RESTRICTEDWORLD  TRADE
ORGANIZATIONWT/TPR/S/68
3 April 2000
(00-1298)
Trade Policy Review Body
TRADE POLICY REVIEW
BANGLADESH
Report by the Secretariat
This report, prepared for the second Trade Policy Review of Bangladesh, has
been drawn up by the WTO Secretariat on its own responsibility.  The
Secretariat has, as required by the Agreement establishing the Trade Policy
Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the
World Trade Organization), sought clarification from the Government of
Bangladesh on its trade policies and practices.
Any technical questions arising from this report may be addressed to
Ms. M. Oshikawa (tel. 739 56 43) or Mr. M. Daly (tel. 739 50 77).
Document WT/TPR/G/68 contains the policy statement submitted by the
Government of Bangladesh.
Note: This report is subject to restricted circulation and press embargo until the end of the meeting
of the Trade Policy Review Body on Bangladesh.Bangladesh WT/TPR/S/68
Page iii
CONTENTS
Page
SUMMARY OBSERVATIONS ix
(1) E CONOMIC ENVIRONMENT ix
(2) T RADE POLICY FRAMEWORK x
(3) T RADE POLICY MEASURES x
(4) I NFRASTRUCTURAL SERVICES xi
(5) O UTLOOK xii
I. ECONOMIC ENVIRONMENT 1
(1) M AIN ECONOMIC DEVELOPMENTS 1
(2) M ACROECONOMIC POLICIES 3
(i) Monetary policy, the exchange rate and balance of payments 3(ii) Fiscal policy 6
(3) M
AIN DOMESTIC STRUCTURAL POLICY ISSUES 6
(i) Taxation and the Government's revenue base 6
(ii) State-owned enterprises and privatization 7(iii) Banking reform 7(iv) Labour market policies 8
(4) T
RADE AND FOREIGN DIRECT INVESTMENT (FDI) 8
(i) Composition and pattern of trade 8
(ii) Foreign direct investment 9
(5) O UTLOOK 12
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 14
(1) I NSTITUTIONAL FRAMEWORK 14
(2) D EVELOPMENT AND ADMINISTRATION OF TRADE POLICY 14
(i) Main trade laws 14
(ii) Formulation and implementation of trade-related policies 15(iii) Advisory and review bodies 17
(3) T
RADE POLICY OBJECTIVES 17
(4) T RADE AGREEMENTS AND ARRANGEMENTS 20
(i) World Trade Organization 20
(ii) Regional agreements 21
(iii) Bilateral agreements 22(iv) Other agreements 22
(5) T
RADE DISPUTES AND CONSULTATIONS 23
(6) F OREIGN INVESTMENT REGIME 23
Annex II.1 25
III. TRADE POLICIES AND PRACTICES BY MEASURE 30
(1) I NTRODUCTION 30WT/TPR/S/68 Trade Policy Review
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(2) M EASURES DIRECTLY AFFECTING IMPORTS 31
(i) Registration and documentation 31
(ii) Customs valuation and inspection 34(iii) Customs clearance and administration 36(iv) Tariffs 37(v) Other border charges and levies 47(vi) Import prohibitions and restrictions 50
(vii) Import licensing 51
(viii) Import quotas 52(ix) State trading 52(x) Import cartels 53(xi) Countertrade 53(xii) Standards and other technical regulations 53
(xiii) Government procurement 54
(xiv) Local-content schemes 55(xv) Anti-dumping, countervailing, and safeguard measures 56(xvi) Balance-of-payment measures 57
(3) M
EASURES DIRECTLY AFFECTING EXPORTS 57
(i) Registration and documentation 57
(ii) Quality control and export clearance 58(iii) Export taxes, charges and levies 59(iv) Minimum prices and price controls 59(v) Export prohibitions and restrictions 59(vi) Export licensing 61
(vii) Export quotas 61
(viii) Export cartels 61(ix) Voluntary restraints, surveillance, and similar measures 61(x) Export subsides and other financial assistance 61(xi) Duty concessions 62(xii) Tax concessions 64
(xiii) Currency retention scheme 64
(xiv) Export processing zones 65(xv) Export finance 66(xvi) Export insurance and guarantees 67(xvii) Export promotion and marketing assistance 68(xviii) Measures maintained by importing countries 69
(4) M
EASURES AFFECTING PRODUCTION AND TRADE 70
(i) Registration of companies and investment 70(ii) Taxation 71(iii) Tax concessions and incentives 73(iv) Interest rate subsidies 75
(v) Pricing and marketing arrangements 75
(vi) Assistance to small enterprises 76(vii) State-owned enterprises and privatization 77(viii) Trade-related investment measures 80(ix) Trade-related intellectual property rights 80
IV. TRADE POLICIES BY SECTOR 86
(1) I
NTRODUCTION 86
(2) E FFECTIVE PROTECTION 86Bangladesh WT/TPR/S/68
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Page
(3) A GRICULTURE 90
(i) Features 90(ii) Crops 92
(4) E
NERGY 94
(i) Natural gas 94
(ii) Electricity 95
(5) M ANUFACTURING 96
(i) Features 96(ii) Textiles and clothing 97
(6) S
ERVICES 102
(i) Financial services 102(ii) Telecommunications 106(iii) Transport 108
REFERENCES 113
APPENDIX TABLES 115WT/TPR/S/68 Trade Policy Review
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CHARTS
Page
I. ECONOMIC ENVIRONMENT
I.1 Indices of real and nominal exchange rates, 1992/93-1997/98 4
