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Bangladesh's trade dependency and GATT/WTO accession

Asjadul Kibria | March 26, 2021 00:00:00

It was 50 years back when Bangladesh emerged as an independent country in South Asia. The war-ravaged country without any natural resource was quite vulnerable to any disaster as more than 70 per cent of its population was very poor. It became very challenging for the inexperienced government of the newly independent country to get moving without necessary resources. As there was no industrial and trade activities, the government of Bangabandhu had no option but to look for foreign aid to provide food and to rebuild physical infrastructure. Due to geo-political pressure, it was quite difficult for Bangladesh to negotiate and avail sufficient foreign assistance. Moreover, a portion of aid was misappropriated domestically due to weak governance and mismanagement. Nevertheless, foreign aid became a key tool to run the country.

FOREIGN AID: During the early days, 1972-75 period to be precise, around 44 per cent of total foreign aid was food aid and mostly in terms of grant. The ratio of food aid started to decline in later years and commodity aid became the major part of foreign aid, some 43 per cent in 1975-80. After 1980 and onwards, the share of project aid started to increase significantly and mostly in terms of loans. The share of project aid was 45.3 per cent in 1980-85 which increased to around 56 per cent in 1985-90, 66 per cent in 1990-95 and 75 per cent in 1995-2000. In fact, today project aid comprises almost 100 per cent of total aid. Food aid and commodity aid as a share of total aid have come closer to zero now.

Centre for Policy Dialogue (CPD), in an analytical report said that though the volume of foreign aid, formally termed as Official Development Assistance (ODA), is increasing in terms of volume, aid as share of Gross Domestic Product (GDP) has been declining slowly. This indicates that the country's dependence on foreign aid has also declined. In contrast, exports and remittances (as percentage of GDP) have increased significantly since the 1980s.

The pattern of change in foreign aid composition also reflects the dynamism of Bangladesh's development journey. Two major changes have started to take shape by the end of two decades of independence. While Bangladesh was clearly a food deficit country in the first 20 years of independence, situation in food sector has changed in the early '90s when the country achieved a significant autarky or self-sufficiency in food. Again, during the early '90s, Bangladesh gradually started to liberalise its trade regime. Though During the 1980s, a modest level of import liberalisation took place by largely abolishing the import-licensing system and allowing imports against letters of credit (L/C), it took more time to reduce and liberalise tariff structure. Even in 1993-94, maximum rate of import tariff was 300 per cent which was drastically cut down to 60 per cent in 1994-95. In fact, from the early '90s, signs became clear that Bangladesh is emerging as a trade-dependent country from aid-dependent one.

EXTRNAL TRADE: In the early years, with a very small number of entrepreneurs and lack of manufacturing infrastructure, it was a tough struggle to develop an export-oriented industrial base. At the same time, scarcity of foreign currency coupled with a need to protect the infant local industry, import was also largely restricted. In 1973 total imports were worth US$3.02 billion, which dropped significantly in later years. In 1978, value of import was little over $2.0 billion and in 1980, it crossed $3.0 billion. Similarly, export earnings in 1973 was $778 million and it crossed $1.0 billion level in 1979. Jute was the major exportable item during 1970s while ready-made garments (RMG) started to replace jute in late 1980s. In the fiscal year 1972-73, raw jute and jute goods comprised 38.50 per cent and 51.40 per cent of total exports. Even in 1981-82 the ratios were 16.30 per cent and 45.5 per cent respectively. Within a decade, it came down to 6.10 per cent and 16.90 per cent in 1991-92 when share of RMG stood at around 51 per cent. Since then, RMG is the major export item and now contributes around 75 per cent of the total export.

BD IN GATT & WTO: From the very beginning, Bangladesh put a series of efforts to join in different international organisations and bodies to make the new born country's international recognition wider. General Agreement on Tariffs and Trade (GATT), the predecessor of the World Trade Organisation (WTO), was one of such first bodies. It was important for the new nation to get access to the global market and membership of GATT played a critical role in the regard.

