Duty hike of raw materials, capital machinery ‘to hit local industries’

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FE Report
Leaders of leading chambers and trade bodies Thursday urged the government to consider maintenance of status-quo in respect of import duties on raw materials and capital machinery ignoring the proposals placed in the budget for fiscal year 2007-08.
"The proposed increase in duty of raw materials, intermediate inputs and capital machinery will affect domestic industries across the board, particularly the textile sector, which has been providing increasing backward linkage facilities to the country's most dominant export products - readymade garments," the joint statement said.
The statement was signed by Mahbubur Rahman, President, International Chamber of Commerce (ICC)- Bangladesh, Latifur Rahman, President, Metropolitan Chamber of Commerce & Industry, Dhaka, Hossain Khaled, President, Dhaka Chamber of Commerce & Industry, Saifuzzaman Chowdhury, President, Chittagong Chamber of Commerce & Industry, Masih Ul Karim, President, Foreign Investors' Chamber of Commerce and Industry, Anwar-ul-Alam Chowdhury, President, Bangladesh Garment Manufacturers & Exporters Association, Md. Fazlul Hoque, President, Bangladesh Knitwear Manufacturers & Exporters Association and Jahangir Alamin, Acting President, Bangladesh Textile Mills Association.
The statement said similarly, exorbitant price escalation (by more than 100 per cent) of steel products and its intermediate product in international market demand rationalisation of tariff (specific duty) to save local industries and the poor to have CI sheet prices within their reach. With such tariff handicaps, the budget's expectation of 7.0 per cent GDP growth in 2007-08 will be difficult to achieve as the industrial sector is due to be hurt.
"We, no doubt, very much welcome the different features of the new budget, such as, allocations for different sectors, financial assistance and subsidies to agriculture, the changes made in income tax administration and also better safety-net for the poor," it said.
The statement said 57 per cent of the overall budget has been allocated to projects linked to poverty reduction. Similarly, the setting up of Tk 1.0 billion SME Fund and Tk 0.23 billion trust fund along with the provisions for help for research and development in the agriculture sector, allocation of Tk. 7.5 billion for diesel subsidy and Tk. 15 billion for fertiliser subsidy for the firms are equally commendable.
The tariff changes in the new budget will hurt the country's industrial sector, the business leaders said adding the strong import bias of the budget will encourage importers at the cost of local industries. Export oriented and backward linkage industries also stand to be hit by increase of duties on raw materials and capital machinery.
In formulating the tariff rationalisation, the budget seems to have followed the trade policy prescriptions, which remain on the table for quite sometime in the form of structural adjustment programme, the statement said.
This prescription has been framed seemingly to enable the developing countries and the least developed countries (LDCs) to take advantage of the benefits of multilateral trade liberalisation because of limitations of their trading capacity (usually referred to as supply side constraints) and their trade policy framework marked by maintenance of high unbound tariffs. It is claimed that unbound tariffs create "disincentives to enter international markets".
The business leaders said it is needless to mention that tariff policy reforms need to be pursued for the interest of the national economy keeping in mind that structural adjustment programmes are more often a reflection of the economic interests of the donors than the development priorities of aid receiving countries.
There are several studies to show that trade liberalisation in itself does not automatically lead to growth and improved competitiveness. In fact, most of the developing countries have not been able to fully benefit from trade because they either lack tradable products or have limited capacity to avail of market access opportunities.
It is, therefore, extremely necessary to extend tariff concessions to local industries to help them grow and be competitive. In extending such help, it appears that different provisions proposed in the budget needs to be reconsidered / re-looked in order to reconcile the interests of the industries with those of the consumers and the revenue income of the government.
Import of 400 items, mostly raw materials used by the domestic industries have been denied of zero tariff facility and subjected to 10 per cent tariff.
About 1200 more raw materials and machinery have been subjected to 100 per cent increase in tariff rates; which have been increased from 5.0 per cent to 10 per cent.
On the other hand, import of all finished products has been given significant tariff concession by withdrawing the 4.0 per cent infrastructure development surcharge as well as reduction in supplementary duties.