Download (3) Trade Policy Developments

RESTRICTED
WORLD TRADE
WT/TPR/S/270
10 September 2012
ORGANIZATION
(12-4655)
Trade Policy Review Body
TRADE POLICY REVIEW
Report by the Secretariat
BANGLADESH
This report, prepared for the fourth Trade Policy Review of Bangladesh, has
been drawn up by the WTO Secretariat on its own responsibility. The
Secretariat has, as required by the Agreement establishing the Trade Policy
Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the
World Trade Organization), sought clarification from Bangladesh on its trade
policies and practices.
Any technical questions arising from this report may be addressed to
Mr Mario Kakabadse (022 739 5172).
Document WT/TPR/G/270 contains the policy statement submitted by
Bangladesh.
Note: This report is subject to restricted circulation and press embargo until the end of the first
session of the meeting of the Trade Policy Review Body on Bangladesh.
Bangladesh
WT/TPR/S/270
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CONTENTS
Page
SUMMARY
I.
II.
III.
vii
(1)
ECONOMIC DEVELOPMENTS
vii
(2)
TRADE POLICY FRAMEWORK
viii
(3)
TRADE POLICY DEVELOPMENTS
viii
(4)
SECTORAL POLICY DEVELOPMENTS
x
(5)
OUTLOOK
xi
ECONOMIC ENVIRONMENT
1
(1)
INTRODUCTION
1
(2)
ECONOMIC DEVELOPMENTS
1
(3)
TRENDS IN MERCHANDISE AND SERVICES TRADE AND FDI
6
(4)
OUTLOOK
11
TRADE POLICY REGIME
12
(1)
GENERAL INSTITUTIONAL AND LEGAL FRAMEWORK
12
(2)
FORMULATION AND ADMINISTRATION OF TRADE POLICY
(i)
Key institutions
(ii)
Advisory and review bodies
(iii)
Main trade laws
13
13
14
15
(3)
TRADE POLICY OBJECTIVES
(i)
Vision 2021
(ii)
Import and export policy
16
16
17
(4)
TRADE AGREEMENTS AND ARRANGEMENTS
(i)
WTO
(ii)
Regional agreements
(iii)
Bilateral agreements
(iv)
Other preferential arrangements
18
18
22
25
25
(5)
FOREIGN INVESTMENT REGIME
(i)
Institutional and legal framework
(ii)
Bilateral investment and tax agreements
27
27
29
TRADE POLICIES AND PRACTICES BY MEASURE
30
(1)
30
30
33
34
34
40
43
44
44
MEASURES DIRECTLY AFFECTING IMPORTS
(i)
Customs-related measures
(ii)
Preshipment Inspection (PSI)
(iii)
Customs valuation
(iv)
Tariffs and other charges
(v)
Other charges affecting imports
(vi)
Import licensing, restrictions and prohibitions
(vii)
Contingency measures
(viii)
Government procurement
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Trade Policy Review
Page
(ix)
(x)
(2)
(3)
IV.
V.
Trade-related operations of State enterprises and state-trading (as defined in
GATT Article XVII)
Transit measures
47
48
MEASURES DIRECTLY AFFECTING EXPORTS
(i)
Procedures
(ii)
Export taxes, charges, and levies
(iii)
Export prohibitions, restrictions and licensing
(iv)
Export subsidies
(v)
Duty and tax concessions
(vi)
Economic zones (EZs) and export processing zones (EPZs)
49
49
49
49
50
51
52
(vii)
(viii)
54
54
Export finance, insurance, and guarantees
Export promotion and marketing assistance
MEASURES AFFECTING PRODUCTION AND TRADE
(i)
Business and investment climate
(ii)
Taxation and tax incentives
(iii)
Standards and other technical requirements
(iv)
Trade-related aspects of intellectual property rights (TRIPS)
55
55
56
57
62
TRADE POLICIES BY SECTOR
71
(1)
INTRODUCTION
71
(2)
AGRICULTURE
75
(3)
INDUSTRY SECTOR
80
(4)
SERVICES
83
AID FOR TRADE
96
(1)
OVERVIEW
96
(2)
TRADE AND BANGLADESH'S NATIONAL DEVELOPMENT STRATEGY
97
(3)
BANGLADESH AND THE REGIONAL DEVELOPMENT CONTEXT
99
(4)
AID-FOR-TRADE-FINANCING
(i)
(ii)
Aid for Trade and financing Bangladesh's development strategy
Trade-Related Technical Assistance
100
100
104
REFERENCES
107
APPENDIX TABLES
111
Bangladesh
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CHARTS
Page
I.
