Bangladesh's Export Policy 2024-27: A blueprint for WTO compliance and growth
Balancing national interests and export growth during LDC graduation requires carefully crafted policies to ensure rational and balanced pathways
Bangladesh is preparing for LDC graduation, revisiting policies to ensure WTO compliance. As part of this process, cash subsidies ranging from 10-50% on 43 export products were withdrawn in February 2024. Additionally, the Export Policy 2024-27 acknowledges the WTO's Subsidies and Countervailing Measures (SCM) Agreement.
In the national budget for FY2023, the government allocated cash incentives of Tk7,825 crore for local exporters, excluding those in the jute sector. The correlation between export subsidies and export growth has never been calculated, leading to instances where a sector might show negative growth despite receiving cash support for years. Export diversification and encouraging new sectors in new markets are the primary goals.
Against this backdrop, the Export Policy 2024-27 aims to reach $110 billion in exports by its final year, announcing various forms of assistance from different ministries, organisations, and agencies as substitutes for cash incentives. These non-cash incentives, which also hold monetary value, may equal cash incentives. However, they will not be specific to any sector or product, thereby avoiding the category of prohibited and specific subsidies per WTO rules.
Subsidies provided by a government can distort trade flows by giving artificial competitive advantages to exporters or import-competing industries, potentially impacting the interests of trading partners under WTO rules. Articles VI and XVI of GATT 1994 and the SCM Agreement detail these issues. There are three types of subsidies: actionable subsidies (specific subsidies causing adverse effects), non-actionable subsidies (non-specific subsidies), and prohibited subsidies (Article 3 of the SCM Agreement).
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Part I of the SCM Agreement defines subsidies as financial contributions by a government or public body within a member's territory. This includes direct transfers of funds, potential direct transfers of funds or liabilities, foregone government revenue, the provision of goods or services other than general infrastructure, purchases of goods, payments to funding mechanisms, or directives to private bodies to perform functions typically vested in the government. Article II describes the specificity of subsidies.
Part II of the SCM Agreement covers prohibited subsidies, with Article 4 outlining remedies starting with consultations upon a member's request and potentially escalating to the Dispute Settlement Body (DSB). Members can challenge prohibited subsidies multilaterally or through national countervailing measures. Part III (Article 5) addresses actionable subsidies that cause injury to domestic industries, excluding those maintained on agricultural products under Article 13 of the Agreement on Agriculture. Article 6 describes serious prejudice, and Article 7 outlines remedies for such cases.
Non-actionable subsidies (Article 8) are general subsidies applied across all industries without favouring a specific industry, enterprise, or group of industries. These should be neutral, economic, and horizontally applied without predominant use by any particular enterprise.
The SCM Agreement's Annex I lists export subsidies and includes guidelines on input consumption in production, substitution drawback systems, total ad valorem subsidisation calculation (paragraph 1(A) of Article 6), procedures for developing serious prejudice information, and on-the-spot investigation procedures under paragraph 6 of Article 12.
The Export Policy 2024-27 references the SCM and Annex I list of cash incentives, including direct cash subsidies, income tax exemptions, and currency retention. However, duty drawback schemes, VAT rebates on raw material imports for export-oriented sectors, VAT rebates on exports, VAT returns to service exporters, EPZ industry supports, back-to-back LCs, and special bonded warehouses are not considered cash subsidies.
The policy emphasises negotiating with the WTO as a graduating LDC, phased reductions, and following examples of countries that continued export incentives under WTO rules. It also explores alternative arrangements for developing countries.
To comply with WTO rules, the policy includes support through foreign currency retention for exporters, rational utility billing at the industrial level, 5–10% rebates on electricity bills for main exporters, exemption from all licensing fees, duty rebates over 1% for capital machinery imports, support through the export promotion fund and export development fund for domestic industries, and issuing venture capital at lower rates with easy terms for export-oriented SMEs.
Other support measures include duty- and tax-free imports of materials and equipment for RnD in export-oriented industries, rationalised air charges, foreign technical assistance in product diversification, support for establishing green energy units, loans for ETP and green factory setups, introducing online banking, and financial assistance for university and academic research in export-oriented industries.
Bangladesh must closely follow WTO rules, particularly the Special and Differential Treatment (SDT) for developing countries. The WTO Secretariat's summary of SDT provisions circulated on March 16, 2023, lists areas of flexibility, actions, policy instruments, transitional time frames, and SDT provisions in various SCM agreements. Bangladesh should maximise these opportunities.
Article 27 of the SCM outlines special and differential treatment for developing country members. According to 27.1, members recognise the role of subsidies in developing economic programs. Paragraph 27.2 states that the prohibition in Article 3, paragraph 1(a), does not apply to Annex VII developing countries or other developing countries for eight years from the WTO Agreement's entry into force, with a phase-out requirement.
If necessary, developing countries can request an extension beyond the eight-year period by consulting with the Committee one year before expiration, considering economic, financial, and development needs. This is relevant to India's case, which involved a consultation starting March 14, 2018, following the US's challenge of alleged export subsidies under five schemes. However, on July 18, 2023, India and the USA agreed on a solution, with India withdrawing the subsidies on November 19, 2019.
Developing WTO members can support exporters until their GNP per capita reaches $1,000 per year. The Doha Ministerial Decision on Implementation-Related Issues and Concerns (WT/MIN(01)/17) confirms Annex VII(b) members remain until their GNP per capita reaches $1,000 in 1990 dollars for three consecutive years.
As an LDC, Bangladesh has benefited from SDT provisions but must adopt new strategies as a graduating LDC and, post-2026, as a developing country. For instance, India's operational guidelines for the Production-Linked Incentive (PLI) scheme for textiles, effective from September 24, 2021, to March 31, 2030, can serve as an example. Bangladesh needs to explore similar strategies to maintain its textile and RMG exports.
The SCM is crucial for maintaining international trade relations. Balancing national interests and export growth during this transformation requires carefully crafted policies to ensure rational and balanced pathways.
Ferdaus Ara Begum, CEO, BUILD Public Private Dialogue Platform, works for private sector development.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.
