World Trade Orgtanization and the Ready Made Garment Industry of Bangladesh; a Critical Analysis

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WORLD TRADE ORGANIZATION AND THE READY-MADE GARMENT INDUSTRY OF BANGLADESH: A CRITICAL ANALYSIS

Submitted To: Professor Dr. Khondoker Bazlul Hoque

Department of International Business

University of Dhaka.

Submitted By: Sheikh Rashedul Islam
Student ID: 80116043
Subject: Theory & Practice of International Business
Course No:EIB-510
MBA (Evening Program), Department of International Business
University of Dhaka.

Submission Date: January 6, 2012
ACKNOWLEDGEMENT

I am heartily thankful to the course teacher of Theory & Practice of International Business, Professor Dr. Khondoker Bazlul Hoque; whose encouragement, guidance and support from the initial stage to the final level enabled me to develop an understanding of the topic and prepare this assignment.

I thank all of those who supported me in any respect during the completion of the assignment.

Date:January 6, 2012

Table of Contents:
Abstract:4
Introduction::5
Textile imports vs exports in Bangladesh6
Data & Simulations:7
Aggregation of GTAP database version 5_1:9
Ready made garments MFA export tax equivalent:9
Average import-weighed tariff in Bangladesh:………………………….........11

RESULTS

:12
Experiment 1: ABOLITION OF MFA QUOTAS:13
Conclusion:17
Reference:18

WORLD TRADE ORGANIZATION AND THE READYMADE GARMENT INDUSTRY OF BANGLADESH: A CRITICAL ANALYSIS

ABSTRACT

Since the 1980s the export oriented readymade garment (RMG) industry of Bangladesh has experienced an extraordinary evolution: This trend was accompanied by a tremendous rise in the export share from 0.2% in 1980 to nearly 75% in 1997-98. High concentration on low value-added products, strong dependence on imported textiles and high regional concentration of exports characterize Bangladesh’s RMG sector.

The main policy framework is given by the WTO’s Agreement on Textiles and Clothing (ATC) which follows the former Multifibre Arrangement (MFA). By 2005, the sector is to be fully integrated into GATT rules and existing quotas currently hampering trade will come to an end. Thus, it can be expected that worldwide trade in textile and clothing will expand and that production in now discriminated regions will increase. However, existing import tariffs for textiles, strongly supported by local textile producers, hinder the current RMG production in Bangladesh. In this paper we will discuss how future policy developments may affect the RMG sector of Bangladesh.

For the analysis we used the comparative static general equilibrium model GTAP. In this model quotas resulting from the MFA agreement are included as export tax equivalents. Compared to China and India, Bangladesh has less restricted access to the most important markets the EU and USA.

The experiments simulate a full phase-out of the MFA quotas, as well as a reduction of import tariffs in the textile and clothing sector. First results indicate an increase in RMG production in Bangladesh, but compared to China and particularly India growth rates are quite modest. It is shown that the effects resulting from textiles imports tariff reduction in Bangladesh itself are stronger than the MFA phase out. This demonstrates the importance of the existing tariff regime for textiles.

Furthermore it can be shown that RMG imports from Bangladesh to NAFTA are reduced while China and especially India significantly expands their exports to this region. Although Bangladesh can augment its RMG exports on the second large market, the EU, again it looses in competitiveness against China and India.

INTRODUCTION

The export oriented readymade garment (RMG) industry of Bangladesh has experienced an extraordinary evolution: having started with 9 enterprises in the late seventies, the number has now grown to over 3000. This trend was accompanied by a tremendous rise in the export share from 0.2% in 1980 to over 80% in 1998 (WTO, 2002 and...
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