Higher tariffs, para-tariffs deter non-RMG sector investment

Higher tariffs and para-tariffs to protect the import-competing local manufacturing sector has been discouraging investment into the country's non-RMG sector, defying export diversification efforts, according to a new research.

Differential domestic and export sales standards and lack of export incentives for non-RMG sectors are also cited as major obstacles to export diversification.

On the other hand, lack of information on demand, market size for specific products, potential competitors and regulatory requirements, specifically of the UK market, impedes non-RMG export expansion.

The study suggests that Bangladesh remove anti-export bias and rationalise its tariffs, disseminate market-specific information, including the UK's duty-free benefits, rules of origin provisions, required standards, integration into UK supply chains and establishing relationship with big brands.

Research and Policy Integration for Development (RAPID) chairman Dr MA Razzaque shared the findings at a stakeholder consultation on 'Expanding and Diversifying Exports to UK Market' in Dhaka on Thursday.

Senior commerce secretary Tapan Kanti Ghosh was present there as the chief guest while Export Promotion Bureau vice-chairman AHM Ahsan and Bangladesh Trade and Tariff Commission chairman Md Faizul Islam, Foreign, Commonwealth and Development Office (FCDO) deputy development director Dr Duncan Overfield spoke.

RAPID is undertaking a research, commissioned by the UK Secretary of State for the FCDO, and it identified four potential export sectors -- local leather and footwear, light engineering sectors, fish and shrimp and agricultural and agro processed food -- as most prominent to unleash their export potential.

About tariff rationalisation, Mr Ghosh said Bangladesh relies on import tariff revenue, which is important for meeting government expenditure like education, health and social protection.

Therefore, tariff rationalisation will create a challenge to ensure such spending, he added.

"Moreover, sometimes our entrepreneurs ask for protection from foreign products getting into the local market, which we cannot deny."

After 2026, the secretary said, Bangladesh needs to lower the tariff rate, and exporters need to be mindful of growing competition and get mentally prepared about any possible reduction.

He suggested measures to reduce costs from other areas and enhance production efficiency.

Replying to payment challenge, Mr Ghosh said they are unaware of the open-account impact and would work with the central bank to fix the problem.

Mr Overfield also stressed the need for relevant policy reforms that will best serve Bangladesh.

Bangladesh must explore the necessary policy option and support to ensure the best utilisation of UK DCTS, mostly after the LDC graduation period, he stated.

About country image, he said the perception of goods originating from Bangladesh will become more positive over time, much like how the perception of products from Hong Kong and China changed over the years.

Presenting a keynote, Mr Razzaque said Bangladesh's overall exports to the UK stood at $5 billion or 9.0 per cent of total exports, in last fiscal which was only $500 million in fiscal2000.

Over 90 per cent of these exports comprise apparel products, reflecting Bangladesh's heavy reliance on a single product, he said, adding that there are tremendous opportunities for expanding exports to the UK further -- not only of RMG, but also other products.

RAPID projected that exports to the UK would reach more than $12 billion by 2030 -- $11 billion from RMG and $1.3 billion from non-RMG.

"It's still unsettled if Bangladesh's garment exports after LDC graduation will continue to receive duty-free market access in the European Union (EU) but, under the UK Developed Countries Trading Scheme (DCTS), Bangladesh apparel exports will continue to get duty-free access in the UK until 2029."

The RAPID study identified several market-specific, political, economic and supply-side constraints and challenges from stakeholder consultations, including a lack of knowledge and information about the UK market, payment issues, insufficient export incentives, insufficient non-RMG supply capacity, scarcity of access to finance, and undersupply of skilled and specialised professionals.

Under the DCTS, expansion and diversification of UK-bound exports will require multidimensional policy actions from both public and private stakeholders, it suggested.

The EPB vice-chairman emphasised improvements in key areas such as maintaining SPS, ensuring proper packaging, improving the country's perception and meeting consumer demand to tap the unutilised export potential to the UK market.

Mr Islam from Tariff Commission said both public and private bodies should work together to ensure export diversification.

"High import tariffs work as disincentives for consumers as well as producers. The government is working on tariff rationalisation and a national tariff policy is in the final stages and would get the cabinet nod shortly."

Speaking there, Masrullah, head of international business at Apex Footwear Limited, suggested matchmaking with UK buyers through top government level, dissemination of information, meeting testing and compliance requirements to stay in business.

Although the company is trying to get engaged with a big UK footwear buyer for several months, he said, progress remains halted due to payment system as the buyer has asked for open account instead of LC system.

Mohammad Mushtaque Ahmed Tanvir, president of Bangladesh Bicycle and Parts Manufacturers and Exporters Association, said the market trend for bike is now changing towards electric ones.

Terming motors and battery major components, he said if Bangladesh could produce one of the two items, export would increase manifold.

Mr Tanvir also identified testing facility and payment systems still challenging.

Humayun Kabir from Bangladesh Frozen Foods Exporters Association called for allowing commercial cultivation of vannamei species of shrimp, among others.

RAPID executive director Dr M Abu Eusuf moderated the event.

[email protected]