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1. Why was the shift to a free trade regime in the textile industry good for Bangladesh?
Answer: Free trade regime is a system of tariff and non tariff barriers and export incentive schemes aimed at strengthening the competitiveness. Free trade regime is advantage in production of textiles and low labor costs. Also, it is supporting industries and diversifying supply sources. Until 2005, Bangladesh’s opportunities in the developed nations were governed by a quota system. Introduction of free trade policies enabled Bangladesh to increase its exports. Competitive advantages in the production of textile are including low cost, productive labor force and strong network of supporting industries. Also, attracted Western importers are looking to diversify their supplier base. Therefore, shift to a free trade regime in the textile industry good for Bangladesh.
2. Who benefits when retailers in the U.S source textiles form low-wage countries such as Bangladesh. Who might lose? Do the gains outweigh the losses?
Answer: For Bangladesh, it has competitive advantages which are low cost and low price. For U.S., it has higher price and fewer garments purchased locally; also, it has possible loss. Low income countries, Bangladesh’s economy, Hong Kong and customers benefit when retailers in the U.S source textiles form low-wage countries. High development countries such as U.S. may lose. Yes, gains do outweigh the losses. Bangladesh will slowly develop. Economy will get improve.
3. What international trade theory best explains the rise of Bangladesh as a textile-exporting powerhouse?
Answer: The advantages for Bangladesh are low labor cost result in low price for production; inputs are made locally by low wage worker; transport cost and storage costs are very low and import duties are decreasing. Products are low barriers to trade result in growth in exports and economic. Exporting powerhouse is relatively low wages and investments in boosting productivity levels and network of supporting industries. Theory of comparative advantage and porter’s theory of competitive advantage best explain the rise of Bangladesh as a textile-exporting powerhouse.
4. How secure is Bangladesh’s textile industry from foreign competition? What factors could ultimately lead to decline?
Answer: Bangladesh is attractive due to low cost garments; the opportunity for importers to diversity their supply base (importers do not want to solely reply on china and see Bangladesh as an attractive alternative to hedge risks). However, their infrastructure could prove to be problematic for its exporters. If importers find that infrastructure problems disrupt their supplies, they could begin to look for new source countries. Bangladesh should make the necessary investments to avoid any disruptions in the industry. Factors such as recession, increase in productivity, raw materials, workers, political disruption and infrastructure may lead to decline.