AN OVERVIEW OF

INTERNATIONAL TRADE PAYMENT AND FINANCE

Trade Liberalization
In the external trade sector, notable changes have taken place and there has been considerable
decrease in the tariff rates and simplification of tariff structure over the period. Bangladesh
followed a restricted import policy till nineties. Nothing could be imported without a license
involving cumbersome procedures along with intricate documentation. Although some
liberalization measures were taken in second half of eighties, real breakthrough came only in
!!". #teady progress has been made in nineties in replacement of $uantitative restrictions,
licensing and discretionary control over imports by deregulation, simplification of procedures
and protection through tariff and exchange rates. %xport and Import policies have been
formulated since then accordingly. Bangladesh moved from the initial phase of $uantitative
control during the decades of &"'s and ("'s to the phase of tariff reduction by the end of !("s.
)he average nominal rate of protection was significantly declined and the number of items
sub*ect to $uantitative restrictions was reduced drastically. According to an I+, study as of
-ecember ., /""0, the controlled list contained " items, which were mainly restricted or
prohibited for public safety, religious, environmental or social reasons. And only /0 items of
those were restricted purely for trade purposes of which & are banned and ! are restricted. But
there has been gradual easing up in that and tariff rates on the imported goods have been
substantially slashed which could be fond from drastic reduction in our Average )ariff 1ates.
2ayments related to all authorized trade transactions have generally been allowed. Bangladesh
was a founder member of 3)4 and as an active member 5it has been nominated as the leader of
the 6-7 8roup9 it has been taking part in multilateral trade initiatives which has been at the
heart of 3)4 campaign. Apart from that, it has been participating in a lot of regional trading
blocs such as #A2)A 5!!:9, BI+#)%7 5/"";9, #A,)A 5/""09, A2)A 5/""09, and #A,A#
5/""(9 as well as bilateral trade < economic cooperation initiatives with neighboring countries
like India, 2akistan, #ri 6anka, even under )%7, with prominent trading partner =#A.
+oreover, Bangladesh also had arrangements such as 74+%7 5!(9, )2#>4I7 5/"".9, 2)A
with ->( countries. All those nothing but bears the testimony of drastic shift from import
restrictive protectionist industrialization policies towards rather import management and export
promoting outward looking developmental approach. ,or promotion of trade as a means of
acceleration of economic growth and development different public sector as well as private
sector bodies, think tanks like 7ommercial 3ing and 3)4 7ell with +inistry of 7ommerce,
B,)I, 72-, #AN%+ etc. have *ointly working with I)7, =N7)A-, =N%#7A2, 7I-A, %7. As
a means of facilitation of trade liberalization the 8oB through Bangladesh Bank has substantially
relaxed the barriers and restrictions which were prevailing during the periods of trade and
exchange control. ,or ensuring a more free flow of goods and services as well as financial flows
NB1, )ariff 7ommission, 2ort Authorities, 7ustoms, 77I<%, Bangladesh Bank have been
extensively working but there lack of proper synchronizations and cooperation in their efforts.
%xternal sector deregulation during the !"'s has been properly matched up by financial sector
reforms? it is worth mentioning the time befitting efforts of Bangladesh Bank, which lifted the
relevant exchange control measures related with the financial flows to accommodate enhanced
flows of exports, imports, remittance, factor income, ,-I,2I etc. in line with other government
initiatives.
International Trade Payment Method
8lobally four international trade payment methods are used. )hese are@ 7ash in Advance? 4pen
Account? -ocumentary 7ollection? and -ocumentary 7redit. In most developed countries 4pen
Account is the most popular form of international trade payment method. Aowever in
Bangladesh, -ocumentary 7redit is the most widely used form of payment. In recent years,
-ocumentary 7ollection is getting popularity in making export payment from Bangladesh.
