In the last four years, governments have introduced at least two critical trade-related policy documents. In August 2022, the commerce ministry issued the Regional Trade Agreement (RTA) Policy, 2022, after obtaining cabinet approval. The policy replaced the Policy Guidelines on Free Trade Agreement, 2010. Again, in August 2023, the ministry issued the National Tariff Policy 2023 to facilitate trade liberalisation and rationalise the country's tariff structure.
Both policies are necessary to guide the overall trade policy direction, especially when the country is going to graduate from the Least Developed Country (LDC) category. So far, the formal graduation is scheduled for November 24 this year. The government has, however, submitted applications to the United Nations (UN) for a deferral of graduation for at least three years. The UN General Assembly will now take the final decision within two months, as the 81st session of the UNGA begins on Tuesday. If it approves Bangladesh's request, the country will get a new deadline to strip off the LDC tag after three years. It means an additional three years will be available as a transition period for market access benefits offered by the European Union (EU), the United Kingdom (UK), Canada, and some other countries. There will be no transition waiver for other international support mechanisms, such as intellectual property rights.
Whatever the UN final decision may be, one thing is clear. It is that Bangladesh will no longer be able to leverage its LDC status to gain preferential and differential market access through any new or fresh trade negotiations. However, it will continue to enjoy existing trade benefits until the country finally exits the LDC category. Instead, all the trade negotiations will focus on the post-graduation period, during which Bangladesh has to compete with advanced developing nations like India. The RTA and national tariff policies are likely to play important roles in shaping the country's strategies in this regard. The extent to which these policies can be effective needs to be reviewed.
The national tariff policy is well-composed and quite precise. Its objectives, goals, scopes, general policies, and institutional outlines are clearly spelt out. The policy is valid for five years, and three years have already passed. During the period, the monitoring and review committee of the national tariff policy held three meetings, though it is mandated to meet every six months. As per the policy, the National Board of Revenue (NBR) is tasked with preparing a time-bound action plan to rationalise the country's tariff structure within six months of the policy's inception. NBR delayed the submission of action plan.
Tariff rationalisation requires reducing the rates and types of customs duties, along with minimising regulatory and supplementary duties. It is also necessary to minimise para-tariffs. Now, customs duties, the direct tax on imports in simple terms, account for around nine (9) per cent of the NBR's total revenue. In the last fiscal year, NBR collected Tk 354.21 billion in customs duties, which was around seven (7) per cent lower than Tk 381 billion in FY25. If the total collection of value-added tax (VAT), supplementary duties, and regulatory duties at the import stage is taken into consideration, the ratio will be around 25 per cent. The report of the National Task Force for Tax Reforms (NTFTR), formed by the Yunus-led interim government, mentioned that about 28 per cent of the country's total tax revenue comes from import duties and other trade-related taxes. From the NBR's viewpoint, tariff rationalisation means a gradual reduction in revenue earnings from trade-related or external sources, which will increase pressure to mobilise more revenue from internal sources. So, the revenue authority appears less comfortable with the national tariff policy, which may delay the preparation of the time-bound action plan to rationalise the tariff structure.
At present, there is an eight-tier import duty structure in Bangladesh, with the highest rate at 25 per cent since 2004. Again, as per the World Tariff Profiles 2026, the country's simple average MFN applied tariff rate on imports stood at 14.10 per cent last year. The simple average bound tariff rate is 155 per cent.
As the new government has been in power for six months and is now in its second half, it is time to give greater attention to making the tariff policy functional. In the national budget for FY27, the finance minister has reduced import duties on 69 products, cut or withdrawn supplementary duties on nine (9) products, fully withdrawn the existing regulatory duty on 113 products, and revised the nine-tier regulatory duty structure into a six-tier structure. Although these measures are in line with the national tariff policy, more work is required in the coming days.
Compared with the national tariff policy, the RTA policy is less well-crafted. Instead, it is more like a rigorous policy guideline. RTA means, as per the policy documents, any "reciprocal trade agreement between two or more countries, trade blocs, not necessarily belonging to the same region." The goal of the RTA Policy is to 'provide guideline to negotiate, sign and implement trade treaty' to facilitate the free movement of goods and services so that these can contribute to the national economy, investment and public welfare. It also stresses 'deeper trade and economic integration.'
At present, no bilateral or regional FTA is limited to trade in goods only. It includes services, investments, government procurement, intellectual property rights, and other areas. That's why the framework of a Comprehensive Economic Partnership Agreement (CEPA) is gaining prominence. Although the RTA policy does not mention CEPA categorically, it contains almost all the necessary elements for negotiating and signing a CEPA.
In February this year, Bangladesh formally signed an economic partnership agreement (EPA) with Japan, which is the first-ever such bilateral deal for Bangladesh. Again, last month, Bangladesh also signed a CEPA with South Korea. So far, the Ministry of Commerce has posted the Agreement between the People's Republic of Bangladesh and Japan for an Economic Partnership on its website. The CEPA signed with South Korea has yet to be unveiled. Again, none of the agreements has been notified to the World Trade Organization (WTO) so far. In the meantime, Bangladesh has also begun negotiations to sign an FTA with the European Union (EU). Negotiating a few more FTAs or EPAs is also under consideration. So, it is also time to examine to what extent the agreements align with the RTA policy, and how the RTA policy is facilitating the advancement of the FTA negotiations.
