Chapter: 06

Issues of International Trade

Q.1: What is IMF? (2015).

Ans:
The establishment of International monetary fund was the outcome of a
conference left at Bretton Woods, New Hampshire. In the summer of 1944 then
the IMF was established 20th December 1945.The main purpose for which the
IMF was set up where to provide exchange stability, temporary assistance
countries falling short of foreign exchange and international sponsoring of
measures for curing fundamental causes of disequilibrium in balance of
payment.
The head quarters of IMF are in Washington DC. USA. 1, March, 1947 to start
his function. It’s Member is 188 countries now.

Q.2: Discuss the function of IMF? (2006, 07,17).

Ans:
There are many function of IMF. These are highlighted bellow-
1. It serves as a short term credit institution.
2. The funds provide machinery for improving short term balance of
payment position.
3. The funds provide machinery for international consultation.
4. It provides a reservoir of the currencies of the member countries and
enables members to borrow one another currency.
5. It promotes orderly adjustment of exchange rate to promote exchange
stability.
6. Foster global monetary cooperation.

7. Secure financial stability.

8. Facilitate international trade.

9. Promote high employment and sustainable economic growth.

10. Reduce poverty around the world.

So, these are the various functions of international monetary funds.

Q.3: Find out disadvantages/Limitation/Short comings of IMF. (2006,

2014).
Ans:
There are some limitations or short comings of IMF are as follows-
 1. The fund was unable to take the immediate post war economic problems
affecting its members.
2. The insistence in devaluation in some causes or a cure of disequilibrium
in balance of payments was not well advised.
3. The fund followed a passive and weak braced policy in the function of
exchange make both initially and subsequently.
4. Inspire of persistent shortage of dollars, it is not declared it as a “scarce”
currency and take step to endure its ready availability.
5. It is soiled to have granted under credit to certain countries without
making sure of their credit-worthiness.
6. The fund has been changed as being partial to the developed countries
and not helping adequately the developing countries.
7. The domination of American administration over the funds operation has
laid it open to severe criticism by other members’ countries.
So, these are the various limitations of IMF.

Q.4: What is World Bank? Write down its objectives and functions.
(2006,2014).
Ans:
World bank: Decide establishing IMF in 1944 of Bretton Woods
conference, a decision was taken to established world bank. It was established
on 27 December 1945 and its activities strated25 June 1946.
Another name of World Bank is International Bank for Reconstruction
and Development (IBRD). The permanent countries of establishing the WB
funds are UK, Germany, France, Japan, India. The Headquarters of World Bank
in Washington, D.C., United States. The founders of World Bank are John
Maynard Keynes and Harry Dexter White. Its Members are 189 countries
(IBRD); 173 countries (IDA).

Objectives and functions:

The objectives and function of World Bank are as follows-
 To assist in the reconstruction and development of the territories of its
members countries by promoting investment of capital productive
purposes.
 To encourage foreign direct investment either by guaranteeing issues or
trough direct participation in loan and other investment made by private
investment.
 To gives loan for productive purposes out of its firms borrowed by it,
where private capital is not sufficiently available or reasonable terms.
  To promote the long term growth of international trade and the
maintenance of balance of payment equilibrium by encouraging
international investment for the development of the productive resources
of its members.

Q.5: What is GATT (General Agreement on Tariff and Trade)?

Ans:

The General Agreement on Tariffs and Trade (GATT) is a legal agreement

between many countries, whose overall purpose was to promote international
trade by reducing or eliminating trade barriers such as tariffs or quotas.
According to its preamble, its purpose was the "substantial reduction of tariffs
and other trade barriers and the elimination of preferences, on a reciprocal and
mutually advantageous basis."

It was first discussed during the United Nations Conference on Trade and
Employment and was the outcome of the failure of negotiating governments to
create the International Trade Organization (ITO). GATT was signed by 23
nations in Geneva on 30 October 1947, and took effect on 1 January 1948. It
remained in effect until the signature by 123 nations in Marrakesh on 14 April
1994, of the Uruguay Round Agreements, which established the World Trade
Organization (WTO) on 1 January 1995. The WTO is a successor to GATT, and
the original GATT text (GATT 1947) is still in effect under the WTO
framework, subject to the modifications of GATT 1994.

GATT, and its successor WTO, have successfully reduced tariffs.

