High tariffs justified but LDC transition requires different strategies: Dr Khondaker Golam Moazzem

Firstly, it is important to clarify that the high tariff rates in our country are legally justified. These are not high tariffs in the conventional sense but rather what we refer to as bound tariffs or upper bound tariffs. This means we declare the maximum tariff rate we can impose under WTO regulations, and our actual tariffs are determined within this limit. 

However, we do not always apply these bound tariffs. Instead, our normal MFN (Most Favoured Nation) tariffs are usually lower. The bound tariff serves as a legal safeguard, allowing us flexibility in exceptional circumstances.

The existence of these high bound tariffs is legally sound. But when we transition out of the Least Developed Country (LDC) category, we will need to lower these tariffs. 

High tariffs are not solely intended to protect domestic industries. In countries like ours, multiple considerations come into play. For instance, emergency situations may arise where higher tariffs become necessary. These situations do not always relate to industry protection but may require industry support. This is one reason for maintaining a high upper limit. Additionally, agricultural products often have higher bound tariffs to safeguard farmers' interests and ensure their products are sold at fair prices.

Tariffs also serve as a crucial source of revenue. High tariffs contribute significantly to our revenue collection, particularly from imports. This aspect cannot be overlooked when discussing tariff structures.

As for US demand to lower the 74% duty rate, it remains unclear how this figure has been calculated. Is it based on an average of bound tariffs, MFN tariffs, or effective tariffs? Many of the products we import, such as cotton for the export industry, enter duty-free. Similarly, oilseeds and scrap materials are subject to low tariffs, with scrap materials taxed at just 6%. Therefore, it is essential to understand the basis of the 74% calculation. Some suggest it was derived by dividing the trade deficit by the export value [and multiplying by 100], but this methodology has not been clearly explained. Clarity is needed on this issue.

Furthermore, the US demand to lower tariffs is inconsistent with WTO rules. For example, if we reduce the tariff on oilseeds imported from the US from 5% to 3% or 4%, what happens to oilseeds imported from Brazil? How much duty would we impose on Brazilian imports? Brazil could challenge this at the WTO. WTO regulations prohibit country-specific discriminatory policies unless covered by a separate trade agreement. The MFN principle ensures uniform tariff rates across all nations unless a special agreement is in place. If tariffs are selectively reduced, other countries could file cases against us at the WTO. 

Additionally, it is crucial to consider the nature of the products we import from the US. Many of these, such as cotton, petroleum, oilseeds, and chemicals, are not produced domestically. Therefore, high tariffs on these items are not aimed at protecting local industries. If we exclude the US from the discussion, several other factors influence our tariff decisions, with domestic protection being just one of them. 

However, under-invoicing is a concern in Bangladesh, where importers sometimes undervalue goods to reduce tariff payments. While this issue exists, our current tariff levels remain within legal limits. 

While the US-imposed tariff on our exports presents challenges, it also provides an opportunity to accelerate preparations for LDC graduation. This may be an extreme example, but it underscores the need for strategic planning. Typically, we do not take proactive measures unless external pressures arise. Now, with this situation looming, we must develop country-specific strategies for LDC graduation. This involves reducing costs, ensuring product and market diversification, expanding market access, and attracting investments. These are issues often discussed in theory, but now they demand immediate attention.

TBS' Nasif Tanjim spoke to Dr Khondaker Golam Moazzem over the phone