RESTRICTEDWORLD TRADE
ORGANIZATIONWT/BOP/S/12
19 April 2000
(00-1598)
Committee on Balance-of-Payments Restrictions
CONSULTATIONS WITH BANGLADESH
Background Paper by the Secretariat
1. This paper has been prepared in accordance with paragraph 12 of the Understanding on the
Balance-of-Payments Provisions of the GATT 1994.
I. PREVIOUS CONSULTATIONS WITH BANGLADESH
2. This is the first time that Bangladesh is holding consultations in the Committee under
"regular" procedures. Starting in 1973, the GATT Committee on Balance-of-Payments Restrictions
held eleven simplified consultations with Bangladesh.  In 1997, the first simplified consultations were
held with Bangladesh in the WTO Committee.  At  that time, the Committee "determined that full
consultations would be desirable as a means of clarifying the balance-of-payments situation and
promoting greater transparency….before May 1999".  In September 1998, Bangladesh requested a
postponement of the full consultations citing the damage caused by unprecedented flooding in the
country. The Committee agreed to this request but decided to consult under simplified procedures in
the interim.
3. During the consultations in May 1999, Members expressed sympathy for the natural disaster
suffered by Bangladesh in 1998.  They considered that the conditions of Article XV III:B had been
met. They noted that the full consultations, scheduled for next year, could be held at the same time as
the Trade Policy Review of Bangladesh, in May 2000.  Members continued to express their desire for
clarification of the criteria used, and the rationale behind, the restriction of imports, noting thatbalance of payments measures are intended to control the general level of imports.  Bangladesh was
also encouraged to submit a time table for phase out of the restrictions, as required by the
Understanding, as soon as possible, and preferably before the summer break.
1 Following the
conclusion of the consultations, Bangladesh informed the Committee that it planned an early phase
out of the list of 122 unimportables.2
II. MACROECONOMIC AND TRADE DEVELOPMENTS
A. RECENT ECONOMIC PERFORMANCE
4. Although the 1998 floods had a devastating effect on the economy, growth was better than
foreseen for 1998/99 with real GDP increasing by 4.2 per cent; compared to the average of 5.3 percent
in the preceding two years. Much of the better-than-expected performance was due to a bumper rice
crop  and increased wheat production, as well as post-flood construction activity, while growth in
manufacturing output lagged significantly behind earlier years. Inflation, which peaked as a result ofincreased food prices at 12.7% in December 1998, has been tumbling since, falling to annual rate of
3.8% in October 1999. (Table 1)
                                                     
1 WT/BOP/R/46.
2 WT/BOP/R/46/Add.1.WT/BOP/S/12
Page 2
Table 1
Selected Economic Indicators
1996/97 1997/98 1998/99 (est.)
(% change)
Real GDP 5.4 5.2 4.2
Inflation (annual average) 2.6 7.0 9.0
Central government budget (% of GDP)
      Total revenue 9.4 9.6 9.5
Tax 7.5 7.6 7.6
      Total expenditure 13.8 13.8 14.6
Current expenditure 7.0 7.4 8.0Food account balance 0.2 0.2 0.3Annual development program 6.1 5.8 5.9Other capital and net lending 0.5 0.4 0.3
      Overall balance -4.4 -4.2 -5.1
Incl. grants -2.7 -2.9 -3.7
      Domestic financing 1.5 1.7 2.1
Banks 1.0 0.7 1.0
      Foreign financing 2.9 2.5 2.6
Source: IMF
5. In 1998/99 the fiscal deficit widened to 5.1 percent (although if grants are included the deficit
narrows to 3.7%).  Given the low tax to GDP ratio in the country, at 7.6 % of GDP one of the lowest
in the world, national saving is insufficient to finance domestic investment.  In addition, the
underground economy is considered to account for as much as half of GDP.   Bangladesh relies
heavily on inflows of foreign aid as well as on trade taxes, which account for half of total tax revenue.
