Free Trade

The external economic relations of a country are governed

by its commercial or trade policy.
 It has always been a subject of controversy whether a
country should follow a policy of trade ensuring
unhampered movements of goods and factors
between the counties or trade should be restricted
through govt intervention under the policy of protection.
 FT: A trade policy which places no restrictions on the
movements of goods between countries.
 Adam Smith: FT is that system of commercial policy which
draws no distinction between domestic and foreign commodities
 Neither imposes additional burdens on the later, nor
grants any special favor to the former.
 Does not require the removal of all sorts of duties on
commodities entering into international exchange.
 Duties may be imposed exclusively for revenue and
not at all for the purpose of restricting trade.
 Arguments for Free Trade
 Increased Production
• FT enables countries to specialize in the production of those
commodities in which they have a comparative advantage.
• With specialization countries are able to take advantage of efficiencies
generated from EOS and increased output.
• IT increases the size of a firm’s market, resulting in lower average
costs and increased productivity, leading to increased production.
 Production Efficiencies
• FT improves the efficiency of resource allocation. The more efficient
use of resources leads to higher productivity and increasing total
domestic output of goods and services.
• Increased competition promotes innovative production methods, the use
of new technology, marketing and distribution methods.
 Benefits to Consumers
• Consumers benefit in the domestic economy as they can now obtain a
greater variety of goods and services.
 Arguments for Free Trade
• The increased competition ensures goods and services, as well as
inputs, are supplied at the lowest prices. For exam, in Australia
imported motor vehicles would cost 35% more if the 1998 tariff
levies still applied. Clothing and footwear would also cost around
24% more.
 Foreign Exchange Gain
Sell exports overseas receives hard currency from the countries
that buy the goods. This money is then used to pay for imports such
as oil, food and other necessary inputs and accessories required for
exports.
 Employment
Trade liberalization creates losers and winners as resources
move to more productive areas of the economy.
Employment will increase in exporting industries and workers
will be displaced as import competing industries fold (close down) in
the competitive environment.
 Arguments for Free Trade
With FT many jobs have been created in Australia, especially in
manufacturing and service industries, which can absorb the
unemployment created through restructuring as firms close down or
downsize their workforce.
When tariffs were increased substantially in the period 1974-1984 for
textiles and footwear—employment in the sector actually fell by
50000, adding to overall unemployment.
 Economic Growth
The countries involved in FT experience rising living standards,
increased real incomes and higher rates of economic growth.
This is created by more competitive industries, increases
productivity, efficiency and production levels.
 Make use of surplus raw materials
• Middle Eastern countries such as Qatar are very rich in reserves of
oil, but without trade, there would be not much benefit in having so
much oil. Japan, on the other hand, has very few raw materials;
without trade, it would have low GDP.
 Arguments for Free Trade
 Make use of surplus raw materials
• Middle Eastern countries such as Qatar are very rich in reserves of
oil, but without trade, there would be not much benefit in having so
much oil. Japan, on the other hand, has very few raw materials;
without trade, it would have low GDP.

 Tariffs may encourage inefficiency

• If an economy protects its domestic industry by increasing tariffs
industries may not have any incentives to cut costs.
 PROTECTION
 A policy of deliberate regulation of foreign trade in order to
give shelter to domestic industry from foreign competition.
 According to H.G. Johnson, ‘protection’ refers to those
policies that create a deviation between the relative
prices of commodities to domestic consumers and
producers and their relative prices in world markets.

