ECONOMIC DIPLOMACY OF BANGLADESH: FOREIGN TRADE IN PERSPECTIVE

How a country manages its economic diplomacy relies on how it oversees its foreign policy goals. The linkage between economic diplomacy and foreign policy is undeniable. Bangladesh foreign policy during its different regimes has made attempts to redirect focus from aid to trade. Again, promotion of Bangladesh's positive image as a destination for Foreign Direct Investment (FDI) is far behind the satisfactory level. Bargaining between donors and the Government of Bangladesh (GoB) on aid effectiveness and its disbursement also continues. Thus, trade in goods and services, FDI and Official Development Assistance (ODA) are priority sectors of Bangladesh’s existing economic diplomacy.

On which issues, at what levels, with which countries, by what actors and through what instruments Bangladesh’s foreign trade-centric economic diplomacy should be advanced? Such explicit questions are yet to be studied. The scope of the

Mohammad Jasim Uddin, PhD is Senior Research Fellow at Bangladesh Institute of International and
Strategic Studies (BIISS). His email address is: jasim@biiss.org
©Bangladesh Institute of International and Strategic Studies (BIISS), 2016.

 paper is thus confined to deal with these questions. The paper argues that considering uncertainties, reducing trade barriers and asking for trade preferential(s) on multilevel trade fronts are vital issues of Bangladesh’s foreign trade-specific economic diplomacy. Relevant actors, such as, Ministry of Foreign Affairs (MoFA) and its overseas counterparts, Ministry of Commerce (MoC) and Export Promotion Bureau (EPB) of Bangladesh need to be aware of the issues while practicing instruments of economic diplomacy at multi-level platforms.

In order to address these questions, the paper adopts a framework of economic diplomacy developed by S. Khatibzadeh.1 The framework is consisted of five components: issues, actors, levels and instruments of economic diplomacy and countries with which to practice the same. As the components are qualitative in nature and have causal relations with politico-economic institutions, the framework is adopted and applied on a single case, Bangladesh, and on a major pillar of economic diplomacy viz. foreign trade. For data elicitation, the paper reviews existing literature and conducts personal in-depth interviews of renowned experts from Bangladesh. It undertakes interpretive approach to analyse the scope of Bangladesh’s foreign tradecentric economic diplomacy.

The paper is structured as follows. Section two reviews existing literature. Section three discusses the evolution of Bangladesh’s foreign trade. Section four analyses foreign trade-specific economic diplomacy of Bangladesh in the light of Khatibzadeh framework. Section five concludes the paper. 

Head and Ries argue that economic diplomacy is an instrument to influence inter-state economic relations, reduce trade barriers and increase bilateral trade.2 Rose3 says that there are positive outcomes between trade in goods and economic diplomacy. According to Moons4 , opening of each additional consulate increases exports. Moons and Bergeijk argue that trade and market liberalisations, trade-related negotiations, partnership, treaties and agreements as well as resolving inter-state trade dispute are facilitated by economic diplomacy.5 On the contrary, the study of Veenstra et al. explains that export promotion agencies at times play little role for

1
 Saeed Khatibzadeh, “Iran’s Economic Diplomacy: An Assessment of Iran Economic and Trade Cooperation
with Japan, China and South Korea”, V.R.F. Series No. 417, 2006, available at http://www.ide.go.jp/English/
Publish/Download/Vrf/pdf/417.pdf, accessed on 26 December 2011. 2
 Keith Head and John Ries, “Do Trade Missions Increase Trade?”, Sauder School of Business Working Paper
Series, University of British Columbia, 2006. 3
 Andrew K. Rose, “The Foreign Service and Foreign Trade: Embassies as Export Promotion”, The World
Economy, Vol. 30, No. 1, January 2007, pp. 22-38. 4
 Selwyn J. V. Moons, “What are the Effects of Economic Diplomacy on the Margins of Trade?”, International
Journal of Diplomacy and Economy, Vol. 1, No. 2, 2012, pp. 147-62. 5
 Selwyn J. V. Moons and Peter A. G. van Bergeijk, “A Meta-Analysis of Economic Diplomacy and Its Effect on
International Economic Flows”, International Institute of Social Studies Working Paper No. 566, October 2013.

 trade promotion but there are positive outcomes between functions of embassies and traditional trade bodies.6 Bergeijk7 argues that the outcomes of trade diplomacy vary based on country’s economic development. The relationship between economic diplomacy and foreign trade is positive when trade flows to low/middle-income economies from high-income economies. Such relations are insignificant between high-income economies. Bergeijk et al. state that estimating relations between foreign trade and economic diplomacy is tricky.8 The literature substantiates that economic diplomacy is interlinked with foreign trade.