State enterprises, whose total debt amounted to 26.8% of GDP (in June 1997), are a major drain on
the budget. Increased subsidies to finance state enterprises, limited progress in adjusting administeredprices upwards,  and a slow pace of foreign aid disbursement, causing  government borrowing to
surge, suggest that the deficit will not narrow significantly in the near future.
B. E
XTERNAL SECTOR PERFORMANCE
6. In 1998/99, the trade deficit widened, to 7% of GDP,  as food imports increased sharply and
export growth slowed appreciably as a direct result  of the catastrophic flooding.  While the trade
deficit increase was partly offset by increased worker's remittances, the current account deficit
widened from 0.5% in 1997/98 to 1.9% of GDP in 1998/99.  The overall balance-of-payments turned
negative as the improvement in the capital account, including a doubling of investment inflows,  was
not sufficient to reverse the worsening in the current account.  At the end of the fiscal year, reserves
had fallen to US$1.5 billion (2.1 months of imports) and by end 1999 reserves had levelled off at
US$1.6 billion. Most external debt (an estimated 95%) is publicly held and typically on concessional
terms.  In relation to GDP, external debt is moderate and servicing requirements manageable.(Table 2)WT/BOP/S/12
Page 3
Table 2
Balance-of-Payments (1996/97-1998/99)
Fiscal year (ending 30 June) 1996/97 1997/98 1998/99
(US$ million)
Trade balance -2,743.8 -2,347.8 -3,012.3
Exports 4,418.3 5,172.2 5,324.4Imports -7,162.1 -7,520.0 -8,336.6
Net services 55.9 82.5 -45.6
Receipts 745.0 797.9 818.2Payments -689.1 -715.4 -863.8
Transfers 2,145.0 2,016.8 2,234.8
Official current transfers 375.0 266.8 259.8
Private transfers 1,770.0 1,750.0 1,975.0    of which workers' remittances 1,475.4 1,526.0 1,706.0
Current account balance -542.9 -248.5 -823.1
Capital account balance 190.7 379.3 522.2
Aid disbursements 1,133.0 1,075.0 1,214.5Concessional debt amortization -329.0 -308.0 -340.0Other medium-long term capital, net 45.7 -49.7 -30.3Foreign direct and portfolio 
investment-120.0 336.0 653.0
Other capital flows (trade credits) -539.0 -674.0 -975.0
Errors and omissions 189.2 -48.7 129.6Overall balance -163.0 82.1 -171.2
Financing items 163.0 -82.1 171.2
Bangladesh Bank 180.0 -131.1 218.2Commercial Banks -17.0 49.0 -47.0
Memorandum items:
Current account balance/GDP (including
official current transfers)-1.3 -0.6 -1.9
Current account balance/GDP (including
official current and capital transfers)-0.4 0.1 -1.1
Gross reserves (US$ mn.) 1,719 1,733 1,523
      (In months of imports of goods and NFservices)2.7 2.6 2.1
Medium and long-term external public debt
(US$ mn.)15,025 14,033 15,145
External debt/GDP 36.6 33.2 35.0
Debt-service ratio 8.7 7.9 7.8Debt-service/GDP 1.5 1.4 1.5
Exchange rate (taka/$, annual average) 42.7 45.4 47.8
Source: IMFWT/BOP/S/12
Page 4
7. Trade represents about 30% of GDP, a ratio comparable to that of Pakistan.  Exports are
dominated by ready-made garments and knitwear; imports are mainly inputs to the textile industry,machinery and food. (Tables 3 and 4)  The main markets are still Europe and North America where
some 85% of exports are destined.  Suppliers are more diversified;  India is the leading supplier of
imports. (Chart 1)
Table 3
Main Exports
1996/97 1997/98 1998/99 (e)
(US$ million)
Ready-made garments 2,238.0 2,843.3 2,984.7
