Limitations of foreign trade in Bangladesh

Smooth foreign trade operation is essential for businesses to expand and flourish. It has a huge impact on a country’s economy. Unfortunately, Bangladesh lacks in several areas to make foreign trade easy for businesses to expand. This article gives you a glimpse of limitations of foreign trade in Bangladesh, which you should keep in mind when carrying out a foreign trade operation.

Limitations of foreign trade in Bangladesh

Legal Constraints

The first and the foremost problems in foreign trade operations arise due to legal constraints. Foreign trade indicates exchange of goods and services between two countries. However, each country has its own laws, rules and regulations, which are different from other countries. So, problems arise in foreign trade operations. Suppose, an exporter of Bangladesh receives an L/C from the importer of England, in which the goods are to be shipped via an American ship and delivered to China. However, according to which country’s law the dispute, if arise, should be settled, is a problem.

Geographical Location

From the geographical viewpoint, Bangladesh is not located in such a place to trade vigorously. India encompasses Bangladesh from three sides. Also, India enjoys a strong industrial base compared to Bangladesh. Due to economy of scale, India can produce the same quality products at a cheaper price. This is a problem in Bangladesh’s foreign trade operation.

Limited Skilled Manpower

Foreign trade related jobs involve proper communication with clients, as well as with local and foreign banks. Performing the foreign exchange activities is a sensitive and difficult job by nature. A single error can cost thousands of dollars. Bangladesh lacks adequately skilled workforce who fully understand and are well capable to handle foreign trade dealings.

Limited Export Base

Bangladesh has a very limited export base. It does not have the sufficient supply of raw materials needed to use in the production process. Unfortunately, the country has to import the raw materials required in various production processes. As a result, production cost increases and consumers have to spend more to avail that particular product.

Lack of Stable Policy

Policy and structure are an integral part of any kind of operation. It suggests how to perform the operations properly. It is not easy to plan and perform foreign trade operations properly, if the policy continues to change frequently. Change of Government in Bangladesh often comes with new policies, which is very difficult to cope with. Business organizations and businessmen find it difficult to settle their businesses. Change in policy make them deviate from the old track and run after the new track.

Political Instability

Political stability is essential for smooth foreign trade operations. Instability in politics has been a major problem to conduct foreign trade business in Bangladesh.

Problems in UCPDC Guidelines

According to the Article 4 of the Uniform Customs and Practices for Documentary Credit (UCPDC), all parties concerned with L/C must deal with documents not with goods. This may cause problem, as the bank must have to make payment after the presentations of necessary documents, whether or not the goods are delivered to the importer.

Absence of Policy, Rules and Regulations of Foreign Exchange Operations as per Islamic Shariah

There is no international Policy, Rules and Regulations of Islamic Banking regarding Foreign Exchange Operations, so the Islami Banks has to face problems in foreign exchange operations.

Other Problem

Whenever an importer comes to the bank to issue a L/C in his favor, he has to deposit a certain amount, known as “L/C margin”. After receiving the export documents from the exporter, the importer pays the rest amount. But till this point in time, this L/C margin amount is kept by the bank without giving any return to the importer, so it is a loss for the client. He could invest this money elsewhere to earn some return. Consequently, the importer adds this loss to production cost so the product price goes up, which has to borne by the ultimate customers.

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