ECONOMIC ENVIRONMENT
I.1
I.2
Product composition and direction of merchandise exports, 2011/12
Product composition and direction of merchandise imports
III.
TRADE POLICIES AND PRACTICES BY MEASURE
III.1
III.2
Average applied MFN tariff rates, by HS section, 2005/06 and 2011/12
Distribution of MFN tariff rates, 2005/06 and 2011/12
V.
AID FOR TRADE
V.1
Aid for Trade commitments and disbursements to Bangladesh, 2002-10
7
9
38
40
102
TABLES
I.
ECONOMIC ENVIRONMENT
I.1
I.2
Selected economic indicators, 2005/06 to 2010/11
FDI inflows by sector and origin, 2005-11
II.
TRADE POLICY REGIME
II.1
II.2
Main legislation relating to trade and trade-related activities
WTO notifications during the review period
III.
TRADE POLICIES AND PRACTICES BY MEASURE
III.1
III.2
III.3
III.4
III.5
III.6
III.7
III.8
III.9
III.10
III.11
Structure of trade tax revenue, 2005/06 - 2010/11
Tariff structure, 2005/06 and 2011/12
Tariff summary, 2011/12
Tariff and other duties on imports, 2005/06 and 2010/11
Supplementary duties by-product groups, 2009/10 and 2012/13
SD rates on vehicles FY2012/13
Non-financial public enterprises, 2012
Lists of export-prohibited and conditional export products, 2012
Cash incentives and export subsidies of selected products, 2012
Terms of intellectual property rights protection in Bangladesh, January 2012
IP applications for trade marks, industrial designs, and patents, and patents
granted, 1998 and 2005-10
2
10
15
21
34
36
37
41
42
42
47
50
51
63
65
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Page
IV.
TRADE POLICIES BY SECTOR
IV.1
IV.2
IV.3
IV.4
IV.5
IV.6
IV.7
IV.8
GDP by sector, 2005/06 to 2010/11
Industrialization and trade policy targets under Vision 2021
Export Performance of Major Products (in US$ millions)
Developments in domestic support to agriculture, 2002-07
Cash incentives for selected products, 2012
Financial Soundness Indicators, 2006, 2008, 2010, 2011
Mobile Phone Subscribers in Bangladesh in 2012
Chittagong Port: Container Handling and Port Performance
V.
AID FOR TRADE
V.1
V.2
V.3
Macroeconomic indicators and targets from Perspective Plan of Bangladesh
Export Performance of Major Products (in US$ millions)
Doing Business Indicator Rankings for Bangladesh and other SAARC members
(ranking out of 183)
Bangladesh: Selected financing for development flows 2008-10 in US$ millions
Overview of national aid programmes of key donors
V.4
V.5
71
72
73
77
79
86
89
93
97
98
99
101
102
APPENDIX TABLES
I.
ECONOMIC ENVIRONMENT
AI.1
AI.2
AI.3
AI.4
AI.5
Merchandise exports by group of products 2008-12
Merchandise exports by destination, 2005-12
Merchandise imports by group of products, 2005-12
Merchandise imports by origin, 2005-11
Trade in services, 2007-11
III.
TRADE POLICIES AND PRACTICES BY MEASURE
AIII.1
List of controlling importable products, 2012
IV.
TRADE POLICIES BY SECTOR
AIV.1
Recent policy measures adopted in Bangladesh
V.
AID FOR TRADE
AV.1
AV.2
Regional Aid for Trade Programmes
Foreign Direct Investment and Aid for Trade (commitments) in selected sectors
in US$ millions (2006-09)
Non-OECD Partners' aid programmes
AV.3
113
114
115
116
117
118
121
122
123
124
Bangladesh
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SUMMARY
1.