I.2 Product composition of merchandise trade, 1992 and 1998 10
I.3 Direction of merchandise trade, 1992 and 1998 11I.4 Inward FDI flows by country of origin, 1991-99 12
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Distribution of MFN tariff rates, 1992/93 and 1999/2000 41
III.2 Average tariff rates by HS section, 1999/2000 42III.3 Tariff escalation by 2-digit ISIC industry, 1992/93 and 1999/2000 44
IV. TRADE POLICIES BY SECTOR
IV.1 Effective rates of protection by sector, 1998-99 88
IV.2 Nominal applied MFN tariff rates by sector, 1999/2000 89IV.3 Sectoral composition of GDP, 1992/93 and 1998/99 90
IV.4 Employment by sector, 1995/96 91
IV.5 Growth of the ready-made garment subsector, 1983-98 98
TABLES
I. ECONOMIC ENVIRONMENT
I.1 Selected macroeconomic and financial indicators, 1992-98 1
I.2 Balance of payments, 1992-99 5I.3 Inflows of foreign direct investment by sector, 1994-99 12
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES
II.1 Main legislation relating to trade 15
II.2 Ministerial responsibility for trade and trade-related issues 16II.3 Notifications to the WTO 21
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Certificates, tests, and clearance required for import 32
III.2 Tariff structure in Bangladesh, 1990-2000 38III.3 Summary indicators of MFN tariffs in Bangladesh, 1992-2005 40
III.4 Applied MFN tariff by degree of processing, 1992-2000 43
III.5 Concessionary tariff rates 45III.6 Preferential trading agreements 46III.7 Tariff and other duties on imports 48Bangladesh WT/TPR/S/68
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Page
III.8 Imports exempted from import licence fee 48
III.9 Evolution of the control list since IPO 1991-93 51III.10 Procurement through the Department of Supply and Inspection 55III.11 Certificates required for export 58
III.12 Negative List of Export 59
III.13 Items subject to export restriction 60III.14 Export processing zones:  investment by sector, as at June 1999 65III.15 Export processing zones:  investment, employment, export, and import,1992-99 66III.16 Tax revenue receipts by source, 1992-99 71
III.17 Economic performance of small and cottage industries 77
III.18 Economic performance of selected state-owned enterprises, 1997/98 78III.19 Industrial property registration, 1992-99 80III.20 Terms of intellectual property rights protection in Bangladesh 81III.21 Comparative summary of the proposed provisions relating to patents and industrial designs
in the Paris Convention/TRIPS Agreement and the corresponding provisions of the Patents and
Designs Act of 1911 82
IV. TRADE POLICIES BY SECTORIV.1 Effective rate of protection in 40 sectors in Bangladesh, 1992-2000 87
IV.2 GDP growth rate by sector, 1992-99 91
IV.3 Agricultural credit disbursement and recovery, 1996-98 93
IV.4 Food procurement, 1995-98 93IV.5 Gas utilization, 1995-2002 95IV.6 Growth in industrial production (manufacturing) by main category, 1992-99 97IV.7 Destination of RMG exports, 1990-98 99
IV.8 Quota utilization, 1997-99 99
IV.9 Structure of the banking sector in Bangladesh, 1990/91 and 1998/99 102IV.10 Structure of the insurance sector in Bangladesh, 1998/99 105IV.11 Cargo handing at Chittagong and Mongla ports 110
APPENDIX TABLES
III. TRADE POLICIES AND PRACTICES BY MEASURE
AIII.1 Average tariff and bindings, by HS chapter 117
AIII.2 Tariff escalation and tariff range, 1992/93 and 1999/2000 121AIII.3 Banned list items under Import Policy Order, 1997/2002 124AIII.4 Restricted list items under Import Policy Order 1997-2002 127AIII.5 New entries to the control list since IPO 1991-93 137
AIII.6 Items withdrawn from the control list since IPO 1991-93 139
IV. TRADE POLICIES BY SECTOR
AIV.1 MFN tariff by ISIC category, 1992/93 and 1999/2000 146Bangladesh WT/TPR/S/68
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SUMMARY OBSERVATIONS
(1) ECONOMIC ENVIRONMENT
1. During the early 1990s, Bangladesh
made considerable progress in stabilizing andliberalizing its economy.  As a result, inflation
was much lower than previously, and average
annual real GDP growth in 1992-98 was
above 5%, largely led by exports involving
ready-made garments (RMGs).  Indeed, one ofthe most striking features of Bangladesh's
trade is that textiles and particularly clothing
dominate exports:  their combined share grew
from 70.4% in 1992 to 83.5% in 1998;  by
contrast, jute, which had previously been
Bangladesh's main export, comprising around
half of total exports through the mid-1980s,accounted for only 6% in 1998.  This dramatic
change in the composition of exports is the
consequence of Bangladesh's increased
integration into the multilateral trading
system.