Q.6: What is WTO? What are the objectives of WTO? (2006, 10, 12, 15).
Ans:
WTO: The World Trade Organization (WTO) is the only global
international organization dealing with the rules of trade between nations. At its
heart are the WTO agreements, negotiated and signed by the bulk of the world’s
trading nations and ratified in their parliaments. The goal is to help producers of
goods and services, exporters, and importers conduct their business.
WTO stand for world trade organization General agreement on tariff and trade
(GATT) was replaced by WTO in 1995. Within the last five decades of the 20 th
century GAAT made measurable progress in respect of tariff and quota free
world trade. Its headquarter in Geneva, Switzerland
it is created by Uruguay Round negotiations (1986-94). It is
164 members’ countries representing 98 per cent of world trade.

Important objectives of WTO are mentioned below:

1. To implement the new world trade system as visualized in the
Agreement;
2. To promote World Trade in a manner that benefits every country;
3. To ensure that developing countries secure a better balance in the sharing
of the advantages resulting from the expansion of international trade
corresponding to their developmental needs;
4. To demolish all hurdles to an open world trading system and usher in
international economic renaissance because the world trade is an effective
instrument to foster economic growth;
5. To enhance competitiveness among all trading partners so as to benefit
consumers and help in global integration;
6. To increase the level of production and productivity with a view to
ensuring level of employment in the world;
7. To expand and utilize world resources to the best;
8. To improve the level of living for the global population and speed up
economic development of the member nations.
So those are the important objectives.

Q.7: What is Bretton Woods System (B.W.S)? Or, what are the
characteristics of B.W.S( Bretton Woods System)? (2006, 12, 15,17).
Ans:
Bretton Woods system:
The world economic system from 1944 to 1991 is called Bretton Wood
system. 44 non communist countries of the world arrange a conference on 1
July,1944 in Bretton Woods, New Hampshire for establishing a strong
international economic system. In this conference the participation countries
discussed two alternative plans and reach a final decision.
One of these one by Lord kains and another one by Harry Dexter white.
IMF and IBRD (world bank) this two organizations where born by the decision
of this Bretton Woods conference. This system acted from 1944 to 1991.
Characteristics:
There are some characteristics of Bretton Wood system are as follows-
1. International Institution: The system act as an international institution.
It helps to be established “IMF” and “world bank” and the activities of
these.
2. Introduction of new exchange rate system: This system begins new
exchange rate system by the decision of the participant countries
presented in the conference.
 3. International Monitory reserve: It introduces the reserve of money to
face various problems of the member’s countries. It begins quota system
and subscription under IMF and World Bank.
4. Currency convertibility: Currency convertibility and multilateral trade
the members’ countries decide to convert currency and begin multilateral
trade among them.
5. Fixation of quota for the members’ countries: To use information
reserve they fined up a quota for every member country is asked to
provide their subscriptions.
So, these are the various characteristics of Bretton Woods system.

Q.8: What are the weaknesses of Bretton Wood System(B.W.S)?

Ans:
Bretton wood system have some problems are as follows-
1. US Dollar become strong and it consider as international currency.
2. The exchange rate leads to be inflexible overtime by the period of post
world war.
3. The system was broad to collapse by the dollar crisis by adverse
American balance of payments in the 1st –half of 1971.
4. The system collapsed was due to its emphasis on over convertibility such
as the extension of convertibility to short terms capital movements
beyond the funds normal expectations.

Q:9: Describe the reasons for the development of Bretton Wood system.
2017.

The Bretton Woods System was a new monetary system created by the forty
-four delegates who met in Bretton Woods, New Hampshire, and was
established in the year 1944.

The gold standard had collapsed after the war, and the delegates had seen an
opportunity to build a new monetary system that would help in the
reconstruction of war torn countries.

So, they came up with the Bretton Woods System, which was modelled after
the previous gold standard, and it tried to learn from the lessons provided by the
Great Depression.

The goal of this system is to provide an international monetary system where

exchange rates are stable and economies can flourish.

The countries involved based their currencies on America Dollars, which was
agreed to have an exchange rate of $35 an ounce. The United States bears the
duty to sustain the price of gold fixed, and to ensure the reliability of this
system, they would have to regulate the supply of dollars.

Q.10: Explain the principles of the trading system of WTO.

