Rethinking the Import Policy Order of Bangladesh
The Ministry of Commerce is formulating the next IPO 2021-24, making now more imperative than ever to evaluate our past IPOs and take lessons to address emerging issues like post-LDC graduation and COVID-19 recovery
Bangladesh pursued an import-substituting strategy of industrialisation in the 1970s.
The key objectives of this strategy were to safeguard the country's infant industries, reduce the balance of payments deficit, use the scarce foreign exchanges efficiently, ward off the international capital market and exchange rate shocks, lessen fiscal imbalance, and achieve higher economic growth and self-sufficiency for the nation.
However, in the face of the failure of inward-looking strategies delivering the desired outcomes, along with rising internal and external imbalances, trade policy reforms were introduced in the early 1980s.
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The Import Policy Orders (IPOs) thus gradually shifted from being protectionist towards a gradual liberal one. IPOs during 1972-1980 were severely restricted. Only a handful of commodities were allowed to be imported upon having an import license. The government tried to foster domestic industrialisation and allocate foreign currency to the priority sectors, which led to a protective Import Policy Order.
However, the IPO during that period was complex and suffered from administrative problems, lack of inter-agency coordination, a cumbersome foreign exchange budgeting process and procedural delays.
The gradual liberalisation of the import policy started in the early 1980s as the licensing requirement for import was abolished, and the structure of the IPOs during that period registered significant changes.
The IPOs before 1986 had a positive list, but the IPOs after that year contained a negative and restrictive list. The validity of the IPOs became longer since 1986, which, previously, had a one year validation period. The negative and restrictive list to import had been integrated into a single list since the 1990s.
From 1980 till date, the number of restricted items in the IPOs has drastically reduced, and the tariff structure has gradually been liberalised.
Moving forward
The Ministry of Commerce (MoC) is formulating the next IPO 2021-24. Therefore, it is imperative to take lessons from the ongoing import policy order (2015-18). Critical analysis of the import policy order provides some crucial findings, which need careful consideration in the upcoming policy order.
IPO 2015-18, formulated back in 2015, is a legally binding document that is very long and often hard to comprehend. The policy document did not contain any concrete objectives without which the policy cannot achieve its desired goal.
Also, its effective monitoring and evaluation remain ambiguous. One prime concern is that, like the past IPOs, the IPO 2015-18 also had the chief motivation to generate revenue while the development aspects of the policy remained ignored.
The IPO 2015-18, like other IPOs, protects the import substitutes by imposing high tariffs and para-tariffs. Infrastructure development surcharge and supplementary and regulatory duties are the prime forms of para tariffs. These para tariffs are imposed on imports primarily to generate revenues.
Thus along with customs duties, a protectionist import regime is created for the domestic industries. As the domestic protection remains much higher than the export incentives, it results in a high anti-export bias making the domestic producers reluctant to export
The issues of non-tariff measures and barriers (NTMs/NTBs), while importing, were not taken up properly in the IPO 2015-18. An ITC study states that about 53 percent of the importers in Bangladesh face non-tariff measures and barriers while importing raw materials and consumer items into Bangladesh. Document requirements, port congestion, lack of adequate testing facilities, lack of automation in the clearance process, and delay in receiving test results are significant NTMs/NTBs while importing in Bangladesh.
Though the provisions of the IPO 2015-18 are not discriminatory, adequate priorities are not assigned to understand the gender impact of services involved in trade facilitation like customs and border management, logistic services, trade infrastructure, and transportation in Bangladesh.
The practice of employing gender-differentiated filters on trade policies, port-level procedures, infrastructure planning and the design of trade promotion programs is still far from adequate.
Since 2015, the global trade and business dynamic has shifted a lot. There is no denying that the new Import Policy Order needs to address the current and emerging issues such as post-LDC graduation, COVID-19 recovery, the 8th five-year plan, the prospective plan 2021-2041 and the fourth industrial revolution.
The upcoming IPO 2021-24 should contain concrete objectives and measures to achieve those objectives, which should be consistent with the goals pertaining to the aforementioned plans and strategies.
As the country is graduating from the LDC status by 2026, the upcoming import policy order will be critical to prepare Bangladesh for the post-graduation period. The gradual phasing out of the para tariffs, further tariff rationalisation and the gradual binding of import tariff rates are also critical concerns to make the future IPOs gradually consistent with the World Trade Organisation (WTO) rules.
The IPO 2021-24 must also address the issue of the creation of Free Trade Agreement (FTAs) and Preferential Trade Agreement (PTAs). Therefore, FTA-related tariff restructuring, preferential ROO, and recognition of the product standard agencies need to be taken up in the next IPO. Also, the issue of capacity building of relevant authorities on anti-dumping and countervailing measures should be addressed.
Despite generous tariff concessions for raw material and machinery imports to target the FDI industries focusing on exports, Bangladesh is yet to attract significant Foreign Direct Investment. Along with such tariff concessions, a coordinated approach to easing business is a must to attract substantial FDIs.
A special focus on attracting FDIs must prevail in the upcoming IPO. For the preparation of the 4IR, reduced duties on research and innovation equipment need to be considered even more.
The upcoming IPO 2021-24 should focus more on the development aspects against the revenue generation motive of the past IPOs. Among other issues, policy harmony, inter-agency coordination, the ease of customs procedures, capacity building, a concrete mention of penalties for contravention, and the ease of import-related activities for women are critical issues that need careful consideration in the upcoming IPO 2021-24.
The author is a Professor of the Department of Economics at the University of Dhaka and the Executive Director of the South Asian Network on Economic Modeling (SANEM). Email: [email protected]
