Home ›› 11 Feb 2022 ›› Editorial
With a departure from the socialistic economic approach in 1975, the government started encouraging private sector involvement in import activities. Even then, 1985-86, the import policy had a positive list indicating items not stated in the list were not importable. Adoption of private sector-led- growth of export opportunity, especially of Ready Made Garments (RMG) and engagement in various trade agreements led the government to open up its import regime by dismantling import restrictions and lowering tariff and adopting various export supporting measures.
Trade policy is defined as goals, rules, standards, and regulations involved in trade between countries. It focuses on the reduction of protection, achieving a more outward-oriented trade regime, increased market access for exports, and global integration aimed at boosting economic efficiency, competitiveness, and export-led growth. Usually trade policies use instruments like tariffs, subsidies, import quotas, voluntary exports restraints, local content requirements, anti-dumping duties, non-tariff barriers, and export taxes. The main features of Bangladesh Trade Policy are commodity and market access/ concentration through diversification of exports and to improve Balance of Payments.
Since independence, the main instruments for regulating Foreign Trade remain Imports and Exports (Control) Act, 1950, Customs Act, 1969, and Foreign Exchange Regulation Act, 1947. The Import Policy Order issued under Imports and Exports (Control) Act, 1950 regulates the conditions of imports and is legally enforceable. In contrast, exports policy defines the exports status of certain products, export restrictions are imposed through Statutory Regulatory Order (SRO) under the Imports and Exports (Control) Act,1950. However, Export Policy is merely a statement of intent without any legal enforceability. The Customs Act, 1969 specifies the customs duty through its First Schedule and other border taxes and charges. Import for export purposes as import under Bonded Warehouse, Import for Export Processing Zone, and Duty Drawback facilities are operated under Customs Act, 1969. Later on, Sales Tax was replaced by VAT under VAT Act, 1991. VAT and Supplementary duty was collected on import products. Later on in the 2019 VAT Act, 1991 was replaced by Supplementary Duty Act, 2012, which came into effect from 2019. The Foreign Exchange (Regulation) Act, 1947 regulates the procedures for foreign exchange transactions.
As a sovereign state and a member of WTO, Bangladesh has to prepare its Trade Policy on a six-yearly basis. WTO reviewed the current Trade Policy in April 2019 to see how far the policy advocates Free Trade and guarantees a relaxed and simplified non-discriminatory approach towards trade and commerce. Bangladesh Trade Policy covers areas such as Imports, Exports, Price Control, State Trading, Formation of Companies and Associations, internal Trade, Commodity issues, Tariff Policy, Trade-related issues, FTA, RTA, MTA, etc. In our present review of the Trade Policy we shall focus on areas of Economic Development, Trade Policy Framework, Trade Policy Development, Sector Policy Development.
Economic Scenario
Between the 4th review (2012) and the 5th review (2019), Bangladesh’s economy emerged relatively unscathed from a slow global economic environment, but later had to face tough times due to the Covid-19 pandemic. Even during the pandemic, Bangladesh achieved positive growth though much lower than the past decade. However, during the review period, Bangladesh remained vulnerable due to an undiversified export base and reliance on migrant workers’ remittance. During the 5th review, Bangladesh was adjudged the world’s seventh fastest-growing economy with a GD growth rate of approximately 8.3 per cent. The average real GDP growth during the last 6 years was over 6 per cent. It was made possible through some prudent macro-economic policies and good performance of agriculture, industry, and service sectors. Per capita GDP was estimated to be $2550 and three times higher when estimated as per Purchasing Power Parity. The economy of Bangladesh characterized as a developing market economy. It is 33rd largest in the world in nominal terms and 31st largest by Purchasing Power Parity (PPP). The country has been classified among the Next Eleven Emerging middle–income economies and a frontier market. Over the years, the economy has been increasingly open even though exports have remained limited. Exports remained highly concentrated both in terms of products and destinations. Bangladesh gained global market share from the 1990s as a reputable low cost producer of garments.
The Balance of Payments remained in surplus during most of the review period (2012 to 2019) due to accumulation of international reserve of foreign exchange to the tune of $48 billion as of August 2021. However, at times combined impact of pandemic, rising imports, fuel, poor remittances, and lower aid flows had some negative impact on trade and the economy. The Current Account balance stood at (-)$3808 bn. Substantial inflow of remittances are crucial for macro-economic stability as they offset to a large extent the trade services and income deficit.
Bangladesh is strategically important for some neighbouring economies like Nepal and Bhutan as Bangladesh seaports provide maritime access for these landlocked countries. China views Bangladesh as a potential gateway for its landlocked South West, including Tibet, Sichuan, and Yunnan. Good trade prospects are there in these landlocked countries. Prudent trade policy may bring benefits to both these countries and Bangladesh. Bangladesh is linked to SAFTA, SAARC, BIMSTEC, WTO, AIIB, IMF, Commonwealth, World Bank, ADB, D-8. However, the economy faces challenges from infra LDC’s structure bottleneck, accompanied by bureaucratic corruption and youth unemployment.