Arguments for Protection

Supported both on economic as well as non-economic
grounds. Non-economic grounds relate to
(1)national self-sufficiency in defense,
(2)preservation of special ethos (culture, philosophy) of the
nation to maintain isolation from foreign influences, and
(3)preservation of certain occupation and classes of
population.
 PROTECTION
 Industrialization and Balanced Growth
• Desired for stimulating industrialization in the primary
agrarian economy—Alexander Hamilton (1791).
• Freidrich List supported protection for achieving a
balanced and harmonious development of the economy.
 Infant Industries
• Freidrich List (1840): A country should offer a shelter to
infant industry (which have potentialities to develop fast
and become self-financing and efficient in the long run)
against competition of foreign rivals during the initial period.
• J.S.Mill justified protecting duties in a young and a rising
nation on a temporary basis. The central idea is “nurse the
baby, protect the child and free the adult”.
• The infant industry argument, however, has been refuted on
several grounds:
 PROTECTION
(i) It is difficult to identify Infant Industry in the
underdeveloped countries.
(ii) Once protection is given, it creates vested interests which
are opposed to removal of protection at any stage.
(iii) All sorts of industry begin to claim protection. The
result may be political corruption.
(iv) The infant industry never feel themselves grown up. If
they grow up at all they devote their strength to fighting for
bigger and longer protection. They will collapse as soon as
protection removed.
 Diversification of Industry
• It is dangerous both economically as well as politically to
confine the country to the production of only a few selective
items
 PROTECTION
• List advocated that a country may produce even those
articles for the sake of self-sufficiency in which it may not have
natural or comparative advantage.
Promotion of Employment
•Expansion of protected industry leads to increased
employment. Since generation of employment has a ‘multiplier
effect’ the final increase in employment is greater than that
initially generated by the expansion of protected industry.
Balance of Payments
•In the initial stages of development, there are unfavorable
effects on the country’s BOP position.
•Restrictions of imports through tariffs may become inevitable
in a country if it does not posses sufficient reserves of foreign
exchange to make disbursement with the surplus country.
 PROTECTION
• Home Market Argument
Henry Clay argued that protection could create new
industry..is criticized because when the home market
expands, the export market contracts simultaneously.

• Keeping Money at Home

Old mercantilist philosophy. A nation cannot sell if it will not
buy. Ultimately, benefits of IT will disappear.

Dumping to Reflect Low Marginal Cost of Production

Dumping is a problem which confronts many countries. It is
an example of price discrimi­nation at the international level.
By following the practice of dumping foreign sellers try to
capture the home market by selling their goods at low
prices.
 PROTECTION
This could benefit the consumers in the short run. But,
in the long run, domestic producers could be forced out
of business making room for the foreign suppliers in
the future. The price of a Japanese camera, for
example, is higher in Tokyo than in New York.

• Unfair Foreign Competition:

