BANGLADESH EXPORT TRADE PRACTICES AND THEIR EFFECT ON THE COMPETITIVENESS OF THE GARMENT INDUSTRY

A CASE STUDY

June 2006 This publication was produced for review by the United States Agency for International Development. It was prepared by Dr. Greg Gajewski and Alex Riley of The Louis Berger Group, Inc. for Booz Allen Hamilton.

BANGLADESH EXPORT TRADE PRACTICES AND THEIR EFFECT ON THE COMPETITIVENESS OF THE GARMENT HEADER INDUSTRY
This Trade Facilitation Issue Paper was written by Dr. Greg Gajewski and Alex Riley of The Louis Berger Group under the U.S. Agency for International Development (USAID) Trade Facilitation and Capacity Building Project. Through the FASTrade Project, USAIDs Bureau for Economic Growth, Agriculture and Trade (EGAT) works with USAID eld missions, other U.S. agencies, the U.S. private sector, other donors, and a range of developing country government agencies and private sector stakeholders to streamline clearance procedures, meet new security requirements, and reduce incoming and outgoing transaction costs at international borders. The project, implemented by Booz Allen Hamilton, focuses on building and strengthening developing countries institutional foundations to ensure that training, technology transfer, and new infrastructure can have a strong and sustainable long-term impact on economic development. Visit http://tcbfastrade.com for more information.

DISCLAIMER

The authors views expressed in this publication do not necessarily reect the views of the United States Agency for International Development or the United States Government.

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BANGLADESH EXPORT TRADE PRACTICES AND THEIR EFFECT ON THE COMPETITIVENESS OF THE GARMENT HEADER INDUSTRY
CONTENTS Section Page

Executive Summary..................................................................................................................2 Bangladeshs Economy And The Garment Sector....................................................4 Openness To Trade, Economic Growth And Export Competitiveness.....................4 The Garment Sector, Trade, And Bangladeshs Economy. ..............................................5 Export Competitiveness Of Bangladeshs Garment Sector And The Port Of Chittagong...................................................................................................................................5 Export Trade Practices............................................................................................................8 Customs And Other Administrative Procedures.............................................................8 Efciency Of Port Operations.............................................................................................10 Linkages With Transportation Infrastructure In The Dhaka - Chittagong Economic Cooridor............................................................ 11 Integration Of Export Trade Practices, Port Operations And Transport Linkages...................................................................14 Standardization Of Data Requirements, Streamlining Of Customs/ Administrative Transactions And Container Tracking..................................................14 Electronic Data Exchange. .....................................................................................................15 Port And Transportation Infrastructure...........................................................................15 Phasing And Timeframe Of Reforms To Enhance Export Competitiveness...........16

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executive summary HEADER

A wide body of evidence suggests that increased openness to trade and greater export competitiveness contribute to higher rates of economic growth. Export competitiveness depends, in part, on Customs and other administrative export trade practices, as well as on the efciency of port operations and the transportation linkages between the ports and the main centers of export production. This paper investigates the major factors related to trade facilitation and transportation infrastructure responsible for constraining the export competitiveness of Bangladeshs garment sector. Garments are Bangladeshs primary export, accounting for a large share of GDP and providing employment to two million people, mostly poor urban women. Therefore, the export competitiveness of the garment sector is critical to sustaining Bangladeshs otherwise solid economic growth performance. The export competitiveness of Bangladeshs garment sector is currently hindered by time consuming and costly Customs and administrative procedures. Duplication of cargo verication, at both the import and export phases, gravely hampers Bangladeshs competitiveness. Imports of needed inputs to the garment industrys production are needlessly delayed at the port, as are exports of the industrys nal product both of which increase the cost of production for the industry. In addition, competitiveness is further mired by inefcient operations at the port of Chittagong and poor connectivity between the port and the main garment manufacturing centers. Improving Customs and administrative procedures is particularly critical, given the increasing degree of worldwide competition in the garment industry caused by the elimination of quotas that protected Bangladeshs garment sector. A number of trade facilitation initiatives are required to enhance the competitiveness of Bangladeshs garment exports. The standardization of all Customs data requirements and administrative forms, in accordance with internationally accepted standards, the reduction of the number of transactions required to clear Customs and the establishment of an electronic data exchange to process Customs and shipping documents would result in dramatically reduced cargo processing times and shipment costs. These trade facilitation initiatives must be properly sequenced with the improvement of physical infrastructure at the Port of Chittagong, which handles the overwhelming majority of Bangladeshs garment exports. In addition, trade facilitation reforms should be implemented in an integrated way with the upgrading of road and rail links in the Dhaka-Chittagong Economic Corridor. Balancing trade facilitation reforms with improvements to the physical transport infrastructure will ensure the maximum impact of reforms in increasing competitiveness in the garment sector and improving overall export competitiveness.