Securing aid inflow from different corners of the world was a major practice of economic diplomacy in early days of Bangladesh.9 Economic diplomacy then increasingly focused on investment, trade in goods and services.10 It helped Bangladesh link economic diplomacy with its foreign policy.11 Since joining the World Trade Organization (WTO), understanding rule-based global trade regime was crucial for Bangladesh.12 Still, some literature continued to focus on how different geographical regions would be significant for Bangladesh foreign policy and its economic diplomacy.13 The key recommendations in the literature include searching geo-economic platforms, realising forthcoming multilateralism, negotiating global economic issues, mobilising inward investment and technological know-how, boosting trade and receiving aid. The GoB also substantiated the arguments by adding major tasks of economic diplomacy: boosting exports, increasing FDI, foreign employment opportunity and negotiating aid conditionalities.14

6
 Marie-Lise E. H. van Veenstra, Mina Yakop and Peter A. G. van Bergeijk, “The Geography of Trade and
the Network Effects of Economic Diplomacy in the South”, in Syed Mansoob Murshed, Pedro Goulart and
Leandro A. Serino (eds.), South-South Globalization: Challenges and Opportunities for Development, London:
Routledge, 2011.
7
 Peter A. G. van Bergeijk, Economic Diplomacy and the Geography of International Trade, Cheltenham:
Edward Elgar Publishing Limited, 2009.
8
 Peter A. G. van Bergeijk, Jan Melissen and Maaike Okano-Heijmans (eds.), Economic Diplomacy: Economic
and Political Perspectives, Leiden: Martinus Nijhoff Publishers, 2011, pp. 63-82. 9
 Mohammad Tajuddin, “Diplomacy of Bangladesh in the Formative Phase”, BIISS Journal, Vol. 19, No. 1,
1998, p. 68.
10 M. Shafiullah, “Economic Diplomacy and Bangladesh Syndrome”, The Independent, Dhaka, 27 December 2001. 11 Narendra Kr. Singh, Bangladesh Diplomacy and Foreign Policy, New Delhi: Anmol Publications Pvt. Ltd., 2003. 12 Syeda Sharmin Absar, “Economic Diplomacy for Bangladesh: A Prescription for Less Developed Countries
in the World Trade Organisation Era”, Journal of South Asian Studies, Vol. 26, No. 3, 2003, pp. 349-57. 13 Akmal Hussain, “Bangladesh’s New Foreign Policy Direction in Southeast and East Asia: Perspective and
Goals”, Journal of International Development and Cooperation, Vol. 12, No. 1, 2005, pp. 1-14. 14 Ministry of Foreign Affairs (MoFA), “Diplomatic Initiatives and Activities of the MoFA in 2009”, Bangladesh
Foreign Policy 2009 in Perspectives, Dhaka: MoFA, 2009, p. 68. 15 Hemayetuddin Ahmed, “Economic Diplomacy in a Multi-polar World”, The Daily Star, Dhaka, 07 January
2010.

 Dorussen et al.16, Shikha17 and Sobhan18 supported this argument. It requires (i) concluding legally-binding agreement on trade in goods and services, investment and avoidance of double taxation; (ii) dealing with aid conditionalities and (iii) tackling issues on debt. There are also some writings on economic diplomacy of Bangladesh but these are limited to provide any concrete suggestions as to how Bangladesh should exercise economic diplomacy to meet its foreign policy goals or whether the country needs to produce different sets of negotiators, having specialisation in various fields.19

The review of literature reveals that foreign trade-specific economic diplomacy of Bangladesh is still understudied. What are the priority issues of foreign trade-centric economic diplomacy of the country? What are the vital instruments to address the issues? How could the issues be dealt with at different levels? The paper is an attempt to meet such research gaps. In doing so, it looks into the evolution of Bangladesh’s foreign trade and discusses foreign trade-specific economic diplomacy of the country bearing in mind the Khatibzadeh framework. 

Since its independence, Bangladesh has been suffering from significant trade deficit. Throughout the last more than two decades, export performance has been noticeable. It is owing to several reasons, e.g., (i) manufacturing high-value Ready Made Garment (RMG); (ii) receiving increasing work order; and (iii) utilising benefits of one-stage Generalised System of Preference (GSP) provided by the European Union (EU) and modified Rules of Origin (RoO). A negative aspect of the success is increasing focus on exports favouring RMG. More than three- quarters of total exports are sourced from RMG. The rest comes from non-RMG and traditional products, e.g., frozen food, jute and jute goods, chemical products, and leather and leather products. Shipbuilding and pharmaceuticals are newly added to non-RMG items. These two have started to contribute to Bangladesh’s total exports.