• Often countries follow a policy of protec­tionism against
unfair foreign competition. ‘Unfair’ competition can take
a variety of forms. Sometimes, foreign governments
can subsidize their export industries. This means that
domestic industries cannot compete fairly.
 PROTECTION
 Case Against Protection
All the arguments given in support of FT go against the policy
of protection.
The use of protection for LT causes a decrease in the
volume of IT. Imports are paid by exports. When imports
decline, export also decrease.
Fallacious Arguments
1. Keeping Money at Home Argument:
• According to Abraham Lincon, protection prevents the
purchase of foreign goods and thereby keeps money at
home. But this argument loses much of its weight when
we observe that owing to protection the people of the
country are to pay higher prices for home-produced
goods
 PROTECTION
2. Home Market Argument:
• It is argued by Henry Clay and other American
protectionists that the restriction on the imports of
foreign goods will create a wide domestic market for the
products of the home industries.
• But this argument is also fallacious because protection,
by curtailing imports, will reduce exports’ too. It is true
that home industries will lose the foreign markets if the
same policy is pursued by foreigners.
 Arguments Against Protection
 Protection decreases the size of social net production, it also
leads disequilibrium in the economy. Export diverted from
imported goods might turn towards domestic or exportable goods.
The first will cause inflation and second a decrease in F. Ex
earnings.
 Investment will transfer to protected industry as a result of
which as Haberler says, ‘the decrease in production elsewhere is
greater than the increase of production in the protected industry’.
 If protection is offered to weak industry, there is no possibility of
standing on their own feet even in the long run. (Edgeworth)
 In the absence of competition the domestic producers become
careless and inefficient. It produces lethargy and slackness.
 Protection alone is not sufficient for development alone (Nurkse). It
provides only opportunity for development. For actual
development, these opportunities have got to be utilized by the
establishment and efficient running of the industry.
 Arguments Against Protection
 Protection has actually no favorable effect on national
income and the level of wages (Keynes).
 Consumers have to bear the burden of high cost of
production in protected industry.
 Protection promotes the formation of monopolies. The
distribution of wealth becomes more unequal as rich capitalist
grow still richer.
 Once protection is offered, it becomes difficult to withdraw
it. Even corrupt practices are adopted to retain it.
o However, in spite of its various limitation, the use of
protection is necessary in the underdeveloped
countries(UDC). It endows a shade under which weak units
can spring up and survive till they gain sufficient strength to
face the heat of competition.
 Protection in Under Development Country
o In UDC, where the problems are structural and dynamic, where the
chief concern is with national gains rather than with mutual gains
from international trade and where the condition of production
efficiency are to be considered from long term viewpoint protection
will be the optimal policy.
o Protection build up production power in agricultural country which
seems to possess natural advantage for manufacturing (Pigou).
o Protection in the form of controls on imports of consumption goods
is claimed to promote capital formation in ULC.
o It is argued that tariff attracts foreign capital by enhancing the
relative scarcity of capital and thereby raising its real return in the
tariff imposing country.
o Trade restriction is necessary to cure a deficit in the BOP.
o In addition, the other arguments such as diversification of industry,
national defense, increase in govt revenue, promotion of employment
etc are also given in favor of protection by UDC.
 Bangladesh’s Trade Policy
• The FY2019 budget's trade policy attitude can be gleaned from the
following propositions contained in the budget speech of the finance
minister:
(a) to keep the prices of essential goods unchanged;
(b) to provide necessary protection to domestic industries;
(c) to expedite expansion of exports; and
(d) to rationalize the tariff structure by reducing prevailing discrepancies
• Reviewing these propositions in light of the budget numbers yields
the following assessment of trade policy stance.
• First, with the passing of time, there is a clear need to rethink our
definition of 'essential goods' and make a general proposition about
'consumer goods' that are bought by the average consumer in
Bangladesh.
• Consumers pay 70% more than the prices in the international market
to buy imported and import-substitute products.
 Bangladesh’s Trade Policy
• Prices of these consumer goods are directly impacted by the high
rates of import tariffs that prevail for most manufactured consumer
goods. Bangladesh's average applied tariff rate is the highest in South
Asia and much higher than those of the countries in Southeast Asia.
• Leaving these prices unchanged means leaving the price level
significantly higher than the price level in comparator countries making
Bangladesh appear to be a rather expensive place for most consumer
goods. Dhaka is said to be one of the most expensive cities in the
world to live in.
• Second, while protection to domestic industries has become a well-
established policy, it ignores the fact that domestic industries produce
for exports as well as for sale in the domestic market (mostly import
substitute products).
• Protective tariffs on import substitute production are indirect subsidies
