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Trade Openness and Integration:

Bangladesh launched a deep and wide-ranging trade reform strategy in the early 1990s. This included substantial reduction and rationalization of tariffs, removal of quantitative restrictions, move from multiple to a unified exchange rate system, convertible current account and an overall outward orientation of trade policy regime. As a result, the country’s trade integration, measured by the trade-GDP ratio, rose from 18% in 1990 to 43% in 2008.

Despite apprehensions that Bangladesh might lose out to exporters from China and India following the phase-out of the MFA quotas, its share in global apparel and textile exports has remained stable and export volumes have continued their robust growth. The country’s main markets are the EU and the United States and its imports are dominated in general by machinery and textiles, with China and India being the most important sources of imports. Bangladesh also has substantial unrecorded trade with its neighbor India. Labor exports are also important, with remittance inflows at about 9% of GDP.

The role of private sector driven export growth and diversification has been emphasized in Bangladesh’s PRSP, making export-led growth a key thrust of its poverty reduction and growth strategies.

Tariffs and QRs :

Historically, like many other developing countries Bangladesh relied on tariffs and quantitative restrictions to protect domestic activities and raise revenue. Roughly 40% of its total tax revenue still comes from import taxes. Average protective tariffs are currently at 20.1%, with average agricultural tariff at 28.8% and non-agricultural tariff at 18.5%. A noteworthy feature of the present tariff structure is the significant application of para-tariff called supplementary duties, which account for about 31% of the average protection. The average customs duty, which registers a decrease over time, is currently 13.8% with four non-zero duty slabs of 3%, 7%, 12% and 25%. Food stuff, fertilizer, seed, plastic trays used in poultry and dairy, medicines and raw cottons are not subject to any custom duty. Some consumer goods, mainly the non-food luxury items, have high protective rates even up to 463%- well beyond the top custom duty rate.

Future Trade Agenda:

Despite the trade liberalization reforms initiated in 1990s, Bangladesh is still saddled with one of the least liberal trade policy regimes in the world. Although half of the country’s GDP comes from the service sector, liberalization of this sector leading to export of services is not satisfactory yet. Bangladesh faces a more favorable market access in developed markets because of its LDC status, but is yet to fully exploit this opportunity. Cumbersome customs and border procedures and an inefficient duty drawback system, in addition to the high import duties, contributed to this outcome.
The remaining trade barriers work against the emergence of new export activities and expansion of the export activities to non-enclave areas. It is no surprise then that the export base is heavily concentrated in garments, the sector facing the most liberal import regime largely because of its access to bonded warehouse facility. RMG exports account for about 75 percent of merchandise exports. The extension of the bonded warehouse facility in 2008 to all hundred percent export-oriented sectors should help promote greater export diversification. Recent measures to liberalize the banking and telecommunication sectors are also welcome.
Future trade liberalization program needs to focus on (a) reduction in the dispersion and average level of protection, (b) promotion of services export, (c) reduction of the reliance on limited number of goods through diversification of exports, (d) promotion of more efficient handling of custom and border procedures, and (e) a more efficient duty drawback system.

A Snapshot of Bangladesh’s Trade Regime

Policy Criteria

Status

Exchange Rate

Unified

Exchange Rate determination

Free Float

Payment convertibility
     Current account
     Capital account


Yes
No

Import restrictions
     Import licensing
     QRs on imports
     State monopolies


No
No
No

Tariff structure
     Top Rate, 2009
     Average Protective Rate 2009
     Tariff slabs (customs duty)
     Para-tariffs


25
20.1
3, 7, 12, 25
Supplementary Duties

Existence of high level of NTBs

No

Trade Openness (trade-GDP ratio)

43

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