The Financial Express

Phasing out cash incentives

| Updated: November 12, 2022 21:48:46

Phasing out cash incentives

Cash incentive for exports - the other name for export subsidy - has been a touchy issue for quite some time, especially since the globalisation hype has taken over the international trade arena decades back. Doling out funds to ease exports is no longer recognised supportive to boost marketing capacities of exporting firms in the increasingly competitive business environment. The obligation for dishing out cash as an export incentive lies with the developed and developing member states of the World Trade Organisation (WTO). Although the least developed countries (LDC), including Bangladesh, are continuing with the practice, there is a crucial need to phase them out while graduating to the developing country status. For Bangladesh, now that the graduation is knocking at the door, the country has to prepare to stay competitive without cash subsidy, as well as lessen financial burden on the state coffer. 

This was aptly suggested by a sub-committee formed by the government which urged upon finding alternatives to cash incentives on export receipts as Bangladesh would not be allowed to support its exporters in the current form after its graduation to a developing country. The observation was made at a national workshop of the LDC graduation sub-committee on domestic revenue generation and tariff rationalisation at the Finance Ministry. In May last year, the government formed a 22-member national committee to address the challenges that the country will face as a result of its graduation from the LDC group in 2026. Seven sector-specific sub-committees have also been formed to support the national committee. The committee in reference carried out a study of Bangladesh's export situation in the absence of cash subsidy, and found that 'if there is no cash subsidy on exports, the negative impact would be lower in the long-term.'

What has been suggested by the committee is a reality for a country in  the post-graduation stage. It urged the government to sign free trade agreements and preferential trade agreements with major trading partners to retain duty benefits in their markets. Understandably, such agreements would need reciprocity as asking for duty preference or duty-free access to partner countries would require Bangladesh to also allow similar treatment to them. In so doing, the country may run the risk of losing customs duties at the initial stage. However, focusing on such trading agreements will pay in the long run.

Since parting with cash incentives is a new phenomenon the export sector will have to prepare for, there is no choice but to substantially strengthen the business base to make export competitive. Diversifying exports, increasing productivity, finding new markets, and value addition are indeed some of the basics Bangladesh will have to work on. It is imperative that in line with the suggestions of the sub-committee, the government in consultation with the stakeholders set out a roadmap on how best to make export self-reliant. In the absence of cash incentives or subsidies, the government can, however, provide facilitations in numerous ways at various stages of exporting.

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