The debate on trade issues
Wednesday, 8 August 2007
Qazi Azad
BUSINESS leaders of almost all local chambers of commerce and industry and manufacturers associations, as many as 14 of them, have voiced their angry resentment collectively against prescriptions of the multilateral donor agencies, particularly the International Monetary Fund (IMF), on how to manage the national economy.
The chorus of their protest, raised last Thursday, was loud and clear. The trade bodies on record for protesting the growing habit of the international agencies of seeking to influence the economic management of the country with their periodic prescriptions include the International Chamber of Commerce, Federation of Bangladesh Chambers of Commerce and Industry, Metropolitan Chamber of Commerce and Industry, Dhaka Chamber of Commerce and Industry, Chittagong Chamber of Commerce and Industry, Foreign Investors' Chamber of Commerce and Industry, Bangladesh Garment Manufacturers and Exporters Association, Bangladesh Knitwear Manufacturers and Exporters Association, Bangladesh Association of Banks, Bangladesh Textile Mills Association, Bangladesh Insurance Association and Bangladesh Employers' Federation.
This event of protest is perhaps unique and unprecedented. One will have to seriously storm one's brain for quite long to recall when so many doers' associations of the economic front spoke in one voice previously on trade issues.
The business leaders have angrily reacted to what they claimed to be the advice of the IMF for raising energy prices. In fact, the suggestion for raising the prices has also come from the World Bank (WB) and been endorsed by the Asian Development Bank (ADB). Both banks think that the state business of selling energy at prices below the procurement and production costs is not sustainable. But the business leaders are of the opinion that upward adjustments of the domestic prices of gas, separately for household and industrial consumptions, will drive up the production costs of local industrial goods including the fertiliser price, which would give further strokes to soaring prices of essentials.
As if to castigate the IMF experts as non-pragmatic essayists whose prescriptions are hollow in delivering useful results, the business leaders have pointed out that, in spite of meticulously following the IMF prescriptions, the country is now experiencing double-digit inflation. The Bangladesh Bureau of Statistics (BBS) has endorsed this accusation as a fact. It came up with a report the previous day stating that inflation rate on food items in June, this year, stood at 9.82 per cent and on non-food items at 8.34. The inflation rate at the current phase of price hike in our mercurial market now, after more than a month of market survey by the BBS, has surely reached 10 per cent. It might have already spiraled even beyond.
The business leaders who are the real doers of economic activities and thus responsible for expanding the national wealth, also spoke against the IMF's reported suggestions for further trade liberalisation and for refraining from forming a "safeguard body". They said further liberalisation would obstruct domestic economic growth and non-formation of a "safeguard body", they think essential for protecting local industries from the surging onslaught of competing foreign goods, will strangulate domestic industries and deter further industrialisation.
The Finance Adviser has reportedly countered the argument against further trade liberalisation stating that the local industries are adequately protected with about 49 per cent effective tariff- customs duty, supplementary duty and advance income tax, on import. The matter for consideration here is the actual difference between effective tariff on imported finished products and that on imported industrial raw materials and machinery and annual depreciation of machinery. The practice of subsequent adjustment of advanced income tax with the tax on real income from sale of imported finished products ought to be also considered in calculating the difference. If the gap is as wide as 49 per cent, then one may argue that local industries are not actually competitive and they should improve their performance.
Beyond the issues of revenue earning and inducement for gaining more competitiveness by local industries in the short run, which would ease financial pressure of local consumers, there are other serious matters to be considered by the government. The issue, which should receive minute attention of the government, is that local industries are also the largest employment providers. They create purchasing power among those who are employed by them in their industries. The resultant expansion of purchasing power influences the local demand structure generating the scope for further industrialisation and consumption of imported finished goods. Both import of finished products and local industrial production will be seriously affected if any accidental policy flaw chokes local industries.
The implementation of the Doha Development Agenda (DDA) of the World Trade Organisation (WTO) has been on hold for the last six years. A tough bargain for substantially reducing the high agricultural subsidy in the European Union countries and the US, on one side, and further liberalisation of trade in industrial goods and services in the developing countries, on the other, has been going on for as many years among major players in global trade. In this scenario, the insistence on Bangladesh by the IMF and the WB for further liberalising its trade is no less disturbing than a side talk in a conference. It would have been morally right had these institutions waited for a conclusive outcome of the talks on the DDA.
