Bangladesh’s export, import, finance, and taxation policies are biased against readymade garments (RMG) exports, while the exports of other products are neglected. It results in export concentration in RMG, and overall export growth for non-RMG products is alarmingly low. Moreover, for most non-RMG producers, selling domestically remains more profitable than exporting even where comparative advantage exists. It is not because exporters lack competitiveness, but because inward-looking policies and regulations actively disincentivise export.
It has been found in a study that export subsidies of up to 10 percent in 2025–26 is no match for average nominal protection rates (through high tariffs and para tariffs on imports) in the domestic market that often exceed 40 percent. As a result, the export basket is predominantly concentrated in RMG, contributing to more than 85% of total merchandise exports. Even within RMG, the diversification is also very limited. About 20 products collectively represent over 80% of total exports, whereas for countries like India, Malaysia, China, and Vietnam, the corresponding figures range from 37% to 59%. Since the emergence of RMG in Bangladesh’s export sector in the 1980s, its relative importance has consistently increased, and the share of erstwhile traditional exports has decreased. Some of those products are raw jute and jute goods, tea, leather, and frozen fish, from over three‑quarters to approximately 10%.
Bangladesh attracted the attention of Western buyers due to political unrest in Sri Lanka and large, low-cost labours. The overall export has thrived despite weak and inadequate trade infrastructure, logistics, and infrastructural challenges etc. Unfortunately, government policies and incentives have historically been geared more toward supporting the RMG industry. A network of supply systems has developed efficient production and distribution, compensating for domestic infrastructural limitations. The sector received substantial focused investment, both domestically and from foreign sources. Finally, the garment industry has developed a unique competitive advantage due to economies of scale in production, state patronisation and labour costs, which are among the lowest in the world. This cost advantage has made it possible to offset some of the inefficiencies caused by inadequate infrastructure and logistical issues.
The trade policy regime also discriminates against exports, and weak trade infrastructure and other unfavourable business-enabling factors undermine export competitiveness. Such discriminatory trade policies hamper incentives for exports, and the unfavourable business environment has posed greater obstacles for the non-garments sector. The tax policy is anti-bias against export. Para-tariffs are extra taxes at the import stage that come from other countries, just like tariffs. These taxes are applied primarily to imports, providing protection to goods made locally by generating more profit for local industries to sell in the domestic market.
The export incentives have historically been largely designed to promote the RMG sector and naturally biased towards this sector. Those incentive schemes were duty drawbacks on imported intermediate goods, bonded warehouse facilities for duty-free import of raw materials, cash compensation schemes for RMG exporters who opted for not using bonded warehouses and duty drawbacks facilities, duty‑free imports of machinery for export-oriented enterprises, retention of part of their earnings in foreign currencies, income tax rebates, export credit guarantee scheme, and subsidised short-term capital support through a scheme called Export Development Fund (EDF). Although some of the incentives were open to all export sectors, they were predominantly utilised by the RMG sector. For example, during the pandemic period, the RMG sector got specially designed low-interest-bearing credit in the name of ‘payment of wages to the workers.’
The limited dynamism of non-garments export sectors is partly due to the high protection of import-competing industries via tariffs and non-transparent para-tariffs, such as supplementary and regulatory duties. RMG exporters are generally allowed duty-free imports of intermediate inputs; for many non-garments sectors cannot make use of bonded warehouses, accessing such a facility can be quite cumbersome. The bond licence has been kept reserved for the RMG sector, and the government has declared in the budget speech that bond facilities will be given to other sectors similar to RMG from this year.
Considering the existing incentive structure, potential investors are more inclined to invest in the domestic import-competing sector. Some exporters are also looking for the domestic market due to a more favourable taxation policy for industries serving the domestic market than the overseas market. High protection makes the domestic market more lucrative to investors relative to the global market. The excessive protectionism directed toward domestic sectors competing with imports leads to discrimination against the export sector. Suppose an exporter earns Tk100 for each US Dollar of exports. With 15% cash assistance and any additional support equivalent to 10%, the total export earnings amount to approximately Tk126. In contrast, for a pair of leather shoes priced at $50 (Tk5,000), investing in the import-competing domestic footwear sector faces competition from imports, when the imported shoe pays a 25% customs duty and a 45% supplementary duty. Resources and investments are disproportionately channelled toward industries shielded from foreign competition, resulting in their becoming less efficient and less innovative due to the lack of competitive pressure.
In another dimension of wrong policy, a local sugar mill that had a good export business has been barred from exporting sugar after declaring the sugar as ‘essential goods’, causing the mill to become sick and now unable to pay back the bank loan. On similar grounds, the export of edible oil has also been restricted to export to other countries. These protectionist policies place the export sector at a disadvantage, hindering the country’s overall trade potential and its ability to integrate into the global market. This high protection given to the domestic sector thus gives rise to what is known as a policy‑induced anti-export bias.
The limited inflow of FDI into Bangladesh has been a significant factor hindering export diversification. While FDI is essential for integrating local industries into global markets by providing capital, technology, management expertise, and international market access. A rapid reform in the taxation system is a precondition for eliminating anti-export bias. But policy-makers are reluctant to reform the tax regime by lowering the customs duty because of the importance of trade taxes in revenue collection. Revenue from import duties still constitutes about 30% of Bangladesh’s domestic revenue.
Non-RMG products should be given similar incentives offered to the RMG sector. Bangladesh should overhaul the tax system to make many other non-RMG industries competitive in the export market. The tax system must be set to make exports more advantageous than domestic sales. At the same time, all other barriers such as logistics and regulatory barriers should be eliminated. With these reforms, many sectors now serving the domestic market shall become competitive in the export market.
The writer is the CEO, Bangla Chemical & Legal Economist. E-mail: [email protected]
