WT/TPR/S/68 Trade Policy Review
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IV. TRADE POLICIES BY SECTOR
(1) INTRODUCTION
1. The customs tariff is the main instrument of Bangladesh's trade policy, directly affecting
agriculture and manufacturing.  The overall level of tariff protection has fallen considerably during
the review period as a consequence of tariff reform;  this is particularly true of effective protection.1
The dispersion in effective rates of protection across 40 agricultural and manufacturing sectors has
also dropped, which means that the potentially distorting effects of the tariff on domestic resource
allocation has declined.  It would appear, therefore, that the tariff has become somewhat less of an
obstacle to Bangladesh's economic development during the review period.  Notable protection
remains in the export-oriented textiles and clothing sectors and on processed food and tobacco
products.
2. During the review period Bangladesh has taken strides to improve its basic infrastructure,
including banking and telecommunications.  Neve rtheless, the smooth functioning of the economy
remains hampered by inefficiencies and shortages in essential services.  A weak banking system
hinders exporters' access to trade finance, and thus their ability to export, as well their access to
finance for investment.  Frequent power cuts and insufficient telephone connections disrupt
production of goods and services, and a poor transport system impedes the export and internal
distribution of goods.  Most of these basic infrastructural services have long been provided by
state-owned enterprises (SOEs), most of which are inefficient and often loss-making, impaired by
outdated capital and unable to meet the essential needs of the economy.  As a result, the costs of doing
business in Bangladesh are unnecessarily high, which impairs the competitiveness of firms operating
there.
3. Lack of finance, equipment, and technical and management expertise in these infrastructural
service has prompted the Government to turn its attention to private domestic and foreign investment
for the development of these sectors.  Thus, the investment regime appears to be relatively open,
although the requirement of cabinet approval for some investment projects creates the potential for
political interference and reduces transparency in the selection process.  Bangladesh has not made use
of the GATS framework, however, which could help build investors' confidence with regard to its
commitments to liberalization of state-dominated services.  Bangladesh has made commitments only
in five-star hotel and lodging services (in the tourism and travel-related services) and
telecommunications services;  those commitments did not constitute liberalization, however, merely a
commitment to the status quo.
(2) EFFECTIVE PROTECTION
4. Judging by the effective rates of protection (ERPs), the average level of tariff protection has
declined by nearly two thirds during the peri od under review;  the average ERP dropped from 75.7%
in 1992/93 to 26.8% in 1998/99 (Tables III.3 and IV.1).2  However, the overall level of effective
protection is still considerably higher than the level of applied nominal MFN protection.  Perhaps
more importantly, from the standpoint of domestic resource allocation, is the substantial drop in thedispersion in ERPs across 40 agricultural and manufac turing sectors.  Nevertheless, ERPs vary widely
between sectors (Table IV.1 and Chart IV.1).
                                                     
1 Effective protection, which measures protection to net value-added, tends to be a better measure of
tariff protection than nominal protection b ecause it takes into account traded inputs.
2 These estimates are based on the Corden method and were computed using 1992/93 input-output data
and World Bank SINTIA-IO software.Bangladesh WT/TPR/S/68
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Table IV.1
Effective rate of protection in 40 sectors in Bangladesh, 1992-2000
Sector 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00a
Rice -8.00 0.90 2.40 -5.80 -5.70 -5.40 -5.30 -4.70
Wheat -3.90 8.50 11.00 2.00 2.20 2.60 2.80 0.20
Coarse grains -4.90 -4.10 -0.80 -0.20 -0.20 0.10 0.10 0.40
Jute 64.40 67.20 30.60 31.80 32.00 32.40 32.50 26.80
Sugar cane 68.40 72.30 14.20 14.80 15.00 15.20 15.20 15.80
Cotton 4.80 5.40 -2.00 -1.70 -1.70 -1.50 -1.60 -1.40
Tobacco 12.50 -0.90 10.20 11.80 12.10 11.10 11.30 12.20
Potato 58.90 60.40 48.80 36.70 35.70 26.90 24.50 23.10
Other vegetables 71.70 43.60 44.50 32.10 32.20 32.10 32.10 26.70
Pulses 19.90 18.10 17.40 26.90 17.00 18.20 11.30 8.30
Oil seeds 53.80 42.70 35.60 24.60 24.70 22.80 22.80 19.70
Fruit 58.20 60.50 44.90 40.20 39.90 38.10 36.30 33.10
Tea 82.70 85.10 66.00 48.70 48.80 46.40 43.40 41.00
Other crops 64.90 40.40 41.50 28.30 28.60 28.10 27.20 22.50
Livestock 74.30 54.00 42.00 33.20 32.80 28.80 28.00 24.80
Fish 78.40 45.30 45.10 28.40 28.50 27.90 28.00 23.20
Forestry 38.80 32.70 23.90 22.70 22.90 19.70 19.20 16.90
Other food 489.20 327.40 88.50 88.30 86.00 76.70 68.30 66.90
Edible oil 74.80 46.50 39.60 55.60 53.70 41.40 35.30 35.00
Sugar and gar 96.30 42.30 52.30 51.10 51.40 40.00 38.50 31.10
Salt 51.40 62.60 43.50 37.20 34.60 30.70 29.10 29.50
Yarn 68.00 57.40 60.90 51.70 35.00 34.20 33.70 30.50
Cloth:  mill 189.70 147.50 131.60 98.00 110.20 86.20 78.20 72.70
Cloth:  hardloom 157.70 128.50 114.60 87.60 94.90 75.50 68.80 64.50
Ready-made garments 237.20 130.00 84.10 53.70 57.40 65.40 60.50 58.90
Jute textile 98.20 93.50 81.00 53.70 56.00 48.40 44.10 43.50
Paper 68.30 74.10 48.80 25.40 22.70 12.70 11.30 15.50
Leather and leather products 98.60 87.30 42.30 20.70 15.00 8.80 5.90 6.50
Chemical fertilizer -5.60 -2.20 -5.00 -3.60 -3.00 0.40 0.50 0.60
Pharmaceutical 1.50 -2.20 -2.50 -2.60 -1.40 0.70 0.60 -1.70
Chemical 30.30 15.40 14.90 12.50 13.80 15.20 16.10 9.70
Petroleum products 40.20 32.80 45.70 35.50 35.70 32.30 31.20 27.30
Cement 56.00 30.60 21.40 18.50 19.10 19.00 20.30 21.20
Steel and basic metal 40.90 27.20 27.40 25.10 24.60 25.00 25.10 19.50
Metal products 52.70 43.30 25.10 25.80 27.00 18.20 17.30 15.40
Machinery 47.50 28.90 15.10 12.60 12.30 9.30 9.60 5.20
Transport equipment 69.90 49.10 41.90 38.00 22.80 21.80 19.80 17.90
Wood and wood products 124.30 81.00 48.10 47.30 47.30 32.90 32.90 31.30
Tobacco products 133.60 69.90 89.70 85.00 86.70 81.90 74.70 68.50
Other industries 72.20 65.10 38.50 37.30 29.60 21.90 21.00 19.90
Average ERP 75.71 56.65 40.57 33.02 32.42 28.55 26.77 24.47
Standard deviation 83.34 56.27 30.79 23.35 26.44 22.67 20.60 19.72
Coefficient de variation 110.08 99.33 75.90 76.50 81.40 79.80 77.25 80.88
a Estimates.
Source: Bangladesh Tariff Commission.WT/TPR/S/68 Trade Policy Review
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-10 0 10 20 30 40 50 60 70 80 90Chart IV.1
Effective rates of protection by sector, 1998/99
Source :    Data provided by th e authorities of Bangladesh.Leather and leather prod.PaperCloth:  handloo mCloth:  millYarnOther foodPotatoes
Frui tOil seedsPulsesRice
Coarse grainsWheat
CottonSugar caneJute
Tobacco
Other vegetables
FishLivestoc kOther cropsTea
Forestry
Edible oils
Sugar and gur
Salt
Ready-made garments
Jute textiles
MachineryMetal productsSteel and basic metalsCemen tPetroleum productsChemicalsPharmaceuticalsChemical fertilizers
Other industriesTobacco productsWood and wood poductsTransport equipmen tEffective rate of 
protection average
(26.8%)Bangladesh WT/TPR/S/68
Page 89
5. Manufactured goods are, by and large, considerably more protected than agricultural
products;  EPRs for manufacturing and agriculture were 30% and 23.5% in 1998/99.  Rice, wheat,
coarse grains and cotton receive very little, if any, effective protection;  indeed, in the cases of rice
and cotton, protection is slightly negative.  Likewise, protection is negligible for chemical fertilizers
and pharmaceuticals.  By contrast, the export-oriented textiles and clothing sectors as well as
processed food and tobacco products are accorded relatively high levels of effective protection.  Forcertain sectors, notably prepared food products, textiles and clothing, effective rates are much higherthan nominal rates of protection (Chart IV.2 and Table AIV.1).
05101520253035
11 12 13 21 22 23 29 31 32 33 34 35 36 37 38 39Chart IV.2
Nominal applied MFN tariff rates by sector, 1999/2000                      
Per cent
ISIC classification:
11           Agriculture and hunting
12           Forestry and logging 
13           Fishing  
21           Coal mining22           Crude petroleum and natural gas     23           Metal ore mining29           Other mining31           Manufacture of food, beverages and tobacco32          Textile, wearing apparel and leather industries
33          Wood and wood products34          Paper and paper products35          Chemicals, rubber and plastic36          Non-metallic mineral products37          Basic metal38          Fabricated metal, machinery and equipment39          Other products
Calculations exclude specific duties and inputs that depend on the finished product.
WTO Secretariat calculations, based on data provided by the authorities of Bangladesh.Note:
Source : Average applied rate
22.2%
6. Despite high effective protection, which tends to hamper productivity, the ready-made
garment sector has flourished because it has been insulated from the tariff regime by import
restrictions and export promotion measures (notably the special bonded warehouse scheme, EPZs,duty drawback schemes and cash assistance) (Chapter III).  The sector has also greatly benefited fromBangladesh's preferential access to U.S. and EU markets (section (5)(ii)).WT/TPR/S/68 Trade Policy Review
Page 90
(3) AGRICULTURE
(i) Features
7. Agriculture accounted for 30.0% of GDP in 1998 /99 (Chart IV.3) but employed 63.0% of the
labour force (Chart IV.4), which suggests that labour productivity in the sector is well below the
national average.3  Growth in agricultural production averaged 2.7% in 1992-99, while the average
growth rate for the whole economy was 5.0% (Table IV.2).  Crops accounted for 57.8% of totalagricultural production in 1998/99, however, the pr oduction of livestock and fisheries has expanded
since 1992/93.  Crop production is dominated by rice, which accounts for about three quarters of the
cultivated land;  other crops include pluses (4.6%), wheat (3.9%), oilseeds (3.8%), jute (3.7%),
sugarcane (1.2%), potato (1.1%), fruit (0.8%).
8. Agricultural products are an important compone nt of Bangladesh's trade;  in 1998/99, they
accounted for 20.7% of total imports and 8.9% of total exports.  The main agricultural imports are
edible oils, dairy products, fruit, vegetables, and sugar;  the main exports include tea, raw jute,
vegetables, fish and shrimps.  Bangladesh continues to import considerable amounts of foodgrain (rice
and wheat) to meet the country's needs;  such imports are covered by foreign aid, government and
private imports.
9. The Ministries of Agriculture, Forestry, and Livestock and Fisheries are responsible for
policy formulation in the respective areas, including the implementation of the National Agricultural
Policy 1999, the National Forestry Policy 1994, and the National Fishery Policy 1998.
1992/93Per cent
Services
59.8Housing 
9.2
Manufacturing
9.7Construction
6.0
Livestock & forestry
6.81998/99a
Crops
19.5Commerce 
8.3
Other 
services
23.4Transport, storage & 
communication
12.9
Crops
17.3Services
61.1
Agriculture
30.0Manufacturing
8.9
Livestock & forestry
7.1Fisheries  
5.5Commerce
8.9
Other 
services
26.3Transport, storage & 
communication
10.6
Construction
6.0Chart IV.3
Sectoral composition of GDP, 1992/93 and 1998/99 
Agriculture
30.5
Fisheries
4.2Housing
9.2
Source :  Data provided by the authorities of Bangladesh.a            Estimates.
                                                     