as they help raise the price of import substitutes in the domestic
market.
 Bangladesh’s Trade Policy
• Because of restriction on imports, the prices of import-substitute
goods produced domestically also increase. So, protection raises
domestic prices above the international prices. Protection hurts
consumers. Simple logic as well as empirical evidence around the
world tells us that protection ad infinitum is never a good policy.
• Lulled by high protection these import substitute industries are
unlikely to become globally competitive in order to become
significant exporters. At present, consumer goods that face the
highest nominal protection rates are air coolers, carbonated drinks,
plastic tableware, kitchen ware, ceramic tableware and footwear.
• Third, expansion of exports and its diversification is an oft-repeated
message that can be heard round the year. But the trade policy
stance appears to favour import substitute production (for sales in
the domestic market) more than exports. How?
• Protective tariffs are so high that they make domestic sale of import
substitute products much more profitable than exports. Where
export subsidies for export products range from 5-20%,
 Bangladesh’s Trade Policy
• Protective tariffs on import substitute consumer goods range from
40-100%. While 100 percent export-oriented garment industries are
not exposed to this perverse incentive, domestic industries that
cater to exports and domestic sales face the dilemma. Export
expansion and diversification suffer.
• Fourth, the goal of rationalization of the tariff structure appears
sensible but the task is discouraging given the extent of the
problem and the history of tariff setting. Tariff rates and complexity
of the tariff structure need to be rationalized. There is no reason
why Bangladesh should have the highest average rates of tariffs
among comparators.
• The tariff situation remains broadly unchanged though the budget
speech acknowledges the occasional use of regulatory duty (RD)
and supplementary duty (SD) for revenue purposes. However, PRI
research has shown that 95 percent of SDs are actually protective
duties, with the exception of those imposed on automobiles,
alcoholic beverages, tobacco, and firearms.
 Bangladesh’s Trade Policy
• SDs are less effective in mobilising revenue. So, eliminating these
SDs or making them trade-neutral would be the first order of
business in a trade policy reform agenda if it ever comes to pass.
• The overall vision in the FY2019 budget appears broadly consistent
with the goals laid down in the 7th Five-Year Plan, in respect of
GDP growth, inflation, fiscal deficit, and investment. But that is
where the consistency ends. The budget seems to lack a trade
policy orientation of the growth process and appears to fall short of
the 7th Plan's trade policy orientation for rationalizing protection in
order to boost exports.
• While industrial protection seems to have been given a free reign in
the budget speech, it would have made good sense to provide the
underlying rationale for prolonged protection of industry without any
reference to a timeline. In the absence of such signals to the
business community we are left wondering if the trade policy
component in the budget reflects progress in this critical aspect of
public policy.
 Bangladesh’s Trade Policy
• In Bangladesh, the Ministry of Commerce, along with the Ministry of
Finance, is mainly responsible for formulating and implementing
trade and investment policies. A large number of other ministries
and agencies are also involved in the process.
• The country still doesn't have any combined trade policy document
but there are separate export and import policies. As these polices
(2015-18) have already expired, and the government is now in the
process of finalizing new policies for next three years (2018-2021).
• Trade policy is not a fully independent policy in a sense that it
requires support from investment policy. There is no independent
investment policy. The investment policy is captured in export and
import policies and mostly, in the industrial policy.
• Again, these policies are intertwined with fiscal and monitory
polices. Thus, review of trade policy ultimately brings the overall
economic policy under scanner.
 Bangladesh’s Trade Policy
• Since the last trade policy review in 2012, Bangladesh economy
has witnessed a rapid change in a number of areas. Growth rate of
Gross Domestic Products (GDP) crossed 7.0 per cent level and
continues to rise. Export earnings have increased from around
$24.0 billion to $36.0 billion during the last six years while
merchandise import also jumped to $54.0 from $34.0 billion.
• Trade in services has registered around 63 per cent growth. Some
other developments are also there. All these will be reflected in the
review.
• The upcoming trade policy review will be the last review for
Bangladesh as an LDC as the country is likely to label off the least
developed nation tag by 2024. So, through the review, scheduled to
be held on April 03-05 in 2019, trading-partner countries will try to
gauge the direction of Bangladesh trade policy in the post-LDC era.
• This will be a new dimension for Bangladesh regarding the review
of trade and investment policies.
 Bangladesh’s Trade Policy
• China has offered duty-free access to Bangladesh for over 90
percent of tariff lines with similar facilities already in Japan,
Australia and New Zealand. East Asia and Pacific, with a market
size of USD 22 trillion (larger than EU or USA) is now an export
destination to fight for.
• The over-arching challenge in future trade policy lies in making
exporting activity more attractive than selling in the domestic
market. But that is easier said than done.
