Bangladesh’s trade policy has long operated as a contradictory mix of export promotion and import protectionism, with its average tariff burden of 28% far exceeding the global average of 6% and even surpassing peer lower-middle income countries at 7.2%, a leading economist said today (11 May).
Zaidi Sattar, chairman of the Policy Research Institute of Bangladesh (PRI), made the observations while delivering the keynote address at a roundtable titled “Trade Policy, Industrial Protection, Investment Impacts, and Consumer Welfare,” organised by PRI’s Center for Trade Policy and Protection Research (CTPPR) with support from the Foreign, Commonwealth and Development Office (FCDO).
The event was held at the PRI Conference Room in the capital.
Sattar described Bangladesh’s current trade policy as “a hotchpotch” of outward-looking and inward-looking approaches without clear direction, resulting in export success confined almost entirely to readymade garments, which account for 84% of total exports, while non-RMG export diversification has remained largely stagnant.
He said the RMG sector effectively operates within a free trade enclave, while most other industries face a complex, multi-layered tariff regime comprising customs duties, regulatory duties, supplementary duties, VAT, advance income tax and other para-tariffs, pushing the nominal protection rate (NPR) to around 27.9% in FY26.
Presenting historical data, Sattar noted that while average customs duties fell sharply from 70.6% in FY92 to around 13% to 14% in recent years, the gains were offset by the steady rise of para-tariffs, from 2.6% in FY92 to 13.2% in FY26, leaving effective protection largely unchanged over two decades.
He described the persistent gap between output tariffs and input tariffs as a “crocodile tariff” structure, with output tariffs consistently running more than double the rate applied to inputs, entrenching protection for domestic producers at the expense of export competitiveness.
Data showed that nearly 1,677 tariff lines, representing 99.8% of cases, carry supplementary duty rates on imports that exceed those applied domestically, a mechanism the PRI characterises as de facto industrial protection disguised within the revenue framework.
Sattar argued that the primary barrier to export diversification is not a lack of competitiveness, but a policy-induced anti-export bias embedded in the tariff structure.
PRI research covering 1,377 non-RMG product categories found that 39% are highly competitive globally, with an average anti-export bias (AEB) ratio of 1.303, meaning the policy environment systematically favours domestic sales over exporting.
“With all the subsidies and support applied to exports, these are no match to the high protection subsidy through tariffs to import-substitute production,” Sattar said.
He added that the 30-40% depreciation of the taka between FY2022 and FY2025 further compounded the effective tariff burden, as exchange rate depreciation is economically equivalent to an increase in import duties.
On foreign direct investment, Sattar said Bangladesh continues to attract only around 1 % of GDP in FDI inflows, a fraction of the 4-6 % of GDP achieved by Vietnam and Thailand, because export-oriented, efficiency-seeking investment gravitates toward open, predictable and trade-neutral regimes, conditions Bangladesh currently fails to meet.
Turning to consumer welfare, Sattar said the protection regime effectively functions as a hidden tax on ordinary Bangladeshis. PRI research estimates that consumers pay 50 to 100 % above world prices for most goods, whether imported or domestically produced, with the total protection cost to consumers estimated at 6.3% of GDP in FY20.
He cited the IMF’s purchasing power parity data to illustrate the price-level problem: while Bangladesh is projected to marginally overtake India in nominal per capita GDP in 2026, India’s PPP-adjusted per capita income stands 15% higher at $11,789 against Bangladesh’s $10,271, a gap the IMF projects will widen to 24% by 2031.
Sattar invoked economist Mancur Olson’s theory of collective action to explain why reform has proved difficult: producer associations lobby effectively for protection, while consumers, large, diffuse and poorly organised, bear the costs in silence.
“Restrictive trade and import regimes restrict consumer choice, raise prices, and undermine consumer welfare,” Sattar said, calling on the government to strike a balance between protection incentives for producers and the mounting costs imposed on consumers.
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