3 The employment figure is for 1995/96.Bangladesh WT/TPR/S/68
Page 91
Per cent
Agriculture, forestry and fisheries
63.0Manufacturing
7.4
Commerce, hotels & restaurants
12.3Chart IV.4
Employment by sector, 1995/96
Source :   Bangladesh Bureau of Statistics, Report on labour force survey in Bangladesh 1995/96, December 1996. Construction
2.1
Community & personal services
9.2
Other services
1.3Transport, storage & communication
4.5
Table IV.2
GDP growth rate by sector, 1992-99
(GDP at constant prices (1984/85=100);  annual percentage change)
Sector 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99a Average
1992/99
Agriculture 1.8 0.3 -1.0 3.7 6.4 2.9 5.0 2.7
Crops 0.8 -1.6 -3.8 2.8 6.2 1.4 4.3 1.4
Forestry 3.0 4.0 4.5 4.3 4.2 4.3 4.0 4.0
Livestock 6.2 8.5 8.3 8.0 8.0 8.0 7.6 7.8
Fisheries 6.6 8.7 9.7 5.9 8.6 8.6 8.0 8.0
Mining and quarrying 13.8 13.1 13.2 27.0 27.6 32.0 21.5 21.2
Industry 9.1 7.8 8.6 5.3 3.5 9.5 2.5 6.6
Large scale 13.2 10.2 11.2 6.0 3.3 11.0 2.2 8.2
Small scale 2.9 4.0 4.2 3.9 3.9 6.8 3.0 4.1
Construction 4.8 6.0 7.0 4.0 4.9 7.0 6.5 5.7
Power, gas, water and sanitary
services13.4 14.0 11.3 9.9 1.7 3.0 2.4 8.0
Transport, storage and
communication4.8 5.5 5.9 5.0 6.5 6.8 6.0 5.8
Trade services 4.3 5.2 10.1 13.0 6.6 6.7 5.7 6.9
Housing services 3.8 3.8 3.8 3.8 3.9 3.9 3.5 3.8
Public administration and
defence8.5 8.6 8.7 8.3 8.4 8.6 8.0 8.4
Banking and insurance 3.0 3.5 4.0 3.5 3.8 3.7 3.7 3.6
Professional and
miscellaneous services6.8 7.3 7.3 6.7 7.0 7.0 6.3 6.9
GDP at constant market price 4.5 4.2 4.4 5.4 5.9 5.7 5.2 5.0
a Provisional.
Source : Bangladesh Bureau of Statistics.WT/TPR/S/68 Trade Policy Review
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(ii) Crops
10. As the crops sector alone accounts for 57% of total employment, it is essential that it is made
profitable, through modernization and diversification, to reduce rural poverty and raise the living
standards of the people of Bangladesh.  While the Government does not provide direct financial
assistance, it does assist crop farmers through intervention in the agricultural input markets (i.e. seeds,
fertilizer, irrigation, concessional interest rates) and in public food procurement.
11. Responsibility for the distribution of agricultural inputs has been shifted further towards the
private sector since the previous Trade Policy Review.  Although the increased involvement of private
sector in the agricultural input markets has generally improved the efficiency of crop production, the
process has been accompanied by non-availability of certain inputs, price rises, smuggling, and a
reduction in the quality of fertilizers.4
12. The Bangladesh Agricultural Development Co rporation (BADC) produces and distributes a
small portion of the country's demand for various crops seeds including paddy, wheat, maize,
vegetables, potato, jute, pulse  and oil seeds;  the remainder are produced, preserved and used under
private management.  Seeds produced by the BADC are sold to farmers at a price below the estimated
costs of production, processing and distribution, thus implying an element of subsidy.  The totalsubsidy in 1994/95, the latest data provided by the authorities, was Tk 410 million;  the share of
subsidy in the value of output of each crop was negligible, except in the case of maize, which
accounted for 1.92% of total output.
13. The price and distribution of fertilizers has been deregulated since the mid 1980s.  At present,
domestic wholesale prices are fixed by the government at levels that may not match world prices.
However, retail prices are not regulated.  Since 1993/94, no direct subsidy for fertilizer has been
granted by the Government.  Nevertheless, natural gas, the main input for fertilizer production, isprovided at a subsidized rate to the Banglade sh Chemical Industries Corporation (BCIC), the
state-owned producer of urea.  Given that the BCIC has incurred losses that have been covered by the
Government, this appears to entail a hidden subsidy for the provision of fertilizer.
14. Like other agricultural inputs, the provision of irrigation equipment and services has been
largely liberalized as a result of the lifting of im port restrictions on irrigation equipment, shifting of
irrigation management to the private sector, and th e withdrawal of standards for irrigation equipment.
The remaining government support includes the provision of surface water irrigation, through the
Bangladesh Water Development Board (BDWB), which does not reflect the full cost of providing
such service.  For instance, in 1995/96, public expenditure on irrigation was Tk 2,484 million, and the
irrigation charge recovered from farmers was Tk 19 million, implying an estimated support ofTk 2,465 million or 0.83% of total of agricultural output.
15. Agricultural credit is provided through the nationalized commercial banks and specialized
banks at concessionary interest rates, in the range of 10% to 14%, established by the Bangladesh
Bank.  The disbursement of agricultural credit has substantially increased in recent years.  At the same
time, the repayment rate has been very low and the total amount of outstanding loans expanded tomore than Tk 85 billion in 1997/98 (Table IV.3).  While the majority of agricultural credit is
channelled through the above financial institu tions, the effectiveness of NGOs' involvement in
providing micro-credit to farmers has been recognized in recent years.  The current National
Agricultural Policy envisages a greater involvement of NGOs in monitoring the disbursement and
recovery of credit through their participation in the agricultural credit committee set up in each
district.
                                                     
4 Ministry of Agriculture (1999).Bangladesh WT/TPR/S/68
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Table IV.3
Agricultural credit disbursement and recovery, 1996-98
(Tk million)
1996/97 1997/98
Credit disbursement 15,173.0 16,428.4
Crop loans (other than tea) 6,416.0 6,394.1
Purchase and installation of irrigation equipment 5.5 2.7
Livestock 914.3 735.2
Marketing of agricultural products 1,952.1 1,802.8
Fisheries 279.2 251.6
Poverty alleviation 2,198.2 3,168.7
Loans for other activities (including tea and agricultural machinery) 3,407.7 4,073.5
Loans due for recovery 69,070.7 71,879.5
Recovery of loans 16,013.3 16,990.7
Overdue loan 53,128.1 54,893.6
Total outstanding 82,562.1 85,150.4
Overdue loans/total outstanding (%) 64.3 64.5
Source: Bangladesh Bank.
16. Other forms of public support to agriculture relate to research, agricultural extension, pest and
disease control measures, training, marketing services, and various infrastructural services.  Such
assistance is provided both on a product-specific and general non-product basis.  A large part includes
water development infrastructure, such as flood control embankments and drainage.
17. The Government procures foodgrains (rice and wheat) at pre-announced prices for public
food distribution;  such procurement is supplemented by foreign aid and commercial imports
(Table IV.4).5  The government procurement price can be higher or lower than the prevailing market
price;  when it is higher, as in the case of rice in 1995/96, it constitutes a subsidy to growers, and
when it is lower, as in the cases of rice and wheat in 1993/94 and 1994/95, it is tantamount to a tax.
Table IV.4
Food procurement, 1995-98
('000 metric tonnes)
1995/96 1996/97 1997/98
Domestic procurement 422 616 617
Rice 353 513 399
Wheat 69 103 218
Foreign aid imports 618 549 1,233
Rice 10 0 59
Wheat 608 549 1,174
Government commercial imports 112 253 763
Rice 9 98 334
Wheat 103 155 429
Source : The Government of Bangladesh.
                                                     