Trade facilitation and greater export competitiveness contribute to higher rates of economic growth.

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BANGLADESH ECONOMY AND THE GARMET SECTOR HEADER

OPENNESS TO TRADE, ECONOMIC GROWTH AND EXPORT COMPETITIVENESS Research shows that trade liberalization, when accompanied by more efcient government policies and institutional reforms, increases a nations integration into the global economy. And as a result, the nation is forced to face global competition. To stay actively competitive in global markets, nations rapidly adopt technological improvements which improve rates of productivity and employment growth. In turn, the rise in productivity contributes signicantly to increased export competitiveness and higher rates of economic growth. Export competitiveness depends, in part, on the efciency of export trade processes and the suitability of existing physical infrastructure such as: 1. Customs and government agency procedures, as well as those of private sector actors that inuence the ow of exports; 2. The efciency of port operations; and 3. Linkages between port facilities and key domestic transport corridors. The experience of Bangladesh, from the 1990s to the present, clearly demonstrates the relationship between greater openness to trade, increased competitiveness of the garment sector and higher rates of economic growth. Trade openness measures the ratio of total trade (exports plus imports) to GDP, which in turn denotes a nations integration with world markets. Bangladeshs trade openness ratio has increased substantially, from 17.6% in 1990 to 32% in 2003.  The Multi-Fiber Arrangement (MFA) and the WTO Agreement on Textiles and Clothing contributed to Bangladeshs greater trade integration with world markets and a rapid expansion of garment sector exports,  which showed increases from USD$866 million in 1991 to USD$5.8 billion in 2004. And Bangladesh has enjoyed sustained rates of overall economic growth during the last 15 years. Furthermore, ination-adjusted economic growth rates averaged approximately 5% per year during the 1990s, largely due to the growth in garment sector exports. Bangladeshs more recent economic performance has continued to be impressive with growth rates at 5.9% in 2000, 5.3% in 2001, 4.4% in 2002, 5.3% in 2003 and 6.3% in 2004.  Despite these generally positive developments, the International Monetary Fund (IMF) and the Asian Development Bank (ADB) have noted that continued success in expanding garment sector exports will require that steps be taken to address Bangladeshs competitiveness. In particular, they note that a reduction in the number of regulatory stages in the clearance of imports and exports and enhancing the physical infrastructure at

The International Monetary Fund and Asian Development Bank have noted that continued success in expanding garment sector exports will require that steps be taken to address Bangladeshs competitiveness.

1 Dollar, D. and Kraay, Aart, Trade, Growth, and Poverty, Economic Journal. 2004. & Rodriguez, Francisco and Rodrik, Dani, Trade Policy and Economic Growth: A Skeptics Guide to the Cross-National Evidence NBER Macroeconomics Annual. 2000. & Dollar, D. and Kraay, A. Growth is Good for the Poor, Journal of Economic Growth. 2002.  World Development Indicators. World Bank. 2005. 3 Bangladesh Growth and Export Competitiveness. Poverty Reduction and Economic Management Sector Unit, South Asia Region. World Bank. May 2004.  Ibid.  Asian Development Bank. Key Indicators of Developing Asian and Pacific Countries: Bangladesh. http://www.adb.org/ Documents/Books/Key_Indicators/2005/pdf/BAN.pdf

