Report

I NTRODUCTION 11
foreign exchange allocation system and the import
policy orders (IPOs). Under IPOs, it was specified
whether items could be imported, prohibited or
required special authorisation. With the exception of a
few cases, licenses were required for all other imports.
The regime was also characterised by a high degree of
anti-export bias. The inward looking strategies failed
to deliver the desired outcomes and also led to rising
internal and external imbalances. Therefore, trade
policy reforms were introduced in 1980s, when a policy
of moderate liberalisation was implemented. A
significant change was made in the import policy regime
with the abolition of import licensing system and
permission of imports against letters of credit. There
were significant changes in the import procedures and
IPOs with respect to the contents and structure. The
latest import policy, IPO 2006–09, reiterates the
government’s commitment to continued liberalisation
of the import regime in Bangladesh. (Raihan, 2008)
The liberal import policies led to a surge in imports
into Bangladesh. In 1989–90, total imports stood at
US $3,226 million, which rose to US $6,612 million
in 1995–96, and increased further rapidly to US
$14,576 million in 2004–05 (Fig 1.2). There has also
been rise in share of imports in GDP. It rose from only
about 12% in early 1990s to more than 20% in more
recent periods.
From the late 1980s, the tariff regime has become
increasingly liberalised. One of the important aspects
of the tariff structure in Bangladesh relates to the use
of import taxes (para tariffs) which have a protective
impact over and above the protection provided by custom
duty. Similarly, while VAT is supposed to be trade
neutral, exemptions for specified domestic products
have also resulted in it having some protective content.
Since 1985, many export policy reforms have also
been implemented. A few sectors especially the
readymade garments (RMG), have been the beneficiary
of these reforms. The reforms have also provided
exporters with unrestricted and duty-free access to
imported inputs, financial incentives in the form of easy
access to credit and credit subsidies, and fiscal incentives
such as rebates in income taxes and concessionary
duties on the imported capital machinery. They were
also aimed at strengthening the institutional framework
for export promotion. Major export promotion policies
in Bangladesh have been the export performance
licensing scheme, special bonded warehouse scheme,
duty drawback system, back-to-back letter of credit
(L/C) system, export promotion fund, fiscal incentives,
export credit guarantee scheme, cash compensatory
scheme, and institutional development for export
promotion. Extensive export promotion measures and
favourable market access in the European Union (EU)
and United States of America (USA) has enabled its
exports to rise remarkably in the last 20 years. In
1989–90, total exports stood at US $1,524 million,
which increased to US $3,883 in 1995–96, and further
to US $9,902 million in 2004–05.
With a considerable rise in export earnings at a
rapid pace, the export orientation ratio ( the ratio of
exports to GDP) also rose significantly from around
7% in the mid-1980s to more than 15% in 2003-04.
The export growth is overwhelmingly dominated by
the dynamism in the readymade garment sector alone.
The growth of RMG exports is largely attributable to
international trade regime in textiles and clothing,
which until 2005 was governed by multi fibre arrangement
(MFA) quotas. Also, duty-free access to Bangladesh’s
RMG products in the EU has greatly supported
the growth of the sector. Apart from RMG, export
response of all other major commodities such as raw
jute, jute goods, frozen food, shrimps, tea, leather and
leather products has not been very strong.
Fig. 1.2 (a) Total Imports of Bangladesh: 1989–2006
Source: Foreign Trade Statistics, Bangladesh Bureau of Statistics.
Fig 1.2 (b) Total Exports from Bangladesh: 1989–2006