5 The food grain requirement for 1997/98 was estimated by the Food Planning and Monitoring Unit of
the Ministry of Food at about 20.70 million tonnes.  As the net available foodgrain was about 18.46 million
tonnes, excluding the use of grains for seeds and wastage estimated at 10% of the production of foodgrains, the
deficit was about 2.24 million tonnes.  Of the deficit, 0.52 million tonnes was provided by food aid imports, and0.98 million tonnes and 0.20 million tonnes by private sector and government sector imports. The internalprocurement of foodgrain was 0.62 million tonnes;  ri ce and wheat accounted for 0.40 and 0.22 million tonnes,
respectively (Ministry of Finance, 1998a).WT/TPR/S/68 Trade Policy Review
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18. The procured foodgrains are distributed by the Ministry of Food through various channels,
including, inter alia , open market sales, ration sales, food for work, food for education, vulnerable
group development, vulnerable group feeding and relief (including test relief and gratuitous relief).
The latter three categories are granted temporarily, in the case of disaster or other similar situations.
In 1997/98, about 1.46 million tonnes of foodgrains were distributed by the Government.
(4) ENERGY6
19. Bangladesh's consumption of and access to energy are among the lowest in the world:  only
about 3% of household have access to gas, and 15% to electricity.  This suggests that the social and
economic opportunity cost of power shortages has been enormous.  According to various
manufacturers' associations, production could be increased by 10-15% if reliable power supplies were
available.7  Both the gas and power sectors in Bangladesh suffer from lack of investment and,
consequently, low efficiency.  Thus, the Government's decision to open the two sectors to private
investment, both domestic and foreign, offers great potential for stimulating domestic production as
well as exports.
(i) Natural gas
20. Bangladesh has no indigenous source of commercial fuel, other than natural gas and recently
discovered coal.  In order to reduce the burden of its fuel import bill, the Government has tried to
reduce dependence on imported oil by increasing the use of indigenous natural gas to meet the total
energy demands of the country.8
21. It is estimated that Bangladesh had proven and recoverable reserves of 13.7 trillion cubic feet
at the end of 1997;  together with probable reserves, these amount to total estimated reserves of
23.2 trillion cubic feet.  With annual production of about 0.28 trillion cubic feet, the
reserve-to-production ratio is about 50 years.  This is expected to increase as the Government hasopened up gas exploration and production to private in vestment since 1993, by offering 23 blocks for
bidding, and has signed production-sharing contracts with several international oil companies.
Industry experts believe Bangladesh possesses significant gas reserves, and thus two rounds of
bidding have attracted a large inflow of foreign investment in recent years.
9  Between 1996/97 and
1998/99, the sector attracted foreign investment in the range of US$170 million to US$217 millionannually, accounting for about 40% of total FDI into Bangladesh.
10
22. Subsidiaries of the national petroleum company, Petrobangla, produce about 70% of
Bangladesh's commercial energy consumption;  the remainder is produced and delivered to
Petrobangla by international oil companies.  Gi ven the importance of electricity in boosting the
economy and the importance of chemical fertilizer in agricultural production, the Government hasallocated gas supply to power generation (45- 50%), fertilizer production (25-27%), industry
(13-18%), and commercial and domestic uses (10-12%) (Table IV.5).
11  Tariffs, set by the
Government for different uses of gas, were most recently revised in December 1998.  The rates are
                                                     
6 The information in this section is based on IMF (1998) and World Bank (1999a).
7 For instance, in the garments industry, the gross value of lost exports due to power outages could
amount to US$200-300 million annually (World Bank, 1999a).
8 The National Energy Policy, 1996.
9 The success ratio of 33% (20 discoveries out of 60 wells drilled) is high, and the average filed size is
large by world standards (World Bank, 1999a).
10 World Bank (1999a).
11 Natural gas available in Bangladesh contains mostly methane;  it is not a good raw materials for
producing petrochemical products except chemical fertilizer and methanol.Bangladesh WT/TPR/S/68
Page 95
Tk 1.93 per m3 for power generation, Tk 1.68 per m3 for fertilizer, Tk 4.20 per m3 for industry, and
Tk 6.00 per m3 for commercial use.  These tariffs are still 20-30% below the cost of supply, resulting
in significant losses to the economy.12
Table IV.5
Gas utilization, 1995-2002
(Billion cubic feet)
1995/96 1996/97 1997/98 1998/99 1999/2000 2000/01 2001/02
Power 110.9 110.8 128.0 143.0 156.0 156.0 159.0
Fertilizer 91.0 77.8 104.0 104.0 111.0 111.0 111.0
Domestic 20.7 22.8 27.0 29.0 31.0 34.0 37.0
Commercial 3.0 3.3 6.0 6.0 7.0 8.0 9.0
Industry 25.6 28.6 35.0 37.0 40.0 44.0 61.0
TOTAL 252.9 244.6 300.0 319.0 345.0 353.0 377.0
Note: Data for 1997/98 to 2001/2002 are forecasts.
Source: Petrobangla.
23. Given its considerable reserves, the gas sector's potential contribution to the overall
development of the Bangladesh economy is high.  Hence, the Government as taken steps to strengthen
the operational capacity of the gas sector in recent years.  The inadequate gas transmission system is
considered to be a serious bottleneck to growth, and is being addressed by projects financed by the
World Bank and the Asian Development Bank.  Moreover, the establishment of a Gas RegulatoryAuthority, as well as formulation of a Gas Act, have been proposed.
(ii) Electricity
24. With per capita electricity generation of 106 KW per annum, power shortages have become
among the most important bottlenecks for economic development.  While Bangladesh's installed
power generation capacity is at present 3,603 megawatts (MW), which is much greater than the peakdemand of 2,445 MW, actual generation is about 2,400 MW.  The outcome is that demand cannot be
met.  This is due to serious financial constraints, high system losses, and low efficiency.  Combined
system losses by the Bangladesh Power Developm ent Board (BPDB) and Dhaka Electricity Supply
Authority (DESA), the state-owned entities,  were as high as 33% in 1997/98.
13
25. Power generation, transmission and distribution of electricity are the responsibility of the
BPDB, the statutory body, although distribution is also carried out by DESA and the Rural
Electrification Board (REB) in their respective areas of operation.  Of the total electricity generation
of 11.9 billion KWH in 1996/97, gas-based generation constituted 84.5%, hydro generation 6.1%, and
liquid-fuel-based generation 9.4%.  The residential sector accounted for 41.8% of total electricity
consumption, industry for 41.2%, the commercial sector for 8.7%, agriculture for 5.4%, and otherusers for 2.9% in 1996/97.
26. With a view to improving operational and management efficiency, the Government has
undertaken some reforms in the power sector.  These include unbundling the assets of BPDB and
DESA into generation, transmission, and distribution companies, and establishing commercial
relationships between these entities.  In this regard, the Power Grid Company of Bangladesh (PGCB)was created to operate the entire transmission system of the country, thereby taking over the
                                                     
12 World Bank (1999a).
13 IMF (1998).WT/TPR/S/68 Trade Policy Review
Page 96
transmission component of PGCB.  The Dhaka El ectric Supply Company (DESC) was established in
1996 to gradually take over the distribution system of DESA.
27. With regard to power generation, in 1996 the Government approved the Private Sector Power
Generation Policy, thereby lifting restrictions on private investment, both domestic and foreign.  In
order to meet the estimated peak demand of 3,150 MW in FY2000 and 4,600 MW in FY2005, several
private entities have been licensed to construct and operate generating facilities, adding as much as600 MW of electricity annually, equivalent to 30% of BPDB's available generating capacity.  Under
this policy, private power companies are exempt from income tax for a period of 15 years and from
customs duties and VAT normally levied on the importation of plant and equipment.  The power
sector has already attracted an estimated US$3 81 million in FDI between 1997/98 and 1998/99, and a
further inflow of US$644 million is expected during the period 1999-2002.
14
28. In addition, rules and regulations have been formulated to establish a National Energy
Regulatory Commission, an independent statutory regulatory authority to oversee licensing, tariffs,
and other regulatory functions.  Rationalization of tariffs has been addressed by implementing
semi-annual tariff adjustments based on a formula to compensate for variations in fuel cost and
foreign exchange fluctuations.  Until September 1996, the weighted average national retail tariff forelectricity was only about 60% of the long-run marginal cost.
15  The increases in tariffs since FY1997
have brought the average rate approximately equal to the average delivery cost.  Nonetheless, tariffs
are still characterized by considerable cross-subsidization of household and irrigation consumers by
industrial and commercial consumers.16
(5) MANUFACTURING
(i) Features
29. The share of manufacturing in GDP was 8.9% in 1998/99, down from 9.7% in 1992/93
(Chart IV.3).  The growth of the sector, which averaged 8.8% for the period under review
(Table IV.6), has been driven almost by entirely  by the ready-made garmen t (RMG) sub-sector whose
growth rate has averaged 26.1% (Table IV.6).  Textiles and clothing account for about 5% of GDP
and around 50% of the industrial employment.
30. The industrial sector is also characterized by the existence of large loss-making state-owned
enterprises (SOEs).  These include the Bangladesh Textile Mills Corporation (BTMC), the
Bangladesh Steel and Engineering Corporation (BSEC), the Bangladesh Sugar and Food Industries
Corporation (BSFIC), the Bangladesh Chemical I ndustries Corporation (BCIC), and the Bangladesh
Jute Mills Corporation (BJMC).  These five SOEs accounted for 80% of the total net losses incurred
by the 38 largest non-financial SOEs in 1997/98 (see Chapter III, in particular Table III.18).
31. The policy framework for the industrial sector is governed by the Industrial Policy, 1999.17
As in the previous Industrial Policy, the 1999 Policy emphasizes acceleration of the country's
industrial development through a shift of the governme nt's role from regulator to facilitator, expansion
of private and foreign investment, restructuring of state-owned enterprises, promotion of small and
cottage industries, manufacturing of higher-value-a dded products, improvement of infrastructure, and
                                                     
