Strengthening Competitiveness in Bangladesh—Thematic Assessment in Bangladesh—Thematic Competitiveness Strengthening DIRECTIONS IN DEVELOPMENT Trade Kathuria and Mezghenni Malouche Strengthening Competitiveness in Bangladesh—Thematic Assessment A Diagnostic Trade Integration Study Sanjay Kathuria and Mariem Mezghenni Malouche, Editors Strengthening Competitiveness in Bangladesh—Thematic Assessment DIRECTIONS IN DEVELOPMENT Trade Strengthening Competitiveness in Bangladesh—Thematic Assessment A Diagnostic Trade Integration Study Sanjay Kathuria and Mariem Mezghenni Malouche, Editors © 2016 The Government of the People’s Republic of Bangladesh Some rights reserved 1 2 3 4 19 18 17 16 The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. 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Strengthening Competitiveness in Bangladesh—Thematic Assessment http://dx.doi.org/10.1596/978-1-4648-0898-2 Contents Foreword xiii Acknowledgments xv About the Authors xix Abbreviations xxiii Key Messages xxvii Chapter 1 Bangladesh’s Trade Performance 1 Sanjay Kathuria, Mariem Mezghenni Malouche, Martha Denisse Pierola, and Jose Daniel Reyes Introduction 1 Bangladesh’s Macroeconomic Performance 2 Bangladesh’s Performance in Goods Trade 6 Dependence on Imports 18 Exporting Firms’ Performance and Dynamics 19 Bangladesh’s Trade in Services 27 Exports of Labor Services 31 Conclusion 34 Notes 35 References 36 Chapter 2 Trade Policy, Export Incentives, and Consumer Welfare 39 Olivier Cadot, Julien Gourdon, Sanjay Kathuria, Mariem Mezghenni Malouche, and Zaidi Sattar Introduction 39 Heavy Border Taxation 40 Distortionary Incentives 45 Tariffs Influenced Heavily by Revenue Considerations 52 Nontariff Measures 55 Trade Policy and Welfare 60 Services Trade Policy Restrictiveness 61 Conclusions 66 Annex 2A: Survey Data and Computations for ERP Analysis 67 Annex 2B: Analysis of Tariff Redundancy 74 Strengthening Competitiveness in Bangladesh—Thematic Assessment v http://dx.doi.org/10.1596/978-1-4648-0898-2 vi Contents Notes 75 References 77 Chapter 3 Market Access: From Preferences to Global Integration 79 Nihal Pitigala, Mariem Mezghenni Malouche, and Sanjay Kathuria Introduction 79 Preferential Access for Bangladesh in High-Income Economies 80 Increased Role of Regional Markets for Bangladeshi Exports 89 Integrating into Production-Sharing Networks 102 Export Promotion in Bangladesh 106 Recommendations 109 Annex 3A: Regression Results 111 Notes 112 References 113 Chapter 4 Leveraging Institutions for Trade Development 115 Nihal Pitigala Introduction 115 Trade Policy Institutions 116 Interagency Coordination and Consultation 120 Toward a New Trade Policy Framework 128 Building Institutional Capacity 139 Conclusion and Recommendations 142 Annex 4A: Details of Organizations in Bangladesh and Overseas 149 Notes 153 References 153 Chapter 5 Meeting the Quality Challenge: Technical Regulation, Sanitary and Phytosanitary Measures, and Quality Infrastructure 155 Michael Friss Jensen Introduction 155 Background 156 Meeting the Quality Challenge Abroad: How Bangladesh Manages Export Quality 163 Meeting the Quality Challenge at Home: How Bangladesh Manages Import Procedures 177 Meeting the Quality Challenge Next Door: Regional Trade and Quality 184 Conclusions and Recommendations 186 Annex 5A: Current and Upcoming BSTI Projects 187 Notes 190 References 191 Strengthening Competitiveness in Bangladesh—Thematic Assessment http://dx.doi.org/10.1596/978-1-4648-0898-2 Contents vii Chapter 6 Trade Facilitation and Logistics 193 Charles Kunaka and Nadeem Rizwan Introduction 193 Logistics Performance 193 Customs and Border Management 207 Regional Integration and Trade Facilitation 212 Options for Improving Trade Facilitation and Logistics Performance in Bangladesh 216 Annex 6A: List of Goods That Can Be Cleared in Off-Dock Yards 217 Notes 218 References 218 Chapter 7 Constraints to Trade Finance 221 Hugh Baylis Introduction 221 Role of Trade Finance 222 Trade Finance in Bangladesh 226 A Modern Approach to Trade Finance 229 Policy Options 234 Notes 235 References 236 Chapter 8 Attracting Foreign Direct Investment 237 Sanjay Kathuria, Mariem Mezghenni Malouche, Peter Kusek, and Nadeem Rizwan Introduction 237 Constraints to Private Investment in Bangladesh 238 Poor Performance of FDI Inflows in Bangladesh: A Snapshot 240 Constraints to FDI 245 Is Bangladesh Really Open to FDI? 251 Uneven Playing Field for Multinational Firms 257 International Payments and Investments 259 Policy Recommendations 263 Notes 264 References 267 Boxes 1.1 Vietnam Has Increased Its Export Basket Sophistication and Market Diversification 11 1.2 Rana Plaza Momentum for Reforms: Implementation Will Be Key 16 1.3 Exporter Dynamics Database 23 2.1 Bangladesh’s Para-Tariffs 43 Strengthening Competitiveness in Bangladesh—Thematic Assessment http://dx.doi.org/10.1596/978-1-4648-0898-2 viii Contents 2.2 Three Facilities for Exporters in Bangladesh 49 2.3 Bangladesh’s Success Story: The Ready-Made Garments Sector 51 2.4 National Board of Revenue Modernization Plan, 2012–16 56 2A.1 List of Subsectors for the Enterprise Survey 68 3.1 EU Preferential Regimes 81 3.2 Bangladesh’s Free Trade Agreements 95 3.3 Policy Barriers at the Bangladesh-India Border 99 3.4 India-Sri Lanka Free Trade Agreement 101 3.5 Historical Role of Bazaars 102 4.1 Import Policy Formulation 122 4.2 Export Policy Formulation 125 4.3 Ministry of Commerce’s FTA Wing 126 4.4 Interagency Coordination on Trade Agreements 127 4.5 Outline for a BFTI Train-the-Trainers Program 148 4A.1 Export Policy and Priority Sector Incentives 150 4A.2 Standards of Consultation 150 4A.3 National Institute of Public Finance and Policy of India 151 4A.4 Australia’s Productivity Commission 152 5.1 Quality Infrastructure Components 167 5.2 Lessons from Sri Lanka on Developing Garment Testing Services 169 6.1 Priority Actions to Phase Out Preshipment Inspection 208 7.1 Payment Methods for