Protective tariffs to be phased out

Highlights- 

• First ever National Tariff Policy prepared
• Effective from next year if approved
• Will make tariff protection time-bound for industries
• Will be based on returns from industry
• Businesses welcome the move
• Removing protective measures will promote consumer welfare

The tariff protection to the country's domestic industry — imposition of high rates of customs duty on imports – will soon end. However, the privilege will be afforded to a select few for a certain period of time, according to the draft of the National Tariff Policy 2023, which looks to make domestic industries more efficient to sustain post-LDC competition.

The country's first-ever tariff policy, whose draft has been seen by The Business Standard, also aims at encouraging investment, promoting exports as well as ensuring consumers' benefits through reduction of price disparities between local and imported goods.

The average tariff in Bangladesh is 14%, while the average of least developed countries is 8.5%. Countries are committed to the World Trade Organisation to lower tariffs to facilitate more global trade integration.

The draft tariff policy seeks to cancel the existing discriminatory bond facility for raw material import for export sectors amid complaints from many local industries -- including textile and paper –- that the facility is being misused and costing local manufacturers. 

It also envisions abolition of separate tariff systems for different importers; no imposition of regulatory duty except in emergency situations; and abolition of the existing system of minimum value determination by the National Board of Revenue (NBR) for imported goods.

The Bangladesh Trade and Tariff Commission, the author of the draft, will meet the Ministry of Commerce and other stakeholders Monday before finalising it for approval, officials at the ministry said. Once approved, the first national tariff policy will come into effect next year.

The commission has asked existing industries, including those making new products and still infant, to let it know how long they want protection measures to continue.

Among other issues and goals of the proposed National Tariff Policy are: meeting the targets of Vision 2041 and the 8th Five-Year Plan, export diversification, rationalising the tariff system, dealing with external economic shocks.

Speaking to The Business Standard, Dr Mostafa Abid Khan, a trade expert and also advisor of the committee on the tariff policy, said, "If tariff protection is given for a certain period, local industries will be willing to develop to meet competition. Otherwise (if it continues for an indefinite period) they will not learn to stand on their own feet."

He said if the tariff policy – which will bring such taxes in line with commitment to the World Trade Organization's bound rate – is finalised, it would help sustain the country's industry and also reduce excessive tax burden on the consumer

Business leaders mostly ok with the new policy move

Business leaders have welcomed the move, but also highlighted other issues that would require attention.

Manzur Ahmed, advisor of the Federation of Bangladesh Chambers of Commerce and Industry, the apex body of the country, said the proposal to make the protection to the local industry through tariffs time-bound was a logical one.

"In the case of infant industries, this protection can be eight to 10 years," he said, adding, "Some businessmen, however, use their influence to take protection through the highest tariff, but this isn't extended to anyone else apart from that company."

Bangladesh Motorcycle Manufacturers and Exporters Association President Hafizur Rahman Khan, also the chairman of the country's motorcycle manufacturing and exporting pioneer Runner Automobiles Ltd, said protection should not be sought for an indefinite period of time.

"But, before lifting the protection, we must check if the goals of the protection were achieved or not. If not, we must look deeper into the reasons."

Lifting protection before that would seriously hurt local industries, he warned, adding that the development of component vendor industries and export market were important goals of the tariff support for the two-wheeler manufacturing industry.

How businesses were protected so far

Protectionist measures created barriers to imports to allow local businesses to thrive. For instance, if a company manufactures a product locally, an additional duty-tax is levied on the imported substitute to make it costlier. Various industries and industrial sectors in Bangladesh have been getting this benefit for years in the name of protecting local industries.

For example, Bangladesh imports super plastic pipe, on which the total tariff is more than 104%. That is, if the price of a pipe is Tk100 in the global market, then the consumer of Bangladesh will have to spend an additional Tk104 taka on the same imported pipe because of the tariff.

Again, the tariff rate on any footwear import is 170%. Some 237 types of food stuff also get average protection, alongside various other products.

Specific information on how many industries in Bangladesh get protection as well as the tariff rate of such protection, or for how many years was not readily available.

Syed Nasim Manzur, managing director of Apex Footwear Limited, one of the largest local brands of Bangladesh, told TBS, "It's a good move. It's time to bring down the high wall of protection. There is a 170% tariff on finished shoe imports, which is outdated. Of course it needs to be reduced."

He, however, thinks that the phasing out should be gradual, while some industries like agro and poultry should be protected.