• Prepare a vigorous plan for geographical diversification to break
into new markets in East Asia and the Pacific (e.g. China, Japan, S
Korea, Australia, New Zealand).
• As part of the export diversification strategy, diversify into
intermediate goods production for exports (e.g. automotive and
electronic parts and components) by vigorously seeking FDI to
integrate with global value chains (GVC). Emulating Vietnam's
experience would be worthwhile.
 Bangladesh needs a coherent Tariff Policy
• The rise and fall of tariffs
• Bangladesh, now a dynamic export-oriented economy, is still
encumbered with import tariffs to generate revenue as well as
provide protection to domestic industries.
• But unusually high and dispersed tariff structure serves as a barrier
to further beneficial trade integration with the world market besides
creating inherent disincentives to export performance as well as its
diversification.
• Addressing this distinctive challenge in Bangladesh’s trading
landscape has become a national imperative and a driving force in
the search for a tariff policy that supports our long-term strategy of
export-oriented development.
• PRI research has revealed that the current tariff structure and
trends run counter to that national objective. Hence, the urgent
need for the formulation of a coherent national tariff policy.
 Bangladesh needs a coherent Tariff Policy
• Tariffs generate revenue and protect industries.
• Mobilization of revenue without distorting business incentives
continues to be a major challenge for the Government.
• Though a strategic shift from import to domestic-based revenue
sources is taking place (Table 1), the Government’s continued
heavy reliance on import-based taxes for revenue collection
pose quite a few challenges.
• The existing structure and distribution of customs tariffs
present a number of anomalies that create problems for
customs administration, on the one hand, and distort
business incentives, on the other.
• Simplicity and transparency – two critical yardsticks for
judging the efficiency of tariff administration – are often
sacrificed in the interest of raising revenue or providing
protection to domestic activities.
 Bangladesh needs a coherent Tariff Policy
• The efficiency with which import taxes are collected
has a direct bearing on overall revenue mobilization
and trade facilitation;
• the latter objective figuring more prominently in the
policy space as the economy becomes more integrated
with the world economy through trade.
• Finally, how efficiently and effectively NBR collects
import taxes affects incentives in business and
investment, and, in consequence, on the dynamism of
the manufacturing sector, competitiveness of our
exports, and overall economic performance.
Bangladesh needs a coherent Tariff Policy
 Bangladesh needs a coherent Tariff Policy
• Presently, tariffs and para-tariffs are used as the main
instruments of protection.
• Para-tariffs are defined as all import taxes, other than
custom duties, having a protective effect.
• Supplementary Duties (SD) and Regulatory Duties (RD) are
the main para-tariffs in the Bangladesh tariff regime.
• In course of time, however, SD appears to have been
abandoned by reducing or eliminating the domestic part of
the tax, while leaving the import component in tact with the
result that, for all practical purposes, SD, by and large,
became a protective tax.
• In addition, another para-tariff, Regulatory Duty (RD), was
added on an annual imposition basis but seems to have
earned a permanent character.
 Bangladesh needs a coherent Tariff Policy
• The protective effects of SD and RD cannot be ignored.
The notable point is that tariffs and para-tariffs serve
protection and revenue objectives (dualism) which may
be in conflict with each other.
• The main point is that higher tariff rates may yield higher
protection for domestic enterprises, but revenue
outcome is another matter.
• Customs revenue is the outcome of imposition of duties
and taxes on imports. Revenue may rise with higher
tariff rates, but up to the point, which is indicating
optimum revenue at an optimum tariff rate.
• Tariff rates above this point will raise protection higher
but will be so restrictive on competing imports resulting
in lower imports and lower revenue yield.
 Bangladesh needs a coherent Tariff Policy
• How do we know whether current tariff rates and
protection levels are above or below the optimum level?
• One way to find out is by using simulation models that
can generate revenue outcomes of hypothetical
reduction or increase in tariff rates.
• The Bangladesh experience during the intensive trade
reform period of FY1992 through FY2000 is instructive
(Table 2). As average NPR/TTI dropped from 73%/99%
in FY1992, to 37%/58% in FY1995, and 29%/51% in
FY2000, customs revenue was up 56% by FY1992 and
127% by FY2000, growing at an average rate of 16%
during FY92-95 and 11% for the entire decade. As
revenue growth was prolific: proof that tariff rates were
significantly higher than the optimal rate.
 Bangladesh needs a coherent Tariff Policy
• Another way of looking at whether Bangladesh tariffs
are relatively high is to compare them with tariffs in
economies at similar level of development or national
income.
• Table 3 posits Bangladesh tariffs with selected
comparator economies, while Tables 4-5 puts them in
the context of country income classifications of World
Bank and UN system.
• All comparisons indicate Bangladesh average tariffs are
above the fray, even above average tariffs of LICs.
 Bangladesh needs a coherent Tariff Policy
• Table-2: Tariff Reduction and Customs Revenue in ‘90s
FY1992 FY1995 FY2000
Average NPR 73.32 37.26 29.09
Average TTI 99.96 58.33 50.85
Customs Revenue(BlnTk) 39.21 61.10 89.36

