Bangladesh is grappling with the challenges posed by its notably high nominal tariff rate of 27.6%, surpassing the averages seen in low-income, middle-income, and high-income countries. This elevated tariff has reverberations throughout the nation’s economic landscape, particularly impacting the import of raw materials and the pursuit of export diversification.
Understanding Nominal Tariffs:
- Definition: A nominal tariff represents the percentage of an imported good’s value that is allocated to duties and taxes upon entry into a country.
- Impact of High Tariffs: A high nominal tariff carries the potential to substantially raise costs for businesses importing raw materials, potentially undermining their ability to produce competitively-priced goods on the global stage.
Export Diversification Challenges:
- The Quest for Diversification: Bangladesh has long been endeavoring to diversify its export portfolio, a strategy aimed at expanding the range of goods and services it offers to global markets.
- Nominal Tariff Hurdle: However, the nation’s high nominal tariff has posed a considerable obstacle to this diversification ambition.
Impacts of High Tariffs on Export Diversification:
- Increased Production Costs: Businesses grapple with inflated production costs due to high tariffs on raw material imports, thereby hindering their competitiveness in global markets and potentially dissuading them from venturing into exports.
- Reduced Investment: The prospect of high tariffs can discourage investments in export-oriented industries, as uncertainties loom over profitability in sectors subject to steep tariff rates.
- Limited Market Access: The disparity in tariff rates between Bangladesh and other countries can hamper market access for Bangladeshi exporters. Competing with lower-cost producers elsewhere becomes challenging in markets where tariffs favor rivals.
Government’s Response:
- A New Tariff Policy: Recognizing the impediments created by high tariffs on raw materials, the Bangladeshi government has recently unveiled a revised tariff policy aimed at lowering nominal tariffs. The goal is to ease the importation of raw materials for businesses.
- Policy Effectiveness Uncertain: While this shift in tariff policy is seen as a positive step, its ultimate effectiveness in promoting export diversification remains uncertain. The government may need to explore additional measures, such as subsidies and tax incentives for export-oriented industries, to enhance the attractiveness of exporting.
Future Prospects:
The landscape of export diversification in Bangladesh is at a critical juncture, with high tariffs on raw materials being a prominent challenge. The government’s endeavor to address this issue through the revised tariff policy signifies a commitment to fostering economic growth and expanding the nation’s export capabilities. However, the path to export diversification remains fraught with complexities, and ongoing efforts will be pivotal in determining Bangladesh’s success in diversifying its export portfolio and strengthening its position in the global market.
