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INSIGHT ON BILATERAL TRADE AGREEMENT OF BANGLADESH WITH VIETNAM

PREPARED FOR Professor Dr. Abu Yousuf Md. Abdullah Course Instructor International Business Environment

PREPARED BY Tabassum Jahan RQ 59 Batch 18 Bachelor of Business Administration

Institute of Business Administration University of Dhaka November 12, 2012

INTRODUCTION

Bangladesh has always had a warm regard for its South Asian neighbor Vietnam, a country which has much similarity with Bangladesh in terms of history. Vietnam and Bangladesh achieved their independence through liberation war. Both war- ravaged countries had to go through an arduous process of rehabilitation of people and reconstruction of infrastructures including sea ports. Thus Bangladesh was the first South Asian and second Asian nation to establish relations with the provisional revolutionary government of South Vietnam at ambassadorial level in 1973. Vietnam supports Bangladeshs bid to join ASEM (Asia Europe Meeting ). The two countries regularly cooperate at international forums, including the UN, the Non-Aligned Movement (NAM) and ASEAN. Bangladesh-Vietnam relations have been marked by several high level visits such the then Prime Minister Khaleda Zia's visit in 2005 and President Tran Duc Luong's in 2004. Both nations maintain good cooperation at international and regional levels. The bilateral trade, though modest, is progressing positively with an average growth rate of 20% per year. It had reached US$280 million in 2010, a jump of 241% compared to 2009 and US$482 million in 2011, up 72% over 2010. In the past, Bangladesh and Vietnam had signed about a dozen bilateral agreements/MOUs on various issues but many of those have not been followed through. Air Transport Agreement (1993); Economic and Scientific and Technological Cooperation Agreement (1994); Trade Agreement (1996); Agreement on establishing the Joint Committee of economic, cultural, scientific and technological cooperation (1997); Agreement on double taxation avoidance (2004); Agreement on investment encouragement and protection (May 2005); Agricultural Cooperation Protocol (2004).

The recent visit of Bangladeshi Prime Minister Sheikh Hasina to Hanoi, November 2-4, 2012, and her meetings with the Vietnamese Prime Minister Nguyen Tan Dung has opened up new expectations and prospects centering the healthy political relation existing between the countries. The countries have already signed off four agreements and MoUs (Memoranda of Understanding) during this visit.

The four agreements are: Extension of the MoU between Bangladesh and Vietnam on cooperation in the field of agriculture signed earlier on March 22, 2004 in Dhaka.

Cooperation on establishment of the Bangladesh-Vietnam Business Council and the VietnamBangladesh Business Council between the Federation of Bangladesh Chambers of Commerce & Industry and the Vietnam Chamber of Commerce and Industry. Trade promotion between the Vietnam Trade Promotion Agency under the ministry of industry and trade of Vietnam and the Export Promotion Bureau of Bangladesh. An agreement between the ministry of agriculture and rural development of Vietnam and the ministry of fisheries and livestock of Bangladesh in the field of fisheries and livestock.

Both the countries hope to gain significantly from the understandings as inferred from the quote by the Vietnamese Prime Minister, "We've found directions for improvement of relations and cooperation between the two countries in politics, diplomacy, security, economy, trade, investment, agriculture, information and communication, cultural and tourism, and few other areas." During this visit, Bangladesh has officially recognized the market economy status of Vietnam, which is very important to promote the potentiality of trade and ties between the two nations. Vietnam and Bangladesh aim to increase two-way trade to US$1 billion in the next five years, while also further boosting bilateral ties in politics, security, defense, economics, trade and investment. Discussing regional and international issues of mutual concern, the two sides pledged to continue working closely at international forums such as the United Nations, the Non-Aligned Movement (NAM), the Asia-Europe Meeting (ASEM), the Greater Mekong Sub-region (GMS), and the East West Corridor (EWC).