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the Port of Chittagong are necessary to maintain and improve garment exports. Reducing the shipment costs associated with the export of garments is critical, due to the linkages between export competitiveness, economic growth and the importance of garment manufacturing to Bangladeshs economy. THE GARMENT SECTOR, TRADE, AND BANGLADESHS ECONOMY The garment sector is one of the most important components of Bangladeshs economy.
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signicant source of competitive disadvantage for garment sector exporters. Over 80% of all of Bangladeshs seaborne-trade ows through the Port of Chittagong and the port services the Dhaka-Chittagong Economic Corridor.13 It also should be noted that 70% of all trade originates from or terminates in Dhaka.14 As such, these shortcomings are considerable impediments to Bangladeshs garment-export sector. The Asian Development Bank (ADB) estimates that the earnings of Bangladeshs garment manufacturing sector would rise by 30% if inefciencies at the Port of Chittagong were reduced.15 Enhancing the efciency of the Port of Chittagong is critical in order to lower transport costs that are substantially higher than those of competitors. Sea transport expenditures account for 14% of the cost of Bangladeshs textile exports, compared to less than 8% for direct competitors such as the PRC, India, Taiwan or Thailand.16 General estimates measuring the importance of transport infrastructure and trade-related administrative procedures suggest that the costs associated with inefcient port operations are also critical in determining the sourcing of imports.17 Bangladesh imports much of its raw materials needed in textile production.
13 Report and Recommendation of the President to the Board of Directors on a Proposed Loan and Technical Assistance Grant to the Peoples Republic of Bangladesh for the Chittagong Port Trade Facilitation Project. Asian Development Bank. November 2004. 14 Ibid. 15 Technical Assistance to the Peoples Republic of Bangladesh for Preparing the Chittagong Port Trade Facilitation Project. Asian Development Bank. July 2003. 16 Ibid. 17 Clark, Ximena; Dollar, David; and Micco, Aleandro. Port Efficiency, Maritime Transport Costs and Bilateral Trade. Working Paper 10353. National Bureau of Economic Research. March 2004.

Garment exports were an estimated $5.8 billion USD out of total merchandise exports of $7.8 billion USD in 2004, making them the nations largest source of exports. Garment sector exports accounted for 9.5% of GDP in FY 2003/4. The garment sector is an important source of employment generation and currently provides employment for over 2 million people or approximately 3% of the labor force. As 90% of the workforce in the garment manufacturing sector is female,10 the garment sector is particularly important for womens employment. The garment sector is a key provider of employment and income to the urban poor. The sector is concentrated in Dhaka and Chittagong, where approximately 90% of the factories are located.11

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EXPORT COMPETITIVENESS OF BANGLADESHS GARMENT SECTOR AND THE PORT OF CHITTAGONG Since growing integration of international trade is a product of declining levels of import protection around the world, trade logistics and transport costs become even more important factors affecting the cost-competitiveness of exports. Bangladeshs exports of garments actually increased in 2005, despite the elimination of quotas that protected the countys exports under the MFA at the beginning of the year.12 Yet, in the post-MFA environment, export growth remains threatened by competitors like the Peoples Republic of China (PRC). And one year of good performance in this new environment does not constitute a trend. Inefcient and often redundant Customs and administrative processes, as well as inadequate infrastructure at the Port of Chittagong, create delays that increase shipment costs. Cargo containers carrying imported inputs to the garment sectors production process as well as garments produced in Bangladesh for export are subjected to hand inspection. The majority of garment factories are located in the Dhaka-Chittagong Economic Corridor, and inadequate transportation links in this economic zone are another
6 Fourth Review Under the Three Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Performance Criteria- Bangladesh. Asia and Pacific Department. International Monetary Fund. January 2006. 7 Ibid. 8 Bangladesh Growth and Export Competitiveness. Poverty Reduction and Economic Management Sector Unit, South Asia Region. World Bank. May 2004. 9 Ibid. 10 Ibid. 11 The End of Textiles Quotas: A Cast Study of the Impact on Bangladesh, by Monfort Mlachila and Yongzheng Yang. IMF Working Paper. WP/04/108. 2004. 12 Bangladesh Export Promotion Board. http://www.epb.gov.bd/.

The Asian Development Bank estimates that earnings of Bangladeshs garment sector would rise by 30% if inefciencies at the Port of Chittagong were reduced.

