Bonded warehouses for all sectors, duty-free raw material imports mulled

The National Committee on Exports, led by Prime Minister Sheikh Hasina, will meet tomorrow to decide on policy measures for the development of the export sector. 

Among the topics to be discussed at the meeting are the implementation of bonded warehouse facilities across all sectors, as has been done in the garment industry, and the provision of duty-free import of raw materials and machinery for exportable products, according to sources at the Commerce Ministry.

Additionally, the committee may decide on the implementation of the duty drawback facilities for 100% export-oriented products, as well as incentives for domestic production and exports in accordance with the WTO Agreement on Subsidies and Countervailing Measures after the country's graduation from LDC status in 2026.

The SCM agreement disciplines the use of subsidies and regulates actions countries can take to counter the effects of subsidies.

The sources also said the meeting will be attended by 11 ministers, including the finance and commerce ministers, 11 secretaries, including those of finance and commerce, the principal secretary to the prime minister, the Bangladesh Bank governor, executive chairpersons of Bida, Beza, and Bepza, as well as the presidents of various business associations, including the FBCCI. The meeting will take place at the Prime Minister's Office.

The Ministry of Commerce has drafted an agenda containing several policy incentives aimed at expanding the export of goods and services in preparation for the upcoming meeting. 

One such incentive is the bonded warehouse facilities, which allow factories to import raw materials duty-free and store them on their own premises under the supervision of customs. This eliminates the need for the factory to pay duty at the port and saves time that would otherwise be spent waiting for the release of raw materials.

Exporters without these facilities, however, must pay duty on imported raw materials and then apply to the National Board of Revenue for reimbursement of the paid duty after the export of finished products. The Bangladesh Trade and Tariff Commission's report indicates that this process can take up to 4-5 years.

In 1997, Bangladesh introduced a special bonded warehouse facility for the ready-made garment industry to reduce lead time for exports. The facility became popular after the quota system in RMG exports to the US and Canada was abolished in 2005. 

Later it was said that bonded warehouse facilities would be introduced for deemed exports, and accessories and the shipbuilding industries under the General Bonded Warehouse facilities, but this benefit was not extended beyond the apparel sector.

However, there are allegations of illegal sales of various products imported through duty-free facilities in the open market. The government loses revenue when goods imported under the duty-free facility are sold in the open market. 

In this situation, if bonded warehouse facilities are to be introduced in all sectors, the capacity of the Customs Bond Commissionerate should be increased, said stakeholders.

NBR Chairman Abu Hena Md Rahmatul Muneem said in a pre-budget discussion this month that the revenue board wants to provide bonded warehouse facilities in some other sectors apart from the garment sector, but it has a deficiency in capacity in this regard.

He said, "Preparations are underway to launch the bond automation programme. Once it is completed, this facility can be provided to other sectors as well."

Although the NBR has set up a separate Duty Exemption and Drawback Office to refund the duty paid on the import of raw materials, it is alleged that traders do not get the refund regularly. 

About two years ago, the Bangladesh Trade and Tariff Commission recommended to the Ministry of Commerce that wholly and partially exporting companies be provided with an easy duty drawback facility in order to promote the diversification of export products. Despite several requests from the Commerce Ministry to the NBR, however, businessmen complain that the situation has not improved much.

In a report submitted to the Commerce Ministry in July 2021, the Tariff Commission stated that there are approximately 750 different exportable products in Bangladesh, with 659 of them belonging to partially export-oriented industries in the iron and steel, chemical, electronics and electrical, and furniture sectors. 

These industries need to import 80%-90% of their raw materials and pay duties ranging between 25% and 65%, while their local value addition rate is between 35% and 70%, said the report.

To diversify the country's export basket, the Tariff Commission recommended that the government offer these industries the option of duty-free raw material import facilities against a 100% bank guarantee, rather than the existing duty drawback system. 

Exporters can easily recover the bank guarantee money after exporting products manufactured with raw materials imported under the bond facility. If they do not export, the NBR can deduct duty from the bank guarantee money, which will speed up revenue collection.

The commission cited Vietnam as an example of a country with duty-free facilities to release imported goods, which is guaranteed by a third company. In Bangladesh's case, the lien bank will guarantee the same amount of duty on imported raw materials on behalf of the importing company, eliminating the need for a third party.

During the Sanem economists' conference in 2020, Policy Research Institute Chairman Dr Zaidi Sattar shared that Bangladesh exported 1,605 items in 2018, with approximately 250 of those being RMG items. 

Commerce Ministry officials told TBS that businesses are seeking policy support to facilitate export diversification. The export policy order also mentions providing benefits to other sectors similar to the garment industry. However, the cooperation of other government agencies is necessary to implement these policies.

FBCCI President Md Jashim Uddin, who is also a member of the task force chaired by the prime minister, said that Bangladesh needs facilities for duty-free import of raw materials and machinery like those available in other countries. He suggested providing bonded warehouse facilities and additional benefits to export-oriented sectors other than RMG.

Garment industry owners hope that the meeting chaired by the prime minister will resolve various issues. 

Mohammad Hatem, acting president of the Bangladesh Knitwear Manufacturers and Exporters Association, expects that the meeting will discuss providing duty-free import facilities for exportable raw materials and machinery. 

The Commerce Ministry believes that making capital equipment and raw materials duty-free will increase investment in the export sector and boost Bangladesh's competitiveness in the international market.

The meeting of the National Committee on Exports will discuss continuing export incentives under the WTO SCM agreement and ways to expand existing and create new markets to increase exports of goods and services. 

The meeting will also review the impact of the Covid pandemic and the Russia-Ukraine war on the export sector and formulate strategies for product and service diversification. The prime minister will issue instructions on implementing these strategies, Commerce Ministry sources said.