Iii. Trade Policies and Practices by Measure

WT/TPR/S/68 Trade Policy Review Page 30

III. TRADE POLICIES AND PRACTICES BY MEASURE

(1) INTRODUCTION

1. During the 1990s, Bangladesh has continued to liberalize its trade regime, by, inter alia, reducing its tariffs and eliminating many quantitative restrictions on imports. As noted in the previous chapter, Bangladesh's investment laws and regulations are such that it appears to have one of the most liberal FDI regimes in South Asia.

2. Although applied tariffs have fallen by more than half, from an average of 58% in 1992/93 to 22% in 1999/2000, the customs tariff remains the main instrument of Bangladesh's trade policy. At the same time, it is the Government's principal source of revenue, accounting for nearly one third of total taxes. With applied tariff rates still high and varying widely, the customs tariff constitutes a potentially important distortion to competition and therefore an obstacle to the efficient allocation of domestic resources. Moreover, the lack of bindings, and wide gaps between applied and bound rates impart a strong degree of unpredictability to the tariff regime. The existence of a number of tariff concessions may require importers to consult more than one document in order to ascertain the applicable tariff rate, which adds to the uncertainty and opacity of tariff assessment. Further protection and unpredictability arise from the system of customs valuation, which has not always been based on true market prices although the authorities have recently taken steps to bring the system into line with the WTO Agreement.

3. Tariff protection is augmented by other border levies and, in some instances, the discriminatory application of internal taxes, which can raise nominal protection by one third. Additional protection at the border is provided by import bans or restrictions that affect nearly 11.7% of all national tariff lines.

4. The high level of tariffs and multiplicity of other import charges, together with import bans and quantitative restrictions, necessitate an array of measures, including concessional tariffs, a duty drawback system, special bonded warehouses, export processing zones (EPZs), and cash assistance. These measures are largely aimed at mitigating the adverse impact of tariffs, other charges, and restrictions on exporters' competitiveness. As a result, the import and export regime is unduly complex. In addition, direct subsidies are provided to exporters of textiles and clothing, Bangladesh's largest export, as well as to exporters of some other products, and 50% tax relief is allowed on income generated by any export business.

5. While its investment regime is very liberal, the lack of investment and FDI has clearly impeded Bangladesh's economic development. In an effort to encourage investment, the Government offers a wide range of open-ended tax incentives, notably tax holidays, whose effectiveness in attracting FDI, and thereby fostering economic development, is doubtful. Such measures complicate tax administration and increase the scope for tax avoidance, if not, evasion.

6. In addition to liberalizing its trade and investment regime, the Government has pursued other important structural reforms. These are aimed, inter alia, at addressing various impediments to Bangladesh's economic development, namely customs administration, administered pricing and inefficient loss-making state-owned enterprises, which are the consequences of the State's prominent, albeit declining, role in the economy. Loss-making state-owned enterprises that in some instances are required to set their product prices below long-run marginal costs so as to subsidize their use, constitute a considerable drain on the Government's budget. However, progress on these and other structural reforms has been slow. Bangladesh WT/TPR/S/68 Page 31

7. Steps are also being taken gradually to bring Bangladesh's laws in line with the WTO Agreements. These include legislation on customs valuation, anti-dumping and countervailing measures, and protection of intellectual property rights.

(2) MEASURES DIRECTLY AFFECTING IMPORTS

(i) Registration and documentation

8. Importers are classified into private sector importers and public sector importers; private sector importers are further classified into industrial consumers and commercial importers. Industrial consumers are those units registered with one of the three sponsoring agencies: the Bangladesh Export Processing Zones Authority (BEPZA), for industries located in the Export Processing Zones (EPZs); the Bangladesh Small and Cottage Industries Corporation (BSCIC), for the small and cottage industries; and the Board of Investment (BOI), for all other private industries (section (4)(i)). Commercial importers are those who import goods for sale without further processing. Public sector importers include government organizations, statutory bodies, corporations, universities, research institutions, and industrial enterprises in the public sector.

9. All industrial consumers (except enterprises located in EPZs) and commercial importers must register with the Chief Controller of Imports and Exports (CCIE), under the Ministry of Commerce. The CCIE issues the Import Registration Certificate (IRC) under the Importers, Exporters and Indentors (Registration) Order, 1981.1 To obtain an IRC, an importer must submit a trade licence from the local authority, and a membership certificate of the relevant trade association or chamber of commerce and industry. Industrial consumers are required first to be registered with the concerned sponsoring agency, and then to present the above documents to the CCIE along with the registration letter from the sponsoring agency. The registration fee, as well as annual renewal fee, is based on the value of annual imports: Tk 500 for annual imports up to Tk 0.5 million; Tk 1,500 for up to Tk 1.5 million; Tk 3,000 for up to Tk 5 million; and Tk 5,000 for above Tk 5 million.

10. The IRC specifies the value ceiling for each product that an industrial user can import each year, including items on the restricted list for import. Commercial importers are free to import any quantity of non-restricted items.2 To obtain an import entitlement, the industrial consumer must first submit an application to the sponsoring agency at the time of registration, specifying the amount the industrial unit wishes to import. The sponsoring agency then makes its recommendation to the CCIE after a field inspection to determine the applicant's annual production capacity and import requirement. Upon receipt of such a recommendation, the CCIE issues an ad hoc IRC with a ceiling value of six-months import entitlement. For the regularization of the ad hoc entitlement, the industrial consumer must apply to the CCIE, with a recommendation from the sponsoring agency that monitors the actual industrial production. Industries wishing to expand their production capacity, or increase their import entitlement, must re-apply to the CCIE with the sponsor's recommendation.

11. An IRC is generally issued within 15 days of receipt of application by the CCIE.3 According to the authorities, the objective of import entitlement is to monitor the importation of raw materials and machinery, most of which enter Bangladesh at concessional duty rates (section (iv)(i)). For an

1 Individuals or institutions that are not registered importers may import up to US$2,000 for their own use without a permission; for imports between US$2,000 and US$5,000 or exceeding US$5,000, prior permission is required from the regional import control authority and the CCIE, respectively. An IRC is not required for public sector importers. 2 Previously, import entitlement was indicated in the importer's passbook, both for industrial consumers and commercial importers. This practice was abolished for commercial importers in December 1994. 3 Board of Investment (1999). WT/TPR/S/68 Trade Policy Review Page 32 increase of production on a one-time shift basis, regular industrial consumers may import up to three times the value of the entitlement for the import of restricted items; industrial consumers with an ad hoc IRC may import restricted items up to double the value of the half-yearly entitlement as recommended by the sponsoring authority.4

12. In general, importers are allowed to import with a Letter of Credit Authorization (LCA) Form5, the form prescribed for authorization of the opening of an irrevocable letter of credit (L/C). Other documents required for importation include a bill of lading or airway bill, commercial invoice or packing list, and certificate of origin. In certain instances, additional certificates and/or import permits may be required by the relevant government agencies (Table III.1).

Table III.1 Certificates, tests, and clearance required for import Certificate, test or Issuing ministry or Product Reference clearance agency Sanitary and Livestock, plants and Multiple HS codes Livestock Directorate, or IPO, Restricted List phytosanitary plant products the competent authority certificate of the exporting country Chicks All HS 01.05 codes IPO, Restricted List Hatching eggs 0407.00 IPO, Restricted List Deep frozen semen of 0511.00 IPO, Restricted List oxen Refined palm olein All HS 15.11 codes IPO, Restricted List Quarantine certificate Products of plant origin Multiple HS codes Plant Protection Quarantine Ordinance Directorate Potato seeds 0710.10 IPO, Restricted List Aquatic animal heath Live fish Multiple HS codes Competent authority of .. certificate the exporting country

Radioactivity Milk, milk food, milk Bangladesh Atomic IPO, para 16 certificate products, edible oils, Energy Commission other food items for human consumption; and poultry feed and animal feed Purity test Palm oil, palm olein and Bangladesh Council of IPO, para 16(11) RBD palm stearine Scientific and Industrial Research Certificate declaring Not-fat dried milk Competent authority of IPO, para. 26(2) that the food is fit for the exporting country consumption Milk food All HS 02.06 codes IPO, Restricted List Baby food All HS 19.01 codes IPO, Restricted List Clearance certificate Explosives Chief Inspector of IPO, para 26(4) Explosives Sulphur All HS 25.03 codes IPO, Restricted List Gas in cylinder All HS 27.05 codes IPO, Restricted List Sulphur 2802.00 IPO, Restricted List Table III.1 (cont'd)

4 Import Policy Order, para. 23(1). 5 Along with the LCA form, importers must submit a number of documents to the executing bank including an L/C application form; an invoice; and an insurance cover note. In addition, private sector importers must submit: a membership certificate from the registered chamber of commerce and industry or any trade association; proof of IRC renewal payment; a declaration of income-tax; TIN; and any other documents required by the Import Policy Order or other Public Notice. Public sector importers are required to submit an attested photocopy of the allocation letter issued by the administrative ministry, division or authority. Bangladesh WT/TPR/S/68 Page 33

Certificate, test or Issuing ministry or Product Reference clearance agency Phosphorus 2804.70 IPO, Restricted List Potassium chlorate 2829.19 IPO, Restricted List Potassium nitrate 2834.21 IPO, Restricted List Barium nitrate 2834.299 IPO, Restricted List Trinitrotoluene All HS 29.04 codes IPO, Restricted List Prepared explosives All HS codes from 36.01 IPO, Restricted List to 36.04 Clearance certificate Radioactive products Bangladesh Atomic Energy Commission Thorium nitrate 2834.299 IPO, Restricted List Radioactive chemical All HS codes from 28.44 IPO, Restricted List elements and isotopes to 28.46 Clearance certificate Drugs and medicines Drugs Administration Sulphonamides 2935.00 IPO, Restricted List Provitamins and vitamins All HS 29.36 codes IPO, Restricted List Hormones, glycosides, All HS codes from 29.37 IPO, Restricted List vegetable alkaloids to 29.39 Antibiotics All HS 29.41 codes Glands and other organs All HS 30.01 codes IPO, Restricted List Blood, including live All HS 30.02 codes IPO, Restricted List vaccines Medicaments All HS codes from 31.03 IPO, Restricted List to 31.04 Enzymes All HS 35.07 codes IPO, Restricted List Clearance certificate Pesticides and insecticides Ministry of Commerce IPO, Restricted List Dettramethirine of All HS 38.08 codes synthetic pyrithoid group expected those items in Banned List Clearance certificate Fishing nets All HS 56.08 codes Fisheries Department IPO, Restricted List Clearance certificate Second-hand clothing All HS 63.09 codes Chief Controller of IPO, para. 26(6) Imports and Exports and Chamber of Commerce of the exporting country Preshipment inspection Second-hand/re- Multiples HS codes Pre-shipment inspection IPO, Restricted List certificate conditioned machines agency Cements All HS 25.23 codes IPO, Restricted List Coal/hard coal All HS codes from 27.01 IPO, Restricted List to 27.04 Chemical fertilizers All HS codes from 31.02 IPO, Restricted List to 31.04 M.S. billets All HS codes from M.S. IPO, Restricted List Billets Boilers All HS codes from 84.02 IPO, Restricted List to 84.04 Second-hand engines and All HS codes from 84.07 IPO, Restricted List gear boxes to 84.08 All types of motor All HS 87.02 codes IPO, Restricted List vehicles Motorcycles less than All HS 87.11 codes IPO, Restricted List 3 years old

.. Not available. Source: WTO Secretariat, based on the Import Policy Order and information provided by the Bangladeshi authorities.

13. Importation against an LCA form may be allowed without opening an L/C in the following cases: (i) import of books, journals, magazines and periodicals; (ii) import of any permissible item WT/TPR/S/68 Trade Policy Review Page 34

for an amount not exceeding US$5,000 only during each financial year against remittance made from Bangladesh; (iii) import under commodity aid, grant or such other loans for which there are specific procurement procedures for imports of goods without opening an L/C; and (iv) import of "international chemical references" through bank drafts by recognized pharmaceutical (allopathic) firms on the approval of the Director, Drug Administration, for the purpose of quality control of their products.6 Moreover, an L/C is not required for import of perishable goods for eventual re-exportation valued between US$5,000 and US$7,500 per consignment, or for import of machinery and raw materials by export-oriented industries.7

(ii) Customs valuation and inspection

(a) Customs valuation

14. Section 25 of the Customs Act, 1969, provides for the valuation of imports and exports for customs purposes on the basis of normal price, defined as "the price which they would fetch at the prescribed time on a sale in open market between a buyer and seller, independent of each other".8 At the same time, Section 25(7) of the Act empowers the Government to fix tariff values for the purpose of levying customs duty for a number of imported products; that is, wherever tariff values are available, they replace the lower invoiced price.

15. The tariff value schedule includes 977 tariff lines at the 8-digit HS level, accounting for 15.0% of total tariff lines. The tariff values are reviewed by a committee at the National Board of Revenue (NBR) every six months for fixation or re-fixation, if necessary, on the basis of available information.9 The use of tariff values is intended to reduce the importer's incentive to under-invoice, a practice that has resulted in losses in tax revenue.

16. Bangladesh's tariff value system officially sets minimum import prices; when a value declared by an importer is higher than the corresponding tariff value, the declared value prevails, and when the declared price is lower, the tariff value prevails.10 As tariff values do not necessarily reflect market prices, the system creates potential economic distortions in the allocation of resources. According to a study by the World Bank, tariff values are set higher than the corresponding world prices in many instances, thus increasing tariff protection accorded to domestic industries.11 A review of import transaction data in 1993/94 shows that tariff values can increase protection by as much as 4% to 7% for basic metal products and textiles. In certain cases, however, the tariff value has inadvertently been set below the c.i.f. invoice price, thereby eroding tariff protection.12 Another problem in using the single tariff value system is the difficulty of updating the valuation database to accurately reflect constantly changing c.i.f. prices, as well as to reflect differences in the prices of items originating in different countries.13

6 The Import Policy Order 1997-2002, para. 7(4). 7 The Export Policy 1997-2002, para. 8.30; and Ministry of Finance (1998a). 8 Freight, insurance, commissions, royalties and all other costs, charges and expenses incidental to the sale of imports are included in the normal price. 9 The committee consists of seven members, representing the NBR (Customs), Controller of Customs Valuation, the Ministries of Commerce, Textiles and Industries, the Tariff Commission, and the Federation of Bangladesh Chamber of Commerce and Industries. 10 The Customs Act, 1969, section 25 (7). 11 World Bank (1996a). 12 Another report on textiles revealed that the tariff value on a certain quality of polyester yarn was below its c.i.f. price (World Bank, 1996a). 13 World Bank (1996a). Bangladesh WT/TPR/S/68 Page 35

17. Bangladesh notified the WTO, in May 1995, of its decision to delay application of the provisions of WTO Agreement on Customs Valuation.14 As a developing country, it had until 1 January 2000 to bring its valuation system into conformity with the Agreement, which requires that dutiable value of imported goods be determined on the basis of transaction values. The transaction value system should have been introduced, effective 15 February 2000, scrapping tariff values on all items, along with the mandatory preshipment inspection system.

(b) Preshipment inspection

18. Apart from certain items in the restricted list for import (Table III.1), and imports by the public sector, the preshipment inspection (PSI) system was not used for the purpose of valuation in Bangladesh until 1993 when the Government introduced it on a voluntary basis.15 The system, whereby imported goods are examined in the exporting country and the value, as per the current transaction value in the country of export and the correct classification, are certified by the PSI agency, allows rapid customs clearance for certified import shipments. Initially, the coverage of PSI was limited to imports for which tariff values were not available. But in 1994 it was extended to tariff value imports, whereby the PSI values were allowed to override the fixed tariff values, by an amendment to Section 25 of the Customs Act, 1969.16 According to the World Bank, this increased the usage of the PSI to approximately 25% of all imports in 1995/96.17

19. The voluntary PSI system was introduced as a safeguard against under-invoicing. However, there are allegations that prices declared by the PSI companies are often lower than actual prices, thereby resulting in revenue losses.18 Significant discrepancies between PSI values and tariff values have caused some conflict between the NBR and the PSI agencies.19 The introduction of PSI has also created a valuation system involving an overlap of the tariff values, the PSI values and the normal prices. This has led to uncertainty about which value should prevail, and therefore to controversy and litigation. Moreover, the valuation system has not to prevented significant undervaluation.

20. The 1999/2000 budget has introduced the mandatory PSI system, seemingly effective 15 February 2000. The mandatory system, which is regarded as a transitional instrument for the full implementation of the transaction value system, is expected to ensure correct declaration of price, quantity and quality of imported goods, adding an extra Tk 5.5 billion in customs revenue in 1999/2000, equivalent to 12% of 1998/99 customs duty receipts. The Government has granted

14 More specifically, Bangladesh requested the delayed application of the provisions of Article 20.1 (delayed application of the provisions of the Agreement), Article 20.2 (delayed application of the computed value method), paragraph 2 of Annex III (reservation concerning minimum values), paragraph 3 of Annex III (reservation concerning reversal of sequential order of Articles 5 and 6), and paragraph 4 of Annex III (reservation concerning application of Article 5.2 whether or not the importer so requests) of the Agreement (WTO document WT/Let/1/Rev.2, 22 May 1995). 15 Public sector importers have generally been required to obtain PSI certificates when the value of a single import item is Tk 500,000 or above; however, they may be exempted from the PSI requirement by their administrative ministry. 16 The customs officials are not required to accept a PSI certificate if there is reason to suspect under-valuation. In such cases, it is refered to the Review Committee, which was set up in 1995 and consists of the Commissioners of Customs, the Superintendent of Customs, and representatives from the PSI company, the Federation of Bangladesh Chamber of Commerce, and the Ministry of Commerce or Finance. An appeal can also be filed against the order by the Review Committee to the Appellate Tribunal. 17 World Bank (1996a). 18 Ministry of Finance (1999). 19 For instance, the NBR temporarily banned the use of PSI certificates for 12 items; cars, dry cell batteries, air conditioners, filament lamps, fluorescent light tubes, GI tubes, soda ash and caustic soda, cigarettes, powered milk, cumin seed and black pepper (World Bank, 1996a). WT/TPR/S/68 Trade Policy Review Page 36

contracts to three PSI agencies for different regions of the world.20 In order to cover the cost of mandatory PSI and other relevant activities, a 1% service charge is levied on the value of imported goods.

(iii) Customs clearance and administration

21. In case of a dispute between an importer and the customs officials regarding the classification of imported goods, adjudication procedures are available through the local Import Trade Control Committee. The Committee consists of local representatives of the CCIE, Chamber of Commerce and Industry, and the Customs Authority; it makes a decision within 15 days of receiving the importer's request. If the importer is not satisfied with that decision, an appeal can be filed with the central ITC Committee, comprising the CCIE, NBR, the concerned sponsoring agency, and the Federation of Bangladesh Chamber of Commerce and Industry.21

22. Efforts have been made since the previous Trade Policy Review to expedite clearance of imports, including introduction of the self-assessment procedure and the rapid clearance procedure. The self-assessment procedure, introduced in the 1997/98 budget, allows quick clearance for imports of food grain, edible oil, petroleum oil and lubricant, cement, cotton, sugar, news prints, etc; and imports by the public sector. The authorities intend to extend the self-assessment procedure gradually to other imports. Under the rapid clearance procedure, introduced in the 1998/99 budget, certain categories of imports of food grain, edible oil, and relief materials by selected groups of importers are released without physical examination, once customs assessment is complete.22 Data are not yet available on the proportion of imports cleared under the self-assessment rapid clearance procedure.