The Bangladesh economy emerged relatively unscathed from the global economic crisis
though the country remains vulnerable because its exports are not diversified and it depends heavily
on migrant workers' remittances. Although the economy has become increasingly open in recent
years, total merchandise exports have remained limited, averaging 18% of GDP since 2006. Exports
remain highly concentrated both in terms of products and destinations, which carries some risk, with
readymade-garment (RMG) exports to the EU and the U.S. the current mainstay. However, as a
reputable low-cost producer of garments, Bangladesh has gained global market share in recent years.
This trend is expected to continue over the medium term, which could partially mitigate the impact of
slow growth in advanced economies.
(1)
ECONOMIC DEVELOPMENTS
2.
The average annual real GDP growth of the Bangladesh economy during the last six years
was over 6%, aided by conducive macroeconomic policies, strong export growth and favourable
weather. GDP growth was broad based with agriculture, industry and service sectors performing well.
According to preliminary estimates, GDP growth in FY20121, although still estimated to be over 6%,
has slowed slightly. The performance of exports, a key growth driver, has declined as the year has
progressed, largely due to weaknesses in Bangladesh's key market, the EU.
3.
The overall balance of payments remained in surplus during most of the review period,
enabling the country to continue accumulating international reserves. However, this turned into
deficit in FY2011, for the first time in a decade, because of the combined impact of rising imports of
food, fuel and capital goods, and weak growth of workers' remittances and aid inflows. Even though
its exports have increased significantly, Bangladesh still suffers from a chronically weak foreign trade
account because of its dependence on imports of most essential goods, including fuel. A further
slowdown in the global economy may worsen the balance of payments by negatively affecting
exports, remittances and FDI inflows. Substantial inflows of remittances are crucial to Bangladesh's
macroeconomic stability, as they offset to a large extent the trade, services and income deficits.
4.
Bangladesh has outlined a vision of becoming a middle-income country by 2021. This would
require it to grow by at least 8% per year, compared to the current 6%-7%, driven by accelerated
growth in the industrial and services sectors, diversification of export markets and higher foreign
exchange earnings from the export of semi-skilled and skilled labour. Bangladesh needs to improve
the investment climate and continue to carry out trade-related reforms to increase domestic and
foreign investment for more rapid and inclusive trade-enhancing growth. The Government needs to
focus its trade reform efforts on reducing trade distortions, minimizing anti-export bias through
further tariff reforms and ensuring greater integration into the multilateral trading system. Low tax
collections remain a major constraint since they affect the Government's capacity to increase public
investment in energy and other infrastructure sectors.
5.
Bangladesh remains vulnerable to climate change and natural calamities such as cyclones
and floods, causing substantial economic losses, reduced economic growth and halting progress in
poverty reduction. Nevertheless Bangladesh has made impressive economic and social progress in
the past decade despite frequent natural disasters. Poverty declined from 57% of the population in
1990 to an estimated 31.5% in 2010, ensuring that Bangladesh is on track to meet the Millennium
Development Goal of halving extreme poverty by 2015. According to OECD data, between 2002
1
Covers the period 1 July 2011 to 30 June 2012
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Trade Policy Review
and 2009, Bangladesh was the second largest recipient of aid for trade among LDCs with the focus on
meeting broad infrastructure needs, enhancing competitiveness and institutional capacity building.
(2)
TRADE POLICY FRAMEWORK
6.
Bangladesh, an original Member of the WTO, grants at least MFN treatment to all its trading
partners and receives the special and differential treatment provided for in the WTO Agreements. It
continued to participate actively in the work of the WTO, serving twice as the coordinator of the LDC
Group in Geneva in 2007 and 2011, and advocating issues of interest to LDCs, including greater
market access, increased flexibility in the development of multilateral trade rules as well as targeted
assistance to trade infrastructure.
7.
The principal responsibility for making trade policy is shared between the Ministry of
Commerce and the Ministry of Finance, although a large number of other ministries and agencies are
involved in the formulation and implementation of trade and investment policies. The Government is
looking at ways to better coordinate policy on trade and investment-related matters between ministries
and departments, and between them and the private sector within the framework of developing a
comprehensive trade policy for the next five years.