Ans:
The WTO aims to achieve its objectives by reducing existing barriers to
trade and by preventing new ones from developing. It seeks to ensure from and
equal competitive conditions for market access and predictability of access of
all trade goods and services. This approach is based on two fundamental
principles.
1. The national treatment:
The principle of national treatment requires in its simplest terms that the
goods and services of other countries be treated in the same way as those of
your own country.
2.Most favored Nation principles:
The most favored nation principles requires that if special treatment is given to
the goods and services of one country, they must be given to all WTO member
countries. No one country should received favors that distort trade.

Q.11: Explain the function of WTO.

Ans:
The main function of the WTO can be described in very simple terms.
These are as follows-
1. To oversee implementing and administering WTO agreements.
2. To provide a force for negotiations.
3. To provides a dispute settlement mechanism.
So, these are the various functions of WTO.
Q: 12: Do you think that WTO is reducing trade promotion? 2015.
No I am not thinking so. Because The World Trade Organization (WTO) is
an international body whose purpose is to promote free trade by persuading
countries to abolish import tariffs and other barriers. As such, it has become
closely associated with globalization. The WTO is the only international
agency overseeing the rules of international trade. The WTO also provides its
members with a fair method to resolve trade disputes. They don't have to resort
to violence or war. It prevents trade protectionism, a practice that retards
economic growth. So the WTO promotes the international trade not reduce.
Q:13: Discuss the role of World Bank in the economic development of
Bangladesh. (2008, 2013).
The World Bank is the largest as well as the most influential lender to the
country. It is the coordinator of aid donors in Bangladesh. Since independence,
it has lent $ 12.5 billion to the country and played a critical role in shipping the
country’s institutions in policies. For these reasons the role of the World Bank is
significantly important in any discussion. Along with the loan it suggested that
Bangladesh should adopt a 9 to 12 year plan to address the problems was with
gas and power. At present the WB is working a lot of projects in different
sectors. Among them the BD Private Sector Development Project, Bangladesh
Jamuna Multipurpose Bridge Project, Employment Generation Program for the
Poorest, Banglasesh Integrated Agricultural Development Project, Investment
Promotion and Financing Facility etc.project.
Q:14: State the objectives of the establishments of IBRD (WB) and IMF.
Also write the criticisms for each organization. (2014,2017).
Answer:
IBRD (WB): World Bank is a term used to describe an international financial
institution that provides leveraged loans to developing countries for capital
programs. The ‘World Bank has a stated goal of reducing poverty.
The World Bank is an international financial institution that provides loans to
developing countries for capital programs. The World Bank’s official goal is the
reduction of poverty. According to the World Bank’s Articles of Agreement, all
of its decisions must be guided by a commitment to promote foreign
investment, international trade, and facilitate capital investment.
The objectives of the World Bank are given below:
1. To assist in the reconstruction and development of the territories of its
member countries by promoting investment of capital for productive
purpose.
2. To encourage foreign private investment either by guaranteeing issues or
through direct participation and other investment made by private
investors.
3. To give loans for productive purposes out of its funds borrowed by it
where private capital is not sufficiently available or reasonable terms.
4. To promote the long term growth of international trade and the
maintenance of balance of payment equilibrium by encouraging
international investment for the development of the productive resources
of its members.
criticisms for each organization:
WB:

1. The World Bank claims that its major goal is to promote global development
through poverty reduction, but there are many critics who argue this is a smoke-
screen, and the real aim of the World Bank is to use conditional loans in
exchange for countries establishing neoliberal economic policies which
ultimately benefit western companies and financial institutions.

2. The World Bank (and the IMF) present themselves as a ‘good Samaritans’
whose only motives are to assist the developing world, but they are actually
‘bad Samaritans’ because their motives are essentially selfish.

IMF:

1. IMF have been criticized for allowing inflationary devaluation.

2. The IMF has been criticized for imposing policy with little or no
consultation with the affected countries.

Q:15: What is main objective behind the establishment of the

IMF?/goal of IMF. Evaluate its achievement. (2008, 2012, 2013,17).

The origin of the IMF goes back to the days of international chaos of the 1930s.
During the Second World War, plans for the construction of an international
institution for the establishment of monetary order were taken up.

At the Bretton Woods Conference held in July 1944, delegates from 44 non-
communist countries negotiated an agreement on the structure and operation of
the international monetary system.