23. The reform of customs clearance has been facilitated by computerization of the customs system through the introduction of the SPEED system for customs assessment and the ASYCUDA system for customs document processing.23 Quicker clearance can be expected in the coming years: the ASYCUDA system is to be upgraded from the current version "2.6/2.7" to "++" by the end of 2000, under the UNCTAD-led technical assistance project.24 Moreover, the fully computerized data management system for assessment and clearance should eventually reduce the proportion of consignments being inspected by the customs officials. Although, up to 100% of each consignment of imported goods could be subjected to physical inspection, this is not the case in practice. The authorities appear to be actively considering a plan that would involve no less than 10% of the total consignments being inspected on the basis of random selection using a computer generated sample.25

24. According to the authorities, customs assessment and clearance takes 48 hours for goods imported under loose container loading (LCL) containers and other packages, and 72 hours for full container loading (FCL) containers (i.e. 24 hours more due to movement and handling). However, customs delays have often been cited by business as an impediment to conducting business in Bangladesh, as the delays add to their costs and therefore impair their competitiveness. According to one survey, it takes on average 12 days, but can take up to 30 days, for imported goods to be released

20 The companies are: M/S Inspectorate Griffin Limited; M/S Intertek Testing Service International; and M/S BIVAC International Burea Veritas Group. 21 The Import Policy Order 1997-2002, para. 28. 22 Selected importers include the Ministry of Food, edible-oil refineries, non-profit-making charitable organizations and NGOs. 23 The SPEED system generates an assessment notice for customs duty and tax and a release order for customs clearance after relevant information is transmitted by importers and exporters for the purpose of customs clearance. The SPEED system is linked to the ASYCUDA system. 24 World Bank (1999b). 25 Ministry of Finance (1999). Bangladesh WT/TPR/S/68 Page 37

through customs at the ports.26 Such delays lead to congestion of ports, paralysing an important part of the economy's infrastructure (Chapter IV(6)(iii)(a)). The clearance procedure is characterized by excessive checking and paperwork, undue and complicated procedural steps, partial computerization, and limited opening hours.27 One example of the complexity of the customs procedure is that the manual customs entry form requires up to 40 signatures before goods can be released.28 According to one survey, the hidden costs paid by importers, per consignment, range from Tk 4,700 to Tk 86,800.29

25. As trade liberalization involving tariff reductions and elimination of quantitative restrictions has progressively been pursued by the Government (see the following section), more efficient customs clearance is urgently needed to increase businesses' competitiveness and to attract foreign investment. Customs modernization has been an integral part of the Comprehensive Revenue Administration Modernization Programme, undertaken by the Government with assistance from the World Bank under the Export Diversification Project. The project is aimed at, in particular, addressing corruption and inefficiency in duty collection, which have impeded business efficiency and weakened the government's ability to collect revenue.30

26. As regards weak customs administration, the issue of smuggling, especially across the Indian border, also needs to be addressed. A survey by the World Bank suggests that unofficial trade was equivalent to about 13% of total official trade in 1994. Most of such trade consists of unofficial imports, which are believed to constitute approximately 18% of total imports into Bangladesh in 1994; the bulk (i.e. 83%) of such unofficial imports were from India.31 A more recent survey suggests that the value of unofficial commodity imports could be as large as that of official trade or even twice that amount.32 The main items smuggled into Bangladesh include food, agricultural products, and livestock, accounting for more than 70% of unofficial imports (cattle alone account for one third of unofficial imports); other items, including textile products, especially cotton saris, account for another 12%. Sugar, pulses, powered milk, spices, salt, and bicycles are also unofficially imported in large volume.33 High tariffs (and other indirect taxes), quantitative restrictions or import bans tend to provide an incentive for such unofficial trade.

(iv) Tariffs

(a) Structure

27. Tariffs are, with few exceptions (section (d)), ad valorem, and are levied on the c.i.f. value of imports. The classification of customs tariffs is based on the Harmonized Commodity Description and Coding System (HS). At the beginning of 2000, there were 6,100 tariff lines classified at the HS 8-digit level. Bangladesh accords at least MFN treatment to imports from all trading partners, including those countries not members of the WTO.

28. The customs tariff is divided into three rate classifications: statutory, general exemption, and concessional rates, which are contained in the First Schedule to the Customs Act, 1969. The schedule

26 World Bank (1996b). 27 WTO document WT/LDC/HL/12/Add.1, 24 October 1997; World Bank (1999b); World Bank (1996a); and World Bank (1999a). 28 World Bank (1999b). 29 Centre for Policy Dialogue (1997), Crisis in Governance, cited in Word Bank (1999a). 30 World Bank (1999b). 31 World Bank (1996a). 32 Rahman and Razzaque (1998), cited in World Bank (2000). 33 World Bank (1996a). The items smuggled into India include copper and brass products, synthetic textiles, VCRs, calculators, and used clothing. WT/TPR/S/68 Trade Policy Review Page 38

of statutory tariffs is published every four or five years, and the general exemption rate is published every year at the time of the budget. The statutory rate, last published in 1995, becomes the operative tariff when no general exemption rate is available; as of the beginning of 2000, the general exemption rate is applicable for all except 12 tariff lines. Thus, the applied MFN tariff rates are the general exemption rates, unless the latter are not available, in which case, the statutory rate is used. Concessional rates are updated in each budget. It follows that, to ascertain the applicable tariff rate, the importer may have to consult more than one document; this creates uncertainty and reduces the level of transparency in assessing tariffs.

29. The applied tariff (and general exemption rate) in 1999/2000 contains five tariff bands, 0%, 5%, 15%, 25% and 37.5%. The number of tariff bands has been reduced through the recent tariff reform, which involved the simplification and rationalization of the tariff structure; by contrast, one decade ago, there were 18 tariff bands, ranging from 0% to 350% (Table III.2 and Box III.1 for tariff reforms). While tariff reforms have been extensive, little attention has been paid to simplifying the tariff schedule by reducing the number of tariff rates applied to some products. The proportion of tariff lines with multiple rates at the HS 4-digit level still accounts for a quarter of the tariff schedule. The existence of different rates within the same subchapter causes uncertainty, gives rise to disputes, and leads to allegations of harassment and corruption, as indicated in the previous section.

Table III.2 Tariff structure in Bangladesh, 1990-2000 a Year Number of tariff Maximum rate Unweighted Weighted average Dispersion bands (%) average rate (%) rate (%)

1990/91 18 350 88.6 42.1 72.0 1991/92 18 350.0 57.5 24.1 73.1 1992/93 15 300.00 47.4 23.6 65.1 1993/94 12 300.00 36.0 24.1 67.7 1994/95 6 60.0 25.9 20.9 74.5 1995/96 7 50.0 22.3 17.0 74.1 1996/97 7 45.0 21.5 17.9 75.9 1997/98 7 42.5 20.8 16.1 73.9 1998/99 7 40.0 20.3 14.7 72.2 1999/2000 5 37.5 17.1 .. 80.8

.. Not available. a Coefficient of variation. Note: The numbers may differ from those calculated by the WTO Secretariat. Source: Data provided by the authorities of Bangladesh.

(b) Bound MFN tariffs

30. As a result of the Uruguay Round (UR) negotiations, Bangladesh has bound only 831 tariffs lines or 13.2% of the total (Table III.3), that is, 100% of its agricultural tariff lines and 0.9% of its industrial tariff lines; 92% of agricultural tariff lines were bound at 200%, and the remaining 8% were bound at 50% (Table AIII.1).34 The 0.9% (or 50 tariff lines) of bound industrial tariff lines were bound at 50%. "Other duties and charges" were bound at 30%. Even where tariff bindings exist, they are well above the current applied MFN tariff rates. The simple average bound tariff is 188%, more than eight times the current average applied rate of 22.2% for the bound lines. As a consequence of

34 Bangladesh has been renegotiating, under Article XXVIII, its Schedule of Concessions under the HS conversion since 1988. Negotiations with Canada, the European Communities, and New Zealand have been concluded, however, negotiations with Australia are ongoing (WTO document G/L/324, 5 October 1999). Bangladesh WT/TPR/S/68 Page 39 the absence of bindings and the large gap between bound and applied rates, Bangladesh retains a great deal of freedom to raise its tariff rates unilaterally, thereby imparting a high degree of unpredictability to its customs tariff.

Box III.1: Tariff reform in Bangladesh

Tariff reform has been an important component of structural reform efforts since the mid 1980s. One of the key objectives of the reform, which involves rationalization and simplification of the tariff structure, is to create a neutral trade regime by eliminating the anti-export bias resulting from high tariffs and quantitative restrictions. The reform is also intended to reduce discretionary decisions and rent-seeking behaviour by customs officials.

The tariff reform has involved reduction in the number of tariff rates, lowering of high rates, and harmonizing tariff rates on similar products. As a result, the maximum tariff rate was reduced from 350% in 1990/91 to 37.5% in 1999/2000. According to the authorities' calculations, the unweighted average tariff rate decreased from 88.6% to 17.1%, during the same period, while the tariff dispersion increased from 72.0 to 80.8 (Table III.2).

While lowering the tariff averages, attention has been given to keeping the rate of customs duty lowest on raw materials and capital goods, in-between on intermediate goods, and highest on finished goods consumed by the affluent. The outcome is tariff "escalation". With a view to increasing the competitiveness of domestic industrial producers, the largest reduction in tariff rates during the 1990s is in raw materials and capital goods, which are used as inputs for manufacturing exports.

To complement tariff reform, the import-discriminating, multiple rate sales tax was replaced by a 15% value-added tax which is usually levied both on imports and domestically produced goods. Regulatory duties and surcharges on imports were replaced by a supplementary excise duty, which is largely a trade-neutral consumption tax.

Source: WTO Secretariat, based on information provided by the authorities of Bangladesh.

31. During the period under review, the percentage of duty-free tariff lines has more than doubled, from 3.4% in 1992/93 to 8.4% in 1999/2000.

(d) Specific duties

32. All except three tariff lines are subject to ad valorem rates. The three exceptions, involving gold in different forms, are subject to specific duty at the rate of Tk 300 per tola (11.644 grams). The ad valorem equivalents (AVEs) of these duties were not available. At the time of the previous Trade Policy Review in 1992, petroleum products (crude oil and refined oil) covering 14 HS 8-digit tariff lines (0.2%) were also subject to specific duties; these were converted to ad valorem rates in 1993/94.

(e) Tariff quotas, seasonal tariffs, variable import levies

33. Bangladesh does not have any tariff quotas. Nor does it have any seasonal tariffs or variable import levies. WT/TPR/S/68 Trade Policy Review Page 40

Table III.3 Summary indicators of MFN tariffs in Bangladesh, 1992-2005 (Per cent) a Indicators 1992/93 1994/95 1999/2000 U.R.

1. Bound tariff lines 0.0 13.2 13.2 13.2 2. Duty-free tariff lines 3.4 3.7 8.4 8.4 b b 3. Specific tariffs/all tariffs 0.2 0.1 0.0 0.0 4. Tariff quotas/all tariffs 0.0 0.0 0.0 0.0 5. Tariffs with no ad valorem equivalent 0.1 0.1 0.1 0.1 6. Simple average bound tariff rate n.a. 188.8 188.5 188.3 7. Simple average applied tariff rate 58.2 34.5 22.2 .. Agricultural products (HS chapters 1-24) 62.2 36.7 25.1 .. Industrial products (HS chapters 25-97) 57.6 34.4 21.8 .. 8. Average effective rate of protection (ERP) 75.7 40.6 24.5 .. c 9. Domestic tariff "spikes" 0.3 0.1 0.0 .. d 10. International tariff "spikes" 87.6 76.8 55.8 .. 11. Overall standard deviation (SD) 28.9 17.7 13.2 .. 12. Overall coefficient of variation (CV) 0.496 0.514 0.592 .. e 13. Overall standard deviation of ERPs 83.3 30.8 19.8 .. e 14. Overall coefficient of variation of ERPs 110.0 75.9 80.6 ..

.. Not available. n.a. Not applicable. a U.R. refers to full implementation of Uruguay Round tariff reductions, which is envisaged for 2005. b Negligible percentage. c Domestic tariff "spikes" are defined as those exceeding three times the overall simple average applied MFN rate. d International tariff "spikes" are defined as those exceeding 15%. e Based on calculations of ERPs across 40 agricultural and manufacturing sectors supplied by the Bangladesh authorities. Source: WTO Secretariat estimates.

(f) Level of MFN tariff protection

34. Since the previous Trade Policy Review in 1992, Bangladesh has significantly reduced its level of tariff protection. The simple average applied MFN tariff (exclusive of additional duties) fell from 58.2% in 1992/93 to 22.2% in 1999/2000 (Table III.3). Most of this fall was achieved by lowering high rates — the maximum tariff rate decreased from 300.0% to 37.5% — and the compression of low tariffs into rates of 0% or 5% (Chart III.1). The average level of tariff protection is higher for agricultural products than for industrial goods, 25.1% versus 21.8%. The overall level of effective protection has dropped by roughly two thirds, from 75.7% in 1992/93 to 24.5% in 1999/2000 (Table IV.1).35

35 Unlike the other tariff indicators in Table III.3, which concern nominal protection in relation to commodity prices, the effective rate of protection (ERP) relates to the production activity's value added, thereby taking into account the impact of duties levied on inputs used by domestic industries. Bangladesh WT/TPR/S/68 Page 41

Chart III.1 Distribution of MFN tariff rates, 1992/93 and 1999/00

Number of tariff lines 2,500 1992/93 31.3% 2,000

25.5%

1,500

1,000 13.0% 11.7%

500 5.6% 4.6% 4.2% 3.4%

0.1% 0.0% 0.0% 0.7% 0 Duty free >0-10 >10-20 >20-30 >30-40 >40-50 >50-60 >60-70 >70-80 >80-90 >90-100 >100

Number of tariff lines

2,500 1999/00 34.0%

2,000

22.5% 1,500 21.8%

1,000 13.3%

8.4% 500

0.0% 0.0% 0.0% 0.0% 0 Duty free >0-5 >5-10 >10-15 >15-20 >20-25 >25-30 >30-35 >35-40

Note: Calculations exclude specific duties and inputs that depend on the finished product.

Source: WTO Secretariat calculations, based on data provided by the authorities of Bangladesh. WT/TPR/S/68 Trade Policy Review Page 42

(g) MFN tariff dispersion

35. The potential efficiency losses associated with the tariff depend not just on the average level of applied MFN tariff protection but also in the dispersion in applied MFN tariff rates across products. Judging from the proportion of tariffs classified as domestic or international "spikes", and particularly the standard deviation, the dispersion in tariff rates has dropped significantly since 1992/93 (Table III.3). (By contrast, the coefficient of variation has risen.) Likewise, the dispersion in effective rates of tariff protection across 40 agricultural and manufacturing sectors has fallen considerably since 1992/93. It follows that the potentially distorting effect of Bangladesh's tariff on domestic resource allocation has declined considerably during the review period.36 Nonetheless, there remain wide differences in tariff rates (and ERPs) across broad categories of products. The average tariff rates for textiles, clothing and footwear, fats and oils, and prepared food are relatively high, while the rates for mineral products, chemicals and chemical products, hides and skins, machinery, and precision instruments are relatively low (Chart III.2). Chart III.2 Average tariff rates by HS section, 1999/2000

Per cent 40

35 Average applied rate 22.2% 30

01 Live animals and prod. 07 Plastic and rubber 13 Articles of stones 19 Arms and ammunition 02 Vegetable products 08 Hides and skins 14 Precious stones, etc. 20 Miscellaneous manuf. 03 Fats and oils 09 Wood and articles 15 Base metals and prod. 21 Works of art, etc. 04 Prepared food, etc. 10 Pulp, paper, etc. 16 Machinery 05 Mineral products 11 Textiles and articles 17 Transport equipment 06 Chemicals and prod. 12 Footwear, headgear 18 Precision instruments

Note: Calculations exclude specific duties and inputs that depend on the finished product.

Source: WTO Secretariat, based on information provided by the authorities of Bangladesh.

36 The decline in the dispersion in nominal tariff rates has also reduced the scope for "rent-seeking" behaviour. Such behaviour might involve corrupt customs officials threatening to misclassify imports at a higher tariff rate, unless a bribe is paid by the importer, or agreeing to misclassify imports at a lower rate in return for a bribe. Bangladesh WT/TPR/S/68 Page 43

(h) MFN tariff escalation

36. Bangladesh's applied MFN tariff is characterized by escalation, with tariffs on raw materials lower than those for semi-processed and fully processed goods. This explains why the overall ERP (24.5%) currently exceeds the average nominal applied MFN tariff rate (22.2%). In 1999/2000, the average MFN tariff applied to primary products was 17.6%, compared with 20.7% for semi-processed goods, and 24.1% for fully processed products, which accounted for 56.3% of total tariff lines (Table III.4). Tariff escalation is particularly marked in the textiles and leather, wood and wooden furniture, and basic metal sectors; average tariffs on finished products in these industries are at least twice as high as those on raw materials (Chart III.3 and Table AIII.2). In comparison to the tariff structure in 1992/93, that of 1999/2000 is much more clearly characterized by protection to domestic manufacturers, who can import raw materials at relatively low duty rates, and, after adding domestic value, are protected by relatively high tariffs on imports of finished goods.

Table III.4 Applied MFN tariff by degree of processing, 1992-2000 (Per cent) 1992/93 1994/95 1999/2000

Raw materials 48.2 28.5 17.6 Semi-processed 54.1 33.6 20.7 Processed 62.5 36.8 24.1

Source: WTO Secretariat, based on data provided by the Bangladesh authorities.

(i) Tariff concessions

37. The foregoing indicators of tariff protection do not take into account various tariff concessions and preferences (see next section). Currently, Bangladesh's tariff schedule contains some 20 concessionary categories with rates ranging from 0% to 15% (Table III.5). There are three types of tariff concession: those on imports of capital machinery and parts by the registered industrial consumers, including export-oriented industries; those targeting exporters; and those provided for a specific use or user (i.e. "end-use" provisions).

38. The concessionary tariff rate of 5% for machinery and parts, the largest category, covers 17.8% of total 8-digit tariff lines.37 Industrial units that are registered with the relevant sponsoring agencies are permitted to import machinery and parts at the concessional 5% rate on up to 10% of the total c.i.f. value (section (4)(i)). In the case of 100% export-oriented industries, no import duty is charged, although the import duty at 5% is secured in the form of a bank guarantee, an indemnity bond or on cash deposit to be returned after installation of the machinery. Machinery and parts for 100% export-oriented industries cover 15.2% if all tariff lines. To enable quicker customs assessment and clearance for local industries, however, imported capital machinery and parts are also exempt from VAT.

37 Until 1998/99, concessional rates for industrial users of imported machinery and parts were determined on the basis of location of industrial units. The rates were: 2.5% for export-oriented industries located in under-developed areas; 5% for export-oriented industries located in developed areas or other industries located in under-developed areas; and 7.5% for industries located in developed areas. The differential rates were consolidated to 5% in 1999/2000. WT/TPR/S/68 Trade Policy Review Page 44

Chart III.3 Tariff escalation by 2-digit ISIC industry, 1992/93 and 1999/00

Per cent 100 1992/93 90 Average applied rate in manufacturing (59.0%) 80

0 Food, Textiles and Wood and Paper, Chemicals Non-metallic Basic metal Fabricated Other beverages leather furniture printing and mineral metal and tobacco publishing products products and machinery

Per cent

40 1999/00 Average applied rate in manufacturing 35 (22.5%)

0 Food, Textiles and Wood and Paper, Chemicals Non-metallic Basic metal Fabricated Other beverages leather furniture printing and mineral metal and tobacco publishing products products and machinery

First stage of processing Semi-processed Fully processed

Note: Calculations exclude specific duties and inputs that depend on the finished product.

