INTERNATIONAL TRADE POLICY

AND
FOREIGN DIRECT INVESTMENT
Md. Shahadat Hossen FCMA
 FRAMEWORK OF INTERNATIONAL TRADE POLICY
Trade policies are government strategies and regulations that influence international trade,
including tariffs, quotas, subsidies, and trade agreements. They can be categorized into national
trade policies and international trade policies, each serving different objectives.
1. National Trade Policies
These are rules and measures set by individual countries to regulate imports and exports, protect
domestic industries, and promote economic growth.
Types of National Trade Policies:
 Protectionist Policies:  Free Trade Policies:  Non-Tariff Barriers (NTBs):
 Tariffs  Reduction of Tariffs/Quotas  Sanitary & Phytosanitary
 Quotas  Export Incentives (SPS) Measures
 Subsidies  Technical Barriers to Trade
 Import Licensing (TBT)
Objectives:
Protect domestic industries from foreign competition.
Promote exports and economic growth.
Ensure national security by controlling critical imports.
Safeguard consumer health and environmental standards.
 FRAMEWORK OF INTERNATIONAL TRADE POLICY
2. International Trade Policies
These involve agreements and regulations between multiple countries to facilitate or manage
trade relations.
Types of International Trade Policies: Objectives:
 Bilateral Agreements Reduce trade barriers globally.
 Multilateral Agreements Promote fair competition and dispute resolution.
 World Trade Organization (WTO) Encourage economic integration (e.g., free trade
 Regional Trade Agreements (RTAs) zones, customs unions).
 Preferential Trade Agreements (PTAs) Address global issues like labor rights,
environmental protection, and intellectual property.
Key Differences:

Aspect National Trade Policies International Trade Policies

Scope Single country Multiple countries
Focus Domestic interests Global cooperation
Examples U.S. tariffs on Chinese goods WTO agreements, EU trade laws
 FRAMEWORK OF INTERNATIONAL TRADE POLICY
Trade Policy Tools
Trade policy tools are instruments used by governments and international organizations to regulate
trade, protect domestic industries, and influence economic relationships with other countries. These
tools can be broadly categorized into tariff barriers, non-tariff barriers (NTBs), and trade
promotion measures.
1. Tariff Barriers
Tariffs are taxes imposed on imported goods, making them more expensive and less competitive
compared to domestic products.
Types of Tariffs:
 Ad Valorem Tariff – A percentage of the product’s value (e.g., 10% on imported cars).
 Specific Tariff – A fixed fee per unit (e.g., $5 per kg of cheese).
 Compound Tariff – A combination of ad valorem and specific tariffs.
Effects of Tariffs:
Increase government revenue.
Protect domestic industries from foreign competition.
Raise consumer prices, reducing purchasing power.
May trigger trade wars if other countries retaliate.
 FRAMEWORK OF INTERNATIONAL TRADE POLICY
2. Non-Tariff Barriers (NTBs)
These are regulations or restrictions other than tariffs that limit imports or exports.
Common Non-Tariff Barriers:
Type Description Example
Limits on the quantity of goods that can be U.S. sugar import quotas.
Import Quotas
imported.
Export Subsidies Government financial aid to domestic exporters. EU agricultural subsidies.
Mandates a certain % of a product to be made Brazil’s auto industry rules.
Local Content Requirements
domestically.
Product standards, labeling rules, or safety EU’s strict food safety laws.
Technical Barriers (TBTs)
regulations.
Sanitary & Phytosanitary (SPS) Health and safety rules for food, animals, and Japan’s restrictions on U.S. beef.
Measures plants.
Embargoes & Sanctions Complete bans on trade with certain countries. U.S. sanctions on Iran.

