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How bonded warehouse facilities benefit our RMG industry  

Published : Saturday, 15 June, 2024 at 12:00 AM  Count : 2189

How bonded warehouse facilities benefit our RMG industry  

How bonded warehouse facilities benefit our RMG industry  

The National Board of Revenue (NBR) provides Bonded Warehousing facility to RMG, backward linkage to RMG, Shipbuilding industries and others. It includes:(1) Special bonded warehousing is applicable for 100% export-oriented RMGindustries, (2) General bonded warehousing applies to other 100% export-orient oriented industries. These include-(a) 100% export-oriented ship building industry,(b) Accessories industries for :(i) Deemed exports (e.g. 100% export-oriented packing/carton, label, polybag, button, hanger etc. firms), and(ii) Direct exports.(c) General Bonded Warehouse for home consumption to a number of factories, including sugar and vegetable oil refiners, leather, steel, printing and packaging, electric and electronics and tobacco manufacturers are entitled for the home consumption bond facility.

The local bond for industries serving local marketare basically deferred payment facility for 6 months.  Duties are paid when raw materials/goods are cleared.(d) Diplomatic & privileged persons bonded warehouse to some bonded warehouses, Biman Bangladesh Airlines; Bangladesh Parjatan Corporation. Duty free articles are sold from these bonded warehouses in foreign currency to diplomats &privileged persons residing in Bangladesh.

In fact, there is no revenue loss in the bonded warehouse system in comparison to its alternative - duty drawback or cash subsidy, both of which are meant to fully compensate for input duties paid and so are revenue neutral. NBR has been selectively granting bond warehouse facility to non-RMG exporters, but evidence suggests that the practice has not taken off. Consequently, non-RMG exports have not reached significant proportions in the export basket.

Due to the bond facilities and some other trade facilitations, Bangladesh exports composed of limited number of products and dominated by RMG and product-destinations are restricted to only a certain developed region of the world. The export continues to suffer from lack of market diversification and policy makers widely talking for diversification of products and markets.

Historically, trade facilitation can be highly effective in promoting export goods and services as well as diversification in developing countries. Bangladeshs success story of RMG export sector is the unique example trade facilitation such as bond license, back-to-back L/c, credit faculties etc. The global market is highly competitive. Thetrade facilitation is only policy that reduces the transaction costs of international trade. To diversify the market and hold a strong position in the global market, it will certainly need to enhance the supply-side capacities, promote trade facilitation, and improve competitiveness. In this globalized world and part of global supply chain.

Bangladeshs initial economic reforms in 1980s focused mostly on trade liberalization, the reduction of import duties, the rationalization of tariffs, the promotion of exports, and removal of visible trade barriers. The special focus was on promotion of export of RMG and such partial policy was successful for RMG sector.

Unfortunately, Bangladesh has one of the highest import tax regimes in the world, which is one of the reasons of increase of cost of goods and services in the export market. On the other hand, RMG sector evolved under a special "free trade enclave" and enjoyed the protection from high tariff regime through the institution of Special Bonded
Warehouses (SBW) to ensure duty-free imported inputs and facilitate by back-to-back LC. It enjoys a special credit program of 180 days to make payment of back to backL/c under special foreign currency credit program of central bank. The sector enjoys cash subsidy, lowest possible income tax than other sectors. The sector priority for port clearance and other administrative processes.

During the 1980s, at the early stage of the development of RMG sector, the western buyers were very supportive and transferred technology and guidance to grow RMG industry in Bangladesh eyeing abundant and cheap labours about 40 years back. The wages were only Tk500 -1,000 per month. Most of the factories started in residential and commercial buildings of Dhaka cityfacilitating very low capital investment.

The situation is nowvery different. The minimum wages are about Tk8,000 /month and landsare very scared.The entrepreneurs cannot create another export sector following the RMG model. On the other hand, there are many industrial sectors developed based onlocal market.

At present, NBR is extending special bond facilities for duty free import of raw materials to 100% export oriented RMG sector and NBR also allow 80% export and 20% for local sales to all sectors of industries in the free economic zones. NBR also providesconsumption bond facilities for import of raw materials for payment of customs and other duties during delivery from warehouse of finished products to the local market. It has given to afewinfluential and privileged factories.

The home consumption bond facilities extended to few giant companies but to all industries of any segment. This special privilege to few groups of companies is illegal under Bangladesh Competition act 2012. On the other hand, the authority should reform the bond policy to extend it to other sectors for partial export of their production and modify the home consumption bond facilities to industries if they go to export market.

Theother possible export sectors are not as privileged as RMG to cope with the high tariff regime while importing required raw materials and intermediate or capital inputs. The duty drawback system is totally non-functional and not supporting any other export sector to grow. The policy makers are inviting entrepreneurs to diversify export products without any policy support even while having experience of RMG.

Bonded Warehousing facility is accorded following the provisions under Sections 84-119 of the Customs Act, 1969 (Chapter 11).Not only RMG sector, but all the sectors are also illegible for bond facility. Unfortunately, since 1992 on RMG sector is only facilitate with bond license. Interestingly, on 23rd September 1997NBR wrote to Ministry of finance asking for permission to allow bond facilities to all the sectors of industries to facilitate export. The Ministry of Finance has given permission but unfortunately NBR is now not permitting bond facilities to other industries with a plea of shortage of manpower.

The Ministry of Finance and NBR agrees to provide bond facility, the law allows bond facility under 100% guarantee and modified home consumption bond to all other industrial sectors. The Tariff and Trade Commission also recommended partial bonds(for export and local sales) after extensive study. This is similar toexisting facility given to industries set up in export processing zones.

Importantly, the current tariff regime undermines export competitiveness and impedes growth of new exports, thus inhibiting progress in export diversification. Theoretically, a tariff is an indirect subsidy on import substitutes and a tax on exports. Bangladesh may gradually reduce the customs duty on basic raw materials since authority unable to extend Bond facility to other industrial sectors.
The writer is Non-Government Adviser, Bangladesh Competition Commission, Legal Economist & CEO, Bangla Chemical

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