Though Bangladesh needs to modernise the tariff structure and diversify the export basket to deal with the post-LDC challenges, local industries may face stiff competition due to tariff rationalisation.
Besides, local industries are likely to lose their competitive edge for withdrawal of supplementary duty (SD) and regulatory duty (RD) and scrapping of minimum import prices along with the reduction of customs duty on import of goods, which may be resisted by domestic industries enjoying the protection for a long time.
As tariff rationalisation will put negative impacts on local industries, the government mulls devising an action plan to gradually reduce customs duty or tariffs so that domestic production may not decline steeply.
The findings and observations came from the final report of a study group on tariff rationalisation. The report will be submitted soon to the national committee, formed by the government with the principal secretary to the prime minister as its chief.
The government has formed the committee in a bid to overcome the challenges which may arise after the country’s graduation from the LDC status. The government aims to implement the action plan and monitor its implementation.
The national committee has also formed six subcommittees, including an internal resource mobilisation & tariff rationalisation subcommittee, headed by the senior secretary of Finance Division.
Later, the subcommittee has formed the study group led by Md Masud Sadiq, member (customs policy) at the National Board of Revenue (NBR). The study group was initially formed with Syed Golam Kibria, member (customs policy and ICT), as its head.
The report said that tariff rationalisation may affect the customs revenue growth adversely if the action plan is implemented properly.
Against the backdrop, the committee has suggested reviewing the tariff structure vis-à-vis tariff binding commitment of Bangladesh to World Trade Organization (WTO), rationalisation of SD and RD and phasing out of minimum import prices.
Tariff rationalisation may result in positive impact only if trade facilitation measures are taken and customs modernisation plan is implemented to reduce the trade cost and expedite the clearance of goods, the report says.
The study group has recommended taking measures to implement the trade facilitation agreement and devising customs modernisation plan immediately.
It said that an appropriate study on tariff rationalisation and comprehensive impact analysis can be done to identify the impacts on overall collection of revenue.
Talking about the matter, former member of Bangladesh Trade & Tariff Commission (BTTC) Mostafa Abid Khan told The Business Post, “Industries would not be competitive if they become habituated to the protective tariff.”
“We do not recommend lifting protection at once. Rather it should be gradually reduced. Besides, establishments will be adjusted with tariff rationalisation,” said Khan, also a member of the study group.
If industries cannot make more profits due to excessive protection, they may explore new markets and lean towards exports as being competitive that will meet an export shortfall and increase forex reserves.
Many industries do not export goods as they get much benefit from the local market. “It means that we invest more in purchasing their products,” he shared.
“We, the country, should have to go through a painful process, otherwise, we will suffer after the country’s graduation from LDC status,” he opined.
60 HS lines where CD, SD exceed bound tariff
The study conducted on this issue shows that Bangladesh’s tariff commitment to the WTO covers only 955 HS lines in HS2012 version. Of them, 763 HS lines fall under WTO agricultural products and the remaining 192 HS lines are non-agricultural products.
Rates of tariff binding range from 0 per cent to 200 per cent. Review of Bangladesh’s tariff commitment to the WTO and first schedule showed that there were six HS lines where customs duty exceeded the bound rate. This issue was addressed in the budget for FY23, the report reads.
However, there are 60 HS lines where CD and SD together exceed the bound tariff.
The group proposes that RD may be imposed at 2.5 per cent and increase CD up to level of the bound rate bringing down SD to minimum or making SD trade neutral by slapping SD on locally produced goods.
Waiving RD, reducing SD on 516 HS lines
The group proposes that for the time being, NBR may consider waiving RD on around 516 HS lines and reduce SD gradually on these products till FY26 as these duties have a protection effect on the industry.
Waiver or reduction of duties will include those products which are not socially undesirable products and the products that do not possess perceived negative effects, such as tobacco, alcoholic beverages, arms, and ammunitions etc.
Not luxury items such as cars, diamonds etc., those products, importation of which will not increase pressure on forex reserves, those are not produced locally, not in demand in the domestic market due to cultural or other reasons will be included in the list.
Minimum import prices of 125 products to be phased out
The report says that imposing the minimum import prices is not compatible with the WTO agreement on customs valuation even as a LDC. Therefore, the study group recommends applying the provisions of the WTO agreement on customs valuation as incorporated in the existing provision.
However, considering the reality and immediate challenges of repealing the related provision of the law to impose tariff or minimum value, the committee has put forward a proposal to gradually phase out imposition of minimum import prices.
The committee has proposed that the minimum import prices be phased out gradually within next three years, including FY24 in case of as much as 125 products.
The study group consisted of Zaidi Sattar, Chairman and Chief Executive of Policy Research Institute of Bangladesh (PRI), Manzur Ahmed, adviser of Federation of Bangladesh Chambers of Commerce & Industry (FBCCI), Ferdaus Ara Begum, Chief Executive Officer (CEO), Business Initiative Leading Development (BUILD), Abu Daiyan Mohammad Ahsanullah, Joint Secretary, Finance Division, Md Salim Ullah, Senior Assistant Secretary (Policy), Ministry of Industries, Md Mamun-Ur-Rashid Askari, Joint Chief, Bangladesh Trade & Tariff Commission (BTTC), and Kazi Iqbal, Senior Research Fellow, Bangladesh Institute of Development Studies (BIDS).