A BRIEF GLANCE AT VIETNAM AGAINST BANGLADESH

Bangladesh GDP per capita $1700 textiles and apparel, jute, tea, leather, telecommunications, pharmaceuticals, cement, ceramics, shipbuilding, fertilizer, food processing, paper newsprint, light engineering, sugar , fisheries , rubber , ship repairing , agriculture apparel, ships, jute and jute products, frozen fish and seafood, leather and leather products, ceramics, pharmaceuticals, cement, processed food, fertilizer US 19,7%, Germany 16,1%, UK 9,5%, France 7,2%, Netherlands 4,3% (2012) machinery and equipment, chemicals, iron and steel, textiles, foodstuffs, petroleum products, cement China 18.9%, India 12.7%, Singapore 6%, Malaysia 4.7%, Japan 4% (2010) pharmaceuticals, garments and fabrics, electronic components and fertilizer

Vietnam $3300

Main industries

paddy rice, coffee, rubber, cotton, tea, pepper, soybeans, cashews, sugar cane, peanuts, bananas, poultry, fish, seafood

Export goods

clothes, shoes, marine products, crude oil, electronics, wooden products, rice, machinery

Main export partners

US 20%, Japan 10.7%, China 9.8%, South Korea 4.3% (2010 est.) machinery and equipment, petroleum products, steel products, raw materials for the clothing and shoe industries, electronics, plastics, automobiles China 23.8%, South Korea 11.6%, Japan 10.8%, Taiwan 8.4%, Thailand 6.7%, Singapore 4.9% (2010 est.) rice, cloth, plastic products, rattan, bamboo and sedge products, carpets, rubber, computers, electronics, china and pottery

Import goods

Main import partners

Mutual Export

POTENTIALS

The relationship between Vietnam and Bangladesh governments has been perceived to grow. In particular, the cooperation in the field of trade and economic investment in the two countries has been focused on and highly assessed, contributing to actively promote the bilateral relationship between Vietnam and Bangladesh. Bangladesh is a big market in the South Asian region with a large population and a high consumption power. This should attract Vietnamese venture capitalists and investments in budding sectors of the country like ship-building and IT. In addition, Bangladeshs market has many opportunities for Vietnamese enterprises in the fields of footwear, agricultural foods, textiles and ceramics. Investors can also invest in the planned 7 Special Economic Zones (SEZ) under Public Private Partnership (PPP) or 100% privately owned SEZs. Through these SEZs, investors can target both the local market and export market. The key investment sectors include: Jute goods - In the year 2010-11 Bangladesh exported Jute product to the world market worth of US$ 1.114 billion. Textiles Sector (Specialized and Home Textile) - the fastest growing industry in Bangladesh along with RMG significantly contributing towards exports. Bangladesh is best placed in the region for textiles and garments because of available labor and trade status with the EU and USA. In the year 2010-11, the country earned US$ 953.31 million by exporting specialized and home textile products. Frozen Foods Sector - Investment in frozen food sector with new technology and equipment has a vast potential for growth. Leather Sector - Presently Bangladesh produces between 2-3% of the worlds leather market. FDI in this sector along with the production of tanning chemicals stand to be highly rewarding. Government is in the process of setting up of separate Leather Zone relocating the existing industry sites to a well-organized place. Light Engineering Sector (LES) - Export-oriented production in light industries as gained momentum in the past few years. Entrepreneurs from Hong Kong, Japan and Korea have taken advantage of Bangladeshs cheap and easily trainable labor and its infrastructure facilities to manufacture products for the export market. Vietnam can do the same. Energy (Power Generation and Transmission) - In view of the gradual widening of supply gap and pursuant to the policy of privatization the Government has recently opened the energy sector to private investment under Independent Power Producer (IPP) or PPP project.

Agro-based Industries - Major scope for increased cultivation of vegetables, tropical fruits, spices now grown in Bangladesh could feed agro-processing. Floriculture can also be developed. Electrical goods- Vietnam is currently developing itself in electrical goods production with the help of international brands like Canon, etc. Bangladesh could import knowledge from Vietnamese domestic engineers in this sector. Although Vietnam and Bangladesh have many similarities in the structure of exports, the two countries still have many areas and sectors that can complement each other. Vietnam has advantages of commodities that Bangladeshs market needs to import as well as the industries that the Bangladesh has attracted investment. Bangladesh has been received the shift of facilities and factories from other countries due to the relatively cheap labor and other costs. Bangladesh can use Vietnamese expertise in certain sectors to further develop the home industries, such as textiles and shipbuilding. When cooperating, Vietnamese businesses can hire workers from Bangladesh. In addition, Vietnamese businesses in the fields of agricultural engineering and agricultural industrialization can also consider the investment in Bangladesh to serve local needs.