Knitwear and hosiery products 763.3 940.3 1,035.4
Raw jute and jute goods (excl. carpets) 429.3 386.4 373.7Frozen shrimps and fish 320.0 293.8 274.3Leather and leather products 195.0 190.3 168.2Tea 38.0 47.5 38.6Other 435.0 459.6 438.0
Total exports 4,418.3 5,161.2 5,312.9
Memorandum items: (Annual  % change)
Value 13.8 17.1 2.9
Source: IMF
(e) - estimated
Table 4
Main Imports
1996/97 1997/98 1998/99 (e)
(US$ million)
Capital goods 1,937.0 2,072.0 1,969.0
Textiles 1,098.0 1,264.0 1,109.0
Foodgrains 184.0 369.0 1,031.0Edible oil and oilseeds 278.0 309.0 387.0Yarn 395.0 327.0 283.0Petroleum products 341.0 295.0 270.0
Cotton 195.0 207.0 233.0
Fertilizer 150.0 108.0 120.0Crude petroleum 174.0 140.0 118.0Cement 156.0 152.0 105.0Other 2,741.0 2,277.0 2,429.0
Total imports 7,162.1 7,520.0 8,054.0
Memorandum items: (Annual % change)
Value 4.1 5.1 10.9
Source: IMF
(e) – estimatedWT/BOP/S/12
Page 5
Chart 1
Direction of merchandise trade (1998)
8. Bangladesh has been very successful in penetrating the highly competitive markets of the EC
and the US;  in some cases, quota utilizations rates are nearly 100%.3  Limited export product
diversification makes Bangladesh vulnerable to external shocks and to increased competition from
neighbouring countries as they recover from the economic crisis with substantially depreciated
currencies.   Reportedly, insufficient informa tion regarding health and sanitary regulations in
industrialized countries has made it difficult for local exporters to maximize market access
opportunities for processed food and agricultural products, such as tea and shrimp.
C. TRADE AND MACROECONOMIC POLICY FRAMEWORK
(i) Trade Policy Regime
9. According to Annex 1, first presented in WT /BOP/G/1, there were 96 banned or restricted
product groups of which 17 were for "trade", understood as "balance-of-payments" reasons
(Annex 1).  Apart from these quantitative restrictions, the customs tariff is the main instrument ofBangladesh trade policy.
 4 Bangladesh has had a Customs and Tax Modernization Program under way
for some time; in February 2000, it introduced the "t ransaction value" basis for customs valuation and
operates a mandatory pre-shipment inspection scheme.
10. All agricultural tariffs are bound as a result of the Uruguay Round, but just 0.9% of industrial
tariff lines; these latter are bound at 50%. The maximum applied m.f.n. rate has been reduced to37.5%.  Bangladesh participates in a number of regional trade agreements where tariff preferences are
                                                     
3 WT/TPR/G/68.
4 For further details see Secretariat and Gove rnment Reports for the Trade Policy Review of
Bangladesh WT/TPR/S/68 and WT/TPR/G/68.Per cent
      
UNSD, Comtrade database (SITC Rev.3).Total: US$5.1 billion
Source :Other
3.0
United States
39.4Other America
3.6 United 
Kingdom
7.3France
8.8Germany
8.9
EU15
43.0Middle East
2.1Exports
Other Europe
2.0East Asia
7.0
Other EU15
18.0Hong Kong, China
5.7
China
10.4Japan
6.8United States
4.3Other Europe
2.6EU15
12.3
Singapore
6.5Korea, Rep. of
6.1
Middle East
3.9Chinese Taipei
5.7
Other America
4.2Imports
Total: US$7.0 billionEast 
Asia
49.6Africa  1.2Oceania
5.6Other South Asia
1.5India
14.8
Other East Asia
8.4WT/BOP/S/12
Page 6
extended on selected items.  Simplification of the customs tariff has continued with the number of
rates now reduced to five.