2. Agriculture still accounts for 30% of
GDP while employing 63% of total labour
force.  The RMG-dominated manufacturing
sector and services, accounting for 9% and
61% of GDP, respectively, have been thesources of the economy's growth.
3. A major development, in March 1994,
entailed the liberalization of the exchange
regime for current international transactions.
However, an appreciating real effectiveexchange rate has threatened to undermine
Bangladesh's export competitiveness,
particularly vis-à-vis South-East Asian
garment manufacturers, and therefore
constitutes a threat to future export-ledgrowth.
4. Whereas annual government
expenditure has averaged around 14% of
GDP during the review period, tax revenues
have averaged only 7.5%, which is very low
both by international and neighbouring
countries' standards.  (The ratio of taxes toGDP is even lower if one includes the
underground economy, which is thought to
account for roughly half of GDP.)  With othersources of revenue amounting to
approximately 2% of GDP, the outcome is a
persistent central government budget deficit of
around 5%.  The weak revenue base
jeopardizes the Government's ability to
undertake essential social expenditures onhealth and education, etc., which would help
to alleviate poverty, and to provide reliable
basic infrastructure.  The overall fiscal
position of the public sector as a whole (that
is, consolidated to take into account non-financial, state-owned enterprises) is even
worse, owing to weak performance of these
enterprises.  Their operations are sustained
largely through government-guaranteed
borrowing from state-controlled banks, officialexternal donors, and an accumulation of
domestic and external arrears.
5. On the structural policy front, the
Government has continued to pursue,
inter alia, trade liberalization, financial sector
reform, and privatization, while maintaining in
legislative terms one of the most liberalforeign direct investment (FDI) regimes in
South Asia.  However, in the face of severe
political difficulties and civil unrest, which
manifested themselves in frequent nationwide
strikes ("hartals") costing the country at least30 working days in 1999 alone, the impetus for
structural reform seems to have waned.
Moreover, between 1997/98 and 1998/99, real
GDP growth dropped from 5.3% to 4.2%.
This was partly the consequence of a sharpdrop in export growth (from 17.1% to 2.9%),
which was initially due to the devastating
floods that covered a third of the country, but
exacerbated by recurrent power shortages,
inadequate port facilities, and otherinfrastructural bottlenecks, as well as
disruptions owing to nationwide strikes.  At
the same time, inflation increased owing to a
surge in food prices, again caused by the
floods.  As the food supply situation improved
and non-food inflation moderated, inflation
began to fall.
6. Unfortunately, real annual GDP
growth, averaging around 5% during the
review period, has not been sufficient to make
much of a dent in the poverty that pervadesWT/TPR/S/68 Trade Policy Review
Page x
Bangladesh;  GDP per capita in 1998/99 was
only US$345, among the lowest in the world.
More than one third of Bangladesh's
population of 127 million still lives below the
poverty line, and more than half is classified
as poor. Given Bangladesh's high incidence ofpoverty, its dense population, and its
vulnerability to natural disasters, including
periodic flooding and cyclones, food security
is a major policy objective of the Government.
Bangladesh is a large recipient of foreign aid,a substantial portion of which entails food.