Voluntary Export Restraints Japan limiting car exports to

Exporting country "voluntarily" limits exports.
(VERs) U.S. in the 1980s.
 FRAMEWORK OF INTERNATIONAL TRADE POLICY
Effects of NTBs:
Protect domestic industries without direct taxation.
Ensure health, safety, and environmental standards.
Can distort trade and increase costs for businesses.
May violate WTO rules if discriminatory.
3. Trade Promotion Measures
These tools encourage exports and international trade.
Common Trade Promotion Tools:
 Export Subsidies & Tax Breaks – Financial incentives for exporters.
 Free Trade Zones (FTZs) – Special economic zones with reduced tariffs.
 Trade Missions & Diplomatic Support – Government-backed business delegations.
 Export Credit Guarantees – Insurance for exporters against non-payment.
 Currency Devaluation – Making exports cheaper by lowering the exchange rate.
Effects of Trade Promotion:
Boost exports and economic growth.
Create jobs in export-oriented industries.
May lead to trade disputes if seen as unfair competition.
 WORLD TRADE ORGANIZATION (WTO)
The World Trade Organization (WTO) is an international organization that regulates and
facilitates global trade between nations. Established on January 1, 1995, it replaced the General
Agreement on Tariffs and Trade (GATT) and serves as a forum for negotiating trade agreements,
settling disputes, and overseeing trade rules. WTO Principles:
Key Milestones:  Non-Discrimination (via Most-Favored-
 1947: GATT created to reduce tariffs and Nation (MFN) and National Treatment rules).
promote trade liberalization.  Free Trade (lowering tariffs and trade barriers).
 1986–1994: Uruguay Round – Major  Fair Competition (preventing dumping and
negotiations expanded trade rules beyond unfair subsidies).
goods to include services (GATS) and  Transparency (publishing trade regulations).
intellectual property (TRIPS). Membership:
 1995: WTO officially formed as a permanent  166 member countries (as of 2024),
institution with a stronger dispute settlement representing over 98% of global trade.
system.  Notable members: USA, China, EU, India,
 2001: Doha Development Round – Brazil.
Launched to address developing countries'  Some non-members (e.g., Iran, Algeria) are
concerns, but progress stalled due to observers seeking accession.
disagreements.
 WORLD TRADE ORGANIZATION (WTO)
Key Functions of the WTO
The WTO serves as the primary global forum for trade negotiations, dispute resolution, and trade
monitoring.
A. Trade Negotiations (Forum for Agreements)
 Oversees multilateral trade deals (e.g., Trade Facilitation Agreement, 2017).
 Aims to reduce tariffs, subsidies, and non-tariff barriers.
B. Dispute Settlement Mechanism (DSM)
 Acts as a "trade court" where countries resolve conflicts (e.g., Boeing-Airbus subsidies case).
 Recently weakened due to the U.S. blocking Appellate Body appointments (since 2019).
C. Monitoring & Transparency
 Requires members to report trade policies via the Trade Policy Review Mechanism
(TPRM).
 Tracks trade restrictions (e.g., during COVID-19).
D. Technical Assistance for Developing Countries
 Helps poorer nations integrate into global trade (e.g., Aid for Trade initiative).
 WORLD TRADE ORGANIZATION (WTO)
Structure:
 The WTO has 166 members, accounting for 98% of world trade. A total of 22 countries are
negotiating membership.
 Decisions are made by the entire membership. This is typically by consensus. The WTO’s
agreements have been ratified in all members’ parliaments.
 The WTO’s top level decision- making body is the Ministerial Conference, which meets
usually every two years.
 Below this is the General Council (normally ambassadors and heads of delegation based in
Geneva but sometimes officials sent from members’ capitals) which meets several times a
year in the Geneva headquarters. The General Council also meets as the Trade Policy
Review Body and the Dispute Settlement Body.
 At the next level, the Goods Council, Services Council and Intellectual Property (TRIPS)
Council report to the General Council.
 Numerous specialized committees, working groups and working parties deal with the
individual agreements and other areas, such as the environment, development, membership
applications and regional trade agreements.
 WORLD TRADE ORGANIZATION (WTO)
Secretariat: Challenges & Criticisms:
 The WTO Secretariat, based in Geneva, has  Slow progress in new trade
around 600 staff and is headed by a Director- agreements (e.g., stalled Doha Round).
General. It does not have branch offices outside  US-China trade tensions bypassing WTO
Geneva. Since decisions are taken by the WTO’s rules.
members, the Secretariat does not itself have a  Criticism of favoring developed nations over
decision-making role.
developing economies.
 The Secretariat’s main duties are to supply
 Dispute system issues (e.g., US blocking
technical support for the various councils/
committees and the ministerial conferences, to Appellate Body appointments).
provide technical assistance for developing
economies, to analyse world trade and to explain Recent Developments:
WTO activities to the public and media.  2022: WTO reached a deal on fisheries
 The Secretariat also provides some forms of legal subsidies to curb overfishing.
assistance in the dispute settlement process and  2024: Discussions on e-commerce, digital
advises governments wishing to become trade, and environmental goods.
members of the WTO. The annual budget
 Ongoing reforms to improve dispute
contributed by members is roughly 205 million
resolution and negotiation efficiency.
Swiss francs.
WORLD TRADE ORGANIZATION (WTO)
 TRADE WARS
Trade War
A trade war occurs when countries impose tariffs, quotas, or other trade barriers on each other in
retaliation for perceived unfair trade practices. These conflicts can escalate, disrupting global supply
chains, increasing prices, and straining diplomatic relations.
Recent Examples of Trade Wars
1. U.S.-China Tech Tariffs Escalation 2. EU Carbon Border Tax vs. Emerging
 Background: The U.S. has continued to restrict Economies
Chinese semiconductor and AI technology exports,  Background: The EU’s Carbon Border
citing national security concerns. Adjustment Mechanism (CBAM) taxes
 2025 Development: China retaliated by imports based on their carbon footprint.
imposing 40% tariffs on U.S.-made electric  2025 Development: India and Brazil challenged
vehicles (EVs) and banning exports of rare earth the policy at the WTO, arguing it unfairly
minerals critical for U.S. tech manufacturing. penalizes developing nations.
 Impact:  Impact:
 Tesla and Ford faced declining sales in  Higher steel and aluminum prices in
China. Europe.
 U.S. tech firms struggled with shortages of  Retaliatory tariffs on EU luxury goods in
key materials for chips and batteries. India (e.g., German cars, French wines).
 TRADE WARS
3. 3. U.S.-Mexico Agricultural Dispute
 Background: The U.S. accused Mexico of dumping cheap corn into the market, harming
American farmers.
 2025 Development: The U.S. imposed 25% tariffs on Mexican avocados and tomatoes.
 Impact:
 U.S. consumers faced higher guacamole prices.
 Mexico threatened to halt U.S. meat imports, hurting American ranchers.
Pros of Trade War Cons of Trade War
Protection of Domestic Industries: Tariffs can Higher Consumer Prices: Tariffs lead to inflation (e.g.,
shield local businesses from foreign competition U.S. electronics and cars becoming more expensive).
(e.g., U.S. steel industry revival). Supply Chain Disruptions: Companies
National Security: Restrictions on critical tech face shortages (e.g., auto plants shutting down due to