Approximately 20 per cent of total exports in the early 1980s penetrated EU markets; almost 10-15 per cent entered markets in developing Asia, North America, Middle East and Africa.20 For nearly two decades, EU and North America were steadily

16 Han Dorussen, Syed Mansoob Murshed and Hugh Ward, “Any Tied that Bind? Economic Diplomacy on the
South Asian Subcontinent”, in Economic Diplomacy, Economic and Political Perspectives, op. cit. 17 Meherun Nesa Shikha, “Economic Diplomacy between Bangladesh and East Asia”, The Daily Star, Dhaka,
19 May 2012.
18 Farooq Sobhan, “Focus on Economic Diplomacy: the Priority Tasks”, 2011, available at www.bei-bd.org/
downloadreports/publicationdownload/55/download, accessed on 23 November 2011. 19 M. Serajul Islam, “Whither Bangladesh’s Economic Diplomacy?”, The Daily Sun, Dhaka, 22 October 2012;
also see AKM Masudur Rahman, “Economic Diplomacy and Bangladesh”, The Financial Express, Dhaka, 20
April 2014.
20 Selim Raihan and Bazlul H. Khondker, “A Review of the Evolution of Trade Policies in Bangladesh”, in Bangladesh
Country Report: Trade and Employment, International Labour Organization, Dhaka, 2013, pp. 1-18.

the main focus of Bangladesh’s total exports; almost three quarters is now absorbed by the two (see Table 1). Remaining part is absorbed by some markets of developing Asia, Middle East and Africa. Such shift is the result of changing structure of exportable items. Once jute and jute goods were vital items and earned huge foreign currency. Currently, RMG is the most important item and its major buyers are The EU and North America. Other buyers are Japan, India, China, etc.

It is important to mention that Bangladesh’s exports are scarce to other South Asian countries, except India. More than 80 per cent of total exports are between Bangladesh and India. Exports are mainly conducted through South Asian Free Trade Area (SAFTA).

In the last four and a half decades, sources of Bangladesh’s imports have undergone substantial changes. While shares of developed economies in total imports were erratic, shares of some emerging economies are growing. Two most important sources are China and India. On the other hand, by bloc/group/community, Bangladesh’s major sources of total imports (for FY2014 and FY2015) are shown in

Table 2. Developing regions are becoming capable of supplying raw materials, capital and intermediate goods and consumer products at cheaper price. Therefore, growing importance of developing regions as vital sources of imports of Bangladesh is also noticeable.

Since early 1990s, trade liberalisation policies helped Bangladesh increase exports. Afterwards, the GoB has been continuing to liberalise trade policies in line with directions of WTO Uruguay Round.

Following adoption of the Doha Development Agenda (DDA), issues regarding WTO are being proactively handled by the GoB keeping some initiatives forefront, e.g., establishing ‘WTO Cell’ in the MoC, joining the Enhanced Integrated Framework (EIF) process and completing Diagnostic Trade Integration Study (DTIS). Other initiatives were conducting Needs Assessment exercise in identifying needs for technical/financial assistance to protect Intellectual Property Rights (IPRs) and submitting the report to the WTO. Besides, encouraging private sector engagement to face trade-negotiable concerns, working towards achieving greater market access in addition to safeguarding Bangladeshi interests in multilateral trading system and ratifying Trade Facilitation Agreement (TFA) of the WTO were vital initiatives. These were aimed at integrating Bangladesh with global and regional trade liberalisation systems.

On the regional front, Bangladesh is a party to the SAFTA and Asia-Pacific Trade Agreement (APTA). The country is getting benefits from tariff concessions on some exportable items provided by APTA members. Bangladesh is a partner of Trade Preferential System among OIC countries (TPS-OIC). Under the arrangement, (i) a Protocol on the Preferential Tariff Scheme for the TPS-OIC has been finalised; (ii) Tariff Reduction Programme (TRP) has already come into force; and (iii) an Agreement on RoO for Preferential Trade Agreement (PTA) has been signed. Bangladesh has been engaged with all the arrangements of TPS-OIC.

Bangladesh is a party to Preferential Trade Agreement (PTA) of D-8. Tariff Reduction Process (TRP) under the PTA has come into force. However, Bangladesh has not yet ratified the agreement due to divergent views on value addition criteria of RoO. The country is a member of the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) and its Free Trade Agreement (FTA). Besides, it is a member of South Asia Sub-regional Economic Cooperation (SASEC). The country is a party to the Global System of Trade Preferences among Developing Countries (GSTP) and it offers tariff concessions on several items to 47 members of Group of 48. Again, Bangladeshi products at present under the GSP avail preferential market access from several states.