• NPR: Nominal Protection Rate - protective indicator

• TTI: Total Tariff Incidence - revenue indicator
• Table-3: Tariff Rates of Selected Comparator Countries
Country Average Tariff Country Average Tariff
Vietnam 6.5 Thailand 8
Malaysia 6.2 Philippines 3.7
India 8.9 China 8.5
Indonesia 5.9 Bangladesh 13.5
 Bangladesh needs a coherent Tariff Policy
• Table-4: Average Tariff Rates by WB Country Classification

Country Categories Average Tariff

Rates
Low Income Countries (LIC) 11.0
Lower Middle Income Countries (LMIC) 7.2

• Table-5: Average Tariff Rates of Countries by UN

Classification
UN Classification Average Minimum Maximum
Tariff
Developed/OECD 2.06 0.2 (Iceland) 5.8 (Chile)
Developing Countries 6.53 1.1 (Turkmenistan) 25.7 (Bahamas)
LDC 8.41 3.4 (Bhutan) 19.6 (Djibouti)
 Bangladesh tariff and protection trends
• It is important to acknowledge that the 1990s decade
saw radical changes in trade and tariff policy. Trade
liberalization with tariff reduction and rationalization was
adopted as a signal of the radical change of direction
from past policies. By the close of the 1990s,
Bangladesh economy was included among a select
group of developing economies described as
“globalizers” by the World Bank.
• For the first time GDP growth in the 1990s averaged 5%
for the decade while export growth for the first time
crossed double digits averaging 12%.
• Particularly, the period of 1996-2001 experienced a
robust growth in export led growth of Bangladesh
economy due to trade liberalization.
 Bangladesh tariff and protection trends
• But reforms started in the 1990s slowed down over the
following decades leaving the structure of tariffs antiquated
when compared to that of comparator economies. A review of
tariff trends and movement in output and input tariffs reveals
the crux of the problem.
• Table-6: Average Tariff Trends