International Trade Finan!in"
Banks provided finance to the exporters and importers. ,inance or credit provided to the
exporters is known as export finance which is generally offered at pre>shipment and post>
shipment stage. Importers are provided financing facilities at pre>import and post import stage.
Re"#latory Frame$or% &or International 'an%in" (Dometi! Re"#lation ) International
*#ideline+
International 'an%in"
)he term international banking has been used to refer to the cross>border and cross>country
facets of banking business which implies taking deposits from and lending in domestic
currencies to non>residents 5foreign governments, enterprises and individuals9, taking deposits
from and lending in foreign currencies to both residents and nonresidents, foreigners, structured
financing, transaction in foreign exchange as well as commodity markets, offering various trade
related support services 5documentary letter of credit, documentary collection, offering credit
lines in multiple currencies, providing bank acceptances9 as well as investment banking
services5underwriting, placement, cross>border mergers, ac$uisitions and sales, financial
advisory and investment services9. Not all of the facilities are provided in our country. +ainly in
Bangladesh, Authorized -ealer Branches 5popularly known as A-s9 along with 4ff>shore
Banking =nits of various N7Bs, 27Bs, ,7Bs are offering international banking.
Dometi! Re"#latory Frame$or% &or International 'an%in"
In the area of international trade payment and foreign exchange, banks are re$uired to follow two
sets of rules and regulations. Banks need to follow some domestic regulations and some
international guidelines. In Bangladesh, ,oreign %xchange 1egulation Act !;& is the most
important domestic regulation in the field of international banking which has basically
empowered Bangladesh Bank to formulate guidelines for foreign exchange transactions. Being
empowered Bangladesh Bank has drafted 8uidelines for foreign %xchange )ransactions, Bol><
/, /""! 5a compilation of all the ,% 7irculars and ,% 7ircular 6etters9. 4ther than these, banks
are re$uired to follow existing export and import policies of the country formulated by the
+inistry of 7ommerce,5C%xport 2olicy /""!>/' and CImport 2olicy 4rder /""!>/'9, the
7ustoms Act, directives from the different government agencies such as 7ustoms, 77I<%,NB1,
)ariff 7ommission.
International Re"#lation,*#ideline
International regulationsDguidelines basically indicate some I77 publications. 4f the I77
guidelinesDregulations, =72-7 is the regulatory framework for documentary credit operation
and is the most popular I77 publications. )he current version is known as =72 0"" that came
into effect from Euly ", /""&. +oreover, documentary collection is regulated by =niform 1ules
for 7ollection 5=179 publication no>://. 4ther than these banks follow =niform 1ules for Bank
to Bank 1eimbursement Arrangement 5=11 &/:9, International #tandard Banking 2ractices
5I#B2 0(9, Incoterms 5Incoterms /""9, =niform 1ules for -emand 8uarantees 5=1-8 ;:(9,
International #tandby 2ractices 5I#2 !(9 etc.
Con-ertibility o& C#rren!y
By the first $uarter of !!"s Bangladesh undertook a number of liberalization measures on the
items 5payments on visible and invisible trade transactions, remittances of incomes, travel and
personal payments etc.9 of current account. In !!., 7urrent account of B42 of Bangladesh has
been declared convertible, and the country has been award with Article BIII status of I+, since
April , !!;. +ore liberalizationDdecontrolDderegulatory measures have been undertaken over
the period. 7apital account of B42 of Bangladesh remained more or less restricted. =nder
capital account, the inflows of ,-I and portfolio investment are permitted, however outflows are
restricted. 2ermissions are re$uired for all types of inflows and outflows of financial loans.
E.!han"e Rate and Forei"n E.!han"e Mar%et
Bangladesh had been maintaining basket>pegging exchange rate arrangement since !&!. #ince
+ay /""., the country has adopted independent floating exchange rate management system.
=nder the system, exchange rate of taka is determined through the interaction of demand and
supply forces. ,oreign exchange market of Bangladesh is very shallow. 4nly spot and a very few
forward transactions are in practice.