Export subsidies, incentives to continue under different names post-LDC

The government will continue to provide exporters with the existing cash incentives and subsidies under different names to maintain their competitiveness in the global market when Bangladesh graduates to a developing country.

It will also introduce merchant trade and countertrade to further boost export earnings. Besides, exporters themselves will have the power to issue utilisation declarations for priority exportable goods, according to the Export Policy Order for 2021-24 issued by the commerce ministry on Sunday.

Moreover, the government will provide necessary policy support for setting up warehouses in the European Union, the United States, the Russia-led Eurasian Economic Union and Mercosur, an economic and political bloc of Latin American countries, to create and expand brands of Bangladeshi products in the international market.

By June 2024, the commerce ministry in collaboration with other ministries concerned and the private sector will implement these initiatives.

As per the export policy order, Bangladesh has set a target of taking exports to $80 billion by 2024. Finance Minister AHM Mustafa Kamal told reporters recently that all necessary assistance will be provided to achieve this goal.

When Bangladesh will graduate to a developing country in 2026, it will lose market preferences. Besides, it will no longer be allowed to offer cash incentives and various subsidies to exporters as per policies approved by the World Trade Organisation (WTO), according to the export policy order.

Even in the EU market, duty-free benefits will be limited under the "Everything but Arms" scheme, resulting in a 10% rise in tariff on average and a subsequent dent on export competitive advantage in the international market, the policy says.

Bangladesh will also have to adhere strictly to rules of origin, and face shrinking of special and differential treatment under various WTO treaties, notification obligations, etc.

Keeping all these issues at the forefront, the government will adopt a specific plan on how to accommodate the existing export incentives, subsidies and other assistance in WTO-backed policies to enhance Bangladesh's export competitiveness, the order points out.

According to sources concerned, India, China and Vietnam have also continued to provide such support to their export sectors under various names.

For example, India has launched a "Make in India" programme to encourage companies to develop, manufacture and assemble products in India and incentivise dedicated investments into manufacturing.

Vietnam has long since introduced financial benefits in the form of industry and skills upgradation. China also provides financial support in the name of technology upgradation.

MA Razzaque, research director of the Policy Research Institute, told The Business Standard that Bangladesh needs to start conducting research right now on finding out a mechanism to continue facilities for exporters after the country comes out of the LDC group.

Echoing with him, Mostafa Abid Khan, a member at the Bangladesh Trade and Tariff Commission, told TBS that after the LDC graduation, export benefits can be offered in the form of Employment Security Fund or Industry Modernisation Fund.

"If Bangladesh enacts a law or formulates a policy to continue support in the name of industry modernisation, it should not be only for the export sector as it will be a clear violation of the WTO policy. In that case, we have to give it to other sectors as well," MA Razzaque noted.

According to the finance ministry, in FY22, Tk7,350 crore has been earmarked as cash incentives against exports of various goods and services. The allocation amounted to Tk6,828 crore in the previous fiscal year.

Shahidullah Azim, vice-president of the Bangladesh Garment Manufacturers and Exporters Association, told TBS that signing a free trade agreement with different countries is more important than continuation of subsidies and incentives.

"Vietnam has increased their export capacity through FTAs, we should follow them too," he said.

Besides, it is also important to reduce the cost of business along with increasing the ease.

Shahidullah also thinks a long-term and predictable tax policy for exporters will facilitate exports of man-made fibre garments, thus boosting the overall exports.

This policy will remain in force until June 2024, or until another new export policy is formulated. It calls for the introduction of merchanting trade and countertrades for the diversification of export trade.

Merchanting trade will allow the shipment of goods from one foreign country to another foreign country involving a Bangladeshi intermediary.

On the other hand, countertrade is a reciprocal form of international trade, in which goods or services are exchanged for other goods or services rather than for hard currency.

At present, Bangladesh does not have any policy on merchanting trade and countertrade. The export policy states that necessary guidelines will be formulated in this regard at the initiative of the Bangladesh Bank.

Merchanting trade has been introduced in different countries of the world, said MA Razzaque, adding that this type of business is gaining popularity all over the world. "Bangladesh also needs to make a policy in this regard. If an exporter wants to export a product from Singapore to the United States, specific guidelines are needed as to how much dollar the Bangladesh Bank will allow them to buy the product in Singapore and what will be the gap between the export price and the purchase price of the product."

The export policy also calls for authorising the capable owners' associations in major export-oriented sectors to issue utilisation declarations (UDs) on the basis of recommendations from the commerce ministry to help reduce lead time in export trade and simplify business practices.

UDs are issued by the Commissionerate of Customs Bonds of the National Board of Revenue. The officials often take extra time to issue UDs, exporters allege.

Against the backdrop of such allegations, the government has authorised the BGMEA to issue UDs for readymade garments, the principal export product of the country.

Exporters in various sectors, including plastics, have been seeking similar benefits for years.

Shamim Ahmed, president of the Bangladesh Plastic Good Manufacturers and Exporters Association (BPGMEA), said if their organisation and those of other major sectors are given the authority to issue UDs like in the RMG sector, it would help increase export volumes and diversification of export products in those sectors.

"Although our organisation signed a memorandum of understanding with the NBR long ago on this issue, it has not been implemented yet. We have been fighting for this for a long time."

The Ministry of Commerce in a bid to help the diversification of export products will take up coordinated initiatives to make sure various sectors are provided with the same facilities as the garment industry, says the new export policy.

It also calls for taking necessary steps to maintain the availability of raw materials for the export-oriented industries and review the feasibility of setting up sector-based central warehouses to keep the supply chain uninterrupted.

When a lockdown was put in force in China in 2020 in the wake of the outbreak of Covid-19, various export-oriented sectors including the RMG in Bangladesh fell into a crisis of raw materials. At that time, Commerce Minister Tipu Munshi announced that a central warehouse would be set up or an alternative source would be identified.

The policy also incorporates plans to set up product/ sector-based institutes in the private sector in the fashion of the BGMEA University of Fashion and Technology for the advancement of product design, fashion, and technology.

The government will provide financial assistance to exporters in developing technology, logistics and infrastructure to create online platforms and virtual marketplaces.

The policy also states that in order to build a strong position of Bangladesh in the global value chain, the government would extend necessary policy support for the production and export of intermediate goods, as well as formulate strategies to attract investment and designate a special economic zone to attract foreign investment in the man-made fibre sector.

The policy calls for the establishment of testing labs to ensure international-standard digital products and services and arrangements for quick and duty-free import and export of warranty and sample products.

It also promises long-term tax breaks for the development of the light engineering industry.