8.
Reforms of the legal and regulatory framework have become essential in certain areas for
facilitating economic growth and social development. Since the previous Review, in addition to the
regular import and export policy guidelines, important new legislation has been passed in traderelated areas including: standards and accreditation, SPS, government procurement, intellectual
property rights, economic zones, money laundering, insurance, tourism, telecommunications and
competition.
9.
Bangladesh's involvement in and commitment to regional integration initiatives has deepened
during the review period with the progressive development of a South Asian Free Trade Area
(SAFTA) and a Bangladesh, India, Myanmar, Sri Lanka and Thailand Economic Cooperation
(BIMST-EC) Free Trade Area as well as the expansion of product coverage under the Asia Pacific
Trade Agreement (APTA), also known as the Bangkok Agreement. Exports to SAFTA and
BIMSTEC partner countries have remained limited, accounting for only 3% of total exports in each
case. Bangladesh, a beneficiary under various GSP schemes and an active participant in the Global
System of Trade Preferences among Developing Countries (GSTP), is pursuing efforts to obtain dutyfree access to the United States market for its textiles and clothing, although exports to the U.S. under
preferences remain insignificant.
(3)
TRADE POLICY DEVELOPMENTS
10.
The customs tariff is Bangladesh's main trade policy instrument as well as a
significant although declining source of government revenue (on average 18.1% of total tax revenue
during the review period). Almost all tariff rates are ad valorem, thus ensuring a high degree of
transparency. The duties on basic raw materials, capital machinery and parts, intermediate goods and
finished products are 5%, 3%, 12% and 25% respectively; the zero per cent rate on commodities like
rice, wheat, onions, pulses, edible oils, seeds, fertilizers, medicines and cotton has been kept
unchanged. The average applied MFN tariff (exclusive of specific duties and other charges) fell
slightly from 15.5% in 2005/06 to 14.9% in 2011/12. The average customs duty on agricultural
products (19.4%) remains higher than for industrial goods (14.3%). There is a concentration of tariff
lines at the three higher customs duty rates, and a pronounced escalation in several areas (including
textiles and leather), seemingly in line with national policy priorities.
Bangladesh
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11.
Bangladesh has bound 17.8% of all tariff lines. For agricultural tariff lines, 100% of are
bound; this is the case for only 2.7% of industrial tariff lines. The non-agricultural bound lines are at
several rates ranging from zero to 200%, with a marked concentration at 20'%, 30% and 40%. As a
consequence, market-access conditions for manufactured items are subject to some uncertainty; the
absence of bindings for most tariff lines and the current gap of 157 percentage points between the
average bound and applied MFN tariff rates provides considerable scope for the authorities to raise
applied rates.
12.
Additional protection has been maintained through other charges and internal taxes, notably
regulatory duties and supplementary duties (SDs). SDs, which apply to nearly 20% of tariff lines, are
aimed at discouraging the import of luxury goods and the supply of goods or services considered
undesirable on social, moral, religious or health grounds. Maximum protection rates with SDs of
250% or more apply to alcoholic beverages, cigarettes and luxury cars. While SDs are like excise
taxes and are, in principle, trade neutral (i.e. the same rates apply to imports and similar domestically
produced goods), this may not always be the case in practice. SDs constitute a tool for levying
additional tariffs on any imported goods, as and when deemed appropriate by the authorities, with
essential and non-luxury goods, including raw materials and intermediates, also subject to
supplementary duty. Levied on the landed value of goods plus customs duty, but excluding VAT,
supplementary duties have a cascading effect as protection rates rise further with higher customs duty
rates.
13.
Significant customs modernization is under way to facilitate speedy customs clearance
through automation and to improve transparency in the customs clearance process. Import clearance
and export procedures have been further simplified by reducing the number of signatures needed for
clearance of consignments and the frequency of inspection of goods. The port of Chittagong, which
handles over 90% of the country's import/export trade, has significantly improved its competitiveness
and efficiency relative to other ports in the region in terms of costs, vessel turn-around time and
container handling productivity. Preshipment inspection (PSI) has begun to be phased out to allow
customs officials to gradually assume greater responsibility before the PSI system is due to be
removed completely at the end of 2012 after the expiry of existing contracts with the PSI agencies.