Source: WTO Secretariat calculations, based on data provided by the authorities of Bangladesh. Bangladesh WT/TPR/S/68 Page 45

Table III.5 Concessionary tariff rates No. of Applied MFN rate (%) Concessionary Category of concession Eligibility tariff rate (%) lines Average Range

Capital machinery Registered industrial 518 5.0 8.9 0.0-37.5 consumers Capital machinery (parts) Registered industrial 565 5.0 24.3 0.0-37.5 consumers Capital machinery 100% export-oriented 500 0.0 10.0 0.0-37.5 industries Capital machinery (parts) 100% export-oriented 429 0.0 24.2 0.0-37.5 industries Electrical and electronic parts .. 61 25.0 21.8 5.0-37.5 a (Table 1) Electrical and electronic parts .. 63 25.0 22.1 5.0-37.5 a (Table 2) Agricultural inputs (raw materials for .. 55 0.0 17.0 0.0-37.5 a insecticides): Annex 1 Agricultural inputs (raw materials for .. 81 15.0 20.3 0.0-37.5 a insecticides): Annex 2 Agricultural inputs: raw materials for .. 4 0.0 7.5 0.0-10.0 fisheries Pharmaceutical raw materials: Approved 162 5.0 11.9 0.0-37.5 a Annex 1.A pharmaceutical industries Pharmaceutical packing materials: Approved 24 5.0 22.9 5.0-37.5 a Annex 1.B pharmaceutical industries Pharmaceutical raw materials: Approved 320 15.0 16.4 0.0-37.5 a Annex 2.A pharmaceutical industries Pharmaceutical packing materials: Approved 20 15.0 22.7 5.0-37.5 a Annex 2.B pharmaceutical industries Raw materials for antibiotics .. 52 0.0 16.8 0.0-37.5 Raw materials for paracetamol .. 16 0.0 15.8 0.0-37.5 A. Raw materials for antibiotics .. 8 2.5 14.4 5.0-15.0 B. Raw materials for paracetamol .. 11 2.5 15.0 15.0 C. Raw materials for renitidine .. 12 2.5 20.4 15.5-37.5 hydrochloride D. Raw materials for .. 4 2.5 15.0 15.0 metronidazole benzoyet E. Raw materials for riboflavin .. 2 2.5 7.5 0-15.0 sodium phosphate

.. Not available. a Neither Tables nor Annexes were available to the Secretariat. Note: The total number of tariff lines is 6,100. Source: WTO Secretariat, based on information provided by the authorities of Bangladesh. WT/TPR/S/68 Trade Policy Review Page 46

39. With regard to exporters, apart from tariff exemptions on imports of capital machinery and parts, available for 100% export-oriented industries, concessions are provided to assist generally import-dependent Bangladeshi producers to offset the effects of the country's relatively high customs duties. These include duty drawback and special bonded warehouses, whereby customs duties paid on imports of inputs used in the manufacture of finished products are refunded or exempted (section (3)(xi)). Exemptions from customs tariffs are also granted on imports destined for export processing zones (section (3)(xiv)).

40. The remaining tariff rate concessions are provided on the basis of end use; that is, lower rates of duty are allowed only after the importer proves that the goods have indeed been used for the purpose for which they were cleared. It remains unclear why tariff "concessions" at 25% on electrical and electronic parts (Tables 1 and 2) are higher than the average applied tariff rates of 21.8% and 22.1%, respectively. The objective of the end-use concessions is to mitigate the effect of tariffs on certain domestic-oriented sectors, such as agriculture. According to the authorities, the user-specific concessions exist only for the pharmaceutical industry. Though the use of such concessions appears to have become less extensive, they add to the administrative complexity of the tariff schedule and may result in unintended and undesirable effects on domestic resource allocation.

(j) Tariff preferences

41. Bangladesh grants tariff preferences under the following agreements: (i) the Bangkok Agreement; (ii) the South Asian Preferential Trading Arrangement (SAPTA); (iii) the Global System of Trade Preferences (GSTP); and (iv) the Bangladesh-Bhutan bilateral agreement (Table III.6).38 Product coverage and preferential margins vary from one agreement to another. The relevant rules of origin are based on value-added criteria (see the following section).

Table III.6 Preferential trading agreements Agreement Participants Coverage by Bangladesh Preferential margin

Bangkok Agreement Bangladesh, India, Republic 119 lines 10% to 60% of MFN tariffs of Korea, Sri Lanka South Asian Preferential Trading Bangladesh, Bhutan, India, 237 lines; and 13 additional lines 10% to 15% of MFN tariffs Arrangement (SAPTA) Maldives, Nepal, Pakistan, for least-developed countries Sri Lanka Global System of Trade 48 countries (see Chapter II(4)(iv) .. .. Preferences (GSTP) for the list of the countries) Bhutan Bangladesh, Bhutan 58 lines 50% of MFN tariffs

.. Not available. Source: The WTO Secretariat, based on information provided by the Bangladeshi authorities.

42. Under the Bangkok Agreement, Bangladesh extends tariff preferences to India, the Republic of Korea and Sri Lanka on 119 tariff lines at the HS 8-digit level. Items covered under the agreement include agricultural products, chemicals, rubber, and machinery. While the preferential margin varies from 10% to 60%, most of the preferences are 10 to 15 percentage points below the MFN rate.

43. Under the SAPTA, Bangladesh grants tariff preferences on 237 tariff lines (at the HS 8-digit level) to all other members, Bhutan, Maldives, Nepal, India, Pakistan and Sri Lanka. The items covered include agricultural products, chemicals, metals, and machinery, with the preferential margin ranging from 10% to 15% of the MFN rate. Bangladesh accords additional concessions on 13 lines

38 The details of GSTP were not available. Bangladesh WT/TPR/S/68 Page 47

for the three LDC members, Bhutan, the Maldives and Nepal. Under the bilateral agreement with Bhutan, Bangladesh further accords 50% tariff concessions on 58 tariff lines.

44. The tariff preferences Bangladesh accords under the regional and bilateral agreements are so marginal that they have not resulted in an increase in overall market access for the participants of the agreements. While the average applied MFN rate is 22.24%, the average tariff rates for participants of the Bangkok Agreement, the SAPTA, and Bhutan are 22.20%, 22.22% and 22.15%, respectively. Moreover, the proportion of trade between Bangladesh and its trading partners under the preferential agreements has not increased significantly during the reviewed period.

(k) Rules of origin

45. Bangladesh does not apply non-preferential rules of origin on imports from MFN sources. For the purpose of implementing tariff preferences granted by Bangladesh, the Standard Rules of Origin, 1977, lay down procedures for determining the origin of products under preferential agreements. The Standard Rules apply to all preferential agreements, except the SAPTA whose rules of origin are laid down in the agreement itself. The general rule is that the minimum local value added must be 50% of the f.o.b. value.

46. Under the SAPTA, the general rule of a minimum 40% local value added applies if a product originates from a single member State. When the production of a product involves more than one member State, 50% of value added is required for export of the product to Bangladesh. For the least developed countries, the value-added requirement is lower: 30% local value added for a product originating in a single State or 40% regional value added for production involving more than one State. Prior to April 1999, the general rule was 50% minimum local value added (40% local value added for LDC members) or 60% regional value added.

(v) Other border charges and levies

47. Additional protection is afforded by three other border charges as well as by discriminatory internal taxes that are not reflected in the above tariff indicators. These border charges and levies involve: an infrastructure development surcharge (IDS); a letter of credit authorization (LCA) or import permit (IP) fee; advance income tax; value-added tax; and, in some instances, supplementary duties (Table III.7). The nominal rate of protection, taking into account the IDS and LCA/IP fee, as well as the protective components of VAT and supplementary duty could be one third higher than the current average nominal applied MFN rate of 22.2%.39

(a) Infrastructural development surcharge

48. The infrastructure development surcharge (IDS) of 2.5% was introduced, effective 1 July 1997, as a temporary measure, ostensibly to raise revenue for infrastructure development. Given that it applies to most imports (98.4% of total tariff lines), the IDS has augmented nominal applied MFN tariff protection by around 2.46 percentage points, thus counteracting the fall in the overall applied MFN tariff level. The items exempted from infrastructural development surcharge include: rice; raw hides, skins and leather; cotton; synthetic staple fibres for spinning; computers; cassettes and diskettes; machinery and equipment meant for mineral exploration and generation of electric power; jeeps and cars of an engine capacity not exceeding 1,300 cc, imported by Members of Parliament.

39 The impact of advance income tax in assessing the level of nominal protection is excluded from this estimate. According to the corresponding calculations by the World Bank, the same four charges may increase nominal protection by as much as a half (World Bank, 1999c). WT/TPR/S/68 Trade Policy Review Page 48

Table III.7 Tariff and other duties on imports Ad valorem rate (%) Coverage (% of tariff lines)

Tariff 0-37.5 100.0 Other border charges Infrastructural development surcharge 2.5 98.4 Advance income tax 2.5 100.0 a LCA/IP fee 2.5 89.6 Internal taxes Value-added tax 15.0 93.7 Supplementary duty 5.0-270.0 6.6 a Only imports above Tk 100,000 are covered. Source: WTO Secretariat, based on information provided by the authorities of Bangladesh.

(b) Letter of credit authorization (LCA) or import permit (IP) fee

49. A 2.5% LCA/IP fee is also levied on the value of all imports above Tk 100,000, unless exempted by the Import Policy Order. The exemptions include imports by public sector institutions, export-oriented industries, and recognized industrial users (for imports of machinery and spares) (Table III.8). Duty-free and various other tariff lines are also exempted, accounting for a total of 10.4% of tariff lines. Hence, this fee adds as much as 2.24 percentage points to the average level of applied MFN tariff protection.

Table III.8 Imports exempted from the import licence fee a. To any Department of the Government b. To any local authority c. To any recognized educational institution d. To any hospital financed or aided by, or under the supervision of the Government or any local authority e. For import of petroleum oil, lubricant, raw cotton, staple fibre, wool top, clinker fertilizer and rock phosphate f. Under the Export Promotion Scheme or the Export Industries Special Licensing Scheme g. In respect of any goods to be imported for or on behalf of the President if such goods are exempted from payment of Customs duty under order of the Government h. In respect of any goods to be imported by the following officials or organizations if such goods are exempted from payment of customs duty under order of the Government, namely: (i) United Nations Officials (ii) Colombo plan experts (iii) Ford Foundation personnel (iv) Bangladesh Red Cross Society i. In respect of import of vehicles, office equipment and spare parts by the International Rice Research Institute, Dhaka j. In respect of import of equipment, machinery, vehicles, spare parts, chemicals under different aid and grant programmes by the Bangladesh Agricultural Research Institute k. For import of goods exported from Bangladesh for purposes of exhibition, tests, repairs or replacement free of charge l. For goods imported on returnable basis, for bonded goods or for goods in transit m. To oil production companies with which the Government has a profit-sharing agreement in respect of such machinery and equipment that are only subject to a concessionary rate of customs duty not exceeding 51% ad valorem under the terms of agreement n. For imports of CKD components of one hand radios and CKD components of PO TV by approved manufacturing units of radio and T.V. o. For import of capital machinery and spares for industrialization of areas other than those falling within the following police stations and Upazilas, namely: Bangladesh WT/TPR/S/68 Page 49

(i) Kotwali, Sutrapur, Laling, Dhanmondi, Ramna, Motijheel, Tejgnon, Damra, Cantonment, Gulshan, Mirpur and Mohannadpur police stations and Savar and Keraniganj Upayilas of Dhaka district (ii) Tongi police station and Gazipur and Kaliganj Upazilas of Gasipur district (iii) Narayanganja, Bander, Fatulla and Siddhirganj Upazilas of Narayangonj district (iv) Narsin di Upazila of Narsingdi district (v) Kotwali, Doublemooring, Chittagong Port and Panchlaish police stations and Hathazari, Sitakunda, Rangunia and Raozen Upayilas of Chittagong district (vi) Kotwali police station and Doulatpur and Phultala Upazilas of Khulna district p. For import of capital machineries along with initial spares for export oriented industries, subject to a certificate issued by the Department of Industry q. For import of any goods under specific agreements with the Government in which the Government is committed to exempt import fees r. For import of sea-going ship having a capacity of more than three thousand tons s. For goods for which there is no customs duty t. For goods under the following Heading Nos. HS Codes of the First Schedule to the Customs Act, 1969 (IV of 1969), namely: (i) Heading No. 12.09 (ii) Heading No. 23.01 to 23.06 and HS Code No. 2309.90.00 (iii) HS Code Nos. 2922.41.00, 2923.10.00, 2930.40.00, 2935.00.00, 2941.90.00 and Heading No. 30.02 (iv) Heading Nos. 50.01, 50.02, 50.04, 50.05, 50.06, 51.05 to 51.09, 52.01, 52.03, 52.05, 52.06, 52.07, 54.01, 51.02, 54.03, 54.06 and 55.01 to 55.07 (v) Heading No. 84.32, 84.33, 84.34, 84.36 and HS Code No. 8424.81.90 (vi) Heading Nos. 90.18, 90.19, 90.20, 90.21 and 90.22

Source: The Licence and Permit Fee Order, 1958.

50. The advance income tax is levied on all importers, apparently at the rate of 3.0% of the c.i.f. value of imports. This tax is creditable for corporate tax purposes, which means that it does not constitute an additional levy on imports as long as corporate (or personal) taxes payable are sufficient to be offset by the tax. If the importer is in a non-tax-paying position, however, possibly because the importer is operating at a loss for income tax purposes or is enjoying a tax holiday, the 3.0% levy is a proxy for an import surcharge.

51. Exemption from advanced income tax is granted on, inter alia, imports, by Members of Parliament, of jeeps and motor cars of an engine capacity not exceeding 1,300 cc, bonded warehouse licensees, temporary imports, machinery, and some specific items subject to "end-use" provisions.

(d) Value-added tax (VAT)

52. The VAT is normally levied at a rate of 15% on imports and domestically produced goods alike (unless they are exempted). In the case of imports, it is levied on the c.i.f. value plus import duty, and, in some cases, supplementary duty.40 The VAT is normally levied in a trade-neutral manner, however this is not so in the case of textiles: whereas VAT is levied at 15% on imports of some textiles, domestically produced substitutes are exempt; instead, an excise tax of 2.5% is applicable for the domestic textiles. The difference between the 15% VAT and the 2.5% excise is equivalent to an import tariff on such textiles; it would add roughly 2 percentage points to the nominal applied MFN tariff rate in 1999/2000. At the same time, it would tend to increase the dispersion in overall rates of protection at the border.

40 The VAT is zero-rated for exports; VAT (and supplementary duty, where applicable) paid on imports used in the manufacture of exports is refunded. WT/TPR/S/68 Trade Policy Review Page 50

(e) Supplementary duty

53. Supplementary duties are levied on 6.6% of all tariff lines at rates ranging from 5% to 270% (imported cigarettes). The goods covered include liquor, tobacco products, petroleum products, make-up materials, perfume, ceramic tiles, air-conditioners, refrigerators, televisions, and motor vehicles. Levied on the value of goods, inclusive of any import duty, but excluding VAT, supplementary duties were introduced to discourage both importation of luxury goods and the production and supply of goods and services that are considered undesirable on social, moral or religious grounds. While these duties are levied like excise taxes and are, in principle, trade neutral (the same rates are supposed to apply to imports and similar domestically produced goods), this is not always the case in practice. In particular, domestic cigarettes are subject to rates ranging from 30% to 51%, the rate is 270% for imported cigarettes. Again, the discrepancy in tax rates is equivalent to an additional tariff on imported cigarettes, which would add roughly 0.1 of a percentage point to the nominal applied MFN tariff rate in 1999/2000.

(vi) Import prohibitions and restrictions

54. The Import Policy Order 1997-2002 contains the lists of banned or restricted items (Tables AIII.3 and AIII.4). Items included in the banned list cannot be imported. However, items included in the restricted list are importable on the fulfilment of the conditions specified in the Order.41 Items included in the lists account for 11.7% of total HS 8-digit tariff lines in 1999/2000.

55. The banned list generally includes two categories of product: items that run counter to the religious and social morals of the Bangladeshis, for instance, pork products and drugs; and, a number of textile products that directly compete with locally produced goods ("trade reasons"). In addition to the banned list, imports from Israel, Serbia and Montenegro, as well as goods carried on the flag vessels of these countries, are prohibited.42

56. Restricted items are controlled for social, religious, health, environmental, security or trade reasons. They can be generally classified into the following categories: (i) products that require a certificate, prior permission or clearance from the relevant authorities, as partly listed in Table III.1; (ii) products that can be imported only by registered industrial consumers, including export-oriented ready-made garment, hosiery and specified textile industries operating under the bonded warehouse system43, the pharmaceutical (allopathic) industries, and foreign exchange hotels, within the import entitlement specified in their IRCs; (iii) state trading products, including arms and ammunition, that can be imported only by the government-designated firms, and (iv) products required to meet certain conditions.

57. At present, about 2.2% of total HS 4-digit tariff lines are subject to trade-related prohibitions or restrictions. Trade-related restrictions mainly apply to agricultural products (chicks, eggs, tendu leaves, sugar, salt), packing materials, and textile products. The textile sector enjoys the heaviest protection, accounting for 38.7% of all tariff lines with import prohibitions or restrictions. Import bans are in place on all woven fabrics, and imports of grey cloth are restricted to the ready-made garment industry.44 This protection, combined with high tariffs, has encouraged smuggling of foreign

41 Prior to the Import Policy Order 1995-97, the control list did not separate banned items and restricted items. 42 Import Policy Order 1997-2002. 43 Indirect exporters are also included in this category. 44 Some of the banned textile goods are: woven fabrics of silk; cotton-synthetic blended suiting fabrics above 60 inches width; shirting and suiting fabrics of synthetic or man-made fibers; all knitted or crocheted Bangladesh WT/TPR/S/68 Page 51

textiles and domestic leakage of textiles and garments from bonded warehouses, in which stocks are supposed to be restricted for use in ready-made garment exports.45

58. Progress has been made in reducing the size of the banned and restricted lists since the last Trade Policy Review. The number of items has been reduced from 193 items at the HS 4-digit under the IPO 1991-93, to 110 items under the IPO 1993-95, and 120 items under the IPO 1995-97. Currently, there are 122 items under the IPO 1997-2002, comprising 48 items in the banned list and 97 items in the restricted list; 23 have common HS headings (Table III.9). Products that were placed on the control list are mostly non-trade-related, while products withdrawn from the list had been controlled to protect domestic industries (Tables AIII.5 and AIII.6).46

Table III.9 Evolution of the control list since IPO 1991-93 IPO 1991-93 IPO 1993-95 IPO 1995-97 IPO 1997-2002

Number of items in the 193 111 120 122 control list at the (15.6%) (9.0%) (9.7%) (9.8%) HS 4-digit level Number of trade-related 79 19 27 27 items in the control list at (6.4%) (1.5%) (1.9%) (2.2%) the HS 4-digit level

Note: The number in parenthesis is the share in total 4-digit HS tariff lines; there are 1,239 lines at the HS 4-digit level. Source: Various IPOs.

59. A ban or restriction on an item can be revoked on the recommendation of the sponsoring authority or the Bangladesh Tariff Commission (BTC), which is responsible for monitoring production by "protected" industrial units. If the quality of the domestic product deteriorates, if the domestic production level fails, or if anyone feels adversely affected by a ban or restriction, the revocation of the ban or restriction can be requested of the sponsoring agency or the BTC. Details are not available on import bans or restrictions that have been revoked on these grounds since 1992.

