The World Bank (WB) has recommended a phased approach to tariff reform in Bangladesh to enhance the country's trade competitiveness. This involves reducing duties on intermediate inputs, lowering protection for highly protected consumer goods, and gradually phasing out para-tariffs. The recommendations are part of a new study titled 'Bangladesh Trade Policy at a Crossroads: Evidence for the National Tariff Policy, LDC Graduation, and the Next Generation of Trade Agreements,' presented by Dr. Nora Dihel, Senior Economist for Macroeconomics, Trade and Investment at the World Bank.
Key Recommendations
The study recommends that Bangladesh should gradually reduce remaining regulatory and supplementary duties, known as para-tariffs, to bring its tariff structure closer to the levels of regional competitors like India, China, and Vietnam. It also suggests stronger domestic revenue mobilization to manage the fiscal implications of lower import duties and the removal of non-tariff barriers. Additionally, the World Bank called for the liberalization of services trade and adjustment support for workers and sectors affected by trade liberalization.
Economic Impact and Sequencing
According to the study, Bangladesh’s trade-weighted average Most Favoured Nation (MFN) tariff stands at 7.0 percent, but after accounting for para-tariffs, the average nominal protection rises to 15.4 percent. The World Bank used its Tariff Reform Impact Simulation Tool (TRIST) to estimate that a 10 percent reduction in customs duties would reduce import tax revenue by around $189 million. A combined reduction with the removal of para-tariffs would cost around $1.4 billion, while the complete elimination of both would cost about $3.7 billion, equivalent to 40.8 percent of import tax revenue or 0.83 percentage points of GDP.
Preparing for LDC Graduation
The study also highlighted the need for Bangladesh to pursue deeper trade agreements to prepare for its graduation from the Least Developed Country (LDC) category, scheduled for November 24, 2026. The World Bank recommended combining domestic tariff reforms with an active strategy to secure preferential market access and expand participation in regional and global trade arrangements post-graduation. The study estimated that unilateral trade reforms could increase real GDP by up to 0.52 percent, while deeper multi-partner free trade agreements could raise real GDP by 0.73 percent, or around $3.2 billion.
Why This Matters for Bangladesh
The proposed tariff reforms are crucial for Bangladesh as it seeks to enhance its trade competitiveness and prepare for its graduation from LDC status. By adopting a phased approach, Bangladesh can manage the fiscal implications of lower import duties while gradually aligning its tariff structure with regional competitors. This will not only boost the country’s trade competitiveness but also ensure a smoother transition post-LDC graduation, leading to potential economic gains and increased participation in global trade.