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EXPORT HEADER TRADE PRACTICES

CUSTOMS AND OTHER ADMINISTRATIVE PROCEDURES Inefcient Customs procedures at the Port of Chittagong create delays and impose high transaction costs that reduce the competitiveness of garment sector exports. A value chain analysis of mens t-shirts found that export charges generated by Customs, informal payments and document processing account for 9% of the total cost of the product.18 In addition, informal payments made to ofcials to expedite Customs clearance amount to 12% of all port-related charges.19 The overall impact of high Customs and administrative charges, as well as informal payments, is that the average cost of clearing a container through the Port of Chittagong is $600, versus $150 to $300 at other ports in the region. 20 Privatesector actors in banking and insurance appear not to create signicant obstacles to garment export competitiveness. Most other institutions involved in the export and trade-facilitation process also are not serious impediments to trade ows. Therefore, Customs and other import and export clearance procedures are highlighted in the discussion below. The following Customs and other administrative practices contribute to reduced competitiveness of garment exports:
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Failure to properly utilize the Pre-Shipment Inspection System. The re-inspection and valuation of shipments by Customs ofcials is a signicant source of delays. The PreShipment Inspection System consists of the verication of Customs documentation and the computation of the duty owed by specially appointed private rms, normally stationed in the country of export. Customs accepted the valuation of 95% of consignments covered by the Pre-Shipment Inspection System. The National Board of Revenue has certied that almost all pre-shipment inspections conducted by the system are completed properly by these agents and should require no further inspection.21 However, Customs ofcials still closely review the documentation of nearly all pre-shipment inspections and often order re-inspections by hand even when a clean report of ndings has been led. This redundant processing slows the ow of inputs required for production of garments. An excessive number of steps are required to clear Customs. Documentation requirements for imports and exports continue to be excessive and time consuming. 22 Customs clearance at the Port of Chittagong requires 48 separate endorsements, which signicantly lengthens the Customs clearance process.23 Limited application of Customs management and electronic document processing systems. Between 2001 and 2004, Customs introduced ASYCUDA++,

Inefcient Customs procedures at the Port of Chittagong create delays and impose high transaction costs that reduce the competitiveness of garment sector exports.

18 Bangladesh Growth and Export Competitiveness. Poverty Reduction and Economic Management Sector Unit, South Asia Region. World Bank. May 2004. 19 Ibid. 20 Technical Assistance to the Peoples Republic of Bangladesh for Preparing the Chittagong Port Trade Facilitation Project. Asian Development Bank. July 2003. 21 Bangladesh Growth and Export Competitiveness. Poverty Reduction and Economic Management Sector Unit, South Asia Region. World Bank. May 2004. 22 An Evaluation of Need and Cost of Selected Trade Facilitation Measures in Bangladesh, Center for Policy Dialogue, October 2005. 23 Technical Assistance to the Peoples Republic of Bangladesh for Preparing the Chittagong Port Trade Facilitation Project. Asian Development Bank. July 2003.

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a computerized Customs management system that collects export and import data. It currently is operative at the Dhaka Inland Container Terminal and at the Customs Houses in Dhaka, Chittagong, Benapole and Mongla.24 This system has modules that process manifests and Customs declarations and shorten Customs clearance times when fully implemented. However, progress has been slow and improvement in Customs clearance times has been limited.
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EFFICIENCY OF PORT OPERATIONS Compared to other ports of similar size, the operational efciency of the Port of Chittagong is extremely low. One indication of operational efciency is dwell time, or the time cargo remains in port. Dwell time in Chittagong is long by international standards, at 22 days. 25 Operational efciency at the Port of Chittagong is reduced by the following factors:
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Manual processing of Customs and shipping documents is widespread. Most documents continue to be manually processed, which gives individual Customs ofcers and port ofcials a high degree of discretion and leverage to exact informal payments in return for the expedited clearance of goods.

In order to streamline Customs clearance and other administrative procedures, the following recommendations should be implemented: 1. Goods with clean reports of ndings from the Pre-Shipment Inspection System should be allowed to enter without additional review or re-inspection, other than the occasional random inspection to assure the integrity of the system. This will reduce the ability of Customs ofcials to extract additional informal payments.