Both India and Brazil have refused further trade liberalisation through tariff reduction pending successful conclusion of the talks. Why should small Bangladesh, a least developed country (LDC), be unethically coaxed then with some aid packages, as done with kids with chocolates, to swallow some bitter pills? The country must be given assurance about duty-free market access prior to swallowing those pills for overcoming their bitter tastes. The IMF and its twin, the WB, should have induced the US to grant duty-free access to Bangladesh garments considering that this country, as an LDC, accounts for more than the total population of all other similar countries combined. Are they willing to do it?
Trade, in lieu of aid, is far better and useful for industrialisation, employment generation, enhancing self-esteem and confidence of a people, expansion and improvement of its education and technical skills and, above all, for doing away with the hated dependency syndrome.
The WB has recently reported that Bangladesh is the 56th largest economy and its per capita income has risen to $520. This country was branded as a bottomless breadbasket in the early 1970s. The change in its image and status has occurred due greatly to local industrial activities and other entrepreneurial efforts of its people. Yet it is no respectable position for the world's 9th largest nation. What does a per capita income of $520 mean when purchasing power is the capacity to buy, rather than a basket of dollar? The high current inflation and the cumulative higher inflation have largely eaten up the value of that basket of $520. When people go to the market, they find themselves poorer than they were a decade or more ago.
According to local business leaders, the IMF stand against having a safeguard body is uncalled for and unwarranted. Actually, it is immoral for any international agency to take a stand against forming such a body as far as the present rules of the multilateral trading system are concerned. When there is an Agreement on Safeguard within the scheme of the WTO providing rules for a nation state to take safeguard measures to protect, for a total of eight years, domestic industries facing the threat of serious injury, how can any agency, the IMF or the WB, suggest against having the proposed body? The rule-based multilateral trading system is in problem and may soon have fewer operative rules for the smaller countries if any of these agencies wants to write off the WTO Agreement on Safeguard on its own.
May ask Pascal Lamy, the Frenchman in the cockpit of the WTO, whether the IMF or its twin, the WB, has acted ethically by advising this country to desist from forming a safeguard body. He will surely say that the agreement on the subject is yet to be written off and that both the US and the European Union have invoked it in the matter of import of the Chinese textiles.
Why should Bangladesh then refrain from applying it when many of her industries have been confronting the threat of serious injuries from the surging invasion of many rival foreign products? Is it to prove that a lame duck fights a little for managing to survive an attack?
BUSINESS leaders of almost all local chambers of commerce and industry and manufacturers associations, as many as 14 of them, have voiced their angry resentment collectively against prescriptions of the multilateral donor agencies, particularly the International Monetary Fund (IMF), on how to manage the national economy.
The chorus of their protest, raised last Thursday, was loud and clear. The trade bodies on record for protesting the growing habit of the international agencies of seeking to influence the economic management of the country with their periodic prescriptions include the International Chamber of Commerce, Federation of Bangladesh Chambers of Commerce and Industry, Metropolitan Chamber of Commerce and Industry, Dhaka Chamber of Commerce and Industry, Chittagong Chamber of Commerce and Industry, Foreign Investors' Chamber of Commerce and Industry, Bangladesh Garment Manufacturers and Exporters Association, Bangladesh Knitwear Manufacturers and Exporters Association, Bangladesh Association of Banks, Bangladesh Textile Mills Association, Bangladesh Insurance Association and Bangladesh Employers' Federation.
This event of protest is perhaps unique and unprecedented. One will have to seriously storm one's brain for quite long to recall when so many doers' associations of the economic front spoke in one voice previously on trade issues.
The business leaders have angrily reacted to what they claimed to be the advice of the IMF for raising energy prices. In fact, the suggestion for raising the prices has also come from the World Bank (WB) and been endorsed by the Asian Development Bank (ADB). Both banks think that the state business of selling energy at prices below the procurement and production costs is not sustainable. But the business leaders are of the opinion that upward adjustments of the domestic prices of gas, separately for household and industrial consumptions, will drive up the production costs of local industrial goods including the fertiliser price, which would give further strokes to soaring prices of essentials.
As if to castigate the IMF experts as non-pragmatic essayists whose prescriptions are hollow in delivering useful results, the business leaders have pointed out that, in spite of meticulously following the IMF prescriptions, the country is now experiencing double-digit inflation. The Bangladesh Bureau of Statistics (BBS) has endorsed this accusation as a fact. It came up with a report the previous day stating that inflation rate on food items in June, this year, stood at 9.82 per cent and on non-food items at 8.34. The inflation rate at the current phase of price hike in our mercurial market now, after more than a month of market survey by the BBS, has surely reached 10 per cent. It might have already spiraled even beyond.