(e.g., semiconductors) prevent reliance on missing Chinese parts).
geopolitical rivals. Retaliation & Escalation: Trade partners
Leverage in Negotiations: Trade wars can impose counter-tariffs, hurting exporters (e.g., U.S.
force trading partners to make concessions (e.g., farmers losing Chinese soybean market).
China opening markets in exchange for tariff Global Economic Slowdown: Reduced trade
relief). lowers GDP growth worldwide (IMF estimated a 0.5%
drop in global trade in 2025).
 TRADE AGREEMENTS
International Trade Agreement
An International Trade Agreement is a legally binding contract between two or more nations that
outlines the rules and terms for conducting trade and commerce between them. These agreements aim
to reduce trade barriers, promote economic cooperation, and enhance market access for goods,
services, and investments.
Key Features of Trade Agreements
1. Tariff Reductions – Lower or eliminate import/export taxes.
2. Quota Elimination – Remove limits on trade quantities.
3. Intellectual Property (IP) Protection – Ensures patents, copyrights, and trademarks are
respected.
4. Dispute Settlement Mechanisms – Legal frameworks to resolve trade conflicts.
5. Labor & Environmental Standards – Some agreements include clauses on fair labor and
sustainability.
 TRADE AGREEMENTS
Types of Trade Agreements
Trade agreements can be categorized based on the level of economic integration and the number of
participating countries. Here are the main types:
1. Bilateral Trade Agreement
 Definition: An agreement between two countries to reduce trade restrictions.
 Purpose: To boost trade by lowering tariffs, quotas, and other barriers.
 Examples:
 US-Japan Trade Agreement
 India-Japan Comprehensive Economic Partnership Agreement (CEPA) – Covers
trade in goods, services, and investments.
2. Multilateral Trade Agreement
 Definition: An agreement involving three or more countries, often under international
organizations like the WTO.
 Purpose: To create a standardized trade system across multiple economies.
 Examples:
 USMCA (U.S.-Mexico-Canada Agreement) – Replaced NAFTA in 2020.
 World Trade Organization (WTO) Agreements – Includes agreements on goods (GATT),
services (GATS), and intellectual property (TRIPS).
 TRADE AGREEMENTS
3. Preferential Trade Agreement (PTA)
 Definition: A trade pact where countries offer preferential access (lower tariffs) to certain
products from member countries.
 Purpose: To promote trade among developing nations or specific regions.
 Examples:
 Asia-Pacific Trade Agreement (APTA) – Includes China, India, Bangladesh, and
others.
 Global System of Trade Preferences (GSTP) – Among developing countries
4. Free Trade Agreement (FTA)
 Definition: An agreement where member countries eliminate most tariffs and quotas but
maintain independent trade policies with non-members.
 Purpose: To increase trade volume by removing barriers.
 Examples:
 North American Free Trade Agreement (NAFTA, now USMCA) – Between the U.S.,
Canada, and Mexico.
 European Free Trade Association (EFTA) – Includes Switzerland, Norway, Iceland,
and Liechtenstein.
 TRADE AGREEMENTS
5. Customs Union
 Definition: A deeper form of integration where members remove internal tariffs and adopt
a common external tariff (CET) for non-members.
 Purpose: To unify trade policies with outside nations.
 Examples:
 European Union (EU) Customs Union – Members apply the same tariffs on imports
from outside the EU.
 Southern African Customs Union (SACU) – Includes South Africa, Botswana, and
others.
6. Common Market
 Definition: Extends beyond a customs union by allowing free movement of goods, services,
capital, and labor.
 Purpose: To create a single economic space with minimal restrictions.
 Examples:
 European Single Market (EU) – Allows free movement of people, goods, services, and
capital.
 East African Community (EAC) – Aims for a common market in East Africa.
 TRADE AGREEMENTS
7. Economic Union
 Definition: The highest level of economic integration, involving a common market plus
harmonized economic policies (taxes, currency, regulations).
 Purpose: To create a fully integrated economic bloc.
 Examples:
 European Union (EU) – Uses a common currency (Euro) in some member states and
unified economic policies.
 ECONOMIC INTEGRATION
Economic Integration refers to the collaboration of two or more countries to limit or eliminate trade
restrictions and encourage political and economic cooperation. It allows global markets to function
more steadily with less government intervention, giving countries a chance to make the greatest use
of their resources.
Levels of Economic Integration (From Least to Most Integrated)
1. Preferential Trade Agreement (PTA) Political Union (Full Economic Integration)
2. Free Trade Agreement (FTA)  Definition:
3. Customs Union  Complete unification of economic, fiscal, and
4. Common Market political policies.
5. Economic Union  Single government overseeing member states.
6. Political Union  Example:
 United States (federal system with integrated
states)
 United Arab Emirates (UAE) (federation of
emirates)
 ECONOMIC INTEGRATION
Benefits of Economic Integration Challenges of Economic Integration
Increased Trade & Investment – Lower ❌ Loss of Sovereignty – Countries must follow
barriers boost commerce. common policies.
Economies of Scale – Larger markets ❌ Trade Diversion – Preferring less efficient
reduce production costs. member countries over better global suppliers.
Enhanced Competition & Efficiency – ❌ Uneven Benefits – Richer nations may gain
Drives innovation and lowers prices. more than poorer ones.
Job Creation – More industries expand ❌ Complex Negotiations – Harmonizing laws and
due to market access. regulations takes time.
Political Stability – Economic ties reduce ❌ Currency Risks (in Economic Unions) – Shared
conflicts. currency can create imbalances (e.g., Eurozone
crisis).
Type of Integration Example Key Features
Free Trade Area USMCA No tariffs between U.S., Canada, Mexico
Customs Union EU Customs Union Common external tariffs for non-EU imports
Common Market European Single Market Free movement of goods, services, capital, labor
Economic Union Eurozone (EU) Shared currency (Euro) + coordinated policies
 INTERNATIONAL MONETARY SYSTEM
The international monetary system refers to the global framework of rules, institutions, and
practices that govern exchange rates, international payments, and capital flows. It ensures smooth
financial transactions between countries.
Evolution of the International Monetary System
A. Gold Standard (1870s–1914)
 Currencies were pegged to gold.
 Fixed exchange rates promoted stability but limited monetary flexibility.
 Collapsed during World War I due to economic disruptions.
B. Bretton Woods System (1944–1971)
 Established the IMF and World Bank.
 Currencies pegged to the U.S. dollar, which was convertible to gold ($35/oz).
 Collapsed in 1971 when the U.S. abandoned the gold standard (Nixon Shock).
C. Floating Exchange Rate System (1971–Present)
 Currencies fluctuate based on market demand and supply.
 Major currencies (USD, EUR, JPY) float freely, while some countries use pegged or
managed floats.
 Example: The Chinese yuan is managed by the People’s Bank of China.
 INTERNATIONAL MONETARY SYSTEM
Evolution of the International Monetary System
D. Special Drawing Rights (SDRs)
 An IMF-created reserve asset to supplement member countries' official reserves.
 Basket of currencies: USD, EUR, CNY, JPY, GBP.
Key Institutions in Trade & Monetary Systems

