Free Trade Zone: Bangladesh Perspective

It is said that a Free Trade Zone (FTZ) is a designated area where goods can be imported, manufactured, and re-exported without the intervention of customs authorities. For developing countries like Bangladesh, FTZs can be powerful tools to attract foreign direct investment (FDI), boost exports, and accelerate industrialization. However, while there are many advantages, FTZs also come with challenges that need careful consideration. It requires offering tax incentives, simplified customs procedures, and reduced regulations, which are attractive to foreign investors. Bangladesh, with its competitive labor costs and strategic location, stands to gain significantly by creating more investor-friendly zones.

Duty-free imports of raw materials can facilitate quick export processes, encouraging manufacturing for international markets. This can help Bangladesh to expand its export base beyond the traditional readymade garments sector. FTZs can be major job creators. With more factories and industries being set up in these zones, a large number of jobs can be generated, especially for low-skilled and semi-skilled workers.

Exposure to foreign companies can lead to technology transfer, improved production methods, and skill development for the local workforce, fostering long-term industrial growth. The development of FTZs often leads to improvements in transportation, power, and communication infrastructure, benefiting not just the zone but also surrounding areas.

The proposition is not out of problems. Workers in FTZs are sometimes subjected to poor labor conditions, low wages, and limited rights, raising concerns over labor exploitation. Rapid industrial activity in FTZs can lead to unchecked pollution and environmental harm, particularly if environmental regulations are poorly enforced. FTZs can become enclaves with minimal integration into the broader economy. This limits the benefits to local suppliers and industries, reducing the potential multiplier effects. The tax exemptions and duty-free privileges offered in FTZs can lead to significant revenue losses for the Government, especially if not offset by broader economic gains. Moreover, excessive reliance on foreign companies within FTZs can make the economy vulnerable to external shocks and capital flight.

FTZs can be a compelling pathway for Bangladesh to achieve higher economic growth, employment, and industrial diversification. However, there needs a balance between investor incentives and responsible governance.

Bangladesh Investment Summit 2025 marked a pivotal moment in the nation's economic trajectory. Organized by Bangladesh Investment Development Authority (BIDA), the summit attracted over 2,300 participants from 50 countries, including more than 550 foreign investors. Key sectors highlighted included textiles, healthcare, digital economy, renewable energy, agro-processing, and startups. Notable attendees featured leaders from global corporations such as Zara, Samsung, Uber, Meta, and DP World. A significant highlight was DP World's announcement of investment in Bangladesh's supply chain infrastructure, encompassing ports, rail networks, and inland container terminals, including FTZ under public private partnership (PPP) framework.

The convergence of these developments underscores Bangladesh's strategic position as a burgeoning investment hub. With robust economic reforms, a focus on infrastructure development, and initiatives like DP World's investment, the country is poised to attract sustained FDI, driving long-term economic growth. As per media reports, the initiative is under discussion with DP World that currently operates a FTZ around the Jebel Ali Port in the UAE. It is expected that a FTZ is to be established near the Matarbari deep-sea port, much like the Jebel Ali Port in the UAE. DP World will provide technical and other forms of support in this venture, media reports added.

As global trade continues to evolve, regulatory authorities face the dual challenge of fostering economic growth while ensuring compliance, security, and sustainability. Two key instruments in this space are FTZs and Safe Trade Zones (STZs). STZ acts as pathway for development with distinct strategic purposes.

In operation of FTZs, there are some regulatory considerations. While relaxed procedures exist, customs agencies need for ensuring that goods do not leak into domestic markets without appropriate duties. Monitoring is needed to ensure trade volumes, origin of goods, and value-added processes in order to prevent misinvoicing or fraud. Regulatory gaps can emerge if FTZs lack alignment with national labor or environmental laws. As such, establishment of FTZs require integrated customs-management systems with digital tracking. Compliance is required with national labor, tax, and environmental standards. Periodic audits are needed for risk assessments and to detect misuse.

In contrast, STZs prioritize the integrity and security of trade operations, ensuring that transactions are free from illicit activities and comply with international safety, labor, and environmental standards. It requires enhanced screening, surveillance, and supply chain traceability. Assurance is to be set so that goods are not linked to forced labor, environmental violations, or conflict zones. STZs are of use in humanitarian logistics and health emergencies.

Regulatory considerations for FTZs should be in place. These may include multi-agency coordination, certification and accreditation, global alignment, etc. For regulators, striking the right balance between facilitation and control is a key. FTZs offer economic advantages, but without proper oversight, they may become conduits for illicit activities. STZs, on the other hand, provide a robust framework for secure, ethical trade but require significant institutional capacity. By integrating the strengths of both models, regulators can build resilient, transparent, and future-ready trade ecosystems.

For Bangladesh, both FTZs and STZs can help in different but complementary ways. Bangladesh Export Processing Zones Authority (BEPZA) has successfully managed EPZs that account for a significant share of the country's exports. Expanding and upgrading these to full FTZs can further enhance competitiveness. Similarly, Bangladesh can be benefited from STZs by ensuring compliance with labor rights, environmental standards, and product safety. These can help Bangladesh to avoid trade restrictions or bans like those sometimes sanctioned by the EU or US over labor concerns.

Under the principles of enhanced cargo screening, traceability, and certification, FTZs can help Bangladesh to build trust with high-value trading partners who prioritize secure and transparent supply chains. Readymade garment sector, in particular, of the country can benefit from STZ framework to align with environmental, social, and governance (ESG) standards, helping attract buyers focused on ethical sourcing.

For maximum benefits, a hybrid model can be adopted, combining the economic incentives of FTZs with the ethical and security standards of STZs. In this case, following adoption is required - stricter labor and environmental oversight, integration of digital customs and cargo security systems, zone certification under international standards, etc.

FTZs will drive investment, employment, and export growth. While STZs will protect market access, ensure sustainability, and support long-term economic credibility. A blended approach is ideal for Bangladesh’s ambition to become a global trade leader while maintaining its social and environmental commitments.

In theoretical point of view, it is possible to achieve the goals through the blended approach. A simple proposition can support regulators to implement the program. In the present situation, BEPZA companies are operating under bonded warehouse facilities. Total area is under bonded warehouse but individual license is required, as per business insiders. But the initial proposition was to allow all fully foreign owned companies to operate in EPZs. But later joint ventures and fully locally owned companies were allowed to operate there. As a result, EPZs can be regarded as STZs. This hybrid ownership is a challenge.

Many Economic Zones (EZs) are reportedly going to be operational under Bangladesh Economic Zones Authority (BEZA). These should be earmarked only for foreign investors. Banking system will provide them transactional services. Financial support is to be channeled from external sources. The companies can be allowed to source inputs locally in foreign currency, but selling their products in Bangladesh should not be permitted. These can auto-check the system. As a result, the total area of respective EZs can be declared as FTZ with a single bonded warehouse license.
 

Mehdi Rahman works in the
development sector. He also
writes on business phenomena
and monetary issues.