14 World Bank (1999a).
15 IMF (1998).
16 World Bank (1999a).
17 In addition to manufacturing activities, the Industrial Policy, 1999, also governs some service
industries, including entertainment, hospitals and clinic s, information-technology-based activities, construction,
and hotels.Bangladesh WT/TPR/S/68
Page 97
strengthening and diversification of the export base.  Incentives and infrastructural facilities for the
private industrial sector are provided by the Bo ard of Investment (BOI), the Bangladesh Export
Processing Zones Authority (BEPZA) and the Bangladesh Small and Cottage Industries Corporation
(BSCIC) (Chapter III(4)(i), (3)(xiv) and (4)(vi), respectively).  SOEs fall under the domain of the
respective ministries and the Privatisation Board (Chapter III (4)(vii)).
Table IV.6
Growth in industrial production (manufacturing) by main category, 1992-99
(Annual percentage change)
1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99a Average
1992-99
O v e r a l l 2 6 . 38 . 56 . 16 . 23 . 39 . 3 1 . 98 . 8
Food, beverages, and
tobacco3.6 9.5 13.8 -4.4 -1.2 5.0 0.3 3.8
Jute, textiles, and leather 39.9 3.8 -0.7 13.2 8.5 17.2 4.9 12.4
of which  Garments 70.3 1.7 2.7 56.6 15.3 31.5 4.9 26.1
Wood products 6.0 10.5 10.2 5.8 9.7 5.2 12.7 8.6
Paper and paper products 42.7 19.0 18.9 2.3 -0.5 0.5 13.2 13.7
Chemicals, fertilizer,
petroleum, and rubber37.8 11.6 5.4 7.3 -2.0 2.5 -5.1 8.2
Non-metallic products 0.1 15.8 -8.0 17.3 24.4 6.0 1.6 8.2
Basic metal products -17.3 77.0 66.5 -13.0 8.4 8.0 -13.9 16.5
Fabricated metal products -1.3 -1.2 12.2 -9.2 5.5 7.2 1.7 2.1
a Provisional.
Source : Bangladesh Bureau of Statistics, Monthly Statistical Bulletin, various issues.
32. As discussed earlier, both nominal and effective tariff protection for the manufacturing sector
has fallen considerable during the period under review.  Despite the widespread allegation that trade
liberalization in the 1990s has harmed Bangladesh's manufacturing industries, it seems to have had an
overall positive impact on the sector's performance.  According to a study by the World Bank, amajority of the manufacturing enterprises surveyed experienced positive total factor productivity
growth, averaging 29% over the period of 1992-98, or about 6% annually.
18  Without claiming direct
causality, the report argues that the progressive reductions in trade restrictions must have played a
positive role in this outcome by inducing competition, technological change and diffusion, and
technical efficiency gains, and thus increased productivity of inputs.
(ii) Textiles and clothing
33. The textiles and clothing industry has been the driving force behind Bangladesh's export
boom since the early 1990s, accounting for over 83.5% of total exports in 1998.  The sector is
dominated by the ready-made garment sub-industry, which was responsible for 73% of the country's
foreign exchange earnings in 1997/98, up from 50% at the beginning of 1990s.  Woven garments,
such as shirts, trousers and jackets, still make up a large part of the RMG exports;  however, the share
declined from 85% in 1990/91 to 66% in 1997/98, while the share of knitwear increased from 15% to34% during the same period. There are some 3,000 garment factories in Bangladesh, employing
around 1.5 million people, most of them women;  an additional 15 million people are directly
dependent on the RMG industry.
                                                     
18 World Bank (2000).WT/TPR/S/68 Trade Policy Review
Page 98
34. Between 1990 and 1997 Bangladesh's RMG exports grew by 200% in terms of volume and
370% in terms of value, achieving one of the highest growth rates among major garment exporters
worldwide (Chart IV.5).19  For instance, China's garment export value increased by 230%, Pakistan's
by 90% and India's by less than 100% during the same period.  Despite its high export growth,
Bangladesh's export-oriented RMG industry depends on imports for 85% of its fabric requirement,
thus spending approximately 65% of its export earnings.20  Textiles is the largest category of
Bangladesh's imports, accounting for 21.7% of the total in 1998.
05001,0001,5002,0002,5003,000
1983/8484/85
85/86 86/87 87/88 88/89
89/90 90/91 91/92
92/93 93/94 94/95
95/96 96/971997/98020406080100120Chart IV.5                               
Growth of the ready-made garment subsector, 1983-98
Source :  Data provided by the authorities of Bangladesh. Output exported (million dozen)
(right-hand scale)Number of factory units
(left-hand scale)
35. The growth of the RMG industry is attributable to  several factors.  First, political turmoil and
price increases in some neighbouring Asian countries in the 1970s aroused the interest of overseas
buyers in the potential of Bangladesh.  Second, Bangladesh has abundant labour, whose wage level is
one of the lowest in Asia;  this is suitable fo r the RMG industry, which is characterized by a low
capital requirement and high labour intensity.   Third, Bangladesh enjoys quota-free access to the
European Union under the Generalized System of Preferences (GSP), and considerable quota
allowance under bilateral agreements with the United States and Canada (see below).  Fourth, the
Government has provided considerable assistance, involving, inter alia , import barriers, duty
concessions, tax incentives, and cash subsidies (Chapter III).
36. The main destinations for RMG exports are the European Union and the United States, which
together accounted for 95% of such exports in 1997/98 (Table IV.7).  The remaining 5% is exportedto Canada (2%), Japan, Singapore, the Republic of Korea, and others.  Bangladesh is the eighth
largest clothing exporter in the EU market and the tenth largest in the US market in 1997/98.
21  In the
                                                     
19 Dr. Martilli Associates (1999).
20 BOI (1999).
21 Dr. Martilli Associates (1999).Bangladesh WT/TPR/S/68
Page 99
world market, Bangladesh is the twelfth largest RMG exporter;  it was the fifth largest exporter of
woven apparel with the share of 3.8% of the world market, and the nineteenth largest exporter of
knitwear with a share of 1.46% in 1995.
Table IV.7
Destination of RMG exports, 1990-98
Total exports
(US$ billion)Growth rate
(%)Exports to EU
(% of total)Exports to U.S.
(% of total)Exports to other
markets (% of total)
1990/91 0.87 .. 48 47 5
1991/92 1.18 36.4 47 49 4
1992/93 1.45 22.2 46 49 5
1993/94 1.56 7.7 56 38 6
1994/95 2.23 43.5 50 45 5
1995/96 2.55 14.1 54 39 7
1996/97 3.00 17.8 54 42 4
1997/98 3.80 26.0 51 44 5
.. Not available.
Source: Bangladesh Garment Manufacturers and Exporters Association.
37. Bangladesh's market access to the EU, the United States and Canada is currently governed by
bilateral agreements.  Bangladesh enjoys quota-free and duty-free entry into the countries of the
European Union under the GSP, as long as a product fulfils the rules of origin and is accompanied bya Certificate of Origin issued by the Export Promotion Bureau.
22  Under these rules, exported goods
generally have to meet "2-stage transformation" criteria to ensure that the goods are sufficiently
transformed within the exporting country in order to be classified under a different four-digit HS code
category.
38. Market access to the United States is governed by the 1994 bilateral agreement.  Quotas are in
place on 21 garment-related products;  the quotas are allowed to grow at an annual rate of 7%.  All
garment exports, both quota and non-quota items, must be accompanied by a visa issued by the
Textile Cell in the Export Promotion Bureau for clearance of the U.S. Customs.  Generally, the quota
utilization rate is quite high, with certain categories reaching 100%.  Similar arrangement exists
between Bangladesh and Canada on 10 product categories, with the growth rate ranging from 6.96%to 8.7% (Table IV.8).
Table IV.8
Quota utilization, 1997-99
(Dozen and per cent)
1997 1998 1999
Category Nos. DescriptionQuota
(in dozen)Utilization
(%)Quota
(in dozen)Utilization
(%)Quota
(in dozen)Utilization
(%)
U.S. quotas
237 Playsuits, etc. 489,098 90.8 547,021 96.9 574,995 70.4
331 Gloves 1,061,102 50.9 1,364,879 73.9 1,354,428 78.2
Table IV.8 (cont'd)
                                                     