Institution Role
Regulates global trade, resolves disputes, promotes
World Trade Organization (WTO)
free trade.
Provides financial stability, monitors exchange rates,
International Monetary Fund (IMF)
offers loans.
World Bank Funds development projects in poor countries.
Central bank for central banks, promotes monetary
Bank for International Settlements (BIS)
cooperation.
 INTERNATIONAL MONETARY SYSTEM
International Monetary Fund (IMF) and World Bank
The International Monetary Fund (IMF) and the World Bank are two major international
financial institutions (IFIs) created at the Bretton Woods Conference (1944). While they share some
similarities, their mandates, functions, and operations differ significantly.
Core Mandates
Feature IMF (International Monetary Fund) World Bank Group
Maintain global monetary stability, provide Reduce poverty and support long-term
Primary Goal short-term financial assistance, and offer economic development through loans and
policy advice. grants.
Macroeconomic stability, exchange rates, Infrastructure, education, health, climate
Focus
fiscal policies. resilience, private sector development.
Governments (central banks, finance Governments, private sector, NGOs (via
Clients
ministries). IFC).
Short-to-medium-term (adjustment Long-term (project-based, development
Loan Types
programs). loans).
Surveillance, emergency lending (SBA, IDA (grants/low-interest loans), IBRD, IFC
Key Tools
EFF), SDRs. (private sector).
 INTERNATIONAL MONETARY SYSTEM
International Monetary Fund (IMF) and World Bank
Organizational Structure
WorldIMFBank Structure
Structure
 Board
Boardof ofGovernors
Governors(similar to IMF).country, meets annually).
(1 per member
 Executive
ExecutiveDirectors
Board (24(25 members,
Directors, representing
weighted votingcountry groups).
by financial contribution).
 President
Managing(Traditionally
Director (Heada U.S. nominee,
of IMF, currently
currently Ajay Banga).
Kristalina Georgieva).
 Subsidiaries:
Voting Power: U.S. has ~16.5% (de facto veto), followed by Japan, China, Germany.
 International Bank for Reconstruction & Development (IBRD) Provides loans at
market rates to middle-income and creditworthy low-income countries.
 International Development Association (IDA) Offers interest-free loans and grants to the
world's poorest countries.
 International Finance Corporation (IFC) (Focuses on strengthening the private sector
in developing countries by providing loans, equity, and other services to private businesses.
 Multilateral Investment Guarantee Agency (MIGA)  Provides political risk insurance
and credit enhancement to private investors.
 International Centre for settlement of Investment Disputes (ICSID) Offers an
international arbitration system for settling disputes between private investors and host
governments.
 INTERNATIONAL MONETARY SYSTEM
International Monetary Fund (IMF) and World Bank