The business leaders who are the real doers of economic activities and thus responsible for expanding the national wealth, also spoke against the IMF's reported suggestions for further trade liberalisation and for refraining from forming a "safeguard body". They said further liberalisation would obstruct domestic economic growth and non-formation of a "safeguard body", they think essential for protecting local industries from the surging onslaught of competing foreign goods, will strangulate domestic industries and deter further industrialisation.
The Finance Adviser has reportedly countered the argument against further trade liberalisation stating that the local industries are adequately protected with about 49 per cent effective tariff- customs duty, supplementary duty and advance income tax, on import. The matter for consideration here is the actual difference between effective tariff on imported finished products and that on imported industrial raw materials and machinery and annual depreciation of machinery. The practice of subsequent adjustment of advanced income tax with the tax on real income from sale of imported finished products ought to be also considered in calculating the difference. If the gap is as wide as 49 per cent, then one may argue that local industries are not actually competitive and they should improve their performance.
Beyond the issues of revenue earning and inducement for gaining more competitiveness by local industries in the short run, which would ease financial pressure of local consumers, there are other serious matters to be considered by the government. The issue, which should receive minute attention of the government, is that local industries are also the largest employment providers. They create purchasing power among those who are employed by them in their industries. The resultant expansion of purchasing power influences the local demand structure generating the scope for further industrialisation and consumption of imported finished goods. Both import of finished products and local industrial production will be seriously affected if any accidental policy flaw chokes local industries.
The implementation of the Doha Development Agenda (DDA) of the World Trade Organisation (WTO) has been on hold for the last six years. A tough bargain for substantially reducing the high agricultural subsidy in the European Union countries and the US, on one side, and further liberalisation of trade in industrial goods and services in the developing countries, on the other, has been going on for as many years among major players in global trade. In this scenario, the insistence on Bangladesh by the IMF and the WB for further liberalising its trade is no less disturbing than a side talk in a conference. It would have been morally right had these institutions waited for a conclusive outcome of the talks on the DDA.
Both India and Brazil have refused further trade liberalisation through tariff reduction pending successful conclusion of the talks. Why should small Bangladesh, a least developed country (LDC), be unethically coaxed then with some aid packages, as done with kids with chocolates, to swallow some bitter pills? The country must be given assurance about duty-free market access prior to swallowing those pills for overcoming their bitter tastes. The IMF and its twin, the WB, should have induced the US to grant duty-free access to Bangladesh garments considering that this country, as an LDC, accounts for more than the total population of all other similar countries combined. Are they willing to do it?
Trade, in lieu of aid, is far better and useful for industrialisation, employment generation, enhancing self-esteem and confidence of a people, expansion and improvement of its education and technical skills and, above all, for doing away with the hated dependency syndrome.
The WB has recently reported that Bangladesh is the 56th largest economy and its per capita income has risen to $520. This country was branded as a bottomless breadbasket in the early 1970s. The change in its image and status has occurred due greatly to local industrial activities and other entrepreneurial efforts of its people. Yet it is no respectable position for the world's 9th largest nation. What does a per capita income of $520 mean when purchasing power is the capacity to buy, rather than a basket of dollar? The high current inflation and the cumulative higher inflation have largely eaten up the value of that basket of $520. When people go to the market, they find themselves poorer than they were a decade or more ago.
According to local business leaders, the IMF stand against having a safeguard body is uncalled for and unwarranted. Actually, it is immoral for any international agency to take a stand against forming such a body as far as the present rules of the multilateral trading system are concerned. When there is an Agreement on Safeguard within the scheme of the WTO providing rules for a nation state to take safeguard measures to protect, for a total of eight years, domestic industries facing the threat of serious injury, how can any agency, the IMF or the WB, suggest against having the proposed body? The rule-based multilateral trading system is in problem and may soon have fewer operative rules for the smaller countries if any of these agencies wants to write off the WTO Agreement on Safeguard on its own.
May ask Pascal Lamy, the Frenchman in the cockpit of the WTO, whether the IMF or its twin, the WB, has acted ethically by advising this country to desist from forming a safeguard body. He will surely say that the agreement on the subject is yet to be written off and that both the US and the European Union have invoked it in the matter of import of the Chinese textiles.
Why should Bangladesh then refrain from applying it when many of her industries have been confronting the threat of serious injuries from the surging invasion of many rival foreign products? Is it to prove that a lame duck fights a little for managing to survive an attack?