(2) T
RADE POLICY FRAMEWORK
7. The Ministry of Commerce (MOC) is
responsible for coordinating trade policy
matters through its agencies, as well as inconsultation with other Ministries and
governmental bodies;  national committees are
formed to address specific issues on trade and
industrial development.  Private sector
representatives, including business groups and
academic institutions, are consulted in the
policy-making process through theirparticipation in the national committees.  A
major institutional change involves the
upgrading of the Tariff Commission under the
purview of the MOC;  the Commission is now
empowered to conduct anti-dumping andcountervailing investigations.
8. Bangladesh extends most-favoured-
nation (MFN) treatment to all trading partners
and has taken steps to amend its legislation in
the light of its obligations undertaken in thecontext of the Uruguay Round, including in the
areas of customs valuation, anti-dumping and
countervailing measures, and protection of
intellectual property rights.  However,
Bangladesh has found it difficult to meet itsWTO notification requirements.  Bangladesh
is a leading voice among least-developed
Members in the WTO as regards their specific
needs and concerns as well as the difficulties
they face.
(3) T
RADE POLICY MEASURES
9. Since 1992, Bangladesh has continued
to liberalize its trade regime, by, inter alia,greatly reducing tariffs and eliminating some
quantitative restrictions on imports.  It has
also considerably increased the transparency
of its trade regime.  Nonetheless, the regime is
still characterized by a certain lack of
transparency (including ambiguity) as regardsthe application of certain trade and trade-
related measures (notably customs
administration, tariff concessions, advance
income taxes on imports and exports, import
surcharges, subsidies and other assistance,competition policy, and the regulatory
framework).  This provides considerable scope
for administrative discretion, and even
corruption, which in turn increases the
uncertainty and costs of trading with anddoing business in Bangladesh.  At the same
time, lack of transparency distorts market
signals that are necessary to ensure an
efficient allocation of resources, preventing
Bangladesh from reaping the full benefits from
trade liberalization and what would appear to
be one of the most liberal FDI regimes inSouth Asia.
10. The customs tariff is the main
instrument of Bangladesh's trade policy.  It is
also the Government's principal source of
revenue, accounting for nearly one third oftotal taxes.  During the period under review,
Bangladesh has made considerable efforts to
simplify and rationalize the tariff structure by
reducing the number of tariff bands from 15 in
1992/93 to 5 in 1999/2000, and lowering themaximum tariff rate from 300% to 37.5%
during the same period.  While nominal
applied MFN tariffs have fallen by more than
half, from an average of 58% in 1992/93 to
22% in 1999/2000, tariff protection is stillhigh and applied rates vary widely.  Thus, the
tariff constitutes a potentially important
impediment to competition and therefore an
obstacle to the efficient allocation of domestic
resources.  At the same time, the wide
dispersion in nominal tariff rates provides
considerable scope for misclassification ofimports by customs officials.  Moreover, the
lack of bindings and wide gaps between
applied and bound rates impart a degree of
unpredictability to the tariff regime. The
existence of a number of tariff concessions,Bangladesh WT/TPR/S/68
Page xi
some based on end-use, may require importers
to consult more than one document in order to
ascertain the applicable tariff rate, which adds
to the uncertainty and opacity of tariff
assessment.  Further protection and
unpredictability has arisen because customsvaluation has not always been based on
transaction prices;  recently, the authorities
have taken steps aimed at bringing customs
valuation into line with WTO norms.
11. Tariff reform has resulted in a
considerable fall in the overall level of
effective protection, and has also reduced the
dispersion in effective rates of protection
(ERPs).  Nevertheless, ERPs still vary widely
across sectors; the export-oriented textiles andclothing sectors, together with processed food
and tobacco products, are accorded high
levels of effective protection.  The RMG sector,
has flourished, however, because it has been
insulated from the tariff regime;  it has also
greatly benefited from Bangladesh's export
promotion measures and preferential access toU.S. and EU markets.
12. State involvement in trade has been
greatly reduced, and all countertrade and
special trade arrangements have been
abolished since the last Review.  However,tariffs are augmented by a multiplicity of other
border charges and, in some instances, the
discriminatory application of internal taxes,
all of which are tantamount to tariffs and can
raise nominal protection by one third.  Whilethe overall number of banned or restricted
import items, including those for trade and
non-trade reasons, has been reduced
considerably, they account for 11.7% of HS
8-digit tariff lines in 1999/2000.  Trade-related bans or restrictions remain on
agricultural and textile products.
13. To mitigate the adverse impact on
exporters' competitiveness of high tariffs,
various other charges, and import restrictions,
exporters benefit from an array of measures,
including concessional tariffs, a dutydrawback system, special bonded warehouses
and export processing zones.  As a result, the
trade regime is complex.  In addition, directsubsidies are provided to exporters of textiles
and clothing, and were recently extended to
exporters of some other products.