Key Functions

IMF Functions World Bank Functions

1. Surveillance: Monitors global economies 1. Project Financing: Funds infrastructure
(e.g., Article IV Consultations). (roads, schools, hospitals).
2. Lending: Provides emergency loans 2. Policy Advice: Helps governments design
with conditionalities (e.g., austerity, reforms). development strategies.
 Stand-By Arrangements (SBA): Short- 3. Private Sector Support (via IFC & MIGA).
term crisis loans. 4. Debt Relief (e.g., HIPC Initiative for heavily
 Extended Fund Facility (EFF): Longer- indebted poor countries).
term structural adjustment.
 Poverty Reduction & Growth Trust
(PRGT): For low-income nations.
3. Special Drawing Rights (SDRs): Reserve
asset to stabilize currencies.
 FOREIGN DIRECT INVESTMENT (FDI)
Definition
 Foreign Direct Investment (FDI) refers to an investment made by an individual or a company
from one country into business interests located in another country, with the intention of
establishing a lasting interest or control.
 Foreign direct investment (FDI) is a category of cross-border investment in which an investor
resident in one economy establishes a lasting interest in and a significant degree of influence over
an enterprise resident in another economy [OECD].
Types of FDI
1. Based on Direction
 Inward FDI – Foreign investment into a country (e.g., Toyota investing in the U.S.).
 Outward FDI – Domestic investment abroad (e.g., Apple opening factories in China).
2. Based on Nature of Investment
 Greenfield FDI – Building new facilities from scratch (e.g., Tesla’s Gigafactory in Germany).
 Brownfield FDI – Acquiring or merging with an existing foreign company (e.g., Walmart buying
Flipkart in India).
 Horizontal FDI – Same business operations in a foreign country (e.g., McDonald's opening
outlets in India).
 Vertical FDI – Investment in different stages of production (e.g., Nike setting up factories in
Vietnam).
 FOREIGN DIRECT INVESTMENT (FDI)
Types of FDI
3. Based on Motive
 Market-Seeking FDI – Entering a new market (e.g., Starbucks expanding to China).
 Resource-Seeking FDI – Accessing raw materials (e.g., Shell drilling oil in Nigeria).
 Efficiency-Seeking FDI – Reducing costs (e.g., Apple manufacturing iPhones in China).
 Strategic Asset-Seeking FDI – Acquiring technology or brands (e.g., Tata Motors buying
Jaguar Land Rover).
Merits (Advantages) of FDI
For the Host Country (Where FDI Comes In)
Economic Growth – Boosts GDP through capital inflow.
Job Creation – New businesses generate employment (e.g., Amazon warehouses in India).
Technology Transfer – Brings advanced tech & skills (e.g., Samsung’s semiconductor plants in
Vietnam).
Infrastructure Development – Improves roads, electricity, and telecom (e.g., China’s Belt &
Road Initiative).
Increased Exports – Helps local companies access global markets (e.g., Foxconn manufacturing
iPhones for export).
 FOREIGN DIRECT INVESTMENT (FDI)
Merits (Advantages) of FDI
For the Home Country (Where FDI Comes From)
Higher Profits – Access to cheaper labor & resources (e.g., Nike in Indonesia).
Market Expansion – Reaches new consumers (e.g., Coca-Cola in Africa).
Diversification – Reduces dependence on domestic markets.