1. To promote international cooperation through a permanent institution.

2. To facilitate the expansion and balanced growth of international trade
and thereby promote high levels of employment of the member countries.
3. To promote exchange ability.
4. To contribute promotion and maintenance of high levels of employment
of the member countries.
5. To promote exchange stability and to maintain, orderly exchange
arrangements among member countries.
6. To avoid competitive exchange depreciation.
7. To make the Fund’s resources available to the member countries under
adequate safeguards.
8. To provide short term financial assistance to correcting the fundamental
causes of balance of payment disequilibrium.
So those are the objective IMF.
Achievements:

In this article we will discuss about the achievements and the IMF.

The International Monetary Fund has played a very vital role in the stabilisation of exchange
system, in facilitating international payment adjustments and in the promotion of steady
expansion of international trade and productive capacities of the member countries.

Achievements of the IMF:

Some of the major achievements of the IMF are as follows:

(i) Stability in Exchange Rates:

The IMF started with the determination of par values of the currencies of different countries
in terms of gold or the U.S. dollar. It, however, allowed the variations in exchange rates by ±
1 percent. Subsequently, the band of fluctuation of exchange rate was enlarged to ± 2.5
percent. The variation in exchange rate beyond these limits could be possible after obtaining
permission from the IMF. The system of exchange rate under the IMF combines the elements
of stability with flexibility.

(ii) Promotion of International Trade:

The IMF has contributed in several ways to the enlargement of global trade. It has created
facilities for the member countries for financing and adjusting the balance of payments
deficits. As the multilateral assistance can enable the member countries to correct their
temporary or fundamental payments disequilibrium, they need not take recourse to tariffs,
import quotas, exchange controls and other restrictive practices. Thus, it has attempted to
create conditions for unrestrained expansion of international trade.

(iii) Check on Multiple Exchange Rates:

The IMF has not approved countries adopting the complex, cumbersome and restrictive
system of multiple exchange rates. It has brought about a simplification and rationalisation of
exchange system. The countries seeking the multilateral assistance are discouraged from
resorting to the multiple exchange rates.

(iv) Broadening of the Credit Structure:

In the earlier decades after its inception, the IMF confined its lending operations only for the
purpose of correcting short-term BOP deficits. During the recent decades, there has been a
marked change in the lending operations of the IMF.

Although it continues to provide credit to the member countries for short-term adjustments in
BOP disequilibrium, yet it has undertaken the loan operations for correcting fundamental
disequilibrium or for facilitating structural adjustments in the economies of the member
countries. The IMF has started providing loans also for specific development projects.
During 1950’s and 1960’s, the repayments of IMF loan had to be made within 3 to 5 years
periods. During 1970’s and 1980’s, different types of credit facilities were created. The
repayments are extended over a longer period. For instance, under the Extended Fund Facility
(EFF), the repayments are to be made over a period of 4 to 10 years in the case of loans from
IMF’s own resources and 3-1/2 to 7 years, if the loan is made out of Fund’s borrowed
financial resources.

The IMF provides concessional assistance extended over a period of more than 10 years out
of the Trust Fund. It is thus clear that IMF has in recent years adopted a more liberal attitude
in the extension of credit and has brought about substantial broadening of the structure of
international credit.

(v) Multilateral Payments System:

The IMF has achieved some success in the establishment of a multilateral system of
international payment particularly in respect of current transactions. However, the operations
of certain agencies or organisations which are out of the purview of the Fund have created
some hurdles in this direction.

Q: 16: What is the definition of regional integration? Discuss the

steps of regional integration. 2016.

Regional Integration is a process in which neighboring states enter into an

agreement in order to upgrade cooperation through common institutions and
rules.

5 stages of regional integration:

Free trade area:

A group of countries committed to removing all barriers to the free flow of
goods and services between each other, but pursuing independent external trade
policies.
Customs union:
Form of regional economic integration that combines features of free trade area
with common trade policies toward nonmember countries.

Common market:
A form of economic integration whereby members move forward to establish
not only free trade in goods and services but also free movement of factors of
production.
Economic union:
A group of countries committed to removing trade barriers, adopting a common
currency, harmonizing tax rates, and pursuing a common external trade policy.
Political union:
economic and political integration whereby countries coordinate aspects of their
economic and political systems.

Q: 16: Write down the history of SAARC? Briefly discuss the impact/role
of SAARC in the foreign trade of Bangladesh. 2009,12,13

The idea of co-operation in South Asia was discussed in at least three

conferences: the Asian Relations Conference held in New Delhi on
April 1947; the Baguio Conference in the Philippines on May 1950;
and the Colombo Powers Conference held in Sri Lanka in April.

