Bangladesh
has made a major transition in its trade policy from a protectionist stance to
a freer trade regime since the early 1990s as is reflected by the reduction in
the average tariff rate from as high as 105 percent in 1990 to 13 percent in
2016. Despite that, in 2016, Bangladesh''s average applied tariff rate was the
highest in South Asia and much higher than those of the countries in Southeast
Asia. Also, in 2016, the share of tariff lines with international peaks (rates
that exceed 15 percent) in total tariff lines was as high as 39 percent, which
was much higher than most of the South Asian (except Nepal and Pakistan) and
Southeast Asian countries. Given this scenario, it is suggestive that there is
scope for further tariff liberalisation in Bangladesh in terms of cutting down
the average tariff rate as well as the tariff peaks.
Admitting the need for further tariff liberalisation in promoting export and
economic growth, there are concerns that a mere tariff cut is not sufficient to
achieve such targets. First, since 2000, reduction in the average tariff rates
has hardly had any systematic association with both the import-GDP ratio and
export-GDP ratio in Bangladesh. Second, the presented scatter-plot shows an
interesting analysis for 171 countries, where it appears that Bangladesh is in
a group of countries (Group A) with low per capita GDP but high tariff rate.
The
countries in Group D (quite large in number) are with larger per capita GDPs
and much lower tariff rates. However, there is also a sizeable number of
countries in Group C, where countries have both higher per capita GDP and high
tariff rates. All these indicate an apparent inconclusive association between
the cut in tariff rates and the promotion of both trade and national income.
Unfortunately, the discussion over trade policy in Bangladesh is primarily
focused on tariff rates, and there are dominant conservative views against
further tariff liberalisation with concerns over the loss in revenue and
protection of domestic industries.
However,
the emerging challenges and complexities in the global trading regime calls for
an overhaul of conventional thinking in the trade policy regime in Bangladesh.
Four critical issues need to be considered in this overhauling process.First,
the effort for further tariff liberalisation in Bangladesh, in terms of cutting
down the average tariff rate as well as the tariff peaks, need to be continued
as it creates a necessary condition for further diversification of the export
basket. The use of para-tariffs for the protection of domestic industries needs
to be transparent and consistent with the WTO framework, and timely phase-out
of such para-tariffs is warranted.
However,
it should be kept in mind that with the escalation of the preferential trading
arrangements (PTAs), and assuming Bangladesh''s engagement in PTAs will increase
in future, the preferential tariff rates will become more important than the
MFN (most favoured nation) tariff rates. Therefore, the simple average tariff
rate would not reflect the true picture of the status of tariff protection in
future.Second, the trade policy needs to be pro-active to effectively engage
with multilateral, regional and bilateral trading arrangements, and to take
initiative for participation in the prospective mega-trading blocs. Bangladesh,
being an LDC and thus receiving trade preferences in major export destination
markets, has so far been very passive in such trading arrangements. However,
with the bright prospect of getting out of LDC status in the near future, such
trade preferences will turn out to be redundant and the country has to bank on
its comparative advantage and competitive strengths in future.
Third,
the trade policy needs to facilitate Bangladesh''s effective integration with
the global and regional value chains. Currently, the country''s successful
integration in the GVC is only through the readymade garments, and there is a
dire need to diversify the export basket. Providing export subsidies for export
diversification has turned out to be an easy but ineffective tool. More
fundamental problems are associated with policy-induced and supply-side
constraints. In this context, the trade policy needs to be synchronised with
other policies and programmes in the economy.
Source: The Dhaka Tribune, Bangladesh Saturday, 20 January 2018