Demerits (Disadvantages) of FDI

For the Host Country
Loss of Domestic Control – Foreign firms may dominate key industries (e.g., Walmart’s impact
on small retailers).
Exploitation of Resources – Overuse of natural resources (e.g., Shell’s oil drilling in Nigeria).
Profit Repatriation – Profits sent back to the investor’s home country (e.g., Microsoft taking
profits from India to the U.S.).
Cultural Erosion – Local businesses may struggle against multinationals (e.g., McDonald's vs.
local food chains).
 FOREIGN DIRECT INVESTMENT (FDI)
Demerits (Disadvantages) of FDI
For the Home Country
Job Outsourcing – Domestic jobs may move abroad (e.g., U.S. factories shifting to Mexico).
Economic Dependence – Over-reliance on foreign markets (e.g., Europe’s dependence on
Russian gas).
Real-World Examples of FDI
Company FDI Type Host Country Impact
Built Gigafactory Berlin, creating
Tesla (USA) Greenfield FDI Germany
jobs & boosting EV production.
Acquired Flipkart for $16B,
Walmart (USA) Brownfield FDI India
expanding e-commerce dominance.
Opened car plants in Kentucky,
Toyota (Japan) Horizontal FDI USA
employing thousands.
Manufactures iPhones at lower costs
Foxconn (Taiwan) Efficiency-Seeking FDI China
for Apple.
Strategic Asset-Seeking Bought Jaguar Land Rover to gain
Tata Motors (India) UK
FDI luxury brand access.
FOREIGN DIRECT INVESTMENT (FDI) & BANGLADESH
FOREIGN DIRECT INVESTMENT (FDI) & BANGLADESH
FOREIGN DIRECT INVESTMENT (FDI) & BANGLADESH
FOREIGN DIRECT INVESTMENT (FDI) & BANGLADESH
FOREIGN DIRECT INVESTMENT (FDI) & BANGLADESH
FOREIGN DIRECT INVESTMENT (FDI) & BANGLADESH
FOREIGN DIRECT INVESTMENT (FDI) & BANGLADESH
 FOREIGN DIRECT INVESTMENT (FDI) & BANGLADESH
1. Overview of FDI in Bangladesh
Bangladesh has emerged as an attractive destination for FDI due to its rapid economic growth,
large consumer base, and competitive labor costs. The country offers opportunities
in manufacturing (RMG, textiles), energy, infrastructure, ICT, and agro-processing.
Key FDI Statistics (2023-2024)
 Total FDI Inflow (2023): ~$3.5 billion (Source: Bangladesh Bank).
 Top Investing Countries: China, Singapore, UK, Netherlands, Japan.
 Major Sectors: Textiles, Power & Energy, Telecom, Pharmaceuticals.
2. Factors to Consider Before Investing in Bangladesh
A. Advantages (Why Invest?)
Strong Economic Growth
 GDP growth averaging 6-7% annually (one of the fastest in Asia).
 Projected to become a $1 trillion economy by 2040.
Large & Growing Consumer Market
 Population: 170 million (8th largest in the world).
 Rising middle class with increasing purchasing power.
 FOREIGN DIRECT INVESTMENT (FDI) & BANGLADESH
Competitive Labor Costs
 Minimum wage (~$95/month) is lower than China, Vietnam, India.
 Skilled workforce in garments, IT, and light engineering.
Government Incentives
 Tax holidays, duty-free imports, and 100% foreign ownership allowed in most sectors.
 Special Economic Zones (SEZs) with infrastructure support.
Strategic Location
 Access to China, India, and ASEAN markets.
 Two major seaports (Chittagong & Mongla) for trade.