(vii) Import licensing

60. Import licences, per se, are not required for any imports into Bangladesh. However, in addition to the standard LCA import procedure, a permit, clearance, prior permission or approval may be required for a number of imported products (Table III.1). Such a requirement implicitly imposes import licensing.47 Many of the clearance requirements for items on the restricted list are based on health or safety grounds and therefore seem to be "automatic" in nature. However, some requirements are used for the administration of quantitative restrictions and, thus, are equivalent to "non-automatic licensing".

61. Some categories of the restricted items can be imported only by the registered industrial consumers, including export-oriented ready-made garments; hosiery and specified textile industries

fabrics, etc. The restricted textile products include drill and cellular dyed fabrics, 'khaki' fabrics, combat fabrics, grey fabrics, etc. 45 World Bank (1996a). 46 The Government of Bangladesh has reported to the WTO Committee on Balance-of-Payments Restrictions that it plans an early phase-out of the list of 122 unimportables contained in the Import Policy Order 1997-2002 (WTO document WT/BOP/R/46/Add.1, 1 June 1999). 47 Bangladesh requested a transitional period for the implementation of certain requirements linked to automatic licensing procedures for two years under Footnote 5 to Article 2:2 of the Agreement on Import Licensing Procedures (WTO document WT/Let/1/Rev.2, 22 May 1995; this period expired on 31 December 1998. WT/TPR/S/68 Trade Policy Review Page 52

operating under the bonded warehouse system; the pharmaceutical (allopathic) industries; and foreign exchange hotels. The list of restricted items these consumers can import must be approved by the relevant authorities: the sponsoring agency for export-oriented ready-made garments, hosiery, and specified textile industries; and the Drugs Administration for the pharmaceutical (allopathic) industries.48 The list of restricted items, including the quantity and value, is then approved by the CCIE and recorded in their IRCs. In the case of foreign exchange earning hotels, the import of the restricted items is limited to 20% of their foreign exchange earned during the preceeding financial year; of the 20%, a maximum of 7.5% can be utilized for the import of alcoholic beverage and spirits.

62. Second-hand clothing is importable only by 3,000 commercial importers who are selected by an open lottery of quotas, which are distributed among different districts on the basis of population. The ceiling of Tk 50,000 is set for each importer, who may purchase, on the basis of prior permission from the CCIE, blankets, sweaters, ladies cardigans, men's jackets (including zipper jackets), men's trousers and shirts of synthetic and blended fabric; the maximum quantity that may be imported within the ceiling is further subject to a weight limit.49 All consignments of second-hand clothing must also be accompanied by a certificate from a chamber of commerce of the exporting country certifying that the consignment does not contain any banned items.

63. Apart from the items in the restricted list, an import permit or clearance permit (though without an LCA), is required from the CCIE in the following cases: (i) imports of books, magazines, journals, periodicals, and scientific and laboratory equipment against surrender of UNESCO coupons; (ii) imports under the pay-as-you-earn (PAYE) scheme50; (iii) imports by passengers coming from abroad of items in excess of the permitted allowance limits; (iv) imports of free samples, advertising materials, and gift items above the prescribed ceiling; (v) imports of drugs and medicines (allopathic) under the product bonus system, under the guideline of the Drug Administration; and (vi) imports of capital machinery for joint-venture industrial units.

(viii) Import quotas

64. According to the authorities, there are no fixed global quotas on imports. However, the system of non-automatic import clearance, as described in the previous section, implicitly places ceilings on imports of the products covered.

(ix) State trading

65. Apart from military weapons and arms, the restricted list includes petroleum products (HS headings 27.09 and 27.10), which are subject to state-trading and may be imported only by the Bangladesh Petroleum Corporation (BPC), a state-owned company. The Trading Corporation of Bangladesh (TCB), also state-owned, is the exclusive importer of explosive substances (HS headings 36.01 to 36.04) for commercial use, though industrial consumers are permitted to import explosive

48 Recognized ready-made garment industries operating under the bonded warehouse system are also permitted to import items in the banned list. 49 Weight limits are 4 tons for sweaters, ladies cardigans, men's jackets, and men's trouser, 1.5 tons for blankets, and 1 ton for shirts of synthetic blended fabric. 50 The PAYE scheme links the repayment of the initial credit to the income earned from using the services of the import, and is subject to clearance from the Bangladesh Bank. The following imports are eligible for the scheme: (i) plant and machinery of permissible specification, new or less than 12 years old; (ii) motor cars, new or less than 5 years old; (iii) cargo or passenger vessels, new or less than 15 years old; (iv) plant and machinery for export-oriented industrial units; and (v) fishing vessels, new or less than 20 years old. Importers must apply to the CCIE for an IP or CP after obtaining prior permission from the sponsoring agency, i.e. BOI, BEPZA, BSCIC for (i) and (iv); Ministry of Industries for (ii); Ministry of Shipping for (iii) and (v). Bangladesh WT/TPR/S/68 Page 53

substances with prior approval from the Chief Inspector of Explosives, under the Ministry of Energy and Mineral Resources. The import of sugar and salt is usually banned except in case of shortage; under such circumstance, the Bangladesh Sugar and Food Industries Corporation (BSFID) and TCB are the exclusive importers of sugar and salt, respectively.

(x) Import cartels

66. According to the authorities, no export cartels operate in Bangladesh.

(xi) Countertrade

67. According to the authorities, all barter arrangements and special trading arrangements (i.e. barter arrangements at non-governmental level, for example through the TCB and selected business corporations), have been abolished since 1996.51 Previously, Bangladesh conducted barter trade with the so-called centrally planned economies, such as Albania, Bulgaria, China, Czechoslovakia, Hungary, People's Democratic Republic of Korea, Poland, Romania, and Yugoslavia.

(xii) Standards and other technical regulations

(a) Standards, testing, and certification

68. The Bangladesh Standards and Testing Institution (BSTI) is the national standardizing body. The institution formulates national standards for all products except pharmaceutical products, enforces the compliance of standards, and certifies the quality of products for local consumption, export or import. There are 1,612 standards in Bangladesh of which about 8% are compulsory. Testing and certification procedures for compulsory standards are the same for domestic and imported products. Bangladesh has notified the WTO of its acceptance of the Code of Good Practice of the WTO Agreement on Technical Barriers to Trade.52

69. The main policy objectives in the area of standards and technical regulations, as contained in the Industrial Policy 1999, are the harmonization of national standards with international standards and the adoption of international standards in the field of the environment. At present, some 36 Bangladeshi standards are identical to ISO standards, and another 15 are identical to IEC standards. Bangladesh has been a member of the International Standardisation Organisation (ISO) since 1974, but is not yet a member of the International Electrotechnical Commission (IEC). The internationally equivalent standards in Bangladesh are mostly voluntary.

70. The adoption of ISO 9000 and ISO 14000 certification is regarded as an essential instrument for the Bangladeshi exporters to market their products in foreign markets. So far, 25 companies have obtained ISO 9000 certificates and two companies have obtained ISO 14000 certificates. Some 12 companies have been awarded Hazard Analysis Critical Control Point (HACCP) certificates.53 In order to encourage the accreditation of ISO 9000 and ISO 14000, the BSTI conducts seminars and programmes to train auditors, and is planning to provide financial assistance to companies willing to obtain ISO 9000 and ISO 14000 certificates.

71. At present, there is no laboratory accreditation scheme in Bangladesh. However, the Government is currently proposing such a scheme, which is envisaged in the proposed establishment

51 WTO document WT/BOP/G/8, 28 April 1999. 52 WTO document G/TBT/CS/N/92, 28 January 1998. 53 The HACCP guideline is administered by the Codex Alimentarious Commission, a joint FAO/WHO food standard programme. WT/TPR/S/68 Trade Policy Review Page 54

of a national accreditation body. While there are no accredited Bangladeshi laboratories, there are some multinational companies operating in Bangladesh whose certificates are accepted in the country.

72. Bangladesh does not as yet participate any bilateral or mutual recognition agreements with its trading partners in the areas of standards, testing, and certification. However, the Government is currently promoting such initiatives with the SAARC countries; a memorandum of understanding in the area of quality, standardization, and testing is soon to be signed between the Bureau of India Standards and the BSTI.

(b) Labeling and packaging

73. All imports are required to carry a label indicating the country of origin. The label must also indicate quantity, weight, measure, trade description, component materials, and date of manufacture/expiry. Bangla or English is permissible for labeling.

74. For imports of food and beverages, the dates of manufacture and of expiry must be clearly printed.54 Marking of the ingredients and composition of milk food is required in Bangla. In addition, imports of milk food with fat content, and baby food must be in a tin container, and import of non-fat dried milk must be in a bag or tin.

75. For imports of pesticides and insecticides, labels must contain information on the manufacture and ingredients, as well as warning, antidote, and direction for use, in Bangla.

76. Sanitary and phytosanitary standards in Bangladesh are governed by the Pure Food Ordinance and the Quarantine Ordinance. Sanitary certificates and radioactivity test certificates are required for imports of food and edible products. A sanitary certificate issued by the competent authority of the exporting country must indicate that the specific product is free of injurious insects, pests, and diseases. The Bangladesh Atomic Energy Commission conducts radioactivity tests on samples upon the arrival of food items, and issues a clearance certificate for release of the items by the customs authority.55 Foreign certifications of radioactivity test are also accepted in Bangladesh. In addition, in the case of imports of palm oil, olein, and refined bleached and deodorized (RBD) palm stearine, a purity test is conducted by the Bangladesh Council of Scientific and Industrial Research (BCSIR). All expenses incurred for the tests are borne by importers.

(xiii) Government procurement

77. Government procurement has had a substantial impact on trade because of widespread government involvement in production and trade, though its scale has been reduced over the years. Imports by government-sector agents, including the categories of TCB, government and semi-government, and nationalized industries, accounted for 9.3% of total imports in 1997/98, down from 18.8% in 1992/93.

78. The Department of Supply and Inspection, under the Ministry of Commerce, is designated as the country's centralized purchasing organization for the Government. Since 1977, individual

54 The date of expiry is not required for imports of wine or liquor. 55 Acceptable limits of radioactivity for milk powder, milk food and milk products is 95bq of CS-137 per kg., and that for other food items is 50bq of CS-137 per kg. The radioactivity test is not necessary for imports of cigarettes, cigarette papers, pipe tobacco, whiskey, beer and other alcoholic beverages, concentrated essences, spices and medicine. Bangladesh WT/TPR/S/68 Page 55

government ministries/organizations have been allowed to purchase directly from suppliers, usually through public tenders; at present, there are about 10 to 15 agencies purchasing through the centralized purchase department (Table III.10). Although there is no legislation governing government procurement, the "Purchase Manual" prepared by the department describes procedural rules and transparency requirements, and is usually followed by government ministries/organizations as well as public sector enterprises.56 The Government is currently in consultation with several Ministries (Commerce, Finance, Law, Planning and Establishment) to develop a standardized format for government procurement.

Table III.10 Procurement through the Department of Supply and Inspection Financial year No. of A/T Total value (Tk million)

1992/93 358 165.6 1993/94 323 239.5 1994/95 347 290.3 1995/96 259 242.2 1996/97 271 257.2 1997/98 261 188.9 1998/99 264 194.6

Source: Department of Supply and Inspection.

79. The different types of tenders include public tenders, limited tenders for registered suppliers, selected tenders, and single tenders for strictly proprietory articles with a sole agency for procurement of spares, etc. Public tenders are usually advertised by the Ministry of Information in two widely circulated daily newspapers in Bangladesh, including English language papers. After the issuance of the tender, biding is open for at least 15 days in the case of local purchase and 30 days for international purchase.

80. A substantial amount of procurement in Bangladesh is offered in the context of development projects, which are mostly financed by bilateral or multilateral donors. In such cases, the procedure for procurement follows different guidelines as laid down by the donors. Local bidders are not granted price preferences.

81. Bangladesh is not a signatory to the WTO Plurilateral Agreement on Government Procurement.

(xiv) Local-content schemes

82. The Export Policy Order 1997-2002, as well as previous orders, explicitly encourages, though does not require, the use of local raw materials with a view to establishing backward linkage industries, in particular in the textile and clothing, Bangladesh's largest export sector. Since 1995/96, a 25% cash compensation on the f.o.b. export value is granted to 100% export-oriented garment industries using 100% locally manufactured inputs (section (3)(x)). Moreover, a higher currency retention quota, 40%, is granted for exporters with high domestic value added (section(3)(xiii)).

56 The Import Policy Order 1997-2002 requires that procurement be made at the most competitive rate by comparing the competitive market rate quotations before opening of L/C. At least three quotations must be obtained from registered indentors or from foreign suppliers when the consignment value is over Tk 30,000. WT/TPR/S/68 Trade Policy Review Page 56

(xv) Anti-dumping, countervailing, and safeguard measures

(a) Anti-dumping and countervailing measures

83. The Finance Act of 1995 introduced regulations and procedures for examining dumping and subsidy complaints, by amending Section 18 of the Customs Act, 1969. The legislation was passed with a view to bringing the provisions on anti-dumping and countervailing actions into conformity with the WTO Agreements on Implementation of Article VI of the GATT 1994 and on Subsidies and Countervailing Measures. The Bangladesh Tariff Commission (BTC) is entrusted with the conduct of investigations on dumping and subsidies.

84. An application for an investigation, whether for an anti-dumping or countervailing measure, must be made in writing to the BTC by or on behalf of a domestic industry. The BTC must terminate the investigation within one year of the date of issuing public notice, and submit its findings and recommendations to the Government. Provisional anti-dumping or countervailing duties, not greater than the margin of dumping or of the subsidy rates, may be imposed within 60 days of initiation and applied for a period of six months, extendable by three months.

85. The final findings must be available within one year of the date of initiation. The imposition of the final duty is made by notification in the Official Gazette. Final measures may be taken for a period of five years from the date of imposition; however, the Government may renew the duty for a further period of five years , upon review, if it is believed that there would be continued injury. If the initial five years expire while a review is in progress, the anti-dumping duty can be extended for a maximum of one year.

86. Appeals against an anti-dumping or countervailing duty can be made to the Customs, Excise and Appellate Tribunal, under Section 196 of the Customs Act, 1969, and must be filed within 90 days of the date of imposition of the duty.

87. Hitherto, there has been no investigation initiated on anti-dumping or countervailing measures in Bangladesh. A number of local producers have complained that trade liberalization in recent years has helped foreign suppliers to sell their products in Bangladesh. In some cases, they allege that foreign suppliers, many from the region, are resorting to "unfair" trade practices in the form of dumping or subsidized exports, thus threatening the very existence of local industries.57 However, lack of technical expertise and financial resources both by the administration and industries, as well as lack of authenticated data essential for submission of application, have made difficult to initiate investigations.

(b) Safeguards actions

88. A provision on safeguards was introduced in 1997 by amendments to Section 18 of the Customs Act, 1969. However, rules regarding imposition of safeguard measures have not yet been made.58

57 WTO document WT/LDC/HL/12/Add.1, 24 October 1997; and Ministry of Commerce (1998). 58 The WTO Agreement on Safeguards permits a country to restrict imports of a product for a temporary period either by increasing the bound rate of tariffs or imposing quantitative restrictions. However, Bangladesh has only bound a few tariff lines. Bangladesh WT/TPR/S/68 Page 57

(xvi) Balance-of-payment measures

89. Bangladesh has been subject to simplified consultations in the GATT and WTO Committee on Balance-of-Payments Restrictions since 1973. At the first simplified consultations, held under the WTO in 1997, the Committee "determined that full consultations would be desirable as a means of clarifying the balance-of-payments situation and promoting greater transparency … before May 1999".59 In September 1998, Bangladesh requested a postponement of the full consultations citing the damage caused by unprecedented flooding in the country.60 The Committee agreed that full consultations would take place in May 2000 at the same time as the Trade Policy Review of Bangladesh.61

90. At the most recent consultations, held in May 1999, WTO Members expressed sympathy with Bangladesh for the natural disaster suffered in 1998, and considered that the conditions of Article XVIII:B (on trade measures taken for balance-of-payments reasons) had been met. However, they continued to express their desire for clarification of the criteria used, and the rationale behind, the restriction of imports, noting that balance-of-payments measures were intended to control the general level of imports. Bangladesh was also encouraged to submit a timetable for the phase-out of the restrictions, preferably before the summer break (July 1999).62

91. Following the conclusion of the 1999 consultations, Bangladesh informed the Committee that it planned an early phase-out of the list of 122 unimportables, contained in the Import Policy Order currently in force.63

(3) MEASURES DIRECTLY AFFECTING EXPORTS

(i) Registration and documentation

92. All exporters, except those in export processing zones (EPZs), are required to obtain an Export Registration Certificate (ERC) from the CCIE. The documentation required for an ERC is the same as for an IRC; the initial registration fee or annual renewal fee is set at Tk 1,000. The ERC allows exports of all products, in any quantity, except those in the restricted and banned lists (section (v)).

93. Generally, exportation is effected on the basis of a letter of credit (L/C) issued by a commercial bank. Documents required in the execution of an export transaction include the L/C and EXP Form, issued by the executing bank, invoice and packing list, and bill of lading/airway bill. Additional export certificates may be required for certain products (Table III.11).

94. The Export Policy 1997-2002 includes steps to simplify export procedures by allowing export without L/C, but on the basis of a purchase contract, agreement, purchase order or advance payment. In such cases, the exporter is required to submit only the EXP Form and the shipping bill. To qualify for such status, exporters must export their goods for a minimum period of one year on the basis of the contract, purchase order or advance payment, and on the basis of L/C.64

59 WTO document WT/BOP/R/28, 28 May 1997. 60 WTO document WT/BOP/18, 17 September 1998. 61 WTO document WT/BOP/R/42, 16 October 1998. 62 WTO document WT/BOP/R/46, 28 May 1999. 63 WTO document WT/BOP/R/46/Add.1, 1 June 1999. 64 The Export Policy 1997-2002, para. 8.28. WT/TPR/S/68 Trade Policy Review Page 58

Table III.11 Certificates required for export Product Certificate or permit Issuing ministry or agency

Any product as required by the importing country Certificate of Origin Export Promotion Bureau or Chamber of Commerce and Industry Frozen fish Health-cum-quality Certificate Department of Fisheries Goods of plant origin Quarantine Certificate Ministry of Agriculture Tea Export Authorization Tea Board Pharmaceutical products No Objection Certificate Drugs Administration Goods for international fair or exhibition No Objection Certificate Export Promotion Bureau Jute Export Price Certificate Bangladesh Bank Goods for repair Export Permit CCIE No Objection Certificate Bangladesh Bank Ready-made garments GSP Certificate Export Promotion Bureau Live wild animal Export Permit CCIE No Objection Certificate Chief Conservator of Forest

Source: The Government of Bangladesh.

(ii) Quality control and export clearance

95. Quality control licences are required from the Bangladesh Standards and Testing Institute (BSTI) for certain export products; however, a list of products subject to this requirement and further detail is not available.

96. It has been reported that Bangladesh’s products have suffered from shortcomings in internationally acceptable levels of standard, quality and packaging and, as a result, Bangladesh exporters claim that their market access has been restricted.65 In particular, lack of facilities for ensuring product quality is cited as a major obstacle.66 The Government has taken some steps to improve compliance of quality standards before shipment of export cargo, including organizing seminars to increase awareness of exporters, and modernization of BSTZ testing laboratories.

