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Protection policy hurts export diversification

Protection policy affects export diversification as non-RMG exports suffer for the policy, said Policy Research Institute (PRI) at a roundtable discussion titled ‘Protection Policy, Export Diversification and the Forgotten Consumer’ on 8 May in the capital.

Dr. Zaidi Sattar, Chairman of PRI was the keynote presenter
Figure 1: Distinguish Speakers were present at the roundtable discussion

Dr. Mashiur Rahman, Advisor to the Prime Minister (Economic Affairs) was the chief guest while Ghulan Rahman, President of Consumers Association of Bangladesh (CAB) was present as special guest. Dr. A B Mirza Azizul Islam, Former Advisor of Caretaker Government presided over the roundtable discussion where Dr. Zaidi Sattar, Chairman of PRI was the keynote presenter.

Figure 2: Dr. Zaidi Sattar, Chairman of PRI was the keynote presenter.
Figure 2: Dr. Zaidi Sattar, Chairman of PRI was the keynote presenter.

On a global scale, Bangladeshi consumers pay the highest prices for most consumer goods, as imports are subject to the highest protective tariff rates in the region. They pay 70 percent more than in international markets to buy imported and import substitute products due to high tariff protection, said Zaidi Sattar in his keynote speech.

During the last five-year period, FY2013-17, the total protection cost to consumers works out to a sustainable amount of US$70.6 billion. “About 9 percent of NBR revenue originates from taxes on imported consumer goods that are subject to protection. It must be kept in mind that protection actually restricts importation, so the revenue collected could be higher if protective import taxes were lower,” said Zaidi Sattar.

“‘In a static sense, industrial protection is a zero-sum game. What producers gain, consumers lose,” he also added. He also showed that the average protection tariff on import and import substitutes in Bangladesh was 26.6 percent and the rate was much higher than those in many other regional countries.

He said, “Tariff raises the prices of competing imports and it helps rise profitability of sales, but does not raise export profitability. Consumers are the large stakeholders of the economy but they have not been in policy discourse.”

Ghulam Rahman, president of the Consumers Association of Bangladesh, said neither the country’s political parties nor the civil society think about the interest of people.

He also said that due to protection the prices of MS rod and cement went up on the domestic market while the prices of the items were going down on the international market. This type of protection cannot protect the interest of consumers.”

“It is never said that the budget should be consumer-friendly. Rather, it is said that the budget should be business-friendly, industry-friendly. Political parties also do not talk about the interests of consumers,” he said.

“In the name of protecting domestic industries, the government is giving different incentives to the local refiners. Some of the refiners are importing crude soya bean oil, making little modification, bottling and gaining huge profit,” PRI Executive Director Ahsan H Mansur opined.

Figure 2: PRI Executive Director Ahsan H Mansur
Figure 3: PRI Executive Director Ahsan H Mansur

Tariff protection creates inefficiency among producers, so they should not continue for long, said AB Mirza Azizul Islam.

“There should be a transition policy,” he added. Citing the protection given to import-substitute industries such as steel, Ahsan H Mansur said “Any country can produce anything but the question that needs to be asked is at what price.”

Bangladesh has not taken serious tariff reforms since the mid-90s, said Selim Raihan, Executive Director of the South Asian Network on Economic Modeling. Trade policy in Bangladesh is primarily a revenue-seeking policy not development oriented policy, he added.

“Development works are suffering for the spiral in rod and cement prices. Why is such a high protection?” asked Ghulam Rahman, president of the Consumers Association of Bangladesh.

He went on to regret that consumers’ interests are not considered properly in government policy-making.

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