B. Challenges (Risks to Consider)

Bureaucratic Hurdles
 Complex approval processes (e.g., Bangladesh Investment Development Authority -
BIDA).
 Corruption and red tape (ranked 146/180 in Corruption Perceptions Index, 2023).
Infrastructure Deficiencies
 Power shortages, poor roads, port congestion (Chittagong Port delays).
 Need for more industrial gas & electricity supply.
 FOREIGN DIRECT INVESTMENT (FDI) & BANGLADESH
Political & Regulatory Risks
 Policy instability (e.g., sudden tax changes).
 Labor unrest in RMG sector.
Foreign Exchange Restrictions
 Taka (BDT) not fully convertible; profit repatriation requires approval.
Bangladesh Government Measures to Attract FDI
A. Policies Encouraging FDI
Tax Incentives
 5-10 year tax holidays for priority sectors (energy, infrastructure, high-tech).
 Duty-free import of capital machinery.
100% Foreign Ownership Allowed
 No local partner required in most sectors (except defense, media).
Special Economic Zones (SEZs)
 Chinese, Japanese, Indian SEZs offer ready infrastructure.
 Example: Bangabandhu Sheikh Mujib Shilpa Nagar (BSMSN).
One-Stop Service (OSS) by BIDA
 Faster approvals for licenses, visas, and utility connections.
 FOREIGN DIRECT INVESTMENT (FDI) & BANGLADESH
Double Taxation Avoidance Agreements (DTAAs)
 Signed with 36+ countries (India, China, UK, Singapore).

Restrictions on FDI
Sectoral Limits
 Defense, nuclear energy, forestry: FDI prohibited.
 Banking, telecom: Requires Bangladesh Bank approval.
Land Ownership Restrictions
 Foreigners cannot buy land but can lease for up to 99 years.
Repatriation Rules
 Profits can be repatriated but require central bank approval.
Why Multinationals Are Investing in Bangladesh?
 Cheaper than China & Vietnam (labor, land costs).
 Duty-free access to EU, Canada, Australia (under GSP+).
 Government push for digital economy (e.g., "Digital Bangladesh").
 Growing middle class driving demand for retail, real estate, automobiles.
 FOREIGN DIRECT INVESTMENT (FDI) & BANGLADESH
Top Sectors for FDI in Bangladesh