22 Under the EU-Bangladesh bilateral textile agreement, several textile categories are subject to the
Double-Checking System of surveillance based on export licences issued by the Export Promotion Bureau.  Thecategories include 4 (tee-shirts and undervests), 6 (trousers) and 8 (men's and boy's woven shirts).  The aim ofthe system is to stop illegal exports from third countries in the name of Bangladesh.  The agreement is to expireon 31 December 2004.WT/TPR/S/68 Trade Policy Review
Page 100
1997 1998 1999
Category Nos. DescriptionQuota
(in dozen)Utilization
(%)Quota
(in dozen)Utilization
(%)Quota
(in dozen)Utilization
(%)
334 Coats, non-suit, M&B 125,822 100.0 155,563 99.1 154,215 73.6
335 Coats, W&G 193,477 78.4 212,320 99.4 276,893 42.1
336/636 Dresses 452,367 52.0 404,767 84.4 563,635 71.9
338/339 Knit shirts & blouses 1,485,225 92.1 1,482,333 86.7 1,697,310 76.8
340/640 Shirts, not knit, M&B 3,037,328 100.0 3,350,905 100.0 3,244,886 82.4
341 Shirts & blouses, not
knit, W&G1,614,918 84.7 2,010,672 78.6 2,549,123 71.1
342/642 Skirts 410,857 64.6 495,671 71.8 479,015 65.5
347/648 Trousers, etc. 2,582,282 99.8 2,846,760 93.2 3,135,706 91.5
351/651 Nightwear 691,834 100.0 762,780 100.0 738,646 85.3
352/652 Underwear 10,494,286 88.7 11,379,895 91.2 11,719,126 92.3
363 Terry & other pile
towels (Nos)25,787,547 82.6 28,961,581 89.1 29,279,569 74.4
369-S Shop towels (kg.) 1,728,558 92.7 1,905,819 92.4 1,962,630 86.9
634 Coats, non-suit, M&B 552,364 100.0 583,056 100.0 539,527 71.0
635 Coats, W&G 373,101 100.0 381,108 99.6 349,551 81.3
638/639 Knit shirts & blouses 1,639,853 99.9 1,879,869 85.8 1,741,323 71.5
641 Shirts & blouses, not
knit, W&G687,297 52.6 420,473 99.8 777,307 43.8
645/647 Sweaters 438,934 98.2 441,466 98.7 427,498 44.1
647/648 Trousers, etc. 1,624,079 86.6 1,702,760 92.1 1,972,144 86.0
847 Trousers, slacks, shorts 306,733 36.9 176,170 80.5 470,638 32.8
National average 83.4 90.0 78.6
Canadian quotas (pieces) (%) (pieces) (%) (pieces) (%)
01A Jackets 1,309.216 96.2 .. .. .. ..
02 Winter outwear 349.683 103.2 .. .. .. ..
03/04A Ensembles, MBC 1,330.981 2.1 .. .. .. ..
05 Trouser, overalls &
shorts2,401.183 55.0 .. .. .. ..
05A Of which trousers M&B,
trousers W&G567.387 96.8 .. .. .. ..
07/08A Woven shirts, blouses,
similar articles
(k/c) shirts, blouses,similar articles
Athletic wear4,666.070
451.61593.8
85.0..
....
....
....
..
07/08B of which , T-shirts 8,002.812 32.8 .. .. .. ..
08C Sweatshirts .. .. .. .. .. ..
09 Underwear 6,097.273 52.2 .. .. .. ..
14 Babies' garments 244.194 24.4 .. .. .. ..
National average 25,420.414 64.2 .. .. .. ..
.. Not available.
Source: Export Promotion Bureau.
39. The Textile Cell, in the Export Promotion Bureau, is in charge of quota allocation and
monitoring;  the allocation rules and procedures are prescribed by the Textile Trade and Quota
Administration Rules, 1991.  The Cell allocates quotas for textile exports to the United States andBangladesh WT/TPR/S/68
Page 101
Canada, which must be approved by the Quota Allocation and Monitoring Committee.  The quota is
allocated yearly on the basis of past performance, and it is adjustable, but not renewable (Box IV.1).
Box IV.1:  Quota allocation
The Quota Allocation and Monitoring Committee comprises representatives of the Ministry of Commerce,
the Export Promotion Bureau (EPB), the Bangladesh Garment Manufacturers and Exporters Association(BGMEA), and other garment exporters' associations.  The Committee allocates quotas under the procedureprescribed in the Textile Trade and Quota Administration Rules, 1991.
For allocation of available quota for all categories, i. e. the quota specified in the bilateral agreement plus
20% for each category, the following percentage is used:
1st year 2nd year 3rd year 4th year 5th and
subsequent years
Past performance 80 95 100 100 100
Local fabric 10 10 10 10 10
Free quota 30 15 10 10 5
The "past performance quota" is allocated to performers based on their past performance.  A
manufacturer-exporter who performs 95% or more is treated as though the performance was 100%.
The 10% "local fabric quota" is allocated as follows:  (i) a minimum of 40% of the local fabric quota is
allocated to past performers and the balance 60% is distributed among new local fabric users equally;
(ii) application for allocation of lo cal fabric quota must be accompanied by copies of master L/C, and
inland back-to-back L/C from a local supplier of fabr ics, etc.;  (iii) if a manufacturer-exporter fails to
produce inland back-to-back L/C to EFB within 30 days of the date of receipt of the allocation letter theallocation is automatically cancelled;  (iv) no transfer of quota of local fabric users is allowed.
The "free quota" is allocated as follows:  (i) allo cation is given to those exporters having no export
performance for 12 months preceding the commencement of the relevant quota period;  (ii) a
manufacturer-exporter under the free quota is not entitled to apply for more than eight quota categories;(iii) 5% of the free quota is reserved for allocation to the Trade Corporation of Bangladesh (TCB), which isdestined for export of garments to Japan, East Europe, and non-EC counties;  (iv) the free quota is allocatedto manufacturers and exporters equally;  (v) a manufacturer-exporter is not entitled to free quota in acategory if a previous allocation quota was not filled;  (vi) a manufacturer-exporter having past
performance, at the time of application, has the option to surrender his claim for performance quota and to
apply for free quota instead;  in such an event this share of the performance quota is be transferred to theavailable free quota.
Source:   The Textile Trade and Quota Administration Rules, 1991.
40. The Agreement on Textiles and Clothing (ATC) of the Uruguay Round calls for the gradual
elimination of restrictive trade practices and the complete integration of the textiles and clothingsector into the GATT framework by 2005.  The possible impact of the ATC on Bangladesh has been
of great interest to the Government as well as foreign donors because of Bangladesh's heavy
dependence on the EU and U.S. markets, where it has enjoyed far better terms of preferential market
access in comparison with its competitors.
23  Concern has been raised as to whether Bangladesh will
be able to compete in a more liberal trade international environment once it loses these guaranteedmarket outlets.
                                                     
23 World Bank (1999a);  Dr. Martilli Associat es (1999);  and Dowlah C.A.F. (1999).WT/TPR/S/68 Trade Policy Review
Page 102
41. Lack of backward linkages to the RMG industry is another major concern for the post-2005
period.  As already mentioned, the industry currently relies on imports for 85% of its fabric
requirements, despite the 25% cash incentive (of f.o.b. value) granted to exporters using domestically
produced fabric (Chapter III(3)(x)).  In spite of its considerable size, the domestic textile industry does
not, and most likely cannot, produce fabric suitable for RMG exports because of the unbalanced
capacity among the subsectors of spinning, weaving, and dyeing/printing/finishing.  Most mills suffer
from outdated machinery, power failures, poor management, and low labour productivity.  In
particular, the BMTC, a state-owned mill, is unable to meet the demand in terms of quantity (and
quality), and is running net losses.
(6) SERVICES
(i) Financial services
(a) Banking services
42. The banking services sector comprises four nationalized commercial banks (NCBs), five
government-owned specialized banks, 28 private commercial banks and 13 foreign banks
(Table IV.9).  Prior to 1980, only NCBs, some specialized banks, and some branches of foreign banks
were operating in Bangladesh.  Since 1981, the operation of private commercial banks has beenallowed, and two of the six NBCs have been privatized;  the number of private commercial banks
increased during the 1990s.
Table IV.9
Structure of the banking sector in Bangladesh, 1990/91 and 1998/99
1990/91 1998/99
Type of banks No. of banks
(No. of
branches)Share in
total
deposits
(%)Share in
total
advances
(%)No. of banks
(No. of
branches)Share in
total
deposits
(%)Share in
total
advances
(%)
Nationalized commercial
banks4
(3,580)62.4 53.4 4
(3,616)59.2 53.9
Specialized banks 3
(1,165)4.6 20.6 5
(1,175)5.2 13.2
Private commercial banks 10
(865)25.7 20.6 28
(1,173)27.7 26.8
Foreign banks 7
(18)7.4 5.5 13
(31)7.9 6.1
Total 24
(5,268)100.0% 100.0% 50
(5,995)100.0% 100.0%
Source: Bangladesh Bank.
43. Although their share has been declining over re cent years, NCBs dominate the banking sector,
accounting for about 60% of all bank deposits and 54% of total bank advances (Table IV.9).  Thespecialized banks were created with special mandates to address the financial needs of the agricultural
and industrial sectors and are used as a means of assisting these sectors.
24  While their deposit taking
is relatively small, 5.2% in 1998/99, they provide 13.2% of all banks advances, financed by large
borrowings from the Bangladesh Bank (BB).  Foreign banks are active principally in trade finance.
                                                     