In the ending years of the 1970s, the seven inner South Asian nations
that included Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan,
and Sri Lanka agreed upon the creation of a trade bloc and to provide
a platform for the people of South Asia to work together in a spirit of
friendship, trust, and understanding. President Ziaur Rahman later
addressed official letters to the leaders of the countries of the South
Asia, presenting his vision for the future of the region and the
compelling arguments for region. During his visit to India in
December 1977, Rahman discussed the issue of regional cooperation
with the Indian Prime Minister, Morarji Desai. In the inaugural
speech to the Colombo Plan Consultative Committee which met in
Kathmandu also in 1977, King Birendra of Nepal gave a call for close
regional cooperation among South Asian countries in sharing river
waters.

At a glance SAARC was founded in Dhaka on 8 December 1985. Its

secretariat is based in Kathmandu, Nepal. The organization promotes
development of economic and regional integration. It launched the
South Asian Free Trade Area in 2006.
Impact of SAARC in the foreign trade of Bangladesh:
2
The South Asian Association for Regional Cooperation (SAARC) is an
economic, political and regional organization of eight countries-Bangladesh,
Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka and Afghanistan in south Asia.
SAARC forms to work together to facilitate the spirit of friendship,
companionship and trust among the member nations. The main motto of
economic bloc is the raise in economic and social dimensions through bilateral
and multilateral dialogues, also for smooth cooperation in trade and commerce
among
. SAARC has played a significant role for promoting peace, trade and commerce among
member nations.
Some initiatives & impact of SAARC are given below:
 Role in Foreign Trade:
 During the year 2000 to 2006, the total exports of SAARC countries increased
more than two & half fold from US$ 63.5 billion to US$ 161.4 billion. Among
all the member countries, India is the largest exporter followed by Pakistan and
Bangladesh. The total imports of SAARC countries also increased from US$
79.5 billion in 2000 to US$ 255.3 in 2006.
Transports/ Transit Facilities:
 Transit facilities in the region to accelerate the growth of trade within and
outside the region, road and railway networks which could use Bangladesh as a
transit route to connect the northeastern states of India with rest of the country,
as well as provide access to Nepal and Bhutan through Bangladesh.
Cooperation in the Field of Handicrafts and Cottage Industries:
 Handicrafts and cottage industries ware established in 1991 pursuant to the
decision of the fifth SAARC summit. So far, the group has two meetings in
which it has identified an indicative list of crafts and industries for the purpose
of mutual cooperation.
IT and Software:
 India is rapidly emerging as an info tech superpower, and could well assist in
catering to the IT and software requirements of its neighboring countries.
Jute:
 Private capital with technological support can move in from India for setting up
modern  jute manufacturing plants in bd. in the production of new uses-paper,
with the help of SAARC.
Q: Why did Regional Trading Arrangements emerge over
World Trade Organization?
Regional Trade Agreements (RTAs) are the agreements
whereby members accord preferential treatment to one
another in respect to trade barriers.
During the second half of the 1990’s, trade liberalization
and the pursuit of global free trade underwent a
metamorphosis. The political momentum shifted away
from what was seen by some nations as the painstakingly
slow process of multilateral tariff negotiations to smaller
regional and bilateral arrangements- the Regional Trade
Agreement.
RTAs are not a new means of trade liberalization;
historically, whenever multilateral trade negotiations
broke down, bilateral and multilateral free trade
agreements filled void. Such strategic trade arrangements
have enabled many states to move towards freer trade at
their own pace, and for their own benefits.
Essentially, RTAs are violations to WTO’s non-
discrimination principle. This basic principle is defined in
the Most- Favored-Nation rule, which requires a member
country to extend to all WTO members the privileges that
it grants to one contracting party. However, WTO views
Q: 18: Explain SAPTA with its implications for Bangladesh. 2017