Sector Opportunities Key Investors

Largest export sector
Ready-Made Garments (RMG) H&M, Zara, PVH Corp.
(~$46B/year).
High demand; govt. aims for 40% Sumitomo (Japan), Chevron
Energy & Power
renewable energy by 2041. (USA)
Mega-projects like Padma
Infrastructure China Harbour, Tata Group
Bridge, Metro Rail.
Fast-growing startup ecosystem
ICT & Fintech SoftBank, Alibaba
(bKash, Pathao).
Pharmaceuticals 3rd largest generic drug exporter. Square, Beximco Pharma
 FOREIGN DIRECT INVESTMENT (FDI) & BANGLADESH
Foreign Direct Investment (FDI) Trends in Bangladesh (2014–2024)
Bangladesh has seen steady growth in FDI inflows over the past decade, driven by its expanding
economy, low labor costs, and improving business climate. However, challenges
like infrastructure gaps, bureaucratic hurdles, and global economic shocks have influenced
fluctuations.
Year FDI Inflows (Net) Growth Rate (%) Major Sectors
2014 $1.6 Bn +5.2% Textiles, Telecom, Power
2015 $2.2 Bn +37.5% RMG, Energy, Pharmaceuticals
2016 $2.3 Bn +4.5% Infrastructure, Fintech
2017 $2.5 Bn +8.7% Power, Telecom, Leather
2018 $3.6 Bn +44.0% Energy, Manufacturing
2019 $3.8 Bn +5.6% RMG, IT/ITES
2020 $2.6 Bn -31.6% (COVID-19) Healthcare, Digital Services
2021 $3.0 Bn +15.4% Renewable Energy, E-commerce
2022 $3.5 Bn +16.7% Textiles, Logistics
2023 $3.2 Bn -8.6% (Global slowdown) Manufacturing, Fintech
2024* ~$3.6 Bn (Est.) +12.5% Green Energy, Tech Startups
(Source: Bangladesh Bank, UNCTAD, World Bank)Note: 2024 data is projected (Jan–June trends).
 FOREIGN DIRECT INVESTMENT (FDI) & BANGLADESH
Foreign Direct Investment (FDI) Trends in Bangladesh (2014–2024)
Top Investing Countries (2023) Sector-Wise FDI Breakdown
1. China (~30% of total FDI) – Energy,  Textiles & RMG (25%) – H&M, PVH sourcing.
Infrastructure (e.g., BRI projects).  Energy & Power (22%) – Solar, LNG projects (e.g.,
2. Singapore (~20%) – Fintech, Manufacturing. Summit Group).
3. USA (~12%) – IT, Pharmaceuticals.  Telecom & IT (18%) – Investments from SoftBank,
4. UK (~9%) – Retail, Banking. Alibaba.
5. Japan (~8%) – Infrastructure, Automotive.  Pharmaceuticals (10%) – Indian & Chinese firms.
 Infrastructure (15%) – Chinese BRI investments
Key Drivers of FDI Growth (e.g., Padma Bridge).
Economic Growth: Avg. 6–7% GDP growth (pre-
COVID). Future Outlook (2025–2030)
Demographic Dividend: 65% working-age  FDI Target: $5 Bn/year by 2026 (govt. goal).
population.  Key Growth Areas:
Export Incentives: Duty-free access to EU, China.  Green Energy (Solar, Wind).
Special Economic Zones (SEZs): 100+ SEZs  Tech Startups (Bangladesh’s first
attracting foreign firms. unicorn, bKash).
Digital Boom: 130M+ internet users (e-commerce  Automotive (Japanese EV investments).
& fintech growth).  Risks: Currency volatility, geopolitical tensions.
 FOREIGN DIRECT INVESTMENT (FDI) & BANGLADESH
South Asia FDI Inflows (2023–2024)
2023 FDI Growth Rate Top Investing
Country 2024 (Est.) Key Sectors
(USD Billion) (YoY) Countries
IT, Renewable
USA, Singapore,
India $49.3 Bn ~$55 Bn +11.5% Energy,
UK
Manufacturing
China, Singapore, RMG, Energy,
Bangladesh $3.2 Bn ~$3.6 Bn +12.5%
USA Fintech
Power, Telecom,
Pakistan $1.5 Bn ~$1.2 Bn -20% (Crisis) China, UAE, UK
CPEC
Ports, Tourism,
Sri Lanka $1.1 Bn ~$0.9 Bn -18% (Debt crisis) China, India, Japan
Infrastructure
Nepal $0.2 Bn ~$0.25 Bn +25% India, China Hydropower, Tourism
China, India, Saudi
Maldives $0.5 Bn ~$0.6 Bn +20% Tourism, Real Estate
Arabia
Hydropower, Eco-
Bhutan $0.05 Bn ~$0.06 Bn +15% India, Singapore
Tourism
HOME WORK
1. What are the major challenges faced by Bangladesh in terms of foreign direct investment
(FDI)?
2. How do political factors influence foreign direct investment decisions?
3. Write the impact of FDI on domestic business in Bangladesh.
4. Analyze the government initiatives to promote foreign direct investment (FDI) in
Bangladesh.
5. Explain factors to be considered while making decision to enter foreign markets. Discuss
various modes of entry into international business.
6. How do supply chain disruptions impact international trade operations?
7. How do exchange rate fluctuations affect international trade finance?
8. Explain with example how international business creates economic benefits for a country
like Bangladesh.
9. How does Bangladesh manage currency exchange and financing for international trade
transactions?
10. Explain the concept of globalization and its impact on international business.
11. Explain the different modes of entry that MNCs can use when expanding into foreign
markets. Compare and contrast the advantages and disadvantages of each mode, providing
real-world examples.
HOME WORK
12. Write short notes on the followings:
(i) International Monetary Fund (IMF)
(ii) WTO (World Trade Organization)
(iii) Generalized System of Preferences (GSP)
(iv) International Organization for Standardization (ISO)
(v) Business Syndicate
(vi) BRICS
(vii) Global Competitive Strategy

13. What is the role of the corporate culture in foreign markets access?
14. What are the advantages of strategic alliances? Enumerate the parameters of a successful
alliance. What are the possible reasons for failure of cross cultural alliances?
15. Write the concept of ‘International Business’. Considering all scales of International Business,
describe the position of Bangladesh. If improvements are needed, please describe.