Average FY1992 FY1995 FY2000 FY2010 FY2015 FY2020

NPR 73.32 37.26 29.09 23.88 26.69 26.75
TTI 99.96 58.33 50.85 43.39 50.62 51.79
Output Tariff 90.83 46.44 37.17 41.20 43.16 46.43
Input Tariff 56.2 26.82 20.62 12.5 12.02 13.52
• Though average tariffs trended downward between FY’92 and
FY’20, the sharp reduction in average NPR over the 1990s
decade appears to have tapered off during the subsequent two
decades.
 Bangladesh tariff and protection trends
• The sharpest reduction in tariffs occurred during 1992-
2000.
• Much of the reduction in average NPR in the past 20
years was due to reduction in average input tariffs which
declined to 13.5% in FY2020 from 20.6% in FY2000,
while average output tariffs rose from 37% to 46.6%.
• This is a clear indication that effective protection levels
are high by international standards.
• What is problematic is that tariff protection and export
performance are not mutually exclusive events.
• High protection seriously undermines export
performance and its diversification.
 Tariffs, exchange rate, anti-export bias
• Trade economists recognize the adverse impact of
tariffs on the exchange rate. With import demand being
curtailed under high protection, import-related demand
for foreign exchange is being curtailed, thus enabling
the exchange rate (i.e., a lower domestic currency price
for USD) to be lower than otherwise (appreciation).
• In result, export proceeds, expressed in domestic
currency, would be lower than what the exporter would
receive had the protection levels provided by import
duties and other instruments been lower.
• This is an indication of the anti-export bias which can be
measured by the relative returns from a dollar of foreign
exchange earned by exports versus a dollar of foreign
exchange saved by import substitute production.
 Tariffs, exchange rate, anti-export bias
• Table-7: Measuring Anti-export bias for import substitute
and export
FY Av NPR Ex Rate EERm EERx EERm/EERx EERx/EERm

1991-92 90.83 38.15 72.80 38.53 1.89 0.53

1994-95 46.44 40.20 58.37 40.53 1.45 0.69
1999-00 37.17 50.31 69.01 51.69 1.34 0.75
2009-10 41.20 69.18 97.68 71.39 1.37 0.73
2014-15 47.76 77.67 114.77 84.81 1.35 0.74
2017-18 45.98 82.10 119.85 90.22 1.33 0.75

• Research shows that high tariff protection is the main

source of anti-export bias. Export success so far has
been limited to readymade garments (RMG) without
much traction in other labour-intensive exports.
 Tariffs, exchange rate, anti-export bias
• Among other things, there is an inherent conflict
between export policy and protection policy, which are
not mutually exclusive.
• This needs to be recognized and actions need to be
taken to streamline these policies.
• High tariffs raise the relative profitability of domestic
sales compared to exports, thus discouraging
production for exports.
• Thus, there is an inherent bias of incentives skewed in
favour of import substitute production rather than
exports. This has to change.
 Tariffs, exchange rate, anti-export bias
• The relative returns measured in terms of effective
exchange rates for imports versus exports (EERm and
EERx) show higher returns from import substitutes than
exports for the entire period FY1991-92 through
FY2017-18 – indicating persistent anti-export bias —
though tariff reductions over that period did bring down
the degree of anti-export bias, declining sharply at first
from 89% in FY92 to 45% by FY95, then hovering
around 33-37% ever since until FY2017-18.
• That clearly undermines the incentives for Non-RMG
products to seek the export route. RMG exports are not
subject to this anti-export bias as they operate in a “free
trade” enclave of zero tariffs for imports (inputs) and
exports.
 Policy priorities in the 8th FYP and WTO
compliance
• The Government has now endorsed a combination of
these two policies (export+protection) in the 8th FYP as
critical components of its strategy of export-led
development and inclusive growth – also an agenda of the
SDG 2030.
• Since protection levels are high, any support to export
(e.g., subsidies) will have to be high, but such measures
will be fiscally unsustainable and will also fall afoul of WTO
rules.
• More complaints will be forthcoming from competitors
following LDC graduation. The imperative of being WTO
compliant in our trade practices will be all the more
pressing upon graduation from LDC status in 2026. So,
there is no option but to rationalize the level and structure
of protection to import substitute industries.
 Policy priorities in the 8th FYP and WTO
compliance
• As Bangladesh graduates out of its LDC status, it will
need to be aware of some WTO rules that it had hitherto
ignored – particularly, those relating to levels of
protective tariffs and prevalence of para-tariffs.
• The WTO recognizes CDs as tariffs while RD and SD
fall in the category of other duties and charges (ODCs)
in the WTO categorization and would have to be
included with CDs once Bangladesh graduates out of
LDC status.
• Though RD was flagged in the 2019 Bangladesh Trade
Policy Review, SD with all its protective features
appeared to be outside the WTO radar.
• That could change upon graduation.