Lack of adequate container handling equipment. The Port of Chittagong handles approximately 400,000 containers per year but only recently began using a Ship to Shore Gantry Crane (SSG). Container ports generally acquire a SSG when volume reaches 50,000-75,000 containers per year.26 Due to the lack of container handling equipment, the type of vessels able to call at Chittagong is mostly container vessels with on-board container handling equipment. However, the range of equipment varies by the type of vessel and the unloading times are extremely slow. The overall result is that the average time a vessel spends at berth is 110 hours, placing Chittagong among the least productive ports in the world.27 The Chittagong Port Authority has recognized the lack of container handling equipment as a critical constraint and is currently procuring four additional SSGs. Congestion in the container yard. Container storage at the Port is haphazard and disorganized, which slows movement of cargo between the vessels and the yard. Containers are tracked manually over 19 separate storage yards and 9 separate back-up areas used for container storage.28 Another factor that causes delays is that containerized cargo is often removed from the container and transported to Dhaka as loose cargo. And this directly causes congestion through an inefcient use of container yard space, not to mention delays in the movement of containers through the yard. Long wait times for berths. Average vessel wait time for berths was 2.42 days in 2003.29 The under-construction New Mooring Container Terminal (NMCT) will help alleviate the long waits for berths and will be able to handle a large value of cargo. The NMCT will have 1,000m of berths and be able to handle approximately 1 million Twenty Foot Equivalent Units (TEUs) per year.

Most shipping documents continue to be manually processed, which gives individual Customs ofcers and port ofcials a high degree of discretion and leverage to extract informal payments in return for the expedited clearance of goods.

2. The number of steps and documents required to clear Customs should be reduced in accordance with international best practices. Additional research should be conducted to determine the applicability of streamlined Customs processes best tailored for the Port of Chittagong. 3. Customs management and electronic document processing systems should be expanded in order to electronically process shipping manifests and Customs declarations. In addition, an electronic data exchange should be created to quickly process Customs and shipping documents. Such a tool would also allow for the creation of metrics that track how long each step in the Customs clearance/administrative process takes, thus identifying recurring bottlenecks. In turn, these choke points could be addressed to further lower the costs of shipping through the port. The expansion of electronic document processing also would improve transparency and reduce the inuence of individual Customs ofcers. 4. Pre-Shipment inspection is not a good long-term solution for modernizing Customs Administrations. It is important for countries to develop their own abilities to effectively and efciently perform the complete entry process for imported goods, and contracting a private service to perform parts of this function inhibits a Customs organization from developing its own capability. However, a primary reason for PSI deployment in developing countries is to remove opportunities for informal payments. Of critical importance to Bangladesh Customs is the implementation of an effective Integrity Program. Once that is in place, the organization will be in a position to fully manage and operate its own entry processing system and to implement efcient and effective risk management procedures in order to streamline the entry process.
24 An Evaluation of Need and Cost of Selected Trade Facilitation Measures in Bangladesh, Centre for Policy Dialogue, October 2005.

Dwell time of cargo in the Port of Chittagong is long by international standards.

Implementation of the following recommendations would substantially improve the operational efciency of the Port of Chittagong: 1. The Chittagong Port Authority should rapidly procure and begin utilizing at least four new SSGs. It is estimated that these SSGs would have a signicant impact on vessel turnaround times. Thus, the average time at berth would be reduced from 110 hours to just 16 hours. 30
25 Bangladesh Growth and Export Competitiveness. Poverty Reduction and Economic Management Sector Unit, South Asia Region. World Bank. May 2004. 26 Ibid. 27 Ibid. 28 Technical Assistance to the Peoples Republic of Bangladesh for Preparing the Chittagong Port Trade Facilitation Project. Asian Development Bank. July 2003. 29 Ministry of Shipping. Government of Bangladesh website. 2006. 30 Bangladesh Growth and Export Competitiveness. Poverty Reduction and Economic Management Sector Unit, South Asia Region. World Bank. May 2004.