11. The average tariff has been calculated as 22.2% for 1999/2000.  An infrastructure
development surcharge (IDS) is levied at 2.5% on all imports and a supplementary duty, ranging from
5% to 270% applies to luxury goods.  The 1999/ 2000 Budget raised customs duties on a handful of
goods, including raw silk yarn.  To reduce heavy dependence on imported inputs and increase
domestic value added in exports, government policy has been directed to promoting backwardlinkages, in particular in the textiles and clothing sector.  Duty and tax concessions on imported inputs
result in raising effective protection for domestic industries.
(ii) Macroeconomic and Structural Policy
12. The central bank, the Bangladesh Bank, does not exercise an independent role over monetary
and exchange rate policy; rather, the Ministry of Finance sets the goals.  Monetary policy in the lastyear was geared towards accommodating the impact of the floods, with credit expanding particularly
to the government aid in the agricultural sector.
13. The taka is pegged to a basket of Bangladesh major trading partners' currencies and is
periodically adjusted in light of movements in competitiveness and macro-economic indicators.  In
spite of the most recent nominal adjustments downwards of the taka vis à vis  the US dollar, (2% in
July 1999 and 3% in November 1999), the exchange rate has continued to appreciate in real terms and
the REER is about 10% above the end-1996 level, adversely affecting external competitiveness.
(Chart 2).
Chart 2
Indices of real and nominal exchange rates (1992/93-1997/98)
NB:  This chart has not been updated to reflect the c ontinued application of the Taka since the Asian crisis.80859095100105
1992/93 1993/94 1994/95 1995/96 1996/97 1997/98
IMF (1998), Staff Country Report No. 98/131, Statistical Appendix, Washington, D.C.1990=100
Sourc e:Real effective exchan ge rate
Nominal exchange rateWT/BOP/S/12
Page 7
14. Although the current account has been convertible since 1994, capital restrictions, including
repatriation and partial surrender of export earnings, are in place.5  Borrowing abroad requires special
permission and outward investment is allowed only on a case-by-case basis.  On the other hand,
Bangladesh has a very liberal regime towards foreign investment, allowing entry into virtually all
sectors and repatriation of earnings.
15. The current budget includes a number of measures to broaden the tax base, streamline the tax
and tariff structure and strengthen tax and customs administration and thus revenue collection.  It isestimated that tax evasion, due in part to the fa ilure to collect VAT properly, and smuggling cost the
Government US$2 billion annually.  Assorted  tax incentives tend to raise the opportunities for tax
avoidance and further erode the tax base.  Privatization of state enterprises has proceeded slowly; in
fact, wage increases are being considered for essentially bankrupt companies.  Fifty state enterprises
have been identified for privatization over the next two years but the necessary political consensus forreform remains absent.
16. In the banking sector, prudential regulation and supervision have been strengthened as the
authorities have moved towards the application of international standards of loan classification and
provisioning; these were tightened in January 1999 and in July 1999, remaining interest rate ceilings,
except for export credits, were removed.  Many banks remain technically insolvent: non-performingloans represent 47% of the total loan portfolio of nationalized commercial banks.
                                                     
5 The currency retention rate is higher for export industries with higher domestic value added.WT/BOP/S/12
Page 8
Annex I
List of items banned or restricted for trade reasons
Srl H.S. heading
numberH.S. Code
numberDescription of items Type of restriction
1. 01.05 All H.S. Codes Chicks except for "parent stock" and "grand-parent stock" Banned
2. 04.07 0407.00 Eggs except "hatching eggs" Banned
3. 14.04 1404.901 Tendu leaves (Biri leaves) Banned
4. 48.19 All H.S. Codes All cartons except (1) Outer carton:  system which is used in
State Express 555 cigarettes;  and (2) All types of carton except
laminated inner carton used for export of all frozen foodincluding shrimpsBanned
5. 50.07 All H.S. Codes Woven fabrics of silk or of silk waste Banned
6. 52.08 to 52.12 All H.S. Codes All items except items mentioned below:
(i)  Long cloth (white only up to 33s counts; and width up to
36 inches.