24 The specialized banks include the Bangladesh Krishi Bank, the Bangladesh Shilpa Bank, the
Rajshahi Krishi Unnyan Bank, the Bank of Small Industries and Commerce Bangladesh Ltd., and theBangladesh Shilpa Rin Sangstha.Bangladesh WT/TPR/S/68
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44. Bangladesh's banking system has been characterized as weak and unsound.25  The banking
sector's problems include:  (i) a high level of non-performing loans;  (ii) a low loan recovery rate (less
than 5%);  (iii) an inability on the part of local banks to meet capital adequacy requirements;  (iv) high
spreads, reflecting systemic inefficiencies and portfolio problems;  and (v) rampant insider lending
and fraudulent behaviour.26  Although some progress has been made in addressing these problems
under the World Bank supported Financial Sector Reform Program (FSRP) from 1989 to 1995, theBangladeshi banking system remains in severe distress (Chapter I(3)(iii)).
27
45. The Banking Companies Act, 1991, is the principal legislation regulating the banking sector.
Enforcement of the Act, as well as supervision of the banking sector, is entrusted mainly to the BB.28
As envisaged in the legislation, the Ministry of Finance also takes charge of certain areas of bankingregulation, including the appointment of the board of directors and chief executives of NCBs andspecialized banks.
29
46. Applications for a banking licence must be subm itted to the BB.  After examination of the
application, a recommendation is made to the Ministry of Finance, which gives final approval before
the licence can be issued by the central bank.  Since 1990, 17 licences have been granted, of which ten
were for local banks, and another seven for foreign banks.  The BB has received a total of82 applications since 1990.
47. Section 31 of the Banking Companies Act, 1991, contains the conditions for issuing licences.
In 1999/2000, the minimum capital requirement for openi ng a new bank was rais ed to Tk 400 million
from Tk 200 million, 50% of which must be paid by the applicant, and the remaining capital raised by
offering public shares through the stock exchange within four years.
48. For a foreign bank, the minimum capital requirement is Tk 100 million, which must be
brought in from outside Bangladesh in approv ed foreign currencies (US dollar, pound sterling,
Japanese yen, Deutsche mark or euro).  A foreign bank can also build up its capital by retaining its
remittable profits.  To place foreign banks on an equal footing with local banks, it has been proposed
to increase the minimum capital for foreign banks to Tk 400 million.  There are no other conditions
for foreign banks to fulfil meet before opening banks in Bangladesh.
49. All prudential requirements are applied equally to local and foreign banks.  Since
January 1996, the capital adequacy requirement for banks has been 8% of risk-weighted assets or
Tk 100 million, whichever is higher.  Previously, the amount of capital required was 6% of the total
demand and time liabilities or Tk 200 million for local banks (Tk 100 million for foreign banks),
whichever was higher.  The revised policy shifted from the capital-to-liabilities approach for assessing
capital positions of banks to an approach taking account of different degrees of credit risks andcovering both on-balance-sheet and off-balance-sheet transactions.  This has brought the capital
adequacy requirement close to the Basle standards.
                                                     
25 For more detailed discussion on banking sector problems in Bangladesh, see IMF (1998), Section III;
and World Bank (1998b).
26 World Bank (1999a).
27 According to the authorities, achievements under the FSRP include the introduction of a maximum
limit of 50% of shareholding on connected lending, a competitive environment, and efficiency in the bankingsector.
28 Such authority is conferred upon the Bangla desh Bank by the Bangladesh Bank Order, 1972.
29 The functions and responsibilities of the Bangladesh Bank are not clearly defined, and the bank lacks
autonomy in areas such as the licensing and supervision of banks.  As the NCBs are monitored by the Ministry
of Finance, in reality almost two thirds of the banking system is not fully under the regulatory oversight andhence the legal authority of the Bank (IMF, 1998;  and World Bank, 1999a).WT/TPR/S/68 Trade Policy Review
Page 104
50. Each bank is required to maintain a cash balance with the BB equivalent to 4% of its total
demand and time liabilities, and to hold 16% of these liabilities in cash or liquid assets such as
government securities.  Prior approval is required from the BB for lending above 15% of the capital.
In addition, provision of credit facilities to a single borrower is limited to 10% of a bank's paid-up
capital.  Moreover, no individual company or member s of the same family, individually or jointly, can
hold more than 10% of a bank’s total shares.  The list of activities that banking institutions areallowed to conduct is specified in Section 9 of the Banking Companies Act;  the Act was not available
to the Secretariat.
51. There is no general law allowing a monopoly by any bank in the areas of regulated financial
products, special savings, or financing schemes.  Industrial and agricultural sectors receive support
from the specialized banks.  Public sector companies or agencies are required to deposit certainportion of their funds with the NCBs.  Subsidized credit remains only for exports, and banks are
required by the BB to keep interest rates within the 8-10% range.
52. Given the lack of funds for the country's development, foreign banks are generally
encouraged to takes a role in the provision of banking services.  There is no minimum domestic equity
requirement and they are allowed to open branches with permission from the BB.  Foreign banks arefree to take deposits from and grant loans to domestic companies and residents;  they also have full
access to credit from the BB, local financial markets, deposit insurance, and clearing facilities.
Foreign banks are allowed to conduct the same business as local banks
53. In addition to the provision of banking services though the establishment of subsidiaries in
Bangladesh with their own capital base, as described above, foreign banks are also allowed to operate
through branches.  There are currently 31 branches of 13-foreign based banks operating in
Bangladesh.  Minimum capital requirements, reporting obligations, and prudential requirements, aswell as the scope of activities are listed in the Banking Companies Act.  A licence to operate a branch
is required from the BB;  the condition for grantin g such a licence is reciprocity between Bangladesh
and the home country of the foreign bank.  As their business is primarily in trade financing,  foreign
banks are allowed to open branches only in the capital city and port towns.
(b) Insurance services
54. Currently there are some 25 general insurance companies and seven life insurance companies
in Bangladesh.  The virtually state-owned monopolies – the Sadhran Bima Corporation (SBC) in
general insurance business, and the Jiban Bima Corporation (JBC) in life insurance business – were
opened to the private sector in 1984 by amending the Insurance Corporation Act, 1973.
30  A foreign
general insurance company, the American Life Insurance Company (ALICO), had been allowed tooperate in Bangladesh despite the ban on private ownership of insurance companies.  While foreign
participation has been permitted in the life insurance business since 1984, it is still restricted in the
general insurance business.  At present, the AL ICO is still the only foreign insurance company
operating in Bangladesh.
55. Private participation in insurance services has contributed to the growth of premiums both in
general and life insurance businesses.  Meanwhile, the share of insurance activity handled by the
state-owned companies has declined substantially (Table IV.10).
                                                     
30 After Independence in 1971, all 49 privately owned insurance companies were nationalized through
the Bangladesh Insurance (Nationalisation) Order, 1972, and restructured into 5 insurance corporations.  Theywere further restructured into two corporations, SBC and JBC, under the Insurance Companies Act, 1973.Bangladesh WT/TPR/S/68
Page 105
56. Insurance services are governed by:  the Insurance Act 1938, as amended;  the Insurance
Corporation Act, 1973, as amended;  the Insuran ce Rules, 1958, as amended;  and various finance
Acts.  The Chief Controller of Insurance (CCI), under the Ministry of Commerce, is responsible for
the supervision of insurance companies' activities, as laid down by the Insurance Act, 1938 and, when
necessary, the imposition of fines and penalties or suspension of licence for violation of the provisions
of the Act.  All insurers are required to submit financial accounts to the CCI at the end of eachcalendar year.
Table IV.10
Structure of the insurance sector in Bangladesh, 1998/99
Type of insurance No. of companies Gross premium (Tk million) Share in total premium (%)
General insurance 25 4,000 100.0
SBC 1 700 17.5
Private companies 24 3,300 82.5
Life insurance 7 5,000 100.0
JBC 1 1,400 18.0
Private companies 6 3,600 72.0
Source: Chief Controller of Insurance.
57. An application for setting up an insurance company is made to the CCI, which, after
examination, makes a recommendation to the Cabinet.  Once prior permission is granted, the companymust be registered under the Company Act, 1994, and arrange deposit insurance and reinsurance.  The
CCI then issues a certificate for insurance business under the Insurance Act, 1938.  A separate licence
is required for each new branch.  General and life insurers are required to confine their business to
their respective field and are not allowed to provide other financial services, such as banking.
58. The minimum capital requirement for setting up an insurance company is Tk 75 million for
life insurance business, and Tk 150 million for general insurance business.  40% of the capital must be
subscribed by the sponsor at the time of formation, and the remaining 60% subscribed by the public
within three years of the formation of the company.
31  The company is required to deposit part of the
required capital with the BB at the time of registration:  Tk 4 million for life insurance, Tk 3 million
for fire, marine, or other general insurance.  The minimum equity participation of a sponsor director isTk 0.5 million for general business and Tk 0.2 million for life business, and the maximum equity
participation is restricted to 20% of the sponsor' s capital.  After three years, when the company goes
for public subscription, at least one third of directors must be elected from the public holders.  There
are no other prudential requirements, such as maximum exposure to specified risks.
32
59. The Central Rating Committee under the CCI is in  charge of premium setting.  Premiums for
most general insurance products, such as fire, marine, motor, personal accident, and worker’s
compensation, are set by the Committee and must be adhered to by all the insurers.33  The premium
rates for other classes of business are also regulated by the Committee, to maintain uniformity and to
avoid cut-throat competition.  For introduction of new insurance products, rates, terms, conditions,
                                                     
31 A sponsor director cannot be a director of a bank or financial institution or a director of similar class
of insurer.  Nor can he be a bank loan defaulter.
32 According to the authorities, however, such risk is covered by the reinsurance arrangement, as
required for every insurance company at the time of business commencement.
33 Apart from the Committee, the Bangladesh Insurance Association also monitors members'
compliance with the set premiums.  The Association was established by the private insurers in 1988 to promote,support, and protect the interest and welfare of the insurance industry and to ensure legal and ethical practices inthe conduct of insurance business.WT/TPR/S/68 Trade Policy Review
Page 106
policy formats, etc., an insurer must obtain a pproval from the CCI after examination by the
Committee.
60. While the SBC's share in the overall provision of general insurance has declined over time,
some insurance business is reserved for the SBC.  For instance, public sector companies or agencies
must have at least 50% of their insurance underwritten by the SBC.  All private general insurers are
required to place at least 50% of their reinsurance with the SBC, which in turn reinsures their entiresurplus with foreign reinsurers abroad, the remain ing 50% may be re-insured by other re-insurance
companies, whether inside or outside of Bangladesh.
34  However, life insurers are not required to take
reinsurance from the SBC.  Moreover, all insurance policies with regard to properties in Bangladesh,
including all imports and exports under marine policies, must be insured with the local insurers,
whether the SBC or private general insurers.
(ii) Telecommunications
61. The telecommunications sector is characterized by a very low level of penetration, limited
capability to meet growing demand, a low level of investment, and outdated systems and
technologies, which require remedial measures.35  Bangladesh's telephone penetration rate is
0.4 telephone per 100 population, far below the world average of 10 per 100.  The average waitingperiod for installation of a new telephone line ranges from three months to ten years.
62. The previously state-owned monopoly was opened to the private sector in 1989, so that the
telecommunications sector in Bangladesh today comprises both public and private operators:  the
government-owned Bangladesh Telegraph and Telephone Board (BTTB) and seven private operators,
including foreign operators, provide various basic telecommunications services.
36  In voice telephone
services, the BTTB still provides 95% of local and long-distance telephone services;  two private
operators (one local and one local-foreign joint venture) account for the remaining 5% in the ruralareas.
37   International telephone services are provided only by the BTTB.  By contrast, in mobile
services, four private operators (one local and one three with foreign capital participation) have a
100% market share.38  Facsimile and data transactions services are provided only by the BTTB.
63. The BTTB has a monopoly over the provision of all value-added telecommunications services
except paging and radio-trucking services, which have been provided by one private operator since1989.  BTTB's services include calling cards, internet, packet-switch public data network (PSPDN),
facsimile, operators, trunk dialling, paging and home-country direct dialling services.  Currently, there
are some 27 private internet service providers.
                                                     
