Trade Policy of Bangladesh

What is the main economic problem of Bangladesh? Some say population, Some say distribution of income Some others industrialization. We start with Dual Gap

Savings-Investment Gap

Export-Import Gap

How we can minimize the Gap

Slashing imports It might slow down GDP and Exports growths

Encouraging Exports It has limitations

Increasing remittances Depends on foreign demand and our capacity to

compete Depending on Foreign Aid

Is it Desirable? It is bleak in the coming years Depleting reserves

Reserves are limited. Emergency situation.

What is desirable

Previous An Inward-looking import policy Controlling imports for luxury and undesirable

items and providing incentives and subsidies for exports.

Licensing Higher exchange rate for WES/SEM XPL, XPB and subsidies.

What is desirable (contd.)

PresentFrom an Import-substitution Policy to an Exportled growth strategy.

Liberalization of imports Market mechanism Unification of Exchange rate Floatation of Exchange rate Policy of Export-led Growth. Convertibility of Taka on Current Transactions.

Historical Review of Export Policy 1971

Rehabilitation Policy 1970s

Inward looking and Import substitution policy (explain) 1980s Shortcomings of Inward Looking Policy Global Opening Market Mechanism Towards Outward looking policy

Historical Review of Export Policy (contd.) Up to 1990

Ad hoc – year on year basis Complex trade and Investment policies

1993 Two-year basis

Incentive given

1997 Five year policy

Export PolicyObjectives

1. Quality Improvement

2. Diversification

3. Market Expansion

4. Backward Linkage

Export PolicyStrategya. Simplification of procedureb. Market determined exchange ratec. Establishment of Export Promotion Fundd. Backward Linkagee. Participation in international trade fairs,f. Technology transfer (leather, shrimp) ‡mvbvi

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g. Labor intensive items (electronic, electric)h. Infrastructure developmenti. Quality improvement (wPswo †c‡iK)

Export PolicyIncentives and Facilities MONETARY

Export credit at lower interest rate (refinance) Export Credit Guarantee Scheme Credit Card

FOREX Withdrawal of XPB and multiple ER. Forex Account Travel Quota Retention Quota Floatation of Currency

Export PolicyIncentives and Facilities (contd.) FISCAL

Rationalization of Tariff Bonded Warehouse Duty Drawback Cash Assistance in lieu of Bonded warehouse Duty

Drawbacks Concessional duty on import of machinery Income tax rebate

INSTITUTIONAL Export Promotion Fund Electricity rate Shipping and airways

Export PolicyIncentives and Facilities (contd.) INVESTMENT

Joint Venture Foreign Direct Investment EPZ

COMMERCIAL Liberalization of Import Policy.

Export Review

Share in GDP

Country 1973 1997

Bangladesh 5.7 15.0

India 3.6

Nepal 6.6 24.0

Pakistan 14.3 17.0

Sri Lanka 14.3 35.0

Composition of Export Receipts

In percentage of total

Commodities1972-

731978-

791988-

891993-

941997-

982005-

2006

Jute 89.9 69.3 29.3 13.5 7.5 4.8

Jute Goods 10.1 30.7 60.7 86.6 92.5 95.2

             

Traditional 97.3 88.3 43.0 14.5 11.0 9.0

Non-traditional 2.7 11.7 57 85.5 89 91

             

Primary Products 43.0 38.1 23.3 13.7 9.7 6.0

Manufactured Products 57.0 62.0 76.7 86.3 90.3 94.0

Import PolicyFrom a ‘resource allocative policy’ to a ‘liberalized policy’.

Resource Allocative Policy Social Justice Priority Attached by planners Inward looking Import Substitution Import BudgetProblems Corruption Planners inadequate knowledge Less competition with world products (Ambassador car) Import Substitution had no impact (milk product, edible oil).

Import PolicyLiberalized Policy No import budget Outward looking Resource according to market

demand/supply Liberalized exchange rate policy

Import Policy

OBJECTIVES

1. Supply of machinery and raw materials for industrial growth

2. Supply of agri inputs, insecticides, fertilizers for agricultural growth

3. Simplification of procedure

4. Employment generation

5. Price level stability

6. Supply of necessary goods

7. Technology adoption.

History

Gradual Liberalization

Reforms in Trade and Tariff

Dismantle Reduce Tariff Duration of Import

Slabs Policy

- Tariff and- Non-tariff barriers

Policy Issues

1. Reducing Tariff (infant industry) restrictions and stoppage ofnon-tariff barriers.

2. Gradual trimming of control listYear Items1991 1931992 1001993 All items are free but that threatens a. Securityb. Healthc. Sociald. Religiouse. Environment.

Policy Issues (Contd.)

3. Rationalization of Tariff Rate- Low duty: raw materials- Moderate duty: intermediate goods- High duty: luxury products.

Year Tax

Slabs

1995 9

1997 6

2002 3

2003 3

Year Highest Rate

1997/98 42.5

1998/99 40.0

1999/2000 37.5

Unweighted Import Weighted

1992/93 47.4 23.6

1999/00 19.5 13.82002/03 16.4 12.4

Policy Issues (Contd.)

4. Procedure Simplification

Tax administration streamlined

5. Sources of Funds

- Cash

- Barter

- STA

- Credit/loans

- Grants

6. No License is required

7. Back to Back Imports

Comments Can these policies improve Imports and Exports?

- Globalization (Opportunities and Risks)- Quantitative Restrictions- Bangladesh Price Taker- Less progress of SAPTA under SAARC. Diversification is limited (we have limited export items,

prospect of software and ship-breaking) Less price elasticities Dependence on primary products and RMG Smuggling and hundi business Import for consumption and not for investment Floatation and uncertainty.