Betp

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 INDUSTRY
A CASE STUDY

ESTABLISHING AND IMPLEMENTING A CUSTOMS INTEGRITY PROGRAM
HEADER
ESTABLISHING AND IMPLEMENTING A CUSTOMS INTEGRITY PROGRAM USAID, SEPTEMBER 2005
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://tcb-
fastrade.com for more information.
BANGLADESH EXPORT TRADE PRACTICES AND
THEIR EFFECT ON THE COMPETITIVENESS OF THE
GARMENT INDUSTRY
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.
HEADER
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
1
BANGLADESH EXPORT TRADE PRACTICES AND
THEIR EFFECT ON THE COMPETITIVENESS OF THE
GARMENT INDUSTRY
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.

2 2
EXECUTIVE SUMMARY
Trade facilitation
and greater export
competitiveness
contribute to higher
rates of economic
growth.
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.
1
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.
2
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,
3
which showed
increases from USD$866 million in 1991 to USD$5.8 billion in 2004.
4
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.
5

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
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.
2 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.
4 Ibid.
Asian Development Bank. Key Indicators of Developing Asian and Pacifc Countries: Bangladesh. http://www.adb.org/
Documents/Books/Key_Indicators/200/pdf/BAN.pdf
4 4
BANGLADESH ECONOMY AND
THE GARMET SECTOR
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.
HEADER
6 5
the Port of Chittagong are necessary to maintain and improve garment exports.
6
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.
n Garment exports were an estimated $5.8 billion USD out of total merchandise exports
of $7.8 billion USD in 2004,
7
making them the nations largest source of exports.
n Garment sector exports accounted for 9.5% of GDP in FY 2003/4.
8
n 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.
9

n As 90% of the workforce in the garment manufacturing sector is female,
10
the garment
sector is particularly important for womens employment.
n 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
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 Pacifc Department. International Monetary Fund. January 2006.
7 Ibid.
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/.
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 Effciency, Maritime Transport Costs and Bilateral Trade.
Working Paper 10353. National Bureau of Economic Research. March 2004.
The Asian Development
Bank estimates that
earnings of Bangladeshs
garment sector would rise
by 30% if inefciencies at
the Port of Chittagong
were reduced.

HEADER
7 8
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
Private-
sector 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:
n 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 Pre-
Shipment 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.
n 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

n Limited application of Customs management and electronic document
processing systems. Between 2001 and 2004, Customs introduced ASYCUDA++,
19 Ibid.
20 Technical Assistance to the Peoples Republic of Bangladesh for Preparing the Chittagong Port Trade Facilitation Project. Asian
Development Bank. July 2003.
22 An Evaluation of Need and Cost of Selected Trade Facilitation Measures in Bangladesh, Center for Policy Dialogue, October 2005.
EXPORT TRADE PRACTICES
Inefcient Customs
procedures at the
Port of Chittagong
create delays and
impose high transaction
costs that reduce the
competitiveness of
garment sector exports.

HEADER
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:
n 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.
n 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.
n 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.
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.
29 Ministry of Shipping. Government of Bangladesh website. 2006.
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.
n 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.
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.
9 10
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.
Dwell time of cargo in the
Port of Chittagong is long
by international standards.

HEADER
stock capacity constraints, only 10% of containers received at the Port of Chittagong, and
bound for Dhaka, are shipped by rail.
35

n 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

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 Dhaka-
Chittagong 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.
11 12
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 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:
n 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.
34 Ibid.
Competitiveness of
garment exports also
depends on transportation
linkages between the
Port of Chittagong and
the Dhaka-Chittagong
Economic Corridor.

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.
14 14
INTEGRATION OF EXPORT TRADE PRACTICES,
PORT OPERATIONS AND TRANSPORT LINKAGES
The experience of Tunisia,
in implementing trade
facilitation reform, can
serve as a model for
Bangladesh.

HEADER
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 Dhaka-
Chittagong 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
Phase III: Making capital investments in port and selected transportation
infrastructure to improve port efciency and connectivity
15 16
Electronic data exchange
and port and infrastructure
improvement are important
contributors to trade
facilitation
Careful sequencing of
trade facilitation reforms
is recommended.
D06.142.06
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

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