34 While foreign-based reinsurance companies are not allowed to operate in Bangladesh, they can sell
their services through local brokers.
35 Ministry of Post and Telecommunications (1998).
36 According to the GATS Sectoral  Classification List, basic telecommunication services include voice
telephone services, packet-switched data transmission serv ices, circuit-switched data transmission services, telex
services, telegraph services, facsimile services, private l eased circuit services and a variety of others services,
including mobile communications, providing real-time transmission of customer supplied information.Value-added services include electronic mail, voice mail, on-line information and data retrieval, Electronic DataInterchange, enhanced/value-added facsimile services, code and protocol conversion, and on-line information
and/or data processing.
37 There are about 500,000 subscribers to the B TTB, 24,000 subscribers to the Bangladesh Rural
Telecommunications Authority, and Sheba Telecom, which provide basic telecommunications services in ruralareas.
38 The four mobile operators together have about 112,000 subscribers.Bangladesh WT/TPR/S/68
Page 107
64. The regulatory framework governing the telecommunications sector is in the process of
reform, as laid down by the National Telecommunications Policy, 1998.  The sector is still governed
by the Telegraph Act, 1885, as amended in 1933;  the new Telecommunications Act, repealing the
1885 Act, and before the Cabinet in September 1999, is yet to come into force.39  The most important
component of the new legislation is the establishment of a new independent regulator, the
Telecommunications Regulatory Commission (TRC).  Until 1995, the regulatory function had beenvested in the BTTB, which had been the major operator since 1989, and the sole operator prior to that
date.  In 1995, the regulatory function was shifted the Ministry of Post and Telecommunications
(MOPT) as a temporary measure, and it will ultimately be shifted to the TRC;  the MOPT will revert
to just policy-making.
65. According to the proposed Act, the TRC will be an autonomous body, but remain under the
administrative control of the MOPT.  Its main functions include, inter alia , issuance of operator
licences, regulation of tariffs, setting of technical standards, monitoring of service quality and of
adherence to rules and regulations by operators, management of the radio frequency spectrum, and
guidance for interconnection between the operators and revenue-sharing for inter-operator traffic.
The TRC will be vested with legal authority to enforce regulatory measures, if necessary, by takingpunitive actions ranging from imposition of fines to closure of services.  Pending the establishment of
the TRC, these functions are currently undertaken by the MOPT.
66. While the telecommunications sector is open to private investment, the Government retains
the authority to determine the number of operators.
40  All the private operators have been working on
a "Build, Own and Operate (BOO)" basis and licences for telecom operators have been issued through
open tender.  Hitherto, two operators have been selected to provide basic telecom services in the rural
areas, four operators for mobile services, one for paging and radio trunking and one for personalhandyphone services (PHS).
41  More recently, a private operator has been selected through an open
tender to install and operate 300,000 digital telephone lines in Dhaka on a BOO basis.  Licences are
granted for 15 to 25 years and usually specify conditions for revenue sharing and interconnection.42
Private operators are not allowed to re-sell their services, however, they are permitted to makeprovisions for interconnection with the BTTB.  Generally, it takes 10 to 12 months to obtain a licenceapproval, first from the MOPT and then from the Cabinet.  There are no restrictions with regard to the
equity shareholding for foreign participation in a telecom company, and, according to the authorities,
foreign investors receive national treatment.
67. The objective of the National Telecommunications Policy, 1998, is to facilitate universal
telephone service, subject to cost-based pricing.
43  To achieve this goal, further participation by
private investors, including foreign investors, is encouraged.  According to the Policy, the
Government would open up all fields of telecommunication services, except international services, for
private participation after the 2010, and possibly earlier.  Meanwhile, it reserves the right to license
                                                     
39 In addition to the Telegraph Act, 1885, the new Te lecommunications Act will cover provisions of the
Wireless Act, 1933, the Radio Broadcasting Act, 1975 and 1992, and the Television Broadcasting Act, 1965.
40 The telecommunications sector was removed from the list of "reserved industries" that are
exclusively reserved for public sector investment, in the Industrial Policy, 1991.
41 The licence for PHS was granted in November 1999;  operations are yet to start.
42 The Government/BTTB receives licence fees and revenue shares from Grameen Phone (cellular),
TM International Bangladesh (cellular), Sheba Teleco m (cellular) and Bangladesh Broadcasting Telephone and
Technology (PHS);  access charges and royalties from Bangladesh Telecom Ltd (paging and radio trucking) and
Pacific Bangladesh Telecom Ltd (cellular);  and a percenta ge of international and national service revenues from
Sheba Telecom (rural) and Bangladesh Rural Telecom Authority (rural).
43 Teledensity targets are set at one telephone for every 100 persons by 2000 and four per 100 by 2010,
and for the availability of telecommunication facilities in every village by 2005.WT/TPR/S/68 Trade Policy Review
Page 108
additional operators as appropriate, and if needed, take measures to open basic telecommunication
services to private sector operating entities.44  In addition, a two-phase restructuring of the BTTB is
envisaged:  first, transforming the BTTB into a limited company, with Government ownership of at
least 51% of the shares, followed by full privatization with the possibility of engaging an
internationally reputed foreign telephone company as strategic partner.45
68. Currently, all tariffs for the BTTB's basic telecom and value-added services are set by the
MOPT, in consultation with the Ministry of Finance;  tariffs for basic telecom services in the rural
areas are set by the private operators within the price cap established by the MOPT.  Tariffs for
mobile services are set freely by the private operators and notified to the MOPT.  MOPT-set tariffs
are revised from time to time in consultation with operators and service providers, taking into account
changes in the cost of equipment, developments in technology, increases in the use of services, andsocio-economic considerations, such as affordability, the consumer price index, and extent of rural
service requirement.  According to the authorities, the BTTB does not cross-subsidize its services and
its net profit ratio has been about 70% for the past five years.
69. The use of locally manufactured telecom equipment is encouraged, though not required, for
all service providers in Bangladesh.  There are currently two state-owned manufacturers meetingdomestic needs for telecom equipment, Telephone Shilpha Sanghtas, and Bangladesh Cable Shipha.
Telecom equipment in Bangladesh must comply w ith ITU standards, and be certified by the MOPT
for domestic sale and import.  Currently, Bangladesh does not have any mutual recognition
agreements for certification, but conformity certificates may be accepted on a case-by-case basis.
70. Bangladesh participated in the GATS negotiations on Basic Telecommunications, and
submitted commitments in February 1997.  Despite recent efforts to liberalize the telecommunications
sector, its GATS commitments did not constitute liberalization but bound the status quo.  Thecommitments include the issuing of two licences to private operators to supply domestic long-distance
and local voice services and transmission facilities (leased circuit services) in rural areas;  full
competition in voice and data transmission over closed used groups and for internet access services;
and the issuing of licences to four suppliers of cellular mobile voice telephone services.  Bangladesh
has listed exclusive provision of international services by the Government operator (the BTTB) andrestrictions on call-back services.  Bangladesh has also indicated that it would review the possibility
of adding regulatory principles in the future, once the TRC is established.  Moreover, it has submitted
an MFN exemption in international telecommunications services, for ten years, to permit the
Government or the government-run operator to apply differential measures, such as accounting rates,
in bilateral agreements with other operators or countries.
(iii) Transport
(a) Maritime transport and related services
Maritime transport services
71. As over 90% of Bangladesh's internationally traded goods are carried by sea, the provision of
efficient maritime transport services, as well as auxiliary services, such as port services andcargo-handing services, is essential for a cost-effective business environment.  In 1994/95, 85.1% of
Bangladesh's imports and 98.6% of its exports were transported by sea.
                                                     