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2. Congestion in the container yards should be reduced through the use of scanners and computerized tracking equipment that transmits the location of each shipment. Container stripping in the container yards should be minimized and conducted outside the port or in backup container yards, wherever feasible. 3. The NMCT should be implemented as a private concession, including the right of the concessionaire to recruit a skilled labor force. Creating a private concession for the NMCT is likely to improve management practices and labor productivity. The establishment of the NMCT, currently in construction, is a very positive development in terms of enhancing the Port of Chittagongs physical infrastructure. 4. A free and open competition on the international marketplace among port service providers should be conducted in order to gain the most cost effective and efcient services within the Port of Chittagong. To assure honest competition for these service contracts, the contracting process should be completely open and transparent and subject to independent audit. LINKAGES WITH TRANSPORTATION INFRASTRUCTURE IN THE DHAKACHITTAGONG ECONOMIC CORRIDOR stock capacity constraints, only 10% of containers received at the Port of Chittagong, and bound for Dhaka, are shipped by rail. 35
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The road corridor between Dhaka and Chittagong is congested and in need of maintenance. The road accommodates four and six wheel xed axle trucks. The total annual estimated tonnage in the corridor by road is 13 million tons. 36 Average tonnage per truck is 18 tons, and the weight limit set by the government is 8.2 tons. 37 Average transit times are as high as 6 to 7 hours due to congestion for a 280 kilometer distance, 38 which should take under normal conditions just over 5 hours. 39 Average daily trafc is estimated at 10,000 vehicles, which is double the average for all national roads.40 There have been signicant investments in road improvements in Bangladesh, including ongoing efforts to widen the main Dhaka-Chittagong arterial from two to four lanes. However, the road network is deteriorating and in need of at least a 50% increase in spending on maintenance, according to one estimate.41 Research also suggests that increased spending on road maintenance and associated improvements on the main Dhaka-Chittagong arterial would substantially contribute to a reduction in national poverty.42

Competitiveness of garment exports also depends on transportation linkages between the Port of Chittagong and the Dhaka-Chittagong Economic Corridor.

Competitiveness of garment exports also depends on the ability to connect the Port of Chittagong with the Dhaka-Chittagong Economic Corridor. Thirty percent of the total population resides within the corridor and the corridor accounts for 40% of Bangladeshs GDP. 31 Yet, it is poorly served by both rail and road connections, which suffer from congestion and cause frequent delays. The rail line is mostly one meter gauge single track, except for the dual gauge section between Dhaka and Tongi. The Dhaka-Chittagong highway is a combination of two lane and divided four lane highway and is slowly being upgraded to a full, four lane divided highway, which should be able to accommodate the current volume of trafc of approximately 10,000 vehicles per day. 32 Trafc on the Dhaka-Chittagong highway is double the average for all national roads. 33 The road is the preferred means of transport due to limited rail capacity and handles approximately 83% of the containerized cargo between Dhaka and Chittagong. 34 The following factors affect transport infrastructure, creating delays and raising costs for garment exporters:
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The following recommendations to improve connectivity along the Dhaka-Chittagong Economic Corridor would complement improvements to export trade practice and enhance port operations: 1. Connectivity between the ICD and the Port of Chittagong should be fostered by increasing the capacity of container trains on this route. Bangladesh Railways needs to procure additional rolling stock and locomotives to help meet the demand for container shipment by rail. 2. The Roads and Highways Department of Bangladesh needs to implement a system of user charges (i.e., tolls) to pay for increased road maintenance along the DhakaChittagong Economic Corridor. Due to the importance of the road network in this economic corridor and extremely high trafc, adequate road maintenance is critical to reducing congestion, lowering travel times, and reducing vehicle operating costs between garment factories and the Port of Chittagong. Additional research needs to be conducted to determine the optimal user charges structure and suggest how the user charges should be implemented. In general, trade facilitation efforts focus on streamlining the processing and clearance of goods as they cross international borders and on improvement of transport linkages to and
35 Quarterly Economic Update: Bangladesh. Asian Development Bank. December 2005. 36 Quarterly Economic Update Bangladesh. Asian Development Bank. June 2004. 37 Forging Subregional Links in Transportation and Logistics in South Asia. Uma Subramanian and John Arnold. World Bank. 2001. 38 Report and Recommendation of the President to the Board of Directors on a Proposed Loan and Technical Assistance Grant to the Peoples Republic of Bangladesh for the Chittagong Port Trade Facilitation Project. Asian Development Bank. November 2004. 39 Pierre Bouchaud, Transport Economist. The Louis Berger Group. Personal communication. March 2006. 40 Ibid. 41 Ibid. 42 Impact of Roads on Poverty Reduction - Road Network Improvement and Maintenance, Bangladesh The Louis Berger Group, Inc. Final Report, Volume 9, Part B. Dhaka, Bangladesh. Gajewski, Gregory R. and Marc Luppino. December 2001.