GATT document, dated October 13, 1972, showed that Bangladesh formally applied for joining the agreement on October 10, 1972. The GATT secretariat document in this regard titled as 'Accession of Bangladesh' having sub-title 'Application received from the Government of Bangladesh' said: "The following telegraphic communication 10 October, 1972 has been addressed to the Director General by the Foreign Minister of the People's Republic of Bangladesh".

At that time, Mr Olivier Long was the director general (DG) of GATT and Mr Abdus Samad Azad was the foreign minister of Bangladesh.

The text of the telegraphic message, as quoted in the GATT's note (both in English and French) was: "I have the honour to apply, on behalf of the Government of the People's Republic of Bangladesh, for accession in General Agreement on Tariffs and Trade in accordance with the provisions of Article XXXIII of the GATT. The Government of the People's Republic of Bangladesh accept the obligations of GATT and has been applying the GATT provisions in its trade relations with the Contracting Parties."

The governments that had signed GATT were officially known as 'GATT contracting parties'. The formal decision for accepting the application of Bangladesh was taken on November 10, 1972 and adopted by two-thirds majority of the contracting parties. The GATT document (L/3771, dated November 13, 1972) mentioned: "The CONTRACTING PARTIES, /Considering that the Government of the People's Republic of Bangladesh has continued to apply the provisions of the General Agreement on the same basis as was applicable before the independence of Bangladesh./ Having considered the request of the Government of Bangladesh to accede to the General Agreement on Tariffs and Trade on the same conditions which have prevailed heretofore, including the obligations pursuant to the Schedules of tariff concessions which were formerly applicable within the territory of Bangladesh, and having prepared a Protocol for the accession of Bangladesh on these terms,/Decide, in accordance with Article XXXIII of the General Agreement that the Government of Bangladesh may accede to the General Agreement on the terms set out in the said Protocol." Within a week, the GATT secretariat issued another official note (L/3774, November 21, 1972) titled 'Accession of Bangladesh' which said: "On 10 November 1972 the CONTRACTING PARTIES adopted a Decision (L/3771) to the effect that the Government of Bangladesh may accede to the General Agreement on the terms set out in the Protocol for the Accession of the People's Republic of Bangladesh, the text of which was approved by the CONTRACTING PARTIES on 7 November 1972 (SR.28/6). The text of the Protocol is annexed hereto. The Protocol was signed by Bangladesh on 16 November 1972. In accordance with its paragraph 6, the Protocol will enter into force on 16 December 1972 and, in terms of paragraph 1 thereof, Bangladesh will become a contracting party to the General Agreement on that day."

That is why December 16, 1972 was considered the official date for Bangladesh for being a contracting party of GATT. On January 1, 1995, the WTO replaced GATT, which had been in existence since 1947, as 'the organisation overseeing the multilateral trading system'. Upon signing the new WTO agreements (which include the updated GATT, known as GATT 1994), the GATT contracting parties including Bangladesh also became one of the founder members of WTO.

Interestingly, immediately after the decision of giving accession to Bangladesh as a contracting party, Pakistan informed the GATT secretariat that it decided to invoke Article XXXV in respect of Bangladesh. It means Pakistan would not go for any trade negotiation or trade preference arrangement with Bangladesh under the framework of GATT.

As diplomatic relation between two countries was not established at that time and Pakistan denied recognising Bangladesh as an independent country, it invoked the said article of GATT. Two years later on January 1975, Pakistan, however, withdraw the invocation. The GATT document (L/4146, January 22, 1975) in this regard mentioned: "The Government of Pakistan has advised by letter received on 17 January 1975 that it has decided to accept the Protocol for the Accession of Bangladesh to the General Agreement on Tariffs and Trade done at Geneva on 7 November 1972."

On August 1974, Bangladesh submitted its first report 'in fulfilment of the consultation' required under Article XVIII:12(b). The report was submitted under the simplified procedure for consultations and the country's first report on trade policy and measures in an international forum (document no BOP/148). Commenting on the report, the secretariat mentioned: "It would appear from the import programmes of Bangladesh as stated below that the imports of Bangladesh are non-discriminatory and the measures are short term and subject to review at regular intervals."

GATT and WTO documents are valuable resources to track the evolution of the trade policy of Bangladesh as well as the country's emergence as a trade-reliant economy.

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