Bangladesh to launch second phase of trade policy reform

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| Updated:
March 02, 2022 08:38:45


Over the past 50 years, Bangladesh has proven to the world that it can be a highly competitive trading nation. Trade, not aid, is now our currency.

Bangladesh’s progress in trade confirms the triumph of comparative advantage in garment production, a relatively labor-intensive activity better suited to our cheap, low-skilled labor force. Can this comparative advantage be taken for granted for the next decade, when many changes will take place? What other factors can strengthen our competitive advantage?

It is undeniable that the World Bank has been a strong partner in Bangladesh’s development, particularly in its transition from a low-growth, inward-looking, import-substituting economy to a high-growth, outward and export-oriented.

Greater trade openness and the adoption of an export-led growth policy have produced significant dividends for the Bangladeshi economy in terms of rapid growth, job creation and poverty reduction.

The first phase of trade policy reforms is now complete. Exports have been successful, but the concentration in RMG makes the whole economy vulnerable to future shocks. There is a strong case for policies adopted for RMG exports to be applied to non-RMG exports.

The diversification of our export basket is the immediate challenge and it is a national imperative to launch the second phase of trade policy reforms, especially because the withdrawal of the least developed countries (LDCs) will take place in 2026.

There is strong research evidence that the country’s tariff protection structure is a significant impediment to boosting exports and diversifying them. Modernizing the tariff structure is one of the many measures needed to diversify and strengthen our export competitiveness.

Maintaining a flexible exchange rate regime will be an important support to export competitiveness.

Other measures include signing free trade agreements (FTAs), attracting foreign direct investment (FDI) in search of exports, and reducing trade costs by improving trade facilitation.

Modernizing Bangladesh’s tariff regime could promote export diversification and enhance competitiveness before and after LDC graduation.

Now is the time for a forward-looking trade agenda that goes beyond tariffs to include exports of factor and non-factor services, digital technologies and climate-related reforms, as well as flexible thinking about regional cooperation, FDI and FTAs ​​to boost competitiveness. These are the ingredients of 21st century trade policy reform for Bangladesh. Doing nothing will be too costly – loss of competitiveness in the future.

With regard to trade in services, it is high time to recognize the major role of remittances in development and poverty reduction – which, in the context of Bangladesh, constitute an export of factor services.

The country’s goods exports were $38.8 billion in FY21, while exports of factor services, remittances in general, were recorded at $24.7 billion and exports non-factor services at $6.1 billion. Thus, total exports amounted to $69.6 billion in the last fiscal year.

Too often, when talking about service exports, we only refer to non-factor services such as ICT, shipping, insurance, banking, tourism, education, etc. What we have learned is that the export of factor services (remittances) is very sensitive to exchange rate adjustments (i.e. depreciation triggers higher inflows). It is therefore essential to have an appropriate exchange rate for exports of goods and services.

Dr. Zaidi Sattar is President of the PRI. The piece is his introductory remarks during the webinar titled “Boosting Bangladesh’s Trade Competitiveness” on Tuesday. [email protected]

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