On the bilateral front, Bangladesh has not concluded any FTA. It has examined the possibility of signing bilateral FTAs with Malaysia, India, Turkey, Sri Lanka, Macedonia, Jordan, Mauritius, South Africa, and separate FTAs/PTAs with five countries of Africa, e.g., Morocco, Nigeria, Senegal, Mali and Sierra Leone. Besides, examinations on the possibility of signing PTA among member countries of the Indian Ocean Rim Association (IORA), and with Myanmar and Bhutan have been completed. Meanwhile, Bangladesh has started its preliminary negotiation to formulate FTA with Turkey. Most importantly, it has signed Trade and Investment Cooperation Forum Agreement (TICFA) with the US. TICFA is likely to provide a platform for regular discussion on trade issues between the two countries.

Till date, Bangladesh has signed more than forty Bilateral Trade Agreements (BTAs).21 All these do not cover exchange of tariff preference or trade facility. These were signed only for promoting bilateral diplomatic relation, except PTA with Iran.

Understanding comparative advantages, capitalising opportunities to access to diverse markets, and diversifying export items and destinations are vital tasks of foreign trade for Bangladesh. These rely much on how the country, with its trade facilitation arrangements, showcases itself before global trade community and fits it in economic diplomacy of foreign trade. Therefore, it is important to recapitulate 

21 For details, see Bangladesh Economic Review, 2015, p. 78.

on which issues, at what levels, with which countries, by what actors and through what instruments, Bangladesh’s foreign trade-centric economic diplomacy or in other words trade diplomacy should be advanced. Recapitulation of the five questions is dealt with the Khatibzadeh framework of economic diplomacy.

Industrial accident, labour unrest and lack of globally standard working condition in some RMG factories at times push buyers to reconsider their sourcing options and withdraw trade privileges. This may lead to lose competitiveness of Bangladesh on global trade front. Again, with a zero-duty benefit under the African Growth and Opportunity Act (AGOA), export of RMG originating in different African nations has been increasing to the US. Big companies are exploring Africa as a future site for apparel production that can be exported to the US, duty-and-quota-free. Bangladesh may lose its competitiveness to African nations for exporting RMG to the US in the face of discriminatory duty benefits. Bangladesh’s competitive advantage due to GSP in the EU markets may also be under threat following Vietnam’s free trade deal with the EU. If Bangladesh graduates from its LDC status and loses its existing preferential access to major markets, export growth would face strong barriers. Unless it enters similar free trade agreements, export-led growth may decline. Another recent concern is Brexit. Grabbing bigger market share by competing countries and rising cost of imports in the UK, imposing tariffs on imports to protect local industries and depressing demands among the UK people are some of the future concerns for Bangladesh. These may erode competitiveness of Bangladeshi exports. Factoring in the uncertainties is a vital issue of Bangladesh’s foreign trade-specific economic diplomacy.

Another issue is export promotion. Capacity to exploit and strategy to access markets, vertical and horizontal diversification of products, constant observation of the extent of trade liberalisation, non-tariff and para-tariff barriers, customer credibility and country familiarisation are related to export promotion. Thus, export promotion-specific trade diplomacy lies with how to move towards value chain, reduce high reliance on particular product/destination, prioritise South-South trade, promote North-South cleavage and advance regional trade integration.

As the decisions of the US and the EU demanding implementation of controversial labour standards in Bangladesh pose a threat to rule-based global trading system, raising WTO Duty Free Quota Free (DFQF) market access in the agenda of TICFA meeting, negotiating Bangladesh-US Comprehensive Free Trade Agreement (CFTA) under the basic terms of TICFA and Bangladesh-EU CFTA without prejudice to each other’s rights and obligations under the WTO are vital issues.22

22 Author’s interview with Dr. Debapriya Bhattacharya, Distinguished Fellow, Centre for Policy Dialogue, in
2014.

 Indeed, making the best out of the WTO membership is crucial. Hence, demanding DFQF market access, preferential RoO, Special and Differential (S&D) treatment and devising strategies for negotiation in the WTO remain central issues of Bangladesh’s foreign trade-specific economic diplomacy.

