1. 1 Workshop on Growth and Employment December 12-13, 2005 Enhancing Export Competitiveness for Supporting High Growth Tercan Baysan and Sandeep Mahajan Workshop on Growth and Employment December 12-13, 2005 Enhancing Export Competitiveness for Supporting High Growth Tercan Baysan and Sandeep Mahajan

2. 2 A Key Economic Growth Challenge: Export Growth  Export competitiveness is critical for overall growth in Bangladesh Relatively small size of the economy – total size at $60 billion is significant but those with purchasing power limited in number Relatively small size of the economy – total size at $60 billion is significant but those with purchasing power limited in number Export orientation needed for productivity & efficiency gains Export orientation needed for productivity & efficiency gains  Two main aspects of export competitiveness are Trade policy Trade policy Behind-the-border factors affecting competitiveness of the economy Behind-the-border factors affecting competitiveness of the economy

3. 3 Bangladesh lags behind significantly in key dimensions of competitiveness  Remaining trade policy barriers are still considerable  Significant ground to cover to improve investment environment Many domestic barriers to efficient and competitive private activity Many domestic barriers to efficient and competitive private activity  These hurdles constrain export potential

4. 4 Progress on Trade Liberalization  With an average nominal protection 26.5%, Bangladesh is the most protected economy in South Asia, and the most protected economy in South Asia, and one of the top protectionist countries among the 134 developing countries (ranked 5 th in 2004). one of the top protectionist countries among the 134 developing countries (ranked 5 th in 2004).  The nominal protection rate is almost two- and-half times the median rate in the developing world

5. 5 Progress on Trade Liberalization  General trend toward trade openness since early 1990s  Progress on CDs offset in large part by reversals on para tariffs Para-tariffs now account for 40% of nominal protection compared with 4% in FY92, 10% in FY96, and 26% in FY01 Para-tariffs now account for 40% of nominal protection compared with 4% in FY92, 10% in FY96, and 26% in FY01

6. 6 Progress on Trade Liberalization:  Other areas of progress include: Near elimination of trade related QRs Near elimination of trade related QRs Current account convertibility Current account convertibility Floating of the taka in May 2003 Floating of the taka in May 2003

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8. 8 Significant Anti-export Bias   Anti-export bias, created by protective trade policies, has been on a downward trend which has leveled off since FY00

9. 9 Significant Anti-export Bias   Despite progress, anti-export bias at 20 percentage points remains high.   This is a significant disincentive to export activities and export diversification

10. 10 Enclave Arrangements  Special bonded warehouse scheme and EPZs provide limited cushion against this bias – that too only for a limited range of products  Other/potential exports have to rely on Duty Exemption and Drawback office (DEDO) and cumbersome import procedures DEDO suffers from inefficiency and weak governance. Also adversely affected by complex tariff system and para-tariffs. DEDO suffers from inefficiency and weak governance. Also adversely affected by complex tariff system and para-tariffs. Direct exporters need to submit 18 documents to DEDO – indirect exporters even more. Direct exporters need to submit 18 documents to DEDO – indirect exporters even more. It takes a minimum of 6 months for drawbacks to be paid. 50% of applications are not disposed in 2 years. It takes a minimum of 6 months for drawbacks to be paid. 50% of applications are not disposed in 2 years.

11. 11  Unilateral vs. multilateral/ regional tracks to trade liberalization Unilateral approach has been the main avenue, even though Unilateral approach has been the main avenue, even though Bangladesh has remained active in the ongoing WTO trade negotiations, particular as a leader in the LDC Coalition under the Doha Round Bangladesh has remained active in the ongoing WTO trade negotiations, particular as a leader in the LDC Coalition under the Doha Round regionalism has taken off in the form of negotiations/ discussions of various bilateral PTAs and FTAs, SAPTA, and SAFTA. Impact of these on trade liberalization in Bangladesh has been minimal regionalism has taken off in the form of negotiations/ discussions of various bilateral PTAs and FTAs, SAPTA, and SAFTA. Impact of these on trade liberalization in Bangladesh has been minimal Need to be careful about costs of PTAs in the region which is one of the most protected – considerable risk of adverse trade diversification and of revenue lossesNeed to be careful about costs of PTAs in the region which is one of the most protected – considerable risk of adverse trade diversification and of revenue losses  Unilateral approach seems to have most economic merit. If properly managed it will enable Bangladesh to better manage regional integration objectives while minimizing adverse trade diversion effects of FTAs Strategy for Export Competitiveness and Diversification

12. 12  Recommendations for Unilateral trade liberalization : Eliminate para tariffs on non-luxury goods – have one tariff rate for each tariff line Eliminate para tariffs on non-luxury goods – have one tariff rate for each tariff line Rationalize & further reduce nominal protection Rationalize & further reduce nominal protection Pre-announced medium- and long-term schedule of tariff reduction through rationalization of customs duties (CD)Pre-announced medium- and long-term schedule of tariff reduction through rationalization of customs duties (CD) Reduce maximum rate to 20% over 2-3 years and then to 15%Reduce maximum rate to 20% over 2-3 years and then to 15% Considering the revenue needs, consider establishing the minimum tariff rate of, say 5%. Considering the revenue needs, consider establishing the minimum tariff rate of, say 5%.  Eliminate tariff exemptions/concessions Strategy for Export Competitiveness and Diversification

13. 13  Benefit from the considerable benefits to use of “regional cumulation” allowed by the EU, resisting lobby group pressures  Continue lobbying strongly in the US for duty-free access to RMG exports, as already allowed for LDCs in Africa under (AGOA)  In the planned FTA agreements : minimize potential trade diversion effectsminimize potential trade diversion effects minimize exemptionsminimize exemptions have rules of origin that are liberal, simple, transparent, and uniformhave rules of origin that are liberal, simple, transparent, and uniform  Completely overhaul DEDO Strategy for Export Competitiveness and Diversification

14. 14  Improve Transport and Trade logistics /facilitation  Improve domestic investment climate (infrastructure, cost of finance, regulatory environment etc.)  Improving product quality and safety standards Strategy for Export Competitiveness and Diversification