Furthermore, tax relief of 50% is allowed for
income generated by exports.
14. Since its last Review Bangladesh has
further opened up many of the state-dominated
sectors to private investment;  the sectors
include essential infrastructure, such as
telecommunications, power generation, and
transport.  While the foreign investmentregime is liberal, with no limitations on
foreign equity participation or repatriation of
profits, lack of investment in these and other
sectors, has clearly hampered Bangladesh's
economic development.
15. In an effort to encourage investment,
the Government offers a wide range of open-
ended tax incentives, notably tax holidays and
accelerated depreciation.  However, the
effectiveness of such incentives in attracting
investment is doubtful, particularly in the
absence of fiscal transparency, which wouldinvolve a detailed account of tax revenues
forgone, and systematic evaluation of the
impact of these incentives in relation to
forgone taxes.  The existence of incentives
complicates tax administration and taxpayercompliance, while increasing the scope for tax
avoidance and evasion, both of which are
reflected in Bangladesh's low overall level of
tax collection relative to GDP.
(4) I
NFRASTRUCTURAL SERVICES
16. Inefficient provision of essential
services has constituted a major impediment to
the smooth functioning of the Bangladesh
economy.  A weak financial system hampers
economic growth, for instance, by restrictingaccess to the financing of exports and
investment.  Insufficient and unreliable
telephone connections and energy supplies can
disrupt production of goods and services,
while poor transportation and port services
hinder international trade and the domestic
distribution of goods.  This lack of reliablebasic infrastructure discourages foreign
investment in Bangladesh.  Many of theseWT/TPR/S/68 Trade Policy Review
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basic infrastructural services have long been
provided by state-owned enterprises, most of
which are inefficient and often loss-making,
employ outdated equipment, and are unable to
meet the essential needs of the economy.
Thus, the cost of doing business in Bangladeshis unnecessarily high, which impairs the
competitiveness of firms operating there.
17. The natural gas and power sectors
have attracted large FDI inflows in recent
years and offer great potential to theBangladesh economy.  Given its considerable
reserves, the gas sector could boost industrial
and agricultural production through increased
power generation and fertilizer production,
and may eventually offer the opportunity forexports of gas in various forms.  Bangladesh's
scarce power generating capacity, which has
impeded the country's production capacity,
has been increased by FDI in the sector.
18. Despite the Government's decisions to
open up infrastructure (and other) services to
private domestic and foreign investment, it hasso far failed to make use of the GATS
framework, which could help build investor
confidence with regard to Bangladesh's
commitments to liberalization of state-
dominated services.  While it has made somecommitments in the tourism and travel-related
services and telecommunications, these were
merely a commitment to the status quo.
(5) O
UTLOOK
19. While barriers to access in export
markets are undoubtedly obstacles to
Bangladesh's economic development, the main
obstacles are home-grown.  Notwithstanding
the immense opportunities offered by
Bangladesh, including its relatively cheap andabundant labour, potentially large market, and
one of the most liberal FDI regimes in SouthAsia, FDI continues to be discouraged by a
number of problems.  These include frequent
strikes, inadequate basic infrastructure
(notably power, telecommunications and
transportation facilities) and resulting
bottlenecks, slow pace of privatization, aninefficient financial system, an institutional
environment that is bureaucratic and corrupt,
political uncertainty, and a worsening law and
order situation.  These factors tend to increase
the cost of doing business in Bangladesh,thereby impairing the competitiveness, not just
of foreign-owned enterprises, but also of
domestically owned enterprises.  Clearly,
there is a pressing need to create the broad
political consensus necessary to address theseproblems through structural reforms.  Such
reforms might usefully include further trade
liberalization, although Bangladesh appears
to be reluctant to undertake such reforms
because of what it views as the slower pace of
liberalization by some of its main trading
partners.
20. While Bangladesh has escaped the
worst effects of the Asian crisis, the
depreciation of the crisis-hit countries'
exchange rates may well mean that it will face
intensified competition from these and othercountries, particularly in respect of labour-
intensive RMGs.  With textiles and clothing
dominating its exports, and the bulk of those
exports going to the European Union and the
United States, there is a need for Bangladeshto diversify both its export base and export
markets.  At the same time, the phasing out of
preferential access to these markets and the
full integration of all textile and clothing
products into the GATT 1994, scheduled for1 January 2005, will require Bangladeshi
RMG exporters to increase efficiency, improve
product quality, and ensure that their products
are competitively priced.