SAPTA: SAPTA is an inter-government group (IGG) formed by

South Asian Association for Regional Cooperation (SAARC)
members to negotiation incremental tariff reforms between member
countries. The goal is to increase trade between Asian countries and
to assist less economically advantaged members through preferential
treatment.
SAFTA: The South Asian Free Trade Area (SAFTA) is an agreement
reached on January 6, 2004, at the 12th SAARC summit in Islamabad, Pakistan.
It created a free trade area of 1.6 billion people in Afghanistan, Bangladesh,
Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka (as of 2018, the
combined population is 2.08 billion people, about 27% of the world's population
of 7700808000 ).
Q: 19: Elaborate the main activities of any three institutions assisting
international trade of Bangladesh. 2012.
Answer: see questions no 4, 12& 13.
Q: 20: The multi Fiber agreement an excellent way to organize the
international trade. 2011
The Multi Fiber Arrangement (MFA) governed the world trade in
textiles and garments from 1974 through 1994, imposing quotas on
the amount developing countries could export to developed countries.
Its successor, the Agreement on Textiles and Clothing (ATC), expired
on 1 January 2005.
The agreement attempted to mitigate this potential conflict to ensure
continued cooperation in international trade. In this context, the
quotas were described as an orderly means in which to manage the
global clothing and textiles trade in the shorter term to prevent
market disruptions.
Q:21: Why did Regional Trading Arrangements(RTA) emerge
over World Trade Organization? 2012.
Regional Trade Agreements (RTAs) are defined as groupings of countries
which are formed with the objective of reducing barriers to trade between
member countries. Contrary to what the name suggests, these groupings or
unions may be concluded between countries not necessarily belonging to the
same geographical region.
The WTO was set up to liberalize international trade on the principle of non-
discrimination and to eliminate trade barriers through multilateral negotiations.
It has contributed to expanding world trade and is expected to do more if the
current DDA multilateral negotiations are completed ever. Some 421 RTAs
have been notified to the GATT/WTO up to December 2008. If we take into
account RTAs which are in force but have not been notified, those signed but
not yet in force, those currently bein negotiated, and those in the proposal stage.

Q:22: What is great depression? What are the causes and effect of great
depression? 2012

The Great Depression was a severe worldwide economic depression that took
place mostly during the 1930s, beginning in the United States. The timing of the
Great Depression varied across nations; in most countries it started in 1929 and
lasted until the late-1930s. It was the longest, deepest, and most widespread
depression of the 20th century. In the 21st century, the Great Depression is
commonly used as an example of how intensely the world's economy can
decline.

The Great Depression started in the United States after a major fall in stock
prices that began around September 4, 1929, and became worldwide news with
the stock market crash of October 29, 1929 (known as Black Tuesday). Between
1929 and 1932, worldwide gross domestic product (GDP) fell by an estimated
15%.

Causes of Great Depression:

Causes of The Great Depression What caused the Great Depression, the worst
economic depression in US history? It was not just one factor, but instead a
combination of domestic and worldwide conditions that led to the Great
Depression. As such, there is no agreed upon list of all its causes. Here instead
is a list of the top reasons that historians and economists have cited as causing
the Great Depression. The effects of the Great Depression were huge across the
world. Not only did it lead to the New Dealin America but more significantly, it
was a direct cause of the rise of extremism in Germany leading to World War II.

1. Stock Market Crash of 1929-Many believe erroneously that the stock

market crash that occurred on Black Tuesday, October 29, 1929 is one and the
same with the Great Depression. In fact, it was one of the major causes that led
to the Great Depression. Two months after the original crash in October,
stockholders had lost more than $40 billion dollars. Even though the stock
market began to regain some of its losses, by the end of 1930, it just was not
enough and America truly entered what is called the Great Depression.

2. Bank Failures-Throughout the 1930s over 9,000 banks failed. Bank deposits
were uninsured and thus as banks failed people simply lost their savings.
Surviving banks, unsure of the economic situation and concerned for their own
survival, stopped being as willing to create new loans. This exacerbated the
situation leading to less and less expenditures.

3. Reduction in Purchasing Across the Board-With the stock market crash

and the fears of further economic woes, individuals from all classes stopped
purchasing items. This then led to a reduction in the number of items produced
and thus a reduction in the workforce. As people losttheir jobs, they were
unable to keep up with paying for items they had bought through installment
plans and their items were repossessed. More and more inventory began to
accumulate. The unemployment rate rose above 25% which meant, of course,
even less spending to help alleviate the economic situation.

4. American Economic Policy with Europe-As businesses began failing, the

government created the Smoot-Hawley Tariffin 1930 to help protect American
companies. This charged a high tax for imports thereby leading to less trade
between America and foreign countries along with some economic retaliation.

5. Drought Conditions-While not a direct cause of the Great Depression, the

drought that occurred in the Mississippi Valley in 1930 was of such proportions
that many could not even pay their taxes or other debts and had to sell their
farms for no profit to themselves.

Effect of Great Depression:

1. The most devastating impact of the Great Depression was human suffering.
In a short period of time, world output and standards of living dropped
seriously.