Limited connectivity between the Inland Container Depot (ICD) and the Port of Chittagong. The ICD, located in Dhaka, is the only facility permitted by Customs to handle the import and export of containers. However, due to poor connections by road and rail, very little of Bangladeshs trade ows through this facility. Rail links between Dhaka and Chittagong do not meet existing demand. And due to infrastructure and rolling

31 Quarterly Economic Update: Bangladesh. Asian Development Bank. June 2004. 32 Pierre Bouchaud, Transport Economist. The Louis Berger Group. Personal communication. March 2006. 33 Bangladesh Growth and Export Competitiveness. Poverty Reduction and Economic Management Sector Unit, South Asia Region. World Bank. May 2004. 34 Ibid.

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INTEGRATION OF EXPORT TRADE PRACTICES, PORT OPERATIONS AND TRANSPORT LINKAGES HEADER
from their internal destinations. The overall goal is to expand trade by minimizing transit costs. An integrated approach that addresses the full range of export trade practices and infrastructure requirements will have the greatest impact in facilitating trade and strengthening garment export competitiveness in Bangladesh. This approach to trade facilitation complements enhancements to Customs and administrative export processes by emphasizing linkages and proper sequencing with port efciency and transportation infrastructure upgrades. The experience of Tunisia in implementing successful trade facilitation reforms is discussed below as a model for Bangladesh. Indeed, both countries shared many of the same obstacles regarding Customs and port administrative export trade practices. Due to the importance of the garment sector that makes up 40% of all Tunisias exports, as well as the expiration of the Multi-Fiber Agreement in 2005, Tunisia has been under similar pressure to implement reforms to increase export competitiveness.43 STANDARDIZATION OF DATA REQUIREMENTS, STREAMLINING OF CUSTOMS/ADMINISTRATIVE TRANSACTIONS AND CONTAINER TRACKING One of the main Customs issues in Bangladesh is slow processing of Customs and other administrative documents. Standardization of data requirements is one proven method that has been shown to reduce the time necessary for document processing. In Tunisia, the adoption of international standards for trade documentation allowed ofcials to eliminate four unnecessary documents and redesign three documents. This reduced duplication of information and standardized terminology in accordance with international best practices. The standardization of documents contributed to the streamlining of Customs and administrative transactions. It also greatly expedited the time needed for processing shipping manifests, from an average of 4 days to 1.5 days.44 In addition, the time required to prepare and process a Customs declaration was reduced from 3 days to 15 minutes.45 Tunisia once shared many of the same Customs problems as Bangladesh, including the manual inspection of goods and the excessive number of steps required to clear Customs. Prior to the trade facilitation initiative, Customs clearance of imported goods averaged 4 days in Tunisia, versus 1 hour in Morocco and just 25 minutes in Singapore.46 The primary reason for long Customs clearance times in Tunisia was that ofcials manually inspected 50% to 80% of all shipments,47 compared with Singapore where Customs manually inspects less than 5% of all shipments.48 Tunisias export competitiveness also suffered from complex Customs procedures requiring 15 steps for export transactions.49 The trade
43 Project Appraisal Document on a Proposed Loan to the Republic of Tunisia for a Second Export Development Project. Finance, Private Sector and Infrastructure Department. Middle East and North Africa Region. June 2004. 44 Good Practice in Trade Facilitation: Lessons From Tunisia. World Bank. Number 89/July 2004. 45 Ibid. 46 Ibid. 47 Ibid. 48 Ibid. 49 Ibid.

