the work offers by different companies worldwide
started to decrease and it caused serious harm for the investors. The government in the
country should take necessary steps of revitalizing the RMG export of the country. In
addition to that, factories around the country should ensure sustainable work
environment that will be able to attract investors from EU as well as around the world.
2. New EPZ around the world should be established that will attract new investors as the
investors from EU often find it difficult to purchase new land in the country and as
discussed earlier, red tape process takes a lot of time of the investors and the process
is excruciating. Government should make it easy for the investors to pass this process
in a short-time. For that, government can establish a new department within its trade
ministry that will be solely devoted to the investors of EU.
3. Geographically, Bangladesh lies in the epicentre of Asia that used to be the major
trading route once. Now-a-days, the port facilities aren’t readily available in the
country. Investors from EU want the existing ports and new ports as the hub for the
communication throughout the Asia, as the countries of EU want to expand their trade
immensely in that region. So, expansion of port network within the country should be
taken as a priority project by the government of the country.
4. Along with the improvement in the shipping network, EU wants to invest in the
shipping also. Because establishment as the hub will also mean the boom in the
shipping business. The government in Bangladesh is pushing into that issue which is
evident by the recent event of building ferry for Denmark.
5. EU is pushing for the regional connectivity in Bangladesh with its neighbouring
country like India and Myanmar. Connectivity will cause the exchange of materials
and goods within these countries, this in turn will generate synergy and benefit the
FDI that comes from the EU.
6. Though being abundant in workforce, Bangladesh lacks in enough R&D in different
sectors. Investors from EU wants the government to create an integrated skill
development program that will enhance the worker’s skill and boost up productivity.
64 | P a g e
THE EU-BANGLADESH ECONOMIC RELATIONS
7. Policymakers of the country should look for diversified sources for the investors of
EU where they can invest. For instance, the jute industry can be a lucrative one for the
investors of EU and the alternative of plastic made from jute can be a sustainable
product where they can invest. Pharmaceuticals industry is also open for new
investments/ Besides these, shipping industry and the disposal of different natural
resources can be worthy for the investors,
8. Climate change has been a burning issue from the last decade. Business is no
different. Investors from the EU wants a pollution-free environment to invest in. The
recommendation in that case is the government of Bangladesh should address
environmental- friendly law for business and promote FDI from different countries of
EU.
To draw a conclusion from the recommendations described above, it is clear that,
investors of EU want to invest in the country given the improvement in several aspects of the
country. Besides the recommendations stated above, there should be implications of imposing
labour law, ensuring a positive environment for the investors and most importantly trade
policy in favour of the investors and a positive political environment that will ensure the
sustainability of the investment by the investors from EU. Bangladesh, in retrospect has
improved a lot in the case of providing a good environment for the investors. Implications of
the recommendations stated above will surely help to bring more inflow of FDI from EU into
Bangladesh which will strengthen the relationship between EU and Bangladesh in the future.
Like investors from around the world, EU investors have also been attracted by the
strong improvement in the GDP of Bangladesh. Investors have invested in a diverse area of
products. In recent years, managing the proper inflow of FDI in Bangladesh has been a
challenge for the government of the country, and as for the investors, the challenge has been
to find out proper sectors of investment. Investing in the country has been challenged with
several obstacles for the investors from EU. Despite these challenges, investors are interested
to invest in more and more sectors of the economy which will in turn provide with a better
future for both the investors and the economy of Bangladesh.
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THE EU-BANGLADESH ECONOMIC RELATIONS
6.0 Conclusion
In sum, taking everything into account from the above study it is evident that
Bangladesh has both ripe sectors such as the Ready Made Garment sector which contributes
over 20% of Bangladesh GDP and 90% of the overall export to the European Union nations
as well as the untapped sectors such as biotechnology, shipping, Agribusiness and IT industry
which needs to be leveraged. The 2001 cooperation agreement ratified between Bangladesh
and EU contributed substantially in terms of facilitating exchange of goods between the two
entities since it was accompanied with elimination of significant trade barriers. Nonetheless,
diverse aspects in Bangladesh still needs to be upgraded, as a matter of fact, investors of EU
want to invest in the country given the improvement of several aspects of the country.
Besides the recommendations stated above, there should be implications of imposing labour
law, ensuring a positive environment for the investors and most importantly trade policy in
favour of the investors and a positive political environment that will ensure the sustainability
of the investment by the investors from EU. Bangladesh, in retrospect has improved a lot in
the case of providing a good environment for the investors. Implications of the
recommendations stated above will surely help to bring more inflow of FDI from EU into
Bangladesh which will strengthen the relationship between EU and Bangladesh in the future.
Like investors from around the world, EU investors have also been attracted by the strong
improvement in the GDP of Bangladesh. Investors have invested in a diverse area of
products. In recent years, managing the proper inflow of FDI in Bangladesh has been a
challenge for the government of the country, and as for the investors, the challenge has been
to find out proper sectors of investment. Investing in the country has been challenged with
several obstacles for the investors from EU. Despite these challenges, investors are interested
to invest in more and more sectors of the economy which will in turn provide with a better
future for both the investors and the economy of Bangladesh.
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THE EU-BANGLADESH ECONOMIC RELATIONS
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