Consumers in Bangladesh are paying around 44 per cent more for goods and products compared to global market rates due to higher protective tariffs – which are usually enacted with the aim of protecting domestic industry.
Besides, such protection is the key barrier to export diversification, and consumers are bearing the brunt of this measure by shouldering higher tariffs.
Policy Research Institute of Bangladesh (PRI) Chairman Zaidi Sattar made the remarks in a presentation titled “Tariff Protection and Export Diversification are Not Mutually Exclusive: The Bangladesh Phenomenon.”
Addressing a seminar organised by Bangladesh Institute of Development Studies (BIDS) in the capital’s BIDS Conference Room on Wednesday, Sattar said, “Protection policy leads to significant resource transfer from consumers to producers.
“So the government should balance consumer and producer interests. Tariffs raise the relative profitability of domestic sales compared to exports, thus discouraging production for exports. For a small trading country, export price is a given – price taker and anti-export bias (AEB) of tariff protection is high in Bangladesh.”
He then said, “Typically, nominal tariffs on outputs [mostly consumer goods] are significantly higher than tariffs on inputs. Depending on how much value addition is generated by each firm or sector, effective rates of protection for most import substitutes could range from 100 per cent to 400 per cent or more.”
“Import substitution through protective tariffs is good for industrialisation, but more protectiveness creates inefficiency. We have to improve the competitiveness of our industries through digitalisation, logistics, sanitation and other compliances, which will boost export diversification and create more employment.”
Key challenges to export diversification
Due to the protective trade regime, producers find it more profitable to sell in the domestic market rather than export, and this is the principal issue inhibiting the export expansion of non-RMG products, said Sattar.
He pointed out that in 2021, Bangladesh’s export basket comprised a total of 216 RMG products, eight of which exceeded $1 billion, 185 were worth between $1 million and $1 billion, and the remaining 23 accounted for less than $1 million.
However, almost 89 per cent of the RMG products are either highly or moderately competitive. Besides, 1,393 non-RMG products occupied only 18.79 per cent or $7.3 billion of Bangladesh’s total export value in 2021.
In total, 584 non-RMG products were deemed as highly or moderately competitive, which fetched only around $6.2 billion in export revenue. This indicates that only competitiveness is not the main impediment to export diversification.
Rather, protective tariffs discourage export expansion, Sattar said in his presentation.
Only tariff reform not enough
Former governor of the Bangladesh Bank Salahuddin Ahmed said only tariff reform does not boost export diversification. The utilisation of the Export Development Fund (EDF), better interest rate and other policy support can help boost export diversification.
However, tariff rationalisation may assess what the country’s domestic business scenario actually is. And it is true that the National Board of Revenue (NBR) does not always use rational practices. Instead, they do whether they can to collect more revenue.
Business Initiative Leading Development (BUILD) CEO Ferdaus Ara Begum said, “Consumers are also benefiting in the local market as export industries are paying around 20 per cent – 25 per cent more to maintain compliance.
“So, we should take such matters into consideration because exporters have some obligation from buyers to maintain the international standard.”
She stressed proper utilisation of EDF, elevated bonded warehouse facilities and putting more focus on backward and forward linkage industries – which must be strengthened as soon as possible.
The National Tariff Policy (NTP) subscribes to a fundamental proposition of trade policy – that tariffs, protection, and export performance (including diversification) are not mutually exclusive events.
NTP opens the door to export diversification. In the end, implementation will be the key, said Sattar.