Another issue is how to exploit benefits from DFQF market access given by individual countries. Concerns lie with RoO, provision for value addition and several duties. Bangladeshi products must have 40 per cent local content and it is a sticking point to increase trade between Bangladesh and the Republic of Korea. Exports to China are low due to RoO stipulating that Bangladesh must have 40 per cent value addition. Japan is yet to become a major destination for Bangladesh’s apparel. Only relaxed RoO for exporting knitwear, jute and jute products, home and woven textiles and tableware as well as waiving duties on the products can make Japan a key export destination. India has turned down Bangladesh’s plea for lifting countervailing duty on RMG import. It has also imposed countervailing duty and additional tax of 3 per cent on garments imported from Bangladesh. Again, India’s clamping anti-dumping duty on its imports of jute goods is a concern. Therefore, negotiations on RoO, provision for value addition and several duties with individual states are important issues.

Issues vary for regional arrangements. For example, how to further reduce tariff and non-tariff barriers and number of items from sensitive lists are vital for SAFTA. Eyeing APTA to deepen tariff concession, increase product coverage, address non-tariff barriers and boost trade facilitation is vital. For D-8, important issues include claiming DF market access, advocating for 30 per cent value addition in the RoO of the TRP under the PTA and negotiating S&D treatment under the PTA. Again, dealing with preferential tariffs and trade preferential of TPS-OIC is crucial. As a new step, finalising Memorandum of Understanding (MoU) between Bangladesh and the Eurasian Economic Commission (EEC) to increase trade relations also remains significant.

Besides, how to engage with global value chain is a vital issue. Achievement in garment sector can be replicated for assembling and manufacturing small parts of products in value chain. Japan has sourced out many automobile component manufacturing to ASEAN countries. The same can be sourced out to Bangladesh for better products at cheaper prices. A Japanese company has already set up factory in Chittagong to fit energy saving LED lamps in vending machines to produce efficient products.23 Bangladesh can also produce several miniature components which Japan is now producing because of its engineering skills and craftsmanship. These substantiate that engaging with the east, e.g., with Japan and putting incentives in place are vital issues of Bangladesh’s foreign trade-specific economic diplomacy

23 “Explore Asian Markets”, The Daily Star, 14 August 2014.

While eyeing traditional markets for traditional and non-traditional garment products is vital for Bangladesh’s foreign trade-specific economic diplomacy, exploring new markets is of high importance (Table 3).

Important actors for Bangladesh’s foreign trade-specific economic diplomacy are MoFA and its counterparts abroad, MoC, EPB, Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), Bangladesh Garment Manufacturers and Exporters Association (BGMEA), Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), joint trade associations and committees. Besides, trade oriented think-tanks, non-Resident Bangladeshis (NRBs) and Bangladeshi personnel working in international trade bodies are vital actors. Foreign trade-specific economic diplomacy and its success depend a lot on what sorts of instruments actors are exercising and their appropriateness.27 There are several instruments of economic diplomacy Bangladesh can exercise to boost up its foreign trade. Table 5 identifies and explains some vital instruments of trade related economic diplomacy.

27 Vanu Gopala Menon, “A New Approach to Trade Negotiations”, in C. L. Lim and Margaret Liang (eds.),
Economic Diplomacy Essays and Reflections by Singapore’s Negotiators, Singapore: World Scientific Publishing
Co. Pte. Ltd., 2011, pp. 91-102.

The paper aimed at identifying important issues of Bangladesh’s foreign trade-specific economic diplomacy and ways of dealing with the issues. It finds that considering trade uncertainties and addressing their likely adversities, lessening bilateral trade gap with major countries, moving towards global and regional supply chain, reducing tariff and non-tariff barriers are the most important issues of Bangladesh’s trade diplomacy. Other issues are asking for tariff concessions, preferential tariffs, flexible RoO, S&D treatment, DFQF market access, exploiting benefits of DFQF market access already provided by several countries and export promotion.

The paper reveals that besides traditional markets with some imperatives, traditional and non-traditional garment products, and diversifying markets with potential items are important. Issues aforesaid are to be negotiated with both potential and traditional markets, and at bilateral, regional, sub-regional, plurilateral and multilateral levels. Other issues include reducing preference erosions, demanding trade preferences and rule-making in trade. The paper identifies several instruments that actors particularly the GoB can exercise to deal with the issues of Bangladesh’s foreign trade-specific economic diplomacy. These include: finalising and updating legally binding contracts; strengthening the role of foreign missions of Bangladesh; delinking trade diplomacy at multilateral, regional, plurilateral and bilateral levels; exercising consular diplomacy and commercial diplomacy; marketing ‘Brand Bangladesh’ with its product image; liberalising trade regime (e.g., restructuring tariff structure), increasing efficiency of trade negotiators and engaging Bangladeshi diaspora in prospective countries/ regions to enhance Bangladesh’s international trade. Given the existing capacity, it may not be possible for the GoB and its trade facilitating agencies to exercise all the instruments at once. However, these should be simultaneously put into practice in short, medium and long term.