2. As much one-fourth of the labor force in industrialized countries was unable

find work in the early 1930.

3. The great depression and policy response also changed the world economy in
crucial ways.

Q:23: Critically discuss the Bangladesh’s trade situation with

neighboring countries, especially with India. 2012.
Bangladesh and India are South Asian neighbors. Relations have been friendly,
although sometimes there are border disputes. The historic land boundary
agreement was signed on 6 June 2015 which opened a new era in the relations
and further stopped all irritants in ties. They are common members of SAARC,
BIMSTEC, IORA and the Commonwealth. The two countries share many
cultural ties. Indo-Bangladesh bilateral trade surged by 24% to reach US$9.3
billion in the year 2018 from about US$7.52 billion in the preceding year. In
2012, Bangladesh allowed India's Oil and Natural Gas Corporation to ferry
heavy machinery, turbines and cargo through Ashuganj for Palatana Power
project in southern Tripura. From October 2013, India started exporting 500
megawatts of electricity a day to Bangladesh over a period of 35 years. A 125-
kilometre Baharampur-Bheramara transmission line, 40 km of it in Bangladesh,
connects the two substations. Bangladesh officials believe the export would
greatly ease the national shortage once 500 MW flows into the national grid.
The two country's Prime Ministers also unveiled the plaque of the 1,320-MW
coal-fired Rampal power plant, a joint venture between the two countries. The
link is being seen as a major milestone in strengthening the bilateral relationship
and comes at a time when India is desperate to make up for its inability to
deliver on two key pacts with Bangladesh: one on Teesta waters and the land
boundary pact.
During Indian Prime Minister Narendra Modi's state visit to Bangladesh
during June 2015 as many as 22 agreements were signed by two sides. During
the visit India extended a US$2 billion line of credit to Bangladesh & pledged
US$5 billion worth of investments. As per the agreements, India's Reliance
Power agreed to invest US$3 billion to set up a 3,000 MW LNG-based power
plant (which is the single largest foreign investment ever made in Bangladesh).
Adani Power will also be setting up a 1600 MW coal-fired power plant at a cost
of US$1.5 billion. The two countries signed a total of 22 agreements including
the ones on maritime safety co-operation and curbing human trafficking and
fake Indian currency. Modi also announced a line of credit of $2 billion to
Bangladesh.
In 2018, the leaders of both the countries inaugurated the 130 km long
Bangladesh-India Friendship pipeline to supply 4 lakh metric tonne of diesel to
Bangladesh. In September 2018, the Bangladesh cabinet approved the draft of a
proposed agreement with India to allow it to use the Chittagong and Mongla sea
ports for transporting goods to and from its land-locked northeastern states.
The trade is set to go at $10 billion by 2018 through ports. Bilateral trade
between India and Bangladesh stood at US$6.6 billion in 2013-14 with India's
exports at US$6.1 billion and imports from Bangladesh at US$462 million,
representing more than double the value of US$2.7 billion five years ago.

Short notes:
SDR( Special drawing right):

The SDR is an international reserve asset, created by the IMF in 1969 to

supplement its member countries' official reserves. The value of the SDR is
based on a basket of five currencies—the U.S. dollar, the euro, the Chinese
renminbi, the Japanese yen, and the British pound sterling.

Back to Back LC:

Back-to-Back Letter of Credit is a negotiable instrument in which the seller gets
a Letter of Credit from the buyer and the seller further transfers the Letter of
Credit to its supplier. In simple words, the seller first gets the Letter of Credit
from the buyer to ensure timely payment and further the same seller hands over
the Letter of Credit to someone from whom he buys goods or materials
Asia Pacific Trade Agreement:
The Asia-Pacific Trade Agreement (SAPTA), previously known as the
Bangkok Agreement[1] and renamed 2 November 2005, was signed in 1975. It
is the oldest preferential trade agreement between countries in the Asia-Pacific
region. Seven Participating States- Bangladesh, China, India, Lao PDR,
Mongolia,Republic of Korea, and Sri Lanka are the parties to the SAPTA.
SAPTA’s key objective is to hasten economic development among the seven
participating states opting trade and investment liberalization measures that will
contribute to intra-regional trade and economic strengthening through the
coverage of merchandise goods and services, synchronized investment regime
and free flow of technology transfer making all the Participating States to be in
equally winsome situation. Its aim is to promote economic development and
cooperation through the adoption of trade liberalization measures.

The End.