(ii) Poplin including shirting white, dyed, printed, striped and
checks, up to 40s counts and width up to 36 inches.
(iii) Cambric including shirting white, dyed, printed, striped
and checks up to 40s counts and width up to 36 inches.
(iv) Serge and gabardine of width up to 45 inches of all
constructions.
(v) Twill and corduroy of width up to 45 inches of all
constructions.
(vi) Mull, organdie, lawn, voile white, dyed or printed up to
65s counts and width 35 inches.
(vii) Flannel white, dyed and printed up to 45 inches width.
(viii) Cotton synthetic blended suiting of all constructions up to
60 inches width.
(ix) Cotton synthetic blended suiting white, dyed and printed
up to 45 inches width.
(x) Umbrella cloth.Banned
7. 54.07 and 54.08 All H.S. Codes (i) Shirting and suiting of 85% or more by weight of
synthetic or man-made fibre (synthetic, regenerated or
blended yarn or both) and similar fabric in any form,including felts and cut pieces except polyester shear of
mesh 80-150 required for screen printing machine/table
and source fabrics of 85% or more by weight, of syntheticof man-made fibre (synthetic, regenerated or blended yarn
of both) in piece 5.50  yards to 6 yards not in than or roll.
(ii) Felts, cut pieces, fabrics cut into sizes of piece goods;  and(iii) Cotton synthetic blended suiting of all constructions for
screen printing machine/table.Banned
8. 55.12 to 55.16 All H.S. codes The following except polyester shear of mesh 80-150 required
for screen printing machine/table.
(i) Shirting and suiting of 85% or more by weight of
synthetic or man-made fibre (synthetic, regenerated or
blended yarn of both) and similar fabrics in any form;
(ii) Felts, cut pieces, fabrics cut into sizes and prices goods;(iii) Cotton and synthetic blended suiting white, dyed printed
above 45 inches width;  and
(iv) Cotton synthetic blended suiting of all constructions
above 60 inches width.Banned
Annex I (cont'd)WT/BOP/S/12
Page 9
Srl H.S. heading
numberH.S. Code
numberDescription of items Type of restriction
9. 56.07 5607.41 to
5607.90Ropes made of nylon and polythene except nylon cord for V-
beltBanned
10. 60.01;60.02 All H.S. Codes All items except knit fabrics, mesh fabrics, pocketing cloth,
ribbing materials, nylon shirting and knit fabric, brassiere
paddingBanned
11. 90.28 9028.30 Single phase electric meter (in completely built-up condition) Banned
12. 17.01 All H.S. Codes (a) Raw sugar (white crystal sugar or refined crystal sugar
with polarization not less than 99.7 in either case).Unrefined sugar/Gur.
(b) Other sugars (beet sugar and cane sugar in solid form).
(c) Sucrose, chemically pure sugar and refined sugar.Restricted
13. 25.01 All H.S. Codes (a) Common salt, except table salt.
(b) Table salt.Restricted
14. 52.08 to 52.12 All H.S. Codes (i) Grey cloth, all sorts.
(ii) Indigo denim (jeans fabrics) 100% cotton fabrics above
36 inches width (in than or roll) not in cut pieces or cutto size.
(iii) Combat cloth;  and
(iv) Drill and cellular dyed including mineral khaki.Restricted
15. 55.12 to 55.16 All H.S. Codes (i) Grey cloth, all sorts.
(ii) Combat cloth.Restricted
16. 60.01;60.02 All H.S. Codes Knit fabrics, mesh fabrics, pocketing cloth, ribbing materials
and nylon satinRestricted
17 90.28 9028.30 Parts and components of electric meter and parts and
components of single phase electric meter in CKD SKD
condition.Restricted
Total Trade reason Other than trade reason
Banned Restricted Restricted/Banned
96 11 6 79
Source:  WT/BOP/G/1
__________