Bangladesh’s trade policy indicates that the country is gradually moving from agrarian to a manufacturing-based economy, supported by abundant low-cost labour. Growth has resulted in a decline in poverty which fell to 21.8 per cent in 2018. Bangladesh reached the World Bank’s threshold for lower middle income economy in 2015 and is on the course to graduate from LDC status by 2024. Sustaining growth would depend on continued reforms. The government has focused on its trade reform efforts, reduce trade distortion, minimize anti-exports bias, and ensuring greater integration into the multilateral trading system.
Bangladesh grants MFN treatment to all its trading partners and receives special and differential treatment as per WTO Agreements. As a coordinator of LDCs in the WTO, Bangladesh advocates issues of interest of the LDCs to greater market access, increased flexibility in the Multilateral Trade Rules, and assistance to trade infrastructure. The formulation of trade policy lies with the Ministry of Commerce and Ministry of Finance. Data from other relevant ministries and agencies are collected and subsequently included in the trade policy. Reforms of trade policy’s legal and regulatory framework have become essential for facilitating economic growth and trade expansion. Certain new areas have been incorporated in the trade policy. They are:- Standards and Accreditation, Sanitary and Phyto-sanitary measures, Government Procurement, Intellectual Property Rights, Economic Zones, Money laundering, Insurance , Tourism, Telecom and Competition. Bangladesh enjoys preferential trade regime (Generalized System of Preference like GSP) provided by different developed countries .Bangladesh is an active participant in the global system of trade preference (GSTP).
The customs tariff is Bangladesh’s main trade policy instrument. Almost all tariff rates are ad-valorem, thus ensuring a high degree of transparency. Normally duties vary between 5 per cent to 25 per cent. However, zero tariff is levied on commodities like rice, wheat, medicine, seeds, fertilizers and raw cotton. Average MFN tariff has fallen over the years. Average customs duties on agricultural products are higher than industrial products. Bangladesh has bounded all tariff lines, which vary according to the nature of the product. Additional protection is maintained through internal taxes such as regulatory duties, supplementary duties and other charges. However, significant customs modernisation is underway for speedy customs clearance under the umbrella of trade policy. In the national budget, substantial amount is allocated for the procurement of goods, works, and services in the public sector. Public Procurement Act and Rules provide guidelines for International Public Procurement. Competition Law is in operation. State Owned Enterprises (SOEs) are allowed to engage in commercial activities and exert influence on industries. Export prohibitions are maintained mainly for reasons of health, ecological balance, security, archaeological value or to ensure adequate domestic supply. Assistance to domestic production and export is recognized as “Deemed Export”. Action to rejuvenate BSTI is on. IPR laws have been brought in line with TRIPs Agreement. Mode-4 plays an important role in the temporary movement of workers and professionals.
There has been a positive impact of the trade policy on foreign currency reserves, employment generation, poverty alleviation, and economic growth. Since Bangladesh is a signatory to GATS commitments, tourism and telecom are essential sectors for the country.
Investment Scenario
Bangladesh is a homogenous society comprising of a population with remarkable resilience in the face of adversity. At times it works as a bridge between ASEAN and SAARC. Since the 1990s, FDI inflows showed an erratic trend, picking up and going down at different times. Trade liberalization, current account convertibility, private sector development, liberalization of investment regimes, opening up of infrastructure and service sectors to private sector have added impetus to FDI. Open market policy tax has created a sizable middleclass with substantial purchasing power. Under the Structural Adjustment Program, deregulation of interest rates has been left to the banks. Trade liberalization policy reduced tariffs, simplified tariff structure and tariff laws and reduce Non-Tariff Barriers (NTBs).
Monetary Scenario
The focus on monetary policy has remained unchanged mainly to contain inflation and to ensure an uninterrupted supply of credit to productive sectors. The monetary policy was prompted by tightening of liquidity conditions due to widening of current account deficit and weakening of Balance of Payments. Before deterioration of current account a surplus was seen during 2015-16. However, the current account balance deteriorated due to slow export, high imports and decline in remittance.
On the industrial policy front, we see incentives like tax exemption, accelerated depreciation, concessional rate of interest on current capital, exemption of double taxation on royalties and technical knowhow, and foreign and domestic investment. Investment in power, energy, aviation, telecom, financial sector, infrastructure need government permission. Portfolio investment is allowed for foreign investment. The government has set up Business Promotional Council in collaboration with the private sector. The government has also initiated Export Competitiveness for JOBs project with World Bank support.
The writer is former DG of EPB. He can be contacted at hassan.youngconsultants@gmail.com