44 Ministry of Post and Telecommunications (1998) .
45 Ministry of Post and Telecommunications (1998) .Bangladesh WT/TPR/S/68
Page 109
72. As of 1 January 2000, Bangladesh's national-flag fleet consisted of 22 vessels, of which,
13 vessels at 195,741 dwt. were owned by the national carrier Bangladesh Shipping Corporation
(BSC), and the remainder by private operators.  Currently, there is no foreign participation in the
nationally owned or operated fleet.
73. The BSC carries about 14% of total import and export cargo.46  In 1996/97, BSC carried
14.5% of total imports and 12.7% of total exports, which had declined from 18.5% and 14.0% in1993/94.
47  Apart from shipping service, BSC owns a marine workshop for repair services at
Chittagong.
74. The Department of Shipping, under the Minist ry of Ports, Shipping and Inland Water
Transport, regulates maritime transport and related services.  The department's main responsibilities
include, inter alia , registration of ships;  inspection of ships;  implementation of rules and regulations
relating to dangerous cargo;  setting freight rates of shipping lines;  and coordination with different
agencies, aimed at removing congestion at ports of entry and speeding up the movement of cargo.48
75. The Bangladesh Merchant Shipping Ordinance, 1983, establishes conditions for vessels
registered under the Bangladesh flag.  They must be owned by a citizen of Bangladesh;  a company
whose principal place of business is in Bangladesh ;  a company with 50% of its shares and voting
power held by Bangladesh citizens;   a company where the majority of directors are Bangladesh
citizens;  or a company whose Chairman or Mana ging Director of the Board of Directors is a
Bangladesh citizen.  Moreover, the vessels must be manned by Bangladeshi nationals.
76. The Bangladesh Flag Vessels (Protection) Ordinance, 1982, provides for the protection of
national flag vessels.  The Ordinance ensures that at least 40% of sea-borne cargo relating to foreign
trade is carried by national flag vessels, in conf ormity with the UNCTAD Code of Conduct for Liner
Conferences.  Some special types of cargo (e.g. defence cargo) must also be carried by national flagvessels.  Moreover, the Import Policy Order, which governs the conditions for importation into
Bangladesh and is formulated under the Imports and Exports (Control) Act, 1950, generally requires
the shipment of goods by Bangladesh flag vessels, when the goods are over 20 tonnes in case of single
consignments, or up to maximum 100 tonnes in the case of group consignments.
49  In keeping with
the needs of the country's foreign trade, however, the provisions of the 1982 Ordinance or the ImportPolicy Order can be relaxed or waived through general waiver notices.
77. Despite rapid growth of overall trade volume in recent years, and cargo preferences granted to
the Bangladesh flag vessels, a shortage of vessels in the national feet has prevented them from
meeting their allocated share in sea-borne trade.  Currently, national flag vessels carry about 16% of
sea-borne foreign trade.
50  One of the reasons for the under-capacity of the national fleet is lack of
                                                     
46 BSC vessels operate in the following routes:  Bangladesh/UK-Continent/Africa;
Bangladesh/Far-East/Japan;  Bangladesh/Pakistan/West Asia Gulf/Red Sea, and Bangladesh/Singapore Feeder
Service (Ministry of Finance, 1998a).
47 The Bangladesh national flag vessels handle 16% of the sea-borne foreign trade;  of which, the BSC
provides about 60% of the marine shipping services in terms of dwt.;  domestic private companies provide theremaining 40% (Planning Commission, 1997).
48 Planning Commission (1997).
49 The Import Policy Order 1997-2002, para. 4(5).  However, a waiver can be granted by the
Director-General of Shipping when goods are shipped from foreign ports that are not visited by Bangladesh
vessels;  or when imports of goods are on the basis of specific agreements which provide for c.i.f. contract.  The
Bangladeshi flag requirement does not apply to imports under such foreign aid, loans or grants that containspecific provisions regarding shipment of goods.  The requirement is also exempted for shipment of goods byexport-oriented industries.
50 Planning Commission (1997).WT/TPR/S/68 Trade Policy Review
Page 110
finance for investment in additional vessels;  for instance, the SBC has not been able to procure
vessels since 1991/92.
78. Bangladesh is a member of the following conferences:  the India-Pakistan-Bangladesh-
Ceylon Conference (IPBCC);  the Bay of Bengal-Japan Conference (BENJAP);  and the West Asia
Gulf Conference.  According to the authorities, th ese conferences are not effective in respect of any
kind of cargo-sharing or fixing of freight rates.  Moreover, Bangladesh has signed bilateral shippingagreements with 12 countries;  most concern cargo sharing on a 50:50 or 40:40:20 basis.
79. Cabotage policy has shielded the domestic water-borne routes, including inland waterways
and coastal routes, from foreign competition.
51  With regard to international trade conducted on
domestic routes (due to shared usage of rivers with India), a protocol signed between Bangladesh and
India provides for cargo-sharing on a 50:50 basis.  The renewal of the protocol, in October 1999,provided for sharing of transit cargo on a 50:50 basis.   According to the authorities, the protocol is
expected to minimize the discrimination in the water-borne trade between the two countries.
80. Currently, the Government is in the process of preparing its National Shipping Policy, which
is expected to lay down a new policy framework for the maritime sector.  The draft of the policy
emphasizes, inter alia , the urgent need for capacity expansion of the national fleet, by encouraging
private shipping companies to procure more ships.  The need for improvement in management of the
private shipping companies is also noted.
Port services
81. Bangladesh has two sea ports handling international cargo.  The principal port, Chittagong
port, handled 15.2 million tonnes of sea-borne cargo in 1998/99, or 80% of total import cargo and
70% of export cargo (Table IV.11).  The remaining export and import freight is handled by the
Mongla port, the second-largest port, which handled about 5 million tonnes in 1998/99.  TheChittagong port handles approximately 1,200 international ships annually, as well as a large number
of coastal and inland water transport vessels, while the Mongla port handles about 400 ships each
year.
Table IV.11
Cargo handing at Chittagong and Mongla ports
Chittagong port Mongla port
Import
('000
tonnes)Export
('000
tonnes)No. of
ships
handledNo. of days
for ship
handlingImport
('000
tonnes)Export
('000
tonnes)No. of
ships
handledNo. of days
for ship
handling
1990/91 6,283 926 1,057 6.5 1,905 556 429 11.9
1991/92 6,268 770 1,003 5.3 2,055 595 436 14.3
1992/93 6,497 1,117 1,058 5.1 1,758 621 379 15.2
1993/94 6,729 1,189 1,070 4.4 1,463 468 306 6.4
1994/95 8,638 1,417 1,172 4.9 2,122 705 381 8.0
1995/96 8,738 1,451 1,286 5.1 2,443 396 366 8.7
Source: Chittagong and Mongla Port Authorities.
82. The two ports are administered by autonomous governmental bodies, the Chittagong Port
Authority (CPA) and the Mongla Port Authority (MPA ), under the Ministry of Ports, Shipping and
                                                     
51 An autonomous government body, Bangladesh Inland Water Transport Authority, is responsible for
development, maintenance and control of inland water transport.Bangladesh WT/TPR/S/68
Page 111
Inland Water Transport.  They provide port facilities, and regulate movements of vessels and
navigation within the ports.  They also construct and operate docks, moorings, piers, etc. and
undertake work in connection with loading, unloading, and storage of the goods in the ports.  The
Dock Workers Management Board at each port is re sponsible for the management of dock workers
for the turn-round of ships.  There is so far no foreign investment in port services;  port activities in
Bangladesh are managed entirely by the port authorities.
83. Despite growing demand for cargo handling, as a consequence of increased trade volume in
recent years, the Chittagong port suffers from inefficient space management, shortage of handling
equipment, and lack of through-transit facilities for containers;  these bottlenecks have caused serious
delays and traffic congestion.52  The average turn-around time for vessels calling at Chittagong was
6.5 days in 1998/99, longer than in previous years (Table IV.4).  As a result, transit costs for containerhandling at Chittagong can be two to three times higher than other ports in the region.
53  I n
combination with delays in customs clearance (Chapter III (2)(iii)), slow cargo handling has impeded
international trade and the domestic distribution of goods within the country, thus hampering
Bangladesh's economic development.
84. The Government has taken steps to improve the provision of port services in the recent years.
These include construction of 175 launch/landing stations, reconditioning and procurement of
dredgers, dredging of selected waterways, procurement of ro-ro ferries, rehabilitation of vessels, and
expansion of container facilities at Chittagong port.54  In 1997/98, the Government also approved the
provision of port facilities by the private sector.  A project involving the construction of two inland
container berths, which would allow inland barges to carry containers between Chittagong and Dhaka,
is expected to help reduce container congestion and costs at Chittagong.55
(b) Air transport56
85. The Civil Aviation Authority of Bangladesh (CAAB), under the Ministry of Civil Aviation
and Tourism, is responsible for the operation of international and domestic air traffic within the
territorial airspace of Bangladesh.  The CAAB's other responsibilities include issuance of licences to
aircraft, air crew and aircraft-maintenance personnel, and construction and maintenance of aviation
infrastructure, such as air terminals and other airport facilities.
86. Bangladesh Biman Airlines provides domestic and international air services, as the national
carrier, operating to and from 25 international and 8 domestic destinations.  In 1996/97, Biman carried
1.36 million passengers (0.50 million on domestic routes and 0.86 million on international routes) and
30,840 tonnes of cargo (750 tonnes on domestic routes and 30,090 on international routes), compared
with 1.08 million passengers and 23,853 tonnes of cargo in 1992/93.57  Biman has been earning net
profits, and has not received any financial assistance from the Government.  This is due to the
profitability of its international routes, which are operated on a competitive basis.  On the other hand,
                                                     
52 Congestion and delays at the Chittagong port have been exacerbated by strikes (World Bank, 1999a;
World Bank, 1996a;  and U.S. Department of State, 1999) .
53 A World Bank study (1995) estimated that total through-costs for handling 20-foot containers at
Chittagong were much higher than at other Asian ports;  costs for Chittagong were US$640, compared withUS$214 for Singapore, US$220 for Colombo, and US$360 for Ba ngkok.  Costs included all handling,
stuffing/destuffing, and clearing costs (including customers and clearing agents' commission, and official and
informal payments), but exclusive of customs duties and costs borne by the ship (World Bank, 1996a).
54 Ministry of Finance and Planning Commission (1999).
55 Ministry of Finance and Planning Commission (1999).
56 The information in this section is based on BOI (1999).
57 Ministry of Finance (1998a).WT/TPR/S/68 Trade Policy Review
Page 112
domestic routes require cross-subsidization because tariffs are regulated by the Government and do
not cover the costs of operation.58
87. In late 1996, the Government allowed private-sector competition with the State airline on all
domestic passenger routes and on national and international cargo routes:  Six private companies have
been granted domestic air transport operating licences.59  Seven airports have been refurbished to
cater to their needs.
                                                     
58 Planning Commission (1998).
59 Board of Investment (1999).Bangladesh WT/TPR/S/68
Page 113
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