14.
Regarding import restrictions, Bangladesh has maintained the limited product coverage of the
control list containing import prohibitions and restrictions in force. No contingency measures have
been taken during the period under review.
15.
Currently, it is estimated that annual expenditure on procurement of goods, works and
services in the public sector of Bangladesh accounts for 20%-24% of the annual national budget. The
2008 Public Procurement Act and Public Procurement Rules contain most features of good
international public procurement practices and the new framework establishes inter alia a domestic
preference of 15% of the delivered price for goods and 7.5% of the contract price for works. A new
legal framework for competition is now in place. Widespread state involvement in the economy
persists with state-owned enterprises largely engaged in commercial activities and exercising a
dominant influence in many key industries including jute, textiles, steel, chemical/fertilizer
production, sugar, utilities and transport.
16.
Export prohibitions are maintained mainly for reasons of health, ecological balance, security,
archaeological value, or maintenance of adequate domestic supply. Export permits/authorizations are
required for a few items. Exports of urea fertilizer (produced at the state-owned KAFCO plant)
remain restricted. Assistance for domestic production and exports (export-oriented firms, "deemed
exporters", and firms operating in export processing zones) varies by type of activity to, inter alia,
encourage use of domestic technology, import substitution, adjustment and/or boost export
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Trade Policy Review
performance, as well as to offset the adverse effects of tariffs and other border taxes. Such assistance
is available in the form of tax and non-tax incentives. The former include: indirect tax measures such
as concessionary duty rates on imports of capital machinery and spare parts, duty drawback for
exports, special bonded warehouses for inputs used in the manufacture of finished products, and VAT
rebates on certain export-related services; and direct tax measures, like rebates on taxable income
generated from any export business or exemption from income tax.
17.
Other forms of support consist of cash grants for exports, accelerated depreciation, and
various types of loans at concessional interest rates (for exports, agricultural production, small and
cottage industries) determined by the Bangladesh Bank.
18.
While economic processing zones have had some success in attracting investment and in
contributing to exports, their impact remains limited in the amount and type of exports, investments,
and employment. The Bangladesh Economic Zone Act 2010 will facilitate establishing up to 20
economic zones, which are expected to generate 1.5 million new jobs when in operation, and around
85% of the country's exports by 2021.
19.
Bangladesh is upgrading its quality and standards infrastructure towards international levels
by collaborative efforts with the newly operational Bangladesh Accreditation Board, established
under the Bangladesh Accreditation Act (2006). SPS matters are handled by the Ministries of
Agriculture, Health and Fisheries and Livestock within a regulatory framework of numerous legal
instruments. Bangladesh has faced, and overcome, critical challenges in meeting export standards, in
particular to the EU market which is the largest importer of Bangladesh frozen shrimps.
20.
Bangladesh continues to bring its IP laws in line with the TRIPs Agreement and other
international commitments within national economic and social development strategies. As an LDC,
Bangladesh has been given an extended time limit until July 2013 for the full implementation of the
provisions of the TRIPS Agreement, other than those relating to national treatment and most-favoured
nation treatment. Bangladesh is also a beneficiary of the TRIPS Council decision extending until
2016 the transition period during which LDCs do not have to protect or enforce patents and
undisclosed information relating to pharmaceuticals. Bangladesh recognizes that enforcement of IPRs
is important for encouraging innovation and creation although it admits that enforcement falls short of
the desired level.
(4)
SECTORAL POLICY DEVELOPMENTS
21.
Raising productivity in the labour-intensive agriculture sector continues to be a concern in
Bangladesh, which is prone to natural disasters. Rice production is the most important economic
activity in rural Bangladesh, with rice constituting 90% of total food grains produced annually. Tariff
and non-tariff protection has been reduced. To cut production costs and face competition from
neighbouring countries, support to domestic production has been strengthened through the
subsidization of agricultural inputs (i.e. seeds, fertilizer, irrigation, capital, through concessional
interest rates, and electricity) and public procurement practices. Trade policy with respect to
importable food staples (rice and wheat) is characterized by interventions based on food security
concerns and variable in terms of levels of protection and support. Bangladesh has maintained a
direct cash subsidy of up to 20% for certain agricultural and fisheries exports (i.e. frozen shrimp and
fish, fruits, vegetables, agro-processed products) during the review period.