97. Permission from the Ministry of Shipping is required for the shipment of each export cargo. A waiver may be granted for the shipment of certain goods, or upon approval of application by the Ministry.67

98. As in the case of import clearance, it has been reported that the cost of exporting is increased by the numerous demands for "under-the-table" payments that are reportedly required at every step of the export process, from opening letters of credit to the clearance of goods through customs.68 According to one survey, it takes on average seven days, but possibly up to 30 days, to complete all the documents required for exports, and a further nine days, with a maximum of 75 days, to obtain customs clearance for shipment.69

65 For instance, non-compliance with health and environmental standards resulted in sanctions on the export of shrimps and frozen food in 1997, when it was determined that very few processing units met the EU's standards. These sanctions have since been lifted for some processing units (World Bank, 1999a). 66 WTO document WT/LDC/HL/12/Add.1, 24 October 1997. 67 The Export Policy 1997-2002, para. 8.26. 68 World Bank (1999a). 69 World Bank (1996b). This is based on the Exporters' Survey concluded through questionnaires completed by 75 RMG manufactures of various sizes, looking at the delays faced by exporters at various stages Bangladesh WT/TPR/S/68 Page 59

(iii) Export taxes, charges and levies

99. According to the authorities, exports are at present not subject to any taxes, charges or levies. However, the Export Policy Order 1997-2002 (paragraph 8.2.3) stipulates that "Tax at source will be deducted at the rate of 0.25%".

(iv) Minimum prices and price controls

100. Minimum export prices on raw jute are set by a committee at the Ministry of Jute; the committee comprises representatives of the Bangladesh Bank, Bangladesh Jute Corporation, Bangladesh Jute Association, and Bangladesh Jute Exporters Association. According to the authorities, these are indicative prices, not mandatory. However, jute exporters are required to obtain an Export Price Certificate, a permit to export raw jute below the export prices set by the committee, from the Bangladesh Bank.

(v) Export prohibitions and restrictions

101. Goods subject to export prohibition are listed in the Negative List of Export under the Export Policy 1997-2002 (Table III.12). According to the authorities, the bans are in place mainly for reasons of health, eco-balance, security, archaeological value, or maintenance of adequate domestic supply. The bans apply both to agricultural commodities and manufactured goods. A number of items that had been prohibited under previous Export Policies have been removed (Table III.12). The only item that has been included in the ban since the last Trade Policy Review is chemical weapons, as a result of signing of the United Nations Convention on Chemical Weapons in 1993.

Table III.12 Negative List of Export Product Description

(i) Items prohibited for export under the Export Policy 1997-2002 Petroleum and petroleum products except naptha, furnace oil, lubricant oil and bitumen. However, this prohibition shall not be applicable to the export of petroleum and LNG by foreign firms operating in Bangladesh under production sharing contracts to the extent of their share as agreed upon. Oil seeds and edible oil except Kapok seeds. However, edible oil processed/refined in the country out of oil seeds and crude oil imported for export purpose may be exported subject to permission of the Ministry of Commerce. Jute seeds and sunlamp seeds. Wheat. Molasses and Khandseri sugar. Live animals, all sorts and skins of animals and wild life covered in the Bangladesh Wild Life (preservation) Ordinance, 1973 (President's Ordinance No. XXIII of 1973, as amended in 1974) except the species listed in the First Schedule of the Ordinance. Firearms, ammunitions, explosives and ingredients thereof. Fissionable materials. Rare archaeological items. Human skeleton, blood plasma or any other material produced out of human blood. Pulses, all sorts. Unfrozen and unprocessed prawns and shrimps (S.R.O. No. 60-L/76, dated 14.2.76). Table III.12 (cont'd)

of the production cycle. It is also reported that a great deal of time, i.e. more than half a person per year, is needed to deal with the government agencies, such as Customs, port authority, tax department, Export Promotion Bureau, and various ministries. Firms have to spend, on average, 7% of their sales revenue to overcome the import and export delays by government agencies. Most exporters, i.e. 82% of those surveyed, employ a person specifically to deal with Government agencies. WT/TPR/S/68 Trade Policy Review Page 60

Product Description

Onion (S.R.O. No. 250-L/77, dated 13.8.77). Saline water shrimps of 71/90 counts or below except "harina" and "chaka" variety and fresh water shrimps of 61/70 counts or below (S.R.O. No. 345-L/83, dated 20.10.83). Rice bran (except de-oiled rice bran). Bamboo and cane in whole form and wood log. Frogs of all species (live or dead) and frog legs. Chemicals included in Schedule 1 of the Chemical Weapons Convention of the United Nations signed in Paris on 13-15 January 1993. Raw hides and wet blue leather. (ii) Items removed from the previous Export Policies since 1993 All imported goods in their original or unprocessed form. Ferrous and non-ferrous metals and scraps thereof. Foodgrains including rice products and flour products. Milk and milk products. Maps and charts except: (a) unclassified maps of scale smaller than 1/4 inch or 1/250,000 scale; (b) educational and scientific charts; and (c) guide maps and relief maps. Beef, mutton and animal fats. Green coconuts, coconuts and copra. Eggs and poultry (SRO No. 365-L/75, dated 1 November 1975). Feature films not certified by the Bangladesh Film Censorship Board as fit for export (SRO No. 174-L/76 dated 24 May 1976). Oil cake.

Source: Various Export Policies.

102. The overall export ban on South Africa was lifted in 1992. The only remaining country ban is on Israel.

103. Exports of molasses, de-oiled rice bran, wheat bran, urea fertilizer, cow and buffalo horns and hooves, and date-gur are subject to the conditions specified in the Export Policy and require a permit from the Ministry of Commerce (Table III.13). The latter three items have been added to the restricted list since the last Trade Policy Review due to domestic demand and supply constraints. Domestic production of the restricted products is monitored; when there is surplus production, export is allowed on a case-by-case basis by the Ministry.

Table III.13 Items subject to export restriction Description

Molasses Permissible on case-by-case basis. De-oiled rice bran Permissible on case-by-case basis only in case the Ministry/Directorates of Fisheries and Livestock fail to purchase the available stock within a reasonable time and price. Wheat bran Permissible on case-by-case basis only in case the Ministry/Directorates of Fisheries and Livestock fail to purchase the available stock within a reasonable time and price. Urea fertilizer Export of urea fertilizer produced in the factories of the Bangladesh Chemical Industries Corporation (except Khanaphuli Fertilizer Company) is permissible only on the recommendation of the Ministry of Industries on case-by-case basis. Cow and buffalo horns and hooves Permissible on case-by-case basis. Date-gur Half of the quantity produced in a year shall be exportable on case-by-case basis.

Source: The Export Policy 1997-2002.

104. Until the Export Policy 1993-95, re-exports (i.e. export of imported goods in their original or unprocessed form) were banned. Subsequently, re-exports were allowed for all items other than Bangladesh WT/TPR/S/68 Page 61

ready-made garments/fabrics as long as the value of exports exceeded 10% of the value of imports and permission was obtained from the Ministry of Commerce. Under the current Export Policy 1997-2002, re-exports have been facilitated by reducing the rate of value added required for re-export to 5% and by abolishing the permission requirement.70

(vi) Export licensing

105. Export products are not subject export licensing. The previous licensing requirement for raw jute was abolished. However, the issuance of export certificate may be required from the relevant authorities for products listed in Table III.11. In addition, as mentioned in the previous section, permission is required from the Ministry of Commerce for export of restricted items.

(vii) Export quotas

106. Bangladesh does not impose export quotas.

(viii) Export cartels

107. According to the authorities, there are no export cartels in Bangladesh.

(ix) Voluntary restraints, surveillance, and similar measures

108. The Government monitors certain exports of textiles and clothing to Canada and the United States (Chapter IV(5)(ii)).

(x) Export subsides and other financial assistance

109. Direct subsidies have been provided to exporters of textiles and garments, Bangladesh's largest exports, and more recently to exporters of jute products, leather products, handicrafts, fresh and artificial flowers.

110. Cash compensatory support or cash assistance of 25% of export value (f.o.b.) is granted to 100% export-oriented domestic textiles and garments industries, using 100% locally manufactured raw materials or duty-paid imported raw materials (i.e. not using duty drawback, special bonded warehouse, or EPZ).71 If the exporter is an intermediate buyer, the support is accorded to the original producer of the input. Thus, manufacturers of indigenous fabrics (woven, knit, hosiery, grey, printed, dyed, grameen check, handloom, silk, and other specialized fabrics) supplying their products to 100% export-oriented garment industries are entitled to a cash support of 25% of the value of the fabrics supplied to the manufacturers provided the fabrics do not enjoy duty drawback, bonded warehouse facility, or EPZ.

111. Cash assistance has been extended to other export industries using locally produced inputs: 10% assistance to producers of manufactured jute goods in 1998/99, and to producers of leather products (including shoes and handbags), handicraft, and fresh and artificial flowers in 1999/2000. The total outlay for subsidies and other financial assistance to exporters is projected at Tk 5.61 billion for 1999/2000.72

70 The Export Policy 1997-2002, para. 8.27. 71 The Export Policy 1997-2002, para 8.2.7. 72 Ministry of Finance (1999). WT/TPR/S/68 Trade Policy Review Page 62

(xi) Duty concessions

112. Apart from concessionary duty rates for the importation of capital machinery and spare parts (5.0% for export-oriented industries, and duty free for 100% export-oriented industries (section (2)(iv)(i)), export-oriented industries have access to the duty drawback system and special bonded warehouses whereby customs duties and value-added taxes paid on imports of inputs used in the manufacture of finished products are refunded or exempted (Box III.2). They are also entitled to import duty-free samples (within specified limits) related to the manufacture of exportable products, provided clearance is obtained from the Export Promotion Bureau.73

Box. III.2: Export-oriented industries: definition

Export-oriented industrialization has been one of the major objectives of Bangladesh's economic policy. Export-oriented industries have been given priority for government support, such as subsidies, tax incentives and infrastructural facilities.

The Industrial Policy 1999 defines an export-oriented industry as an industry exporting at least 80% of its manufactured goods or services or an industry contributing at least 80% of its products as inputs to finished exportables ("deemed or indirect exporter"). Incentives and facilities available to export-oriented industries are listed in the Industrial Policy 1999 and the Export Policy 1997-2002. These include duty and tax concessions, export finance, export insurance and guarantees, export promotion and market assistance, and foreign currency retention scheme, etc.; these are in addition to the general incentives available to all industries (section (4)(iii)).

The Export Policy 1997-2002 extends those incentives and facilities for export-oriented industries to industries that cannot yet export 80% of their products, but have the potential to become export-oriented industries with such assistance. For instance, agricultural farms of a minimum of 5 acres are provided with all export incentives and facilities to encourage the production of fruit, vegetables, fresh flowers, etc. for export. The coverage of "deemed exports" has been widened in the Export Policy Order 1997-2002 to include supply of goods to export processing zones and export of turn-key projects like engineering services contracts, consulting services contracts, and various other construction contracts. Products supplied to local projects in foreign exchange, against international tender, are also considered as "deemed exports", and are eligible for export incentives and facilities.

Industries exporting their total production ("100% export-oriented industries") are eligible for additional incentives and facilities, including direct subsidies, duty-free imports of machinery, special bonded warehouse facilities, and duty drawbacks. They may also sell 20% of any goods rejected for exportation on the local market, subject to payment of usual duties and taxes. Moreover, the Export Policy 1997-2002 has declared leather industrial units exporting a minimum 80% of production as 100% export-oriented industries, and has granted them the benefits of 100% export-oriented industries.

Source: The Export Policy 1997-2002; and Industrial Policy 1999.

(a) Duty drawback schemes

113. The 100% exporters are entitled to a drawback for the amount of duties and taxes paid on importation of raw materials once the product is exported. Duty drawback is implemented in the three

73 Ceilings for the import of duty-free samples, set by the Import Policy Order 1997-2002 are: 100 samples, with not more than 20 in each category, per year for the garments industry; 100 pairs per year for the mechanized shoe industry; 100 tanned leather samples for tannery industry; and US$1,000 for other export-oriented manufacturers. To import of samples in excess of the ceilings, prior permission and an import permit must be obtained from the CCIE on recommendation of the EPB, issued on the basis of export earnings (The Export Policy 1997-2002, para. 8.12). Bangladesh WT/TPR/S/68 Page 63

ways: flat rate drawback, whereby the duty drawback is pre-fixed by the Government; actual rate drawback, whereby the duties and taxes actually paid on imports are reimbursed; and notional drawback.74 All three schemes are administered by the Duty Exemption and Drawback Office (DEDO), under the NBR. "Deemed" exporters, i.e. local firms supplying inputs to 100% direct exporters, are also eligible for these schemes. Under the flat-rate and notional drawback schemes, there is the potential in some instances for refunds to exceed the amounts of import duty and taxes actually paid; in such cases, the excess could constitute a subsidy to exporters. Export subsidization may also arise to the extent that "deemed" exporters are granted cash assistance as well as duty drawbacks.

114. Most drawback claims by exporters are processed under the flat rate system, which is simpler for the Duty Exemption and Drawback Office to administer. Flat rates are estimated by the DEDO on the basis of input-output coefficients, calculated for a representative sample of firms from the relevant industry. The current flat rate schedule lists the fixed import duty and value-added tax for about 1,000 items.75 The rates are reviewed and updated at regular intervals, often taking the form of splitting existing rates to accommodate different product specifications.76 When no flat rate is readily available on an export item, especially when the item is new, drawback is paid under the actual rate system.

115. According to the authorities, claims under the flat rate are usually settled in a week.77 For quick disbursement of duty drawback, payments are made directly to the exporter's bank account immediately upon receipt of foreign exchange against the export.78 However, it has been reported that it takes on average 58 days, with a maximum 120 days, and 6% additional expenditure, for exporters to obtain a refund cheque from the DEDO.79 Such long delays and additional expenditure may help to explain exporters' apparent preference for special bonded warehouses rather than the drawback system.

(b) Special bonded warehouses

116. Special bonded warehouses (SBWs) allow 100% exporters and "deemed" exporters to import and stock inputs duty free. The warehouse facility is administered by the NBR, which issues a licence to operate an SBW and monitors the inventory through the use of import and export passbooks and a pre-tabulated input-output system. SBWs have been a critical factor in the development of Bangladesh' s garment exports. (Chapter IV(5)(ii).)

117. Until August 1993, SBWs were available only to 100% exporters in the garment industry, including deemed exporters, using back-to-back L/Cs; the facility was then extended to all 100% exporters and deemed exporters.80 While some leather, toy and jewellery exporters have started to use the SBWs, around 90% of users are still 100% garment exporters. Some studies have suggested that

74 The Export Policy 1997-2002, para 8.2.9. 75 The schedule included 205 items in 1991 and 720 items in 1995 (GATT 1992; and GATT document BOP/323, 21 February 1995). 76 The Export Policy 1997-2002, para. 8.2.9; IMF (1998). 77 GATT document, GG/BOP/323, 21 February 1995. 78 The Export Policy 1997-2002, para. 8.2.4. 79 World Bank (1996b). 80 Previously, non-garment exporters could avail themselves of private boned warehouses, whereby the payment of duties could be delayed until they were ready to consume raw materials imported earlier (GATT, 1992). WT/TPR/S/68 Trade Policy Review Page 64 the NBR has resisted promoting the use of SBWs, mainly due to the lack of a monitoring system to control non-garment SBW users.81

118. Both SBW and duty drawback schemes appear to have worked quite well for dedicated, direct exporters; however, they are biased against production aimed at both export and domestic markets (partial export), and against domestic sourcing of materials and intermediate inputs (indirect export). These biases have been partially removed by making the facilities available to a wide range of partial and indirect exporters.

(xii) Tax concessions

119. Under the Income Tax Ordinance, a 50% rebate is provided on taxable income generated from any export business. The total export earnings of handicraft and cottage industries are exempted from income tax.

120. Like other eligible industrial enterprises, export-oriented industries are accorded a tax holiday of five to seven years (section (4)(iii). The enterprises are exempted from deduction of tax at source, which is currently levied at the rate of 0.25% on all export earnings.82 Industrial units ineligible for tax holidays may instead receive accelerated depreciation allowances at the rate of 80-100%.

121. To maintain price competitiveness for export products, rebates on the value-added tax are granted on a number of export-related services. For instance, VAT can be refunded on export support services, i.e. C&F service, telephone, telex, fax, electricity bills, insurance premium, shipping agent's commission/bill.83 VAT paid on jute clothes and bags used in the packing of export goods is also refundable.84

(xiii) Currency retention scheme

122. The taka has been convertible for current account transactions since 1994. As a result, earnings from the trading account are freely convertible into foreign exchange for the importation of goods. Under this arrangement, exporters are at present allowed to retain 40% of their f.o.b. export earnings in foreign currency accounts denominated in U.S. dollars, pounds sterling, Deutsche marks, Japanese yen or euros. The ceiling for foreign currency retention has gradually been increased: 20% under the Export Policy 1993-95, and 40% since the Export Policy 1995-97. For export items with a high imported input component, such as petroleum products (naphtha, furnace oil, bitumen), ready-made garments, and electronic goods, the exporter’s retention quota is 7.5% of f.o.b. earnings. According to the authorities, the higher retention quota allowed for exporters with low imported input component is intended to encourage exporters to use more locally available inputs in their production. Exporters of services, such as legal advice, consultancy, and similar professional services, can retain 5.0% of their export earnings. Foreign currency can be used by exporters for, inter alia, undertaking business abroad, participating in export fairs and seminars, importing raw materials, machinery and spare parts or setting up overseas business offices.85

81 IMF (1998); and World Bank (1996b). 82 The Export Policy 1997-2002, para. 8.2.8. 83 The Export Policy 1997-2002, para 8.2.11. 84 The Export Policy 1997-2002, para 8.2.10. 85 The Export Policy 1997-2002, para. 8.1.3. Bangladesh WT/TPR/S/68 Page 65

(xiv) Export processing zones

123. There are currently two export processing zones (EPZs) in Bangladesh: the Chittagong EPZ (CEPZ) and the Dhaka EPZ (DEPZ), which were established in 1983 and 1993, respectively under the Bangladesh Export Processing Zones Authority Act, 1980. Four additional EPZs are under construction in Mongla, Ishurdi, Comilla and Syedpur, and are expected to become operational in mid 2000. The Bangladesh Private Export Processing Zones Act, 1996, allows the establishment of private EPZs, whereby factories and other facilities are built by private investors, instead of being leased from the Government.86 The first private EPZ was established by Koran investors. The Bangladesh Export Processing Zones Authority (BEPZA) is the sponsoring agency that approves all projects located in the EPZs. The BEPZA provides infrastructure facilities, administers tax incentives, issues work permits for foreign nationals, and administers labour matters for all enterprises in the EPZs.87

124. Three types of investment are permitted in EPZs: 100% foreign-owned, foreign-local joint venture and 100% locally owned; they receive equal treatment in the EPZs. As of June 1999, there were 133 industrial units in operation with a total investment of US$391.8 million, of which US$306.5 million was foreign investment.88 Of these units, about half are producing ready-made garments or textile items; others produce, inter alia, electronic and electrical items, metals, leather products (including shoes), and plastics (Table III.14). Exports from the EPZs amounted to US$711.7 million in 1997/98 and imports by the EPZs were US$534.4 million, accounting for 13.4% and 6.7% of the total national exports and imports, respectively (Table III.15).

