Between the lines of robust trade growth

Despite the ongoing tension in global trade, country's merchandise trade registered a robust growth, so far, in the current year. Available statistics show that country's merchandise trade with the rest of the world in first 10 months of the current year posted 15 per cent growth over the same period of the past year. Total value of merchandise trade stood at $83 billion in January-October period of 2018 (export data is available until November but import until October). The amount was $72 billion in the same period of 2017 and $65.45 billion in 2016 when trade growth rates were 10.12 per cent and 7.51 per cent respectively.
Nevertheless, the robustness reflects a gradual recovery from a modest trend that prevailed in the last few years. Though the country's share in world trade is very small, overall trade growth in recent years is well above the average rate of global growth. According to the World Trade Organisation (WTO), global trade recorded 4.70 per cent growth in 2017.
Furthermore, country's actual trade growth continued to overshoot the projections made by different international agencies. For instance, United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) made a slow growth projection of both export and import last year. It predicted 4.6 per cent growth in export (in terms of value) for the current year while the 11-months' actual export registered 9.85 per cent growth. It also estimated only 1.30 per cent rise in export in 2017 while actual export recorded 2.80 per cent growth.
UNESCAP, in its latest version of The Asia-Pacific Trade and Investment Report (APTIR), also projected that export of Bangladesh would post 5.50 per cent growth in next year while growth of import would reach 2.50 per cent. The conservative projection has been made by taking the current friction in global trade into consideration.
The UN body observed that trade performance in Asia and the Pacific region was expected to worsen in 2019 if trade tensions between the United States and China along with some other economies continued or aggravated further. Though a truce in trade war was announced a few months back, little optimism is there that it will continue. That's why, ESCAP made a note of caution that export growth may slow to 2.3 per cent in 2019 in the region from an estimated 4 per cent this year.
ESCAP also added that the already implemented tariff hikes, if not reversed, may cut global Gross Domestic Product (GDP) by $150 billion and regional GDP by $40 billion. Most importantly, as pointed out by ESCAP, the region may see a loss of 2.7 million jobs as a result of export contraction in the region, due to the trade war.
A number of projections and apprehensions have also surfaced so far indicating negative impact on the export of different countries including Bangladesh due to global tariff war. For example, United Nations Conference on Trade and Development (UNCTAD) in an estimate showed that exporters of Bangladesh may face tariff as high as 43.40 per cent on average 'if a full-fledge trade war' take place. The country is currently enjoying around 3.0 per cent tariff on average in the global market.
Estimates are mostly based on several assumptions and things in reality may change in course of time. Moreover, trade friction has both positive and negative impacts.
Bangladesh's trade scenario is largely driven by higher growth of import than export. During January-October period of the current year, merchandise export from Bangladesh to the rest of the world increased by around 9.50 per cent over the same period of 2017. Export earnings stood at $32.40 billion during the period under review. At the same time, import payments reached at $50.67 billion, recording 19 per cent growth over the corresponding period of previous year. Thus export stood around two-thirds of import. The big gap, $18.27 billion also indicates that the trend of overall trade in Bangladesh largely depends on imports. It is not a new phenomenon.
Raw materials and intermediate goods for both export oriented and domestic industries occupy a big portion of total import basket. So, higher growth of import and rise in trade deficit is not surprising. It is also difficult to reduce the trade gap with higher export only. Curbing import of so-called non-essential items by raising duties for the time being may be an option. But there is no rigid parameter to define non-essential items. Moreover, Bangladesh has been gradually reducing the import tariffs and will continue to do so in near future.
UNESCAP report shows that the country's average Most Favoured Nation (MFN) applied tariff rate was 13.90 per cent while the effective rate was 12.86 per cent last year. Both are well below the average rates of 7.46 per cent and 6.91 per cent respectively in the Asia-Pacific region. Being a Least Developed Country (LDC), Bangladesh still doesn't need to make any binding commitment in WTO on duty reduction from its average bound rate of 155.68 per cent. Things will change when the country will graduate to non-LDC group in 2027 and more cuts on tariff will follow.
A major reason for surge in import in recent times is the cost escalation of different development projects. Though there is an allegation that some of the cost escalations are not justified, little effort has been made to review and curb the escalation. Again, many apprehend that rise of import is an indication of significant capital flight from the country. Trade mis-invoicing is a widely used method to transfer capital from a country illegally or illicitly. By over-invoicing in import or under-invoicing in export, funds can be parked abroad. Then there are tools like multiple invoicing, over and under shipments and mis-declarations.
So, import-driven robust trade growth is not always a matter of cheer. Some caution is needed to examine the trend before reaching any quick conclusion.

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