The experience of Tunisia, in implementing trade facilitation reform, can serve as a model for Bangladesh.

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facilitation initiative in Tunisia extended electronic processing to all import and export administration and reduced manual inspections of imports to just 15%, thus expediting the Customs clearance process through the increased reliance on pre-shipment inspections and speeding the delivery of inputs to domestic producers. As a result of these reforms, Tunisia dramatically reduced average cargo processing times from 8 days to 3 days. 50 ELECTRONIC DATA EXCHANGE Creating an electronic data exchange, through which shipping and Customs documents are submitted and processed, is an important mechanism to increase the speed and transparency of Customs and administrative transactions. Electronic data exchange eliminates the need for time-consuming manual submissions of documents. Furthermore, it also enhances transparency by reducing the discretionary authority of individual Customs ofcials. However, unless operational procedures are simplied, and effective risk assessment is introduced and its standards applied, electronic processing has limited effect on improving processing times. Again, Tunisia serves as a relevant example for Bangladesh, due to the success of establishing Tunisie Trade Net, a semi-public agency operating an electronic network designed to expedite the processing of trade documents. Simplied trade documents created by the use of international standards are processed electronically through this system. This eliminated the time-consuming process of manually transferring these documents for approval by various ofcials. The electronic data exchange is also self-sustaining due to a system of user chargers. Users pay a USD$70 monthly fee to access the network, as well as a USD$3 processing fee per document. In order to reduce congestion in the container yard in Bangladesh, as well as to allow for efcient cargo processing, an electronic container tracking system (preferably using RFID technology) needs to be integrated into the network. Establishing an electronic data exchange would greatly facilitate trade in Bangladesh, primarily by reducing the time required to process Customs and shipping documents, increasing the transparency of Customs procedures, and speeding the processing of incoming and outgoing containers. PORT AND TRANSPORTATION INFRASTRUCTURE As a complement to the reforms described above, signicant improvements must be made to upgrade port infrastructure, as well as to improve the connectivity in the DhakaChittagong Economic Corridor. This approach integrates standardizing data requirements, streamlining Customs procedures and establishing an electronic data exchange, supported by the large physical infrastructure investments necessary to promote export competitiveness. Each of the individual trade facilitation initiatives suggested above needs to be carefully synchronized with the longer term efforts to invest in physical infrastructure so as to ensure trade facilitation.
50 Ibid.

PHASING AND TIMEFRAME OF REFORMS TO ENHANCE EXPORT COMPETITIVENESS Careful sequencing of the suggested initiatives in terms of trade facilitation, port efciency and transportation is necessary. This will ensure reforms that reduce shipment costs and therefore improve export competitiveness. As such, there are three main phases: Phase I: Standardizing import and export data and formats in accordance with international best practices, reducing the number of procedures required to clear Customs and relying more on the pre-shipment inspection system. (1-2 year implementation period). Phase II: Establishing and using an electronic data exchange, including an electronic cargo tracking system, to process Customs and shipping documents (2-4 year implementation period). Phase III: Making capital investments in port and selected transportation infrastructure to improve port efciency and connectivity (5-10 year implementation period).

Electronic data exchange and port and infrastructure improvement are important contributors to trade facilitation

Careful sequencing of trade facilitation reforms is recommended.

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USAID, SEPTEMBER 2005

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The largest hurdles faced by Bangladeshs economic driving force, its export garment sector, are the inefcient Customs and administrative export trade processes, as well as the inadequacy of the current transport and shipping infrastructure. The duplication of Customs formalities, low operational efciency at the Port of Chittagong, and poor transport infrastructure result in lengthy delays and exorbitant shipment costs that constrain the Bangladesh economy. The shortcomings of the Customs and administrative procedures should be addressed through phased trade facilitation initiatives that are synchronized with upgrading of vital transportation infrastructure. This will enable Bangladeshs economy to signicantly progress and the garment sector will remain one of the most competitive in the world.

U.S. Agency for International Development EGAT/TI Patterson Brown, Project Manager, 1 (202) 712-5626

Booz Allen Hamilton David Harrell, Project Chief of Party, 1(703) 902-7164 www.usaid.gov

D06.142.06