Table III.14 Export processing zones: investment by sector, as at June 1999 No. of industries Investment Product in operation (US$'000) Garments and accessories 36 103,158 Textile products 16 91,021 Leather goods 11 41,761 Knitting and other 11 30,186 Fishing reel and golf equipment 1 29,741 Caps 7 22,080 Electronics and electrical goods 10 20,446 Terry towels 14 15,392 Metal products 8 11,637 Plastic goods 7 8,799 Tents 3 7,109 Miscellaneous 4 6,428 Ropes 1 2,493 Paper products 2 708 Furniture 1 506 Toys 1 349 TOTAL 133 391,814

Source: Bangladesh Export Processing Zones Authority.

86 In the public EPZs, constructed factory buildings and land are available for rent at US$2.50 per m2 per month and US$2.00 per m2 per year, respectively. 87 Formation of labour unions in the EPZs, and strikes within the zones are not allowed (Board of Investment, 1999). 88 Foreign investment in the EPZs originates from the United States; Japan; the Republic of Korea, Hong Kong, China; Singapore, the United Kingdom, Sweden, the Netherlands, Thailand, and Pakistan. WT/TPR/S/68 Trade Policy Review Page 66

Table III.15 Export processing zones: investment, employment, export, and import, 1992-99 Investment Local employment (No.) Exports (US$ million) Imports (US$ million) Year (US$ million) CEPZ DEPZ CEPZ DEPZ CEPZ DEPZ CEPZ DEPZ

1992-93 22.5 n.a. 3,114 17,728 n.a. 127.0 n.a. 88.6 n.a. 1993-94 29.2 8.2 3,086 20,814 5,522 140.4 5.2 103.8 20.2 1994-95 27.7 8.3 4,297 25,111 1,844 186.9 41.3 158.5 41.7 1995-96 16.1 14.5 5,875 30,986 4,831 263.8 73.2 209.7 60.6 1996-97 22.9 31.0 8,588 39,574 4,185 343.3 119.5 285.5 131.6 1997-98 42.6 26.2 7,419 46,993 5,630 450.4 185.6 345.8 174.4 1998-99 36.1 35.5 7,746 54,741 5,321 452.1 259.6 307.9 226.4

n.a. Not applicable. Source: Bangladesh Export Processing Zones Authority.

125. Industrial units located in the EPZs must export at least 90% of their products, i.e. they can sell a maximum of 10% on the domestic market upon payment of import duties and other taxes. They are also permitted to purchase goods from the domestic tariff area.89 Import into and export from EPZs are outside the purview of the existing import and export regulations and therefore free from import policy restrictions such as the IRC and ERC, tariffs and other duties, and the control list.90 Industrial units located in the EPZs also enjoy income tax exemption for ten years and 50% income tax rebate on export earnings after this period. Additional incentives are available under the Industrial Policy, 1999 (section (4)(iii)).

(xv) Export finance

126. There are three types of export financing in Bangladesh: preshipment financing in local currency by commercial banks; preshipment financing in foreign currency by commercial banks through Export Development Fund (EDF); and back-to-back letter of credit facilities.

127. Exporters can access credits in local currency from private and nationalized commercial banks at a concessional rate determined by the Bangladesh Bank. The interest rate policy introduced in 1992, which liberalized interest rate ceilings for all categories of lending except to export, agriculture, and small and cottage industries, permitted individual banks to differentiate interest rates charged to individual borrowers. The interest rate bands for exports have been set in the range of 8% to 10% since 1994/95 (section (4)(v)).

128. Exporters can obtain export credits for up to 90% of the value of their irrevocable L/C or sales agreement for a maximum period of 180 days. Credit repayment can be extended to 270 days for exporters of certain commodities, such as frozen food, tea, and leather products.91 No overdue interest can be charged by commercial banks in the case of export against irrevocable letters of credit on advance payment basis.92

89 The BEPZA is responsible for issuing a pass book specifying the annual entitlement of imports from the domestic tariff area for EPZ industrial units; according to the authorities, however, the pass book is not used as they deem it unnecessary. 90 Movement of goods between the EPZs and areas in Bangladesh outside of the EPZs are regulated in accordance with the existing regulations. 91 The Export Policy 1997-2002, para. 8.1.5. 92 The Export Policy 1997-2002, para. 8.1.6. Bangladesh WT/TPR/S/68 Page 67

129. The Export Development Fund (EDF), administered by the Bangladesh Bank, provides preshipment financing for imports of necessary raw materials, spare parts, and packing materials for exporters of non-traditional items. Few details are available on the terms of such financing, notably on concessional rates of interest. Details that were available indicate that, like other export credits, the time-limit for repayment is usually 180 days, extendable to 270 days in exceptional cases.93 In 1997/98, loans amounting to US$97.01 million, jointly supported by the Government of Bangladesh and the International Development Association, were extended to exporters; exporters of ready-made garments accounted for the majority of the loans.94

130. Exporters of certain products may open "back-to-back" L/Cs for the required imports of raw materials against their export L/C. These include ready-made garments, specialized textiles, household linen, hosiery, toys, luggage and fashion goods, electronic items, and leather goods. Under the inland back-to-back L/C system, local suppliers of raw materials to export industries can also obtain advantageous financing.

131. Some studies have reported that lack of access to trade financing, caused by a weak commercial banking system and foreign exchange scarcity, has constrained Bangladesh's export expansion.95 In the mid 1990s, whereas the export sector accounted for almost one third of industrial output, it received only 9% of total industrial financing.96 The insistence by commercial banks of the use of L/Cs for export financing, as well as the existence of interest rate ceilings on export loans, have negatively affected exporters' access to local credit.97 On the other hand, indirect exporters are forced to give inter-firm credits for their sales of indirect export items to direct exporters because they do not have the option of sight or advance payments from direct exporters; this seems to be inconsistent with the government's policy of promoting backward linkages.98 Moreover, it is reported that the users of the back-to-back L/C system may end up paying the extra cost of importing inputs, estimated at 7-8% higher than under the normal system.99

(xvi) Export insurance and guarantees

132. The Export Credit Guarantee Scheme (ECGS), covering risk on export credits at home, and probable commercial and political risks occurring abroad, is administered by Sadharan Bima Corporation (SBC), a state-owned general insurance company. There are four guarantee schemes: the Export Credit Guarantee (ECG preshipment); the Export Credit Guarantee (ECG post-shipment), the Export Payment Risk Policy (EPRP) offering comprehensive guarantee; and the most recently introduced Whole Turnover Pre-shipment Finance Guarantee (WTPFG). The pre- and post-shipment ECG and WTPFG are extended to banks, and the EPRP is extended directly to exporters.

133. Details of the current terms of preshipment ECGS are not available. However, according the previous Trade Policy Review, the preshipment ECG insures banks against 75% of losses on advances made to exporters at the preshipment stage for the purchase, manufacture, processing or packing of

93 The Export Policy 1997-2002, para. 8.1.5. 94 Bangladesh Bank (1999). 95 World Bank (1996a); IMF (1998); WTO and document WT/LDC/HL/12/Add.1, 24 October 1997. 96 IMF (1998). 97 A World Bank study recommends the following steps to increasing exporters' access to trade finance: (i) to discontinue such outdated practices as the compulsory back-to-back L/C, and instead, to let exporters freely choose other forms of financing; (ii) to continue a dollar line of credit at the Bangladesh Bank to isolate preshipment export credit from the inefficiencies in the banking system; and (iii) to remove the interest ceiling on export loans, which have denied small-scale exporters access to finance (World Bank, 1996a). 98 IMF (1998). 99IMF (1998). WT/TPR/S/68 Trade Policy Review Page 68

goods for export. It covers losses resulting from the insolvency of the exporters or their failure to repay the loans within four months. The preshipment EFG can be converted into post-shipment cover of up to 95%. The EPRP is intended to protect exporters against overseas commercial and political risks, covering 85% of commercial risk losses and 95% of political risk losses.100

134. According to the authorities, the ECGS has not had the "desired effect due to existence of various complications in realizing their benefits."101 In particular, the scheme has largely failed to ensure access to preshipment export finance for those exporters with confirmed L/Cs but insufficient collateral and track records. As commercial banks are reluctant to provide preshipment export finance based on L/Cs only, and collateral is heavily discounted and/or difficult to provide for small and medium exporters, the absence of an effective export credit guarantee scheme has restricted the number of exporters with access to preshipment financing.102 Moreover, the ECGS is beset with problems, such as delays in settlement of claims, premium payment controversy, and poor recovery.103

(xvii) Export promotion and marketing assistance

135. The Export Promotion Bureau (EPB), a semi-autonomous institution under the Ministry of Commerce, is responsible for export promotion in Bangladesh. The EPB's activities also include the formulation and review of the Export Policy (including export incentives and facilities), dissemination of trade information through its Trade Information Centre, product development and adoption for export, organization of trade fairs and national export training programmes, allocation and monitoring of garment export quota, and mediation and settlement of trade disputes. 104 According to one report, 52% of the exporters surveyed had received direct assistance from the EPB.105

136. Export promotion is also coordinated at the inter-government agency level. The National Committee on Export Promotion, headed by the Prime Minister, comprises the Ministers of Foreign Affairs, Finance, Commerce and Industries, Planning, Jute and Textiles, as well as senior government officials and representatives of important trade associations. The Committee reviews the export situation at regular intervals, and provides necessary directions.106 Recent recommendations include added impetus for the agro-processing sector, and the setting up of an Information Technology Village and a Leather Fashion Institute.

137. The Export Policy 1997-2002 includes a number of export promotion schemes that entail general and specific incentives and facilities. For instance, the Government selects "thrust" sectors for export development; under the current Export Policy, the four sectors identified are leather and leather goods industries, high-priced and high value-added ready-made garments, computer software, and agro-processing. Each sector is provided with specific incentives, for example, exemption from the prevailing customs duty (2.5%) on import licence fee (2.5%) on import of raw hides, including wet blue and pickled leather, for three years. The establishment of a Fashion Institute and the Hortex

100 The EPRP can be assigned to banks as collateral against loans. 101 The Export Policy 1997-2002, para. 8.1.1. 102 IMF (1998). 103 WTO document WT/LDC/HL/12/Add.1, 24 October 1997. 104 According to the authorities, the country’s export promotion activities centre around the South Asian region, in particular, in countries under the SAPTA and the BIMST-EC. Moreover, Bangladesh promotes its products through its participation in about 30 international trade fairs around the world. 105 However, it is also reported that the EPB plays a restrictive rather than promotional role especially with regard to monitoring exports and issuing export licences. There have also been complaints about the EPB's non-transparent system of selecting participation in trade fairs, and its inefficiency and lack of professional skills in arranging presentations and product displays (World Bank, 1996b). 106 The Export Policy 1997-2002, para. 6.1. Bangladesh WT/TPR/S/68 Page 69

Foundation has been promised, to promote the development of ready-made garments and the agro-processing sector. Protection of intellectual property rights has been upgraded for effective software marketing.

138. Items included in the "Crash Programme" also have access to various facilities, including soft loans at a concessional interest rate, and assistance for market exploration and securing joint-venture partners. The current crash programme includes toys, luggage, fashion items, electronics, leather goods, diamond cutting and polishing, jewellery, silk fabric, stationery goods, cut and artificial flowers, orchids, gift items, vegetables, engineering consultancy and services; the current Export Policy 1997-2002 has extended the list to fresh flower, fruit and vegetables, bamboo, cane and wooden furniture.107 Airfreight is charged at a lower rate for exports of all crash programme items.108

139. The Export Policy also envisages the establishment of the Export Promotion Fund, which provides support to producers/exporters of new and non-traditional items for purposes of product development and market diversification. The fund includes, inter alia, venture capital at lower rates of interest; assistance in obtaining foreign technology and consultancy for product development and diversification; assistance in setting up marketing missions abroad and participating in international fairs; assistance in establishing sales and display centres abroad and extending warehousing facilities; assistance for participation in overseas training programmes on product development and marketing with a view to developing technical skills and marketing expertise; and assistance for any other activity related to product and market development.109 The fund, which is administered by the EPB, has yet to start its operations.

140. Other incentives are available for exporters of non-traditional products. Under the export diversification programme, funded by the World Bank and other doners, they can receive financial aid of up to 50% of their market costs for promotion. The total outlay of the project is Tk 2.23 billion for 1999-2002.110 Premium rebates are also allowed on insurance cover (export, as well as fire and marine insurance).111

141. The highest performance exporters are recognized as "commercially important persons" (CIPs)112 though they not provided with any financial or fiscal award. There are currently some 80 CIPs. As a mark of national recognition, 45 outstanding exporters of different product sectors are awarded National Export Trophies each year, and are given VIP facilities in the airport.113

(xviii) Measures maintained by importing countries

142. Bangladesh has voiced its concerns about some trade measures used by its trading partners, in particular, rules of origin requirements in the garment sector, and quality requirements and environmental standards in the food sector.114 Other market access problems faced by the Bangladeshi exporters include the textiles quotas imposed for exports to the United States and Canada, and the stringent HACCP standards applicable for shrimp exports to the United States.

107 The Export Policy 1997-2002, para. 8.11. 108 The Export Policy 1997-2002, para 8.4. 109 The Export Policy 1997-2002, para. 8.1.4. 110 Ministry of Finance (1999). 111 The Export Policy 1997-2002, para. 8.1.7. 112 The Export Policy 1997-2002, para. 8.19 113 The Export Policy 1997-2002, para. 8.20. 114 This section is drawn from the documentation for the Round Table Meeting for Bangladesh (WTO document WT/LDC/HL/12/Add.1, 24 October 1997). WT/TPR/S/68 Trade Policy Review Page 70

143. Despite the preferential market access that Bangladesh receives under the Generalized System of Preference (GSP), stringent rules of origin (i.e. the two-stage transformation) for garments have restricted its ability to export high-value-added items to the EU market.115 More generally, Bangladeshi exporters claim that procedural complexities and frequent changes in the GSP schemes have made it difficult for them to benefit from the preferences. The garment industry has also been threatened by international sanctions on account of allegations of the use of child labour in their factories.116

144. Non-compliance with health and environmental standards resulted in sanctions on the export of shrimps and frozen food in 1997, when it was determined that very few processing units met EU standards.117 The sanctions have since been lifted for some processing units. It is said that lack of knowledge in Bangladesh of the sanitary and phytosanitary regulations of the importing countries has made it difficult to obtain access to industrialized markets for its agricultural products, such as tea, jute, shrimps and frozen food, vegetables, etc.

(4) MEASURES AFFECTING PRODUCTION AND TRADE

(i) Registration of companies and investment

145. Business in Bangladesh can be carried out by a company incorporated locally or by a foreign company incorporated abroad but registered in Bangladesh. Incorporation and registration of companies in Bangladesh is provided for in the Companies Act, 1994, and is administered by the Registrar of Joint Stock Companies and Firms. Registration allows for three types of company: companies limited by shares (private and public limited companies), companies limited by guarantees, and unlimited companies.

146. In general, no prior permission is necessary to start a new business. Private enterprises are encouraged to participate in almost all areas of economic activity, except the "reserved industries", which are reserved exclusively for the public sector. These industries include: (i) arms, ammunition and other defence equipment and machinery; (ii) forest plantation and mechanized extraction within the bounds of reserved forests; (iii) production of nuclear energy; and (iv) security printing (currency notes) and minting. The recent Industrial Policy 1999 has lifted the restriction on private participation in railways and air transportation, a previously reserved sector. On the other hand, it has imposed a new prior-clearance requirement for investment in ready-made garments, banks, insurance companies, and other financial institutions. Under the existing laws and regulations, prior clearance may also be required on public safety and environmental grounds.

147. Private enterprises can register with the Board of Investment (BOI), which provides necessary facilities with a "One Stop Service"; this service involves arranging, inter alia, electricity and gas connection; water and sewerage connection; telecommunication facilities; duty concessions for imported machinery, spare parts, and raw materials; and clearance regarding environment

115 In 1996, an EU investigation team found irregularities with GSP certificates issued in Bangladesh between 1994 and 1996 and determined that the garment industry had been availing itself of GSP facilities without satisfying the three stage conversion criteria. As a result, thousands of GSP certificates issued by the EPB were cancelled, resulting in the payment of $67 million to the EU, the amount of import duties that would have been waived under the GSP. (World Bank (1999a).) 116 Working together with the ILO and other donors, the industry responded by opening schools for child workers and was successful in meeting the deadline of 31 October 1996, to eliminate child labour from the garment industry (World Bank, 1999a). 117 World Bank (1999a). Bangladesh WT/TPR/S/68 Page 71

pollution.118 The BOI is also responsible for the allocation of industrial plots; issuance of import entitlements (section (2)(i)); approval of the payment of royalties; technical know-how or technical assistance fees; and the appointment of and repayment of remuneration to foreign personnel.

148. Instead of registering with the BOI, industrial units located in the EPZs, and small-scale industrial units can register with the Bangladesh Export Processing Zones Authority (BEPZA) and the Bangladesh Small and Cottage Industries Corporation (BSCIC), respectively, which provide services to meet the more specific needs of these industries (see sections (3)(xiv) and (4)(vi) respectively).

(ii) Taxation

149. Bangladesh's internal tax system is characterized by a low overall level of taxation relative to GDP (averaging 7.5% during the review period) (Chapter I(2)(ii)); relatively heavy reliance on indirect consumption taxes (VAT, supplementary duties, excise taxes, etc.); and extensive use of specific exemptions and generalized tax incentives, particularly for investment. Internal indirect taxes and direct (income) taxes, like border taxes, can obviously have an influence on international trade and foreign direct investment. For example, supplementary duties are intended, inter alia, to discourage imports of luxury goods, while income tax holidays are offered in an effort to attract foreign investors.

150. Bangladesh relies on indirect taxes for over 80% of its total tax revenues, of which imports account for more than one half (Table III.16). Customs duties and VAT each account for roughly two fifths of indirect taxes with the remainder involving mostly supplementary duties. Direct taxes account for 15% of total tax revenues, two thirds of which is paid by corporations.

Table III.16 Tax revenue receipts by source, 1992-99 (Per cent) 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99

Income tax 18.9 19.0 14.2 13.5 13.3 14.2 15.9 Tax on imports 54.3 53.0 57.8 58.8 58.0 58.2 57.7 Customs duty 33.7 33.2 34.9 33.2 32.1 33.0 32.0 VAT 20.3 19.0 21.1 22.5 22.3 21.1 20.5 Supplementary duty 0.4 0.8 1.8 3.2 3.6 4.1 5.2

Tax on domestic goods 25.1 26.4 26.3 26.0 27.0 26.2 25.1 VAT 9.7 11.5 11.9 11.5 12.4 12.1 12.1 Supplementary duty 11.5 13.1 12.8 12.9 12.9 12.5 11.5 Excise duty 3.9 1.8 1.7 1.6 1.6 1.6 1.5 Other taxes 1.7 1.7 1.7 1.7 1.7 1.4 1.4 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: Bangladesh Bank, Economic Trends, September 1999.

