Policy Research Institute - PRI Bangladesh

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Govt imposing non-tariff barriers to protect local industries : Quader

News Published: Sunday, Jul 01, 2012

Govt imposing non-tariff barriers to protect local industries : Quader

Sunday July 1 2012
FE Report 

FE_01.07.2012A number of speakers at a programme Saturday said the trade policy plays an important role in accelerating economic growth while others considered the country's inadequate infrastructure and lack of political stability are major constraints to attaining that goal (economic growth).

Opinions of the participants were divided over the importance and pace of trade policy reforms for providing a boost to the country's economy.

Some participants favoured gradual openness in tariff structures but some others argued that the trade policy should protect local industries.

The participants ranging from economists to business leaders were speaking at the launching of quarterly policy briefs by Policy Research Institute (PRI) of Bangladesh on the country's economy held at its office in the city.

Chairman of PRI Dr Zaidi Sattar was the moderator in the programme. He also presented a paper styled 'Is the trade policy losing direction?' 

PRI Executive Director Ahsan H Mansur presented two papers -- one on the fiscal policy and budget and related challenges and the other on the monetary policy titled 'Is Bangladesh Bank's Monetary Policy Stance Working?'

Commerce Minister Ghulam Muhammed Quader attended the programme as the chief guest while former education minister and Bangladesh Nationalist Party (BNP) leader Dr Osman Farruk joined it as the special guest.

Former caretaker government adviser Dr Mirza Azizul Islam, former finance secretary Mr Zakir Ahmed, President of International Chamber of Commerce, Bangladesh (ICC,B) Mr Mahbubur Rahman, Executive Director of Centre for Policy Dialogue (CPD) Dr Mustafizur Rahman and senior economic adviser to the Bangladesh Bank governor Dr Hassan Zaman, among others, took part in the discussions on the occasion.

Commerce Minister G M Quader said the government is imposing non-tariff barriers mainly to protect 'local infant industries.'

He said: "There is no pressure from the WTO (World Trade Organisation) and other regional economic organisations."

Mr Quader said many nations are now imposing non-tariff and para-tariff restrictions as the customs duty rate has now been brought down to an almost zero level, following trade liberalisations.

Participating in the discussion, Dr Osman Farruk said the trade policy should not be designed only for export earnings. "Poverty alleviation and employment issues should also be taken into consideration," he observed.

Mr Farruk was critical of the government's subsidy for the power sector. He said: "In generating power, I don't find that the government is following the least cost option."

Mr Farruk was also critical of government's heavy borrowings from the banking system. The government is not only squeezing investment but also shifting a heavy burden on the next generation, which is totally unacceptable and unethical, he observed.

He said the trade policy should not aim at increasing the volume of revenues rather it should focus on investment promotion and employment generation in order to help alleviate poverty.

Participating in the discussion, Dr Mirza Azizul Islam, a former finance adviser to the immediate past caretaker government, said while formulating the trade policy, some kinds of protection for local industries are needed so that they can produce high value-added products later on a competitive basis.

He said some South Asian nations which are now producing high-value added products had witnessed public policy intervention to protect their local industries.
Giving his views about the budget for fiscal year (FY) '13, Mr Aziz said bank borrowing will rise and the target about non-tax revenues will not be realised.

He said government's assumption about the increase in sales of savings certificates will not also hold true as the capacity of middle and lower middle income groups to save, has largely eroded due to higher inflationary pressures.

In his deliberation, ICCB,B President Mr Mahbubur Rahman said, "While formulating the trade policy, the thrust sectors that were intensified earlier, should be kept in mind."

Mr Rahman said jewellery was earlier one of the important thrust sectors in the export policy to earn billion-dollar in export receipts but nothing could so far be gained out of this sector. 

He said, "There is need for appropriate kinds of protection for local industries. According to trade circles, protection is not enough for some industries while such protection is misused in some cases and it is inadequate in some other cases."

Mr Rahman said the export sector should be brought under normal tax assessment, instead of that of turnover. "They (exporters) may have some special rates," he added.

Mr Rahman said the government's move to raise the minimum income tax threshold to Tk 200,000 is a good step.

Speaking at the programme, CPD executive director Dr Mustafizur Rahman said many advanced nations are using their trade policy to protect their industries.

"The average tariff rate in the USA is less than 3.0 per cent but when it imports ready-made garments, the tariff is at the level of 16 per cent," he added.

He said the government undertook many steps to remove the anti-export bias, the duty drawback provision and bonded warehouse facility being a few of such measures.

Mr Mustafiz said: "Bonded warehouse is working well while the duty drawback facility is not working properly."

Former finance secretary Mr Zakir Ahmed said there is need for mobilising foreign resources to help reduce the level of government's bank borrowing.

He said while formulating the trade policy, there is need for formation of an active group to protect the interests of the consumers.

Member of General Economics Division of the Planning Commission Mr Shamsul Islam said the budget deficit is not big in comparison with that of the neighbouring countries.

He said India has 6.0 per cent budget deficit while Nepal is having its budget deficit at 7.0 per cent.

Mr Islam said at least 97 per cent of the budgetary resource allocation will be implemented as 71 per cent of its aggregate expenditure accounts for non-development purposes like paying salaries and bonuses for the government employees.

Dr Zaidi Sattar, chairman of the PRI, said a substantial portion of the trade policy for the fiscal year beginning from July 01 (FY '13) has been formulated in the light of the proposals relating to adjustment of trade taxes.

He said such adjustments affect profitability of import-substituting production, on one hand, and export competitiveness, on the other, with serious implications for trade as well as growth prospects. 

"Is it a sound policy in the light of global competitive challenges and Bangladesh's goal of attaining higher growth and reaching middle income status by 2021?", he asked. 

"We need to reflect if this is the kind of trade regime that will yield the 7.0 -8.0 per cent GDP growth rate in the medium-term, and 8.0-10 per cent growth rate over the long-term, as envisaged in the Sixth Five-Year Plan (2011-15) and the Perspective Plan (2010-21)," Dr Zaidi Sattar, added.

"Trade liberalisation is stalled; but no clear direction has emerged since the dawn of the new century," he noted.

He said although the RMG sector is free from the shackles of high tariffs on inputs or outputs, other exports or potential exports are not.

He said: "The structure of incentives underlying the trade regime favours production of domestic import-substitutes over exports, creating an inherent anti-export bias."

He said tariff and para-tariff proposals in FY '13 budget signals continuation of the recent trend of rising average nominal protection and wider dispersion of the tariff structure.

He said while nominal tariffs on inputs (basic raw materials and intermediate goods) continue to fall and those on final consumer goods go upward, thus widening the wedge between average tariffs on outputs and inputs and augmenting tariff escalation at the last stage of processing.

He suggested for making appropriate changes to trade policy orientation in order to support high growth.

He made strong pleas for putting trade liberalisation back on track. For that, both average nominal tariffs and their dispersion will have to be reduced, he said.