22.
Manufacturing remains dependent on the labour-intensive readymade-garment (RMG) sector
and large loss-making SOEs. It was feared that the phasing-out of quotas in accordance with the
Agreement on Textiles and Clothing (ATC) in 2005 would adversely affect Bangladesh, but by then
Bangladesh
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the country had achieved sufficient competitiveness to survive and the garment sector has continued
to achieve sufficient growth. The garment industry is expected to remain the largest contributor to
growth in output for the foreseeable future, in particular since the 2011 change in EU import rules
which gives Bangladesh and other LDCs duty-free access if imported components of the final product
do not exceed 70% (compared to 30% previously). Government support measures include the
provision of bonded warehouse facilities, technological upgrading (concessionary duty rates and tax
exemptions for the import of capital machinery), cash subsidies for the use of local fabrics as inputs
for exporting RMG enterprises and an export credit guarantee scheme covering risks on export credits
at home, and commercial and political risks abroad.
23.
Services represent half of Bangladesh's GDP and are expected to maintain their rapid growth
in the coming years as the Government continues to focus on developing services trade, in particular
the country's outsourcing capabilities, including call centres. In the context of privatization across all
industries, which has intensified since the 1990s, liberalization measures have been taken especially in
financial services, telecommunications and transport services. The mobile telecommunications sector
has been opened up to competition with the participation of both domestic private and foreign capital.
The entry into the market of private operators since 1998 has led to mobile-phone subscriptions
increasing from a negligible number to nearly 90 million by early 2012. Measures have also been
taken to allow for private participation in shipping and port services with a view to increasing
efficiency and competitiveness in logistics services. While small and relatively underdeveloped,
contributing less than 2% of GDP, the bank-dominated finance sector in Bangladesh is characterised
by diversity and a continuing, although declining, state involvement in the sector.
24.
The experience of Bangladesh shows that foreign market access for services provided through
the temporary movement of workers and professionals can have significant positive effects in terms of
improved availability of scarce foreign currency, improving the current account balance, financing of
higher levels of imports, economic growth, employment generation and poverty reduction. The value
of remittances to the Bangladesh economy is many times larger than aid or FDI. Remittances more
than doubled during the review period, reaching US$12.8 billion in FY2012.
25.
Bangladesh has not changed its GATS commitments since its previous Review. The
activities of five star hotel and lodging services, and telecommunications services are the only
commitments covered by its schedule. Bangladesh is active in the Doha Round services negotiations,
especially on LDC-related matters, such as the LDC collective request on mode 4 and the LDC
waiver.
(5)
OUTLOOK
26.
Bangladesh has enjoyed robust growth during the review period and, given its inherent
strengths - especially a vibrant private sector and a large pool of inexpensive labour - the prospects for
continuation of such growth are relatively good. Unit labour costs in the dominant garment industry
are well below those of the nearest competitors. Foreign investors are showing interest in large-scale
relocation of labour-intensive industries, particularly garments and related textile manufacturing. In
addition, sectors such as shipbuilding, pharmaceuticals, ceramics, and processed and frozen foods
have shown dynamism in recent years.
27.
Although the outlook appears optimistic, both RMG exports and remittances are vulnerable to
shocks: external demand with garments, domestic labour unrest, and changes in market access; and
remittances from changes in labour regulations and policies, or shocks in Kuwait or Saudi Arabia,
which absorb over half the migrant Bangladeshi population. A deterioration in the outlook for both
could cause significant external pressure, particularly as FDI flows remain low by most measures,
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Trade Policy Review
constrained by the trade regime, poor infrastructure, governance problems and a difficult business
climate. Longer-term growth prospects hinge on generating sufficient resources to relieve
infrastructure bottlenecks and ensuring a competitive business environment focused on labourintensive activities.