(a) Indirect taxation

151. Introduced in 1991, the VAT is levied at a rate of 15% on a base inclusive of both customs and supplementary duties. Initially confined mainly to the import and manufacturing stages, it was

118 To register with the BOI the following documents are required: (i) Tax Identification Number (TIN) certificate; (ii) a trade licence from the local authority; (iii) a membership certificate of a relevant trade association or chamber of commerce and industry; (iv) a certificate from the nominated bank regarding opening of account; and (v) incorporation certificate, in the case of limited companies (Board of Investment, 1999). WT/TPR/S/68 Trade Policy Review Page 72

extended to the retail stage in 1996/97 and to an additional 50 items in 1997/98 and 31 items in 1998/99. Nonetheless, the tax base is rather narrow; it excludes domestic textiles and cottage industries as well as most services. The outcome is that around 60% of the economy is currently exempted from the tax.119 As the VAT is levied on the selling price and no input tax credit is allowed, it operates more like a retail sales tax. This creates "cascading" (in effect, taxes being levied on the same taxes) at the distribution stage. Insofar as such cascading affects inputs eventually used in the production of goods for export, it could impair the international competitiveness of these goods. In order to mitigate such cascading, the tax is charged only on a percentage of the final selling or contract price or fees for some items (e.g., garages and workshops for motor vehicles, dockyards, freight forwarders, construction firms, printing presses, consultancy and supervisory firms).120

152. Supplementary duties are levied on a number of items at rates ranging from 5% to 270% (in the case of imported cigarettes). Levied on the value of goods, inclusive of any import duty but excluding VAT, supplementary duties were introduced to discourage both importation of luxury goods and the production and supply of goods and services that are considered undesirable on social, moral or religious grounds. While these duties are levied like excise taxes and are, in principle, trade neutral, since the same rates are supposed to apply to imports and similar domestically produced goods, this is not always true in practice, as in the case of cigarettes (section (2)(v)).

153. The VAT was introduced to replace not just the previous sales tax, but also excise duties. Nevertheless, excise duties are still levied on three items, biris (handmade cigarettes), domestic textiles, and bank services.

154. Other indirect taxes include: a foreign travel tax, an air ticket tax, a tax on insurance premiums, a narcotics duty on alcoholic beverages, an advertisement tax, a duty on electricity consumption, a specific tax on taxicabs and buses, and an irrigation tax.

(b) Direct taxation

155. The main direct taxes are the personal income tax and the corporation tax. The personal tax consists of five rates: 0% up to a Tk 75,000 threshold, 10%, 15% and 20% on income above Tk 295,000; a flat rate of 25% for non-residents. Bangladesh operates a classical corporation tax system, thereby entailing double taxation of dividends; it is levied at a rate of 35% on publicly traded companies and 40% on banks, insurance companies, financial institutions, and all non-resident companies.

156. Bangladesh taxes its residents on a world-wide basis. In order to provide relief for international double taxation and prevent income tax evasion, it has concluded tax treaties with 18 countries (Chapter II(6)). Some of these treaties include "tax sparing" provisions, under which foreign investors, instead of their home country's treasury, benefit from tax relief granted by Bangladesh in the form of incentives.

157. As discussed in the following section, Bangladesh offers a wide range of open-ended tax incentives, notably tax holidays and accelerated depreciation, primarily for investment purposes. The inevitable outcome is that marginal effective tax rates can vary substantially by sector; such variation constitutes a potential impediment to the efficient allocation of domestic resources. Moreover, there

119 The exemption accorded to domestic textiles and cottage industries alone is thought to result in the Government forgoing VAT revenues amounting to 0.58% of GDP. 120 Cascading is best avoided not by lowering the applicable VAT rate but instead by establishing a fully functioning invoice and credit mechanism. Such a mechanism would require businesses to keep proper records of their expenses and receipts, and thus discourage tax evasion. Bangladesh WT/TPR/S/68 Page 73

is a lack of transparency concerning tax incentives, which undermines public accountability and thus governance. In particular, the tax authorities do not publish detailed information on the amounts of tax revenue forgone as a consequence of these measures. Nor do they rigorously and systematically evaluate the impact and effectiveness of such incentives. In the absence of any convincing empirical evidence to the contrary, experience in other countries suggests that tax incentives are seldom cost-effective (Box III.3).121 Indeed, tax holidays are regarded as a particularly ineffective type of investment incentive.122 Not surprisingly, therefore, during the past decade most OECD countries and several others have moved away from the use of tax incentives.123 Many have instead broadened the income tax base and reduced tax rates: the question arises whether there would be any advantage to Bangladesh of doing likewise.

(iii) Tax concessions and incentives

158. A number of tax concessions, including tax holidays and accelerated depreciation, are provided to industries; these are contained in the Industry Policy 1999.124 The NBR, in consultation with the Ministry of Industries, publishes the details of eligibility for concessional taxes and tax holidays in the Official Gazette.

159. Under Section 45 of the Income Tax Ordinance, tax holidays of five to seven years are granted to industrial enterprises set up between July 1995 and June 2000, depending on the location of the establishment: five years for Dhaka and Chittagong Divisions (excluding 3 Chittagong Hill Tract Districts), and seven years for Khulna, Sylnet, Barisal and Rajshahi Divisions and the 3 Chittagong Hill Tract Districts.125 Industrial units located in the EPZs enjoy a tax holiday of ten years. For undertakings established before July 1995, tax holidays were five, seven, nine, and 12 years for industries set up in the developed, less developed, least developed areas, and EPZs, respectively. The period of the tax holiday is calculated from the month of commencement of commercial production or operation of the industrial undertaking. Eligibility for tax holidays is determined by the NBR, which issues tax holiday certificates within 90 days of submission of an application. Companies enjoying tax holidays are required to reinvest 30% of their exempted income, within two years from the end of the tax exemption period, in the said company, in a new industrial undertaking, or in stocks and shares of a public company or in government bonds or securities.

160. Industries not enjoying a tax holiday can instead benefit from accelerated depreciation allowances. Depreciation is allowed at the rate of 80% of actual cost of machinery or plant in the first year of commercial production and at 20% in the second year. If industrial undertakings are set up in certain areas, like Dhaka, Narayagonj, Chittagong and Khulna, 100% depreciation is allowed.

161. Additional tax exemptions are listed in Box III.4.

121 OECD (1995). 122 Mintz (1990). 123 According to Shah (1995), several countries, including Brazil and Indonesia, having observed that investment induced by tax incentives falls short of the tax revenue forgone, curtailed such measures. 124 In granting tax and duty concessions, there is no discrimination between public and private enterprises, or between domestic and foreign enterprises. 125 The corporate tax rate for industrial companies is 35% if the company's shares are publicly traded and 40% if their shares are not publicly traded. WT/TPR/S/68 Trade Policy Review Page 74

Box III.3: Effectiveness of tax incentives for foreign direct investment (FDI) Tax incentives, notably open-ended tax holidays, are used extensively in Bangladesh, as well as elsewhere, in an effort to encourage FDI and thereby foster economic development. Tax incentives tend to be preferred to direct financial assistance on the grounds that firms must be profitable in order to derive any benefit from the incentive. As firms need to be in a taxpaying position in order to derive any immediate benefit from tax incentives, they are often of little use to start-up or rapidly growing firms, whose capital expenditures are high in relation to income. Such firms tend to pay little, if any taxes, unless the incentives are refundable or any unused tax relief can be fully carried forward with interest, neither of which is the case in Bangladesh. While it is difficult to judge the extent to which tax incentives have actually attracted FDI to Bangladesh, their effectiveness may be doubted on the basis of evidence from other economies, Indeed, in some instances, incentives may even be counterproductive. For these reasons, tax incentives are viewed by a growing number of countries as distortive and as an inappropriate tool for economic development. Access to incentives is seldom among the main determinants of business investment decisions. This has been confirmed repeatedly by business surveys. Proximity to markets, availability of sufficiently skilled labour at relatively low cost, adequacy of basic infrastructure, and a stable economic and legal environment are usually much more important. Most econometric studies show that forgone tax revenues exceed the investment generated; their high cost is related to the difficulty in identifying incremental investment (that is, investment that would not be undertaken without the incentive). Tax cuts for foreign multinational enterprises (MNEs) that are taxed in their home countries purely on a residence basis (that is, they receive a full credit for taxes paid abroad) may have little or no effect on the incentive for those firms to invest in Bangladesh. Such cuts would provide an effective incentive only insofar as MNEs are in an excess foreign credit position, taxes on repatriated income can be deferred, the MNE's home country exempts foreign-source income from domestic taxes, or "tax sparing" is allowed by tax treaties. Even if "tax sparing" is possible, however, recent analysis by the OECD (1998) suggests that it may provide a strong inducement to repatriate profits to the home country rather than reinvest them in the source country, thereby undermining long-term investment in Bangladesh. Whereas virtually all of Bangladesh's earlier tax treaties did include "tax sparing" provisions, its more recent treaties apparently do not. Insofar as incentives do stimulate particular types of investment, they may result in a less efficient allocation of domestic resources than would be the case if the Bangladesh Government remained neutral and refrained from influencing private decisions. The belief that FDI should be assisted because it yields social benefits (externalities), such as learning-by-doing, that are not adequately taken into account by private investors, would appear to be overstated. Most of the benefits from FDI accrue privately and hence incentives are not needed. In any event, as it is usually extremely difficult to measure such externalities precisely, there is always the likelihood that incentives will turn out to be excessive. A tax system embodying many special incentives is much more susceptible to tax avoidance and evasion, which further erode the tax base. Incentives therefore tend to worsen the fiscal balance. Use of investment incentives may also provoke countermeasures by Bangladesh's trading partners. Even where they do not contravene the WTO Agreement on Subsidies and Countervailing Measures, they may nevertheless be cited by other countries as a justification for countermeasures. In particular, countries may react by adopting incentives of their own, thus resulting in a beggar-thy-neighbour situation. While such an "incentives race" or "incentive shopping" tends to be harmful to all countries concerned, it is likely to be particularly disadvantageous to developing countries, such as Bangladesh. Controlling the prolific use of tax incentives for investment has been the subject of a number of recent discussions, including in the 1996 WTO Annual Report and among OECD Members. Bangladesh WT/TPR/S/68 Page 75

Box III.4: Other tax exemptions

Tax exemption for royalties, and technical know-how fees received by any foreign collaborator firm, company and expert. Tax exemption for the interest on foreign loans under certain conditions. Exemption of income tax up to three years for the foreign technicians employed in industries specified in the relevant schedule of income tax ordinance. Tax exemption for income of the private sector power generation company for 15 years from the date of commercial production. Tax exemption for dividend income of non-resident shareholders during the tax exemption period of an industry set up in an export processing zone and also after the expiry of tax exemption period if the dividend is re-invested in the same project. Tax exemption for capital gains from the transfer of shares of public limited companies listed with a stock exchange.

Source: Information provided by the authorities of Bangladesh.

(iv) Interest rate subsidies

162. Loans at concessional interest rates are provided for exports, agriculture, and small and cottage industries, through the nationalized commercial banks (NCBs), and specialized banks like the Bangladesh Krishi Bank (BKB). The interest rate policy introduced in 1992, liberalized interest rates ceilings for all other lending categories, and permitted individual banks to differentiate interest rates to individual borrowers. Interest rate bands are currently fixed at 10-14% for the agricultural sectors, 8-10% for export industries, and 9-12% for small and cottage industries. By contrast, the average lending rate for other lending categories offered by the nationalized commercial banks is around 16%.

(v) Pricing and marketing arrangements

163. The Government retains administrative pricing for certain goods and services; according to information available to the Secretariat, these include at least petroleum products, fertilizer, utilities and transport.126 At the time of the last Trade Policy Review, administrative prices existed for sugar, pharmaceutical products, newsprint, and paper; however, the Secretariat was unable to confirm whether these had been eliminated.

164. Petroleum products, both crude oil and refined petroleum products, are exclusively imported by the Bangladesh Petroleum Corporation (BPC) (section (2)(ix)). Local prices of petroleum products are based on their c.i.f. import cost, processing/operating cost of BPC, VAT and other taxes and duties, and a margin for payment of dividends and repayment of long-term debt. Petroleum prices were raised in August 1997 after having remained stable for three years.127

165. Fertilizer, mostly urea, is produced by the Bangladesh Chemical Industries Corporation (BCIC). Fertilizer prices are adjusted from time to time in view of the overall agricultural priorities of Bangladesh and the purchasing power of farmers (Chapter IV(3)(ii)). Natural gas supplied at subsidized rates is the main raw material in fertilizer production (Chapter IV(4)(i)). In order to

126 Ministry of Finance (1998b). 127 The price increase has apparently restored the financial health of the BPC (Ministry of Finance, 1998b). WT/TPR/S/68 Trade Policy Review Page 76

prevent huge and unsustainable losses of the BCIC, the Government raised the price of urea in June 1997.128

166. Water in Dhaka is supplied by the Dhaka Water and Sewerage Authority (DWASA). Water tariffs are raised from time to time to allow for increases in operating costs, including the use of electricity. The tariffs were last raised in March 1998, an increase of 7% over the previous year.

167. The Bangladesh Power Development Board (BPDB) is the sole producer of electricity in Bangladesh; however, the Government has recently permitted private producers to generate electricity (Chapter IV(4)(ii)). Electricity prices may be adjusted to allow for the rise in the prices of inputs such as fuel and gas, as well as increases in wages and salaries, etc.129 The Government permitted increases in electricity prices by 5% in 1996-97 and by 7% in 1997-98 to cover increases in production costs. These tariffs, however, appear to be cross-subsidized from industrial and commercial consumers to household and irrigation consumers (Chapter IV(4)(ii)).

168. The Bangladesh Biman Corporation, the national air carrier, has cross-subsidized its unprofitable domestic routes by transferring surpluses from its international operations. The Government permitted Biman to increase domestic airfares by 15% in March 1997 and by 30% in May 1998; this has enabled Biman to reduce its losses.130

169. Railway tariffs are set with the welfare of the population in mind. However, the Government allowed the Bangladesh Railway, the national railway, to raise fares by 11% in May 1998 in order to cover increased costs, and cope with passenger flows and competition from other modes of transport.131

(vi) Assistance to small enterprises

170. Support for small-scale enterprises, referred to as small and cottage industries (SCIs), is provided by the Bangladesh Small and Cottage Industries Corporation (BSCIC), a semi-governmental agency. They include "small industries" employing fewer than 50 workers (excluding the cottage units) and/or with a fixed capital investment of less than Tk 100 million, and "cottage industries", which are mainly household based units operated with family labour.132

171. The BSCIC creates industrial estates equipped with infrastructural facilities, and allocates plots in the Estates to the SCIs at prices subsidized by the Government; the price of land ranges from US$6,122 to US$48,980 per acre. There are currently 1,434 SCIs operating in 57 Industrial Estates around the country. Other BSCIC functions include the provision of investment counselling and marketing information, organization of seminars and trade fairs, recommendation of tax incentives and import entitlements, arrangement of financing for SCI projects, and issuance of work permits.

172. Tax and duty concessions are provided, as described in the previous sections; however, registration with the BSCIC is required for entitlement to these concessions. Concessionary loans are available from the commercial banks through the BSCIC at interest rates in the range of 9% to

128 Ministry of Finance (1998b). 129 Ministry of Finance (1998b). 130 Ministry of Finance (1998b). 131 Ministry of Finance (1998b). 132 Under the previous Industrial Policy, small industries were enterprises with fixed capital investment of less than Tk 30 million, and cottage industries with investment of less than Tk 500,000. Bangladesh WT/TPR/S/68 Page 77

12%.133 During 1997/98, the total amount of loans distributed to the SCIs was Tk 7.29 billion; the amount recovered was Tk 3.72 billion.134

173. The number of the SCIs registered with the BSCIC increased from 11,468 in 1992/93 to 15,167 in 1996/97; of the 15,167, there were 845 small and 14,322 cottage industries.135 However, employment, investment, output, and exports generated by the SCIs have not expanded, and in some cases have shrunk, since 1992 (Table III.17).

Table III.17 Economic performance of small and cottage industries Share of SCIs Share of SCIs Investment GDP Exports Fiscal year Labour in total GDP in total exports (Tk million) (Tk million) (Tk million) (%) (%)

1992/93 26,028 67,647 34,922 1,909.2 3.7 2.5 1993/94 24,773 73,156 37,136 2,283.3 3.6 2.6 1994/95 22,416 73,796 39,578 2,417.8 3.4 2.5 1995/96 22,578 67,076 43,100 174.6 3.3 0.1 1996/97 22,815 67,572 45,365 18.2 3.2 0.0 1997/98 22,976 67,019 50,369 9.3 3.3 0.0 1998/99 21,689 68,400 .. 117.0 .. 0.0

.. Not available. Source: BSS; and BSCIC.

(vii) State-owned enterprises and privatization

174. State-owned enterprises (SOEs) still account for a significant portion of national production, investment, employment generation, and government expenditure in Bangladesh. According to the World Bank, SOEs accounted for over 25% of total fixed capital formation, but only 6% of GDP.136 Losses by inefficient SOEs have drained the government treasury; total losses of the existing 219 SOEs amounted to US$423 million in 1997/98, equivalent to 1% of GDP. Apart from direct subsidies, assistance to SOEs includes input subsides, concessional lending terms and debt conversion, and access to financial credit; however, details of these forms of assistance were not available.

175. SOEs exercise a dominant influence in many prominent industries in Bangladesh, for example, jute, textiles, steel and chemical production, sugar, and utilities. Many of them operate at a loss (Table III.18). Some 38 of the largest, non-financial SOEs incurred a net total loss of Tk 6.9 billion in 1997/98; the largest losses were made by manufacturing SOEs, namely, the Bangladesh Textile Mills Corporation (BTMC), the Bangladesh Steel and Engineering Corporation (BSEC), the Bangladesh Sugar and Food Industries Corporation (BSFIC), the Bangladesh Chemical Industries Corporation (BCIC), and the Bangladesh Jute Mills Corporation (BJMC). Crucial public services, such as power and transport, are also still largely inefficient monopolies, which limits private sector productivity and growth.

133 Previously, nationalized commercial banks and development finance institutions were instructed to invest 5% of their investible surplus for the SCIs; however, this practice appears to have been terminated. 134 Bangladesh Bank (1999). 135 Ministry of Finance (1998a). 136 World Bank (1999a). WT/TPR/S/68 Trade Policy Review Page 78

Table III.18 Economic performance of selected state-owned enterprises, 1997/98 (Tk million) Outstanding Gov't. Debit Net Dividend bank loan Name of corporation grants & service profit/loss contribution (overdue subsidy liabilities loan)

Industry Bangladesh Textile Mills Corporation (BTMC) -825.5 .. .. 0.0 6,341.2 (5,503.3) Bangladesh Steel and Engineering Corporation (BSEC) -984.6 .. 1.0 0.0 7,986.5 (4,779.5) Bangladesh Sugar and Food Industries Corporation -397.6 10.0 .. 10.0 1,942.9 (BSFIC) (294.6) Bangladesh Chemical Industries Corporation (BCIC) -1,051.5 0.0 30.0 639.3 1,408.0 (370.3) Bangladesh Forest Industries Development Corporation 65.8 2.0 .. 0.0 0.0 (BFIDC) (0.0) Bangladesh Jute Mills Corporation (BJMC) -2,295.6 .. .. 0.0 16,237.6 (772.7)

Utility Bangladesh Oil, Gas and Minerals Corporation (BOGMC) -1,454.6 1,020.0 .. 2,053.8 0.10 (0.10) Bangladesh Power Development Board (BPDB) -2,454.2 .. .. 250.0 315.3 (14.8) Dhaka Electric Supply Authority (DESA) -1,951.6 .. .. 0.0 .. Chittagong Water Supply Authority (WASA) -34.3 3.0 .. 12.7 .. Dhaka Water Supply Authority (WASA) 4.3 15.0 .. 75.0 ..

Transport & communication Bangladesh Shipping Corporation (BSC) 24.4 .. .. 0.0 1,174.2 (769.1) Bangladesh Inland Water Transport Corporation (BIWTC) 8.34 .. 5.0 11.0 1.0 (0.10) Bangladesh Biman Corporation (BBC) -215.0 0.0 .. 0.0 .. Bangladesh Road Transport Corporation (BRTC) -109.2 .. .. 0.0 120.8 (120.8) Chittagong Port Authority (CPA) 636.4 350.0 .. 109.1 .. Mongla Port Authority (MPA) 113.7 90.0 .. 0.0 ..

Commercial Bangladesh Petroleum Corporation (BPC) -916.8 68.0 .. 321.1 4,922.5 (1.9) Bangladesh Jute Corporation (BJC) -6.0 .. .. 0.0 .. Trading Corporation of Bangladesh (TCB) -4.7 5.0 .. 0.0 ..

Agriculture & fisheries Bangladesh Agricultural Development Corporation -260.2 .. .. 0.0 1,934.3 (BADC) (1,933.8) Bangladesh Fisheries Development Corporation (BFDC) -25.0 0.0 .. 5.0 0.48 (..)

Table III.18 (cont'd) Bangladesh WT/TPR/S/68 Page 79

Outstanding Gov't. Debit Net Dividend bank loan Name of corporation grants & service profit/loss contribution (overdue subsidy liabilities loan)

Construction Rajdhani Unnyan Kartipakha (RAJUK) 29.0 20.0 .. 0.0 .. Chittagong Development Authority (CDA) 19.5 3.0 .. 0.0 .. Khulna Development Authority (KDA) 90.2 0.8 .. 0.0 .. Rajshahi Development Authority (RDA) 4.0 0.5 0.70 0.0 ..

Service and other sectors .. Bangladesh Small and Cottage Industries Corporation -40.9 .. 138.0 124.5 133.2 (BSCIC) (133.2) Bangladesh Freedom Fighters Welfare Trust (BFFWT) 85.3 .. 66.0 0.0 354.0 (307.6) Bangladesh Water Development Board (BWDB) 34.3 .. .. 0.0 39.9 (4.2) Bangladesh Tea Board (BTB) 18.8 .. .. 0.0 50.7 (50.7) Bangladesh Parjatan Tourism Corporation (BPRC) 29.1 5.0 .. 4.8 15.1 (..) Bangladesh Film Development Corporation (BFDC) 5.3 4.0 .. 15.0 0.6 (0.6) Bangladesh Sericulture Board (BSB) -20.2 .. 21.8 0.0 2.5 (..) Rural Electrification Board (REB) 209.7 .. 180.0 320.8 2.7 (..) Civil Aviation Authority (CAA) .. 45.0 .. 0.0 .. Bangladesh Export Processing Zone Authority (BEPZA) .. 2.5 .. 0.0 .. Bangladesh Inland Water Transport Authority (BIWTA) .. .. 161.5 13.3 .. Bangladesh Handloom Board (BHB) .. .. 30.0 0.0 ..

Total -6,856.8 1,645.8 634.0 3,965.5 42,987.0 (15,057.3)

.. Not available. Source: Ministry of Finance (1998a), Bangladesh Economic Review 1998, Dhaka.

176. Privatization efforts date back to the mid 1970s; some 222 SOEs were privatized during the period 1981-85, however, progress on privatization has been difficult for political reasons involving the general public and trade unions. The Privatization Board, which was established in 1993, is entrusted with the overall responsibility for privatizing SOEs. Only 18 enterprises have so far been handed over to the private sector since the Board's establishment; the sale of another 15 enterprises was under way at the end of 1999.

177. To make the privatization process and programme more effective, new legislation, the Privatisation Act 1999, has been drafted and is in the process of being approved by the Cabinet. The new legislation is seeking to upgrade the Board to a Privatization Commission, thereby enhancing its authority to proceed with privatization and adopt different methods of privatization. Until now, there have been two methods for privatization: sale by international tender and sale by public offer of shares through the stock exchange. The Privatization Board has slated 50 SOEs for privatization in 1999 and 2000, including seven enterprises in the jute sector, nine in the textile sector, six in the steel and engineering sector, five in the sugar and food sector, and four in the chemical sector. WT/TPR/S/68 Trade Policy Review Page 80

(viii) Trade-related investment measures

178. According to the authorities, Bangladesh does not have any trade-related investment measures that are prohibited under the Agreement on TRIMs.137

(ix) Trade-related intellectual property rights

(a) Introduction

179. Intellectual property rights legislation dates from the pre-independence era. Patents, trade marks, and copyrights are governed by: the Patents and Designs Act, 1911 and the Patents and Designs Rule, 1933; the Trade Marks Act, 1940 and the Trade Marks Rules, 1963; and the Copyright Ordinance, 1962, as amended by the Copyright (Amendment) Act, 1974, and the Copyright (Amendment) Ordinance, 1978. An effort to update the intellectual property right laws has been under way with a view to bringing them into line with the provisions of the TRIPS Agreement. As a least developed country, Bangladesh has a ten-year transitional period, i.e. up to the end of 2005, to meet its obligations under the TRIPS Agreement.

180. Bangladesh is a member of the following international conventions on intellectual property rights: the Universal Copyright Convention for the Protection of Literary, Scientific and Artistic Works (since 1975), the Paris Convention for the Protection of Industrial Property Rights (since 1991), and the Bern Convention for the Protection of Literary and Artistic Works (since 1999). Bangladesh has also been a member of the World Intellectual Property Organization since 1985.

(b) Industrial property

181. The Patents and Designs Act, 1911 and the Patents and Designs Rules, 1933 provide for the protection of patents and industrial designs. Applications for the granting of a patent or for the registration of an industrial design must be made to the Patent Office, under the Ministry of Industries. According to the authorities, the time required for granting a patent or industrial design is 21 months and nine months, respectively. The number of registrations of industrial property increased between 1992 and 1999 (Table III.19). The terms of protection are provided in Table III.20.

Table III.19 Industrial property registration, 1992-99 Applications Grants Non- Non- Residents Total Residents Total residents residents

Patents 1992 72 89 161 6 55 61 1993 36 71 107 10 66 76 1994 39 89 128 29 69 98 1995 70 156 226 6 74 80 1996 22 131 153 18 52 70 1997 46 119 225 15 61 76 1998 32 184 216 14 126 140 1999 49 202 249 25 122 147 Table III.19 (cont'd)

137 Ministry of Commerce (1998). Bangladesh WT/TPR/S/68 Page 81

Applications Grants Non- Non- Residents Total Residents Total residents residents

Industrial designs 1992 273 7 280 137 4 141 1993 328 7 335 92 2 94 1994 337 1 338 203 6 209 1995 287 19 306 173 2 175 1996 394 21 415 205 18 223 1997 609 23 612 345 20 365 1998 649 33 682 392 17 409 1999 815 40 855 410 25 435 Trade-marks 1992 2,152 517 2,669 432 433 865 1993 2,160 607 2,767 412 423 835 1994 2,382 711 3,093 405 429 834 1995 2,398 713 3,111 338 236 574 1996 2,854 922 3,776 382 149 531 1997 3,357 1,016 4,373 174 53 227 1998 3,629 926 4,555 142 143 285 1999 (up to 30 Sept.) 2,626 805 3,431 72 201 273

Source: The Government of Bangladesh.

Table III.20 Terms of intellectual property rights protection in Bangladesh

Minimum duration of protection IPR Main legislation Duration of protection Comments under TRIPS

Copyrights Copyright Ordinance, Life of author plus 50 years Life of author plus 50 years 1962, as amended by Copyright (Amendment) Act, 1974 and Copyright (Amendment) Ordinance, 1978 - related rights 50 years from year of 50 years from year of performance performance or fixation; or fixation; 20 years from year of 25 years from year of broadcast broadcast Patents Patents and Designs Act, 16 years from date of 20 years from date of filing Amendments 1911 and Patents and application; renewable for 5 extend to 20 Designs Rules, 1933 or 10 years years Industrial Patents and Designs Act, 5 years; renewable for two 10 years designs 1911 and Patents and successive 5-year periods Designs Rules, 1933 Geographical None None Unlimited indications Trade marks Trade Marks Act, 1940, as 7 years from date of At least 7 years; renewable amended by Trade Marks registration; renewable for indefinitely Rules, 1963 periods of 15 years Layout designs None None 10 years from first commercial Amendments of integrated exploitation provide for circuits 15 years Undisclosed None None No specific period information

Source: WTO Secretariat, based on information provided by the authorities of Bangladesh. WT/TPR/S/68 Trade Policy Review Page 82

182. Patents are granted for new processes for the manufacture of chemical compounds, pharmaceutical compositions, and micro-organisms, but product patents are granted for chemical compounds only if they are produced by new processes. Chemical products without specific reference to the process of manufacture, mathematical theory, nuclear fission, inventions that are considered to be against national law or morality, and micro-organism as products only, are not protected by patent. Currently, the patentability of pharmaceutical and agricultural chemical products, and of plant varieties is not covered by the provisions of the 1911 Act. The provision on compulsory licensing is provided in Section 22 of the Act; according to the authorities, no such licence has ever been issued in Bangladesh. The protection of industrial designs is provided for designs that are not previously published in the country, and are either new or original or both.

183. The Government is in the process of updating the Patents and Designs Act of 1911, with a view to ensuring compliance with obligations under the TRIPS Agreement and the Paris Convention. Major changes are summarized in Table III.21, and are expected to be enacted by the Parliament no later than the date set by the TRIPS Agreement. Amendments include, inter alia, the broadening the definition of invention to include all fields of technology, the provision of protection to plant varieties, the extension of the term of patent protection to 20 years, and the incorporation of the provisions on layout-designs of integrated circuits.

Table III.21 Comparative summary of the proposed provisions relating to patents and industrial designs in the Paris Convention/TRIPS Agreement and the corresponding provisions of the Patents and Designs Act of 1911 Provisions in the Provisions of the Paris Patents and Designs Comment Convention/TRIPS Agreement Act of 1911

A. Provisions of the Paris Convention applicable to patents Right of priority (Articles 4A, B, C, D, F Section 78A Proposed amendments enable Bangladesh to conclude and H) agreements with other countries and international organizations on patents and designs, instead of with only the Commonwealth countries; amendments also revise the provision inconsistent with the convention. Division of the patent application Section 5(1) Consistent with the convention. (Article 4G) Independence of patent obtained for the Sections 1 and 3 Consistent with the convention. same invention in different countries (Article 4 bis) Mention of the inventor in the patent Section 3(4) Consistent with the convention. (Article 4 ter) Patentability in case of restrictions of sale No provision Proposed amendments incorporate a provision consistent with by law (Article 4 quarter) the convention. Importation of articles in case of patents Section 12(1) Proposed amendments expand the provision to include (Article 5A(1)) importation of patented articles. Patents: failure to work or insufficient Sections 22 and 23 Proposed amendments revise the provision inconsistent with the working; compulsory licenses, convention. (Article 5A (2) through (4)) Marking of patents on goods (Article 5D) No specific provision No conflict with the convention. Period of grace for the payment of fees Sections 10(2)(d) and Proposed amendments extend to six months. for the maintenance of patent rights 14(2) (Article 5 bis (1)) Patented devices forming part of vessels, Section 42 Proposed amendments expand the provision to include aircraft aircraft or land vehicles (Article 5 ter) and land vehicle. Importation of products manufactured by No provision Proposed amendments incorporate a provision consistent with a process patented in the importing the convention. country (Article 5 quarter) Table II.21 (cont'd) Bangladesh WT/TPR/S/68 Page 83

Provisions in the Provisions of the Paris Patents and Designs Comment Convention/TRIPS Agreement Act of 1911

Temporary protection of certain Section 40 Consistent with the convention. international exhibitions (Article 11) Special national industrial property Sections 55 and 6 Proposed amendments revise the provision inconsistent with the services (Article 12) convention. B. Provisions of the TRIPS Agreement applicable to patent National treatment (Articles 2 and 3) Section 3(1) Consistent with the agreement. Most-favoured-nation treatment No provision Proposed amendments incorporate a provision consistent with (Article 4) the agreement. Requirements for protection (Article 25) Sections 2(4), 2(5) and Proposed amendments revise the provision inconsistent with the 43 agreement. Protection (Article 26(1) and (2)) No provision Proposed amendments incorporate a provision consistent with the agreement. Protection (Article 26(3)) No provision Proposed amendments extend to 10 years. Inventions are patentable, whether Sub-section 2(8) Proposed amendments revise the provision to include a products or process (Article 27(1)) complete definition of "invention". Inventions which may be excluded from Section 69 Proposed amendments revise the provision inconsistent with the patentability (Article 27(2) and (3)(a)) agreement. Plant varieties under TRIPS Agreement: No provision Proposed amendments incorporate a provision regarding patent Members must provide protection of for plants and seeds which are subject to the provisions of the plant varieties either by patents or by an Patents and Designs Act, 1911; moreover, the Plant Varieties effective sui generis system or by any Act and the Biodiversity and Community Knowledge Protection combination thereof (Article 27(3)(b)) Act are now been drafted to provide protection in this area. The proposed provision excludes the patentability of plants and animal other than micro-organism, and essentially processes for the production of plants or animals other than non-biological amd micro-biological processes. Exclusive rights (Article 28(1)) Section 12 Consistent with the agreement. Change of ownership and licensing Section 12 Proposed amendments revise the provision inconsistent with the agreements (Article 28(2)) agreement. Conditions on patent applications Sections 4 and 5 Consistent with the agreement. (Article 29(1)) Information concerning corresponding Section 78A Proposed amendments revise the provision inconsistent with the foreign applications and grants agreement. (Article 29(2)) Exceptions to rights conferred Section 21 and 21A Consistent with the agreement. (Article 30) Other use without authorization of the Sections 21-23 Proposed amendments revise the provision inconsistent with the right holder (Article 31) agreement. Revocation/forfeiture (Article 32) Sections 21, 22, 23, Consistent with the agreement. 25, 26 and 27 Term of protection (Article 33) Section 14(1) provides Proposed amendments extend to 20 years. 16 years term of protection Process patents. burden of proof No provision Proposed amendments incorporate a provision consistent with (Article 34) the agreement. Layout-designs (topographies) integrated No provision Proposed amendments incorporate a provision consistent with circuits (Articles 35-38) the agreement. C. Provisions of the Paris Convention applicable to industrial designs Failure to work an industrial design No provision Proposed amendments incorporate a provision consistent with (Article 5B) and the importation of the convention. articles constituting or containing an industrial design (Article 5B) Table III.21 (cont'd) WT/TPR/S/68 Trade Policy Review Page 84

Provisions in the Provisions of the Paris Patents and Designs Comment Convention/TRIPS Agreement Act of 1911

The indication upon the goods enjoying No provision No conflict with the convention. industrial design protection of the fact than industrial design has been deposited (Article 5D) Period of grace for the payment of fees No provision Proposed amendments extend to six months. (Article 5 bis (1)) Temporary protection at certain Section 52 Consistent with the convention. international exhibitions (Article 11) Establishment of a special industrial Section 55 Proposed amendments revise the provision inconsistent with the property service (Article 12) convention. D. Provisions of TRIPS Agreement applicable to industrial designs Conditions of protection (Article 25(1)) Sections 43(1), Consistent with the agreement. 51A(1), 2(5) Textile designs (Article 25(2)) Sections 42(1), Consistent with the agreement. 51A(1), 2(5) Rights (Article 26(1)) Sections 47(1) and Consistent with the agreement. 53(1) Exceptions to rights (Article 26(2)) Section 51B Consistent with the agreement. Term of protection Article 26(3) Sections 43(6) and 47 Consistent with the agreement. E. Provisions of TRIPS Agreement regarding enforcement, and acquisition and maintenance of IPRs Enforcement of IPRs (Articles 41-61) Sections 29, 30 and 53 Proposed amendments revise the provision regarding piracy of registered design to increase the amount of fine for infringement. Acquisition and maintenance of IPRs and Under Sections 5, 9, Proposed amendments include a provision dealing with appeals related inter partes procedures 10(1A), 16, 17, 43 and and other litigation for timely disposal of industrial property (Article 62) 69 of the existing Act cases. appeals form the decisions of the controller can be made to the Government and under Section 51(2) and 64(3) appeals from the orders of the controller can be made to the High Court Division. Infringement suits under section 29 and 53 can be filed to the District Court.

Source: WTO Secretariat, based on information provided by the authorities of Bangladesh.

184. Trade marks are protected under the Trade Mark Act, 1940 and the Trade Mark Rules, 1963. The registration of trade marks is provided only in respect of distinguishing goods, but not services; the draft trade mark legislation is making proposals to include provisions for the registration of service marks as well as collective marks. Applications for registration must be filed with the Trade Mark Registry, under the Ministry of Industries, and after examination they are advertised in the Trade Marks Journal. If they are uncontested, registration certificates are issued within a period of four months. The registration grants an exclusive right to the proprietor to use the registered marks for seven years, which may be renewed for further periods of 15 years. Parallel imports are not permitted.

185. According to the authorities, most of the provisions in the existing Trade Mark Act are in conformity with the TRIPS Agreement; the remaining provisions are to be incorporated or amended Bangladesh WT/TPR/S/68 Page 85 in a new Trade Mark Act, which is now under consideration by the Government. The proposed act also includes provisions for the protection of geographical indication, which is not provided for under the 1940 Act.

186. The Copyright Ordinance, 1962, as amended by the Copyright (Amendment) Act, 1974, and the Copyright (Amendment) Ordinance, 1978, governs the protection of copyrights. Copyright registration is optional; those who wish to register can file an application with the Copyright Office under the Ministry of Cultural Affairs. The registration certificate is granted within 30 days from the date of application. The term for copyright protection in published literary, dramatic, musical and artistic works is the life of the author plus 50 years; in the case of films, records, government works, works of international organizations and photographs, the term of 50 years from the date of publication; and in the case of broadcasts, the term of 25 years after the first fixation.

187. Copyright legislation is in the process of being replaced by a new law. The new law will bring the legislation into line with the TRIPS Agreement and the Berne Convention for the Protection of Literary and Artistic Works, which Bangladesh ratified in 1999. The new draft law includes, inter alia, the extension of copyright protection to computer programs, the recognition of rental rights for computer programs, sound recordings and films, and the recognition of rights of performers, in addition to rights of phonogram producers and broadcasting organizations. The provisions concerning licensing are to be included, by enhancing the role of performing rights societies, which are being replaced by copyright societies, and by adding provisions on compulsory licensing in unpublished works.

(d) Enforcement

188. Infringement of intellectual property rights can be challenged in the domestic judicial courts. Producers or inventors, including foreign right holders, can file a suit in a domestic court. An appeal against the lower court decision can be brought to the Appellate Court. Provisions on penalties for infringement of intellectual property right are described in the following section for each legislation. The authorities of Bangladesh, however, could not provide data on enforcement.

189. Sections 29, 30 and 53 of the Patents and Designs Act, 1911, provides enforcement in the area of patents and industrial designs. Penalities for infringement of registered patents and industrial design range from Tk 500 to Tk 1,000; the new amendments propose an increase to Tk 5,000-Tk 10,000.

190. Chapter X of the Trade Marks Act of 1940, as adopted, provides penalties for infringement of trade marks of up to six-months imprisonment or a maximum fine of Tk 500, or both. The draft Trade Marks Act proposes an increase of penalties to a maximum two-years; imprisonment and/or a fine. For a second conviction of infringement, imprisonment could extend to three years, with or without a fine.

191. Chapters XII-XV of the Copyright Ordinance, 1962, deal with copyright infringement, civil remedies, offences, and penalties. The proposed law intends to increase penalties from a fine of Tk 5,000 and/or maximum two years of imprisonment to "rigorous imprisonment, which may extend to three or four years with a fine".

192. Upon complaint by the affected person, the customs authority, in cooperation with the intellectual property right regulatory authorities, can inspect, seize and detain shipments of any counterfeit or pirated materials in pursuance of Section 15 of the Customs Act, 1969.