Red Tape Blamed For Indo-Bangla Smuggling

India Abroad News Service

Red tapism and different levels of trade liberalisation in India and Bangladesh have led to a boom in cross-border smuggling, according to a World Bank report.

The bank report on trade policy reform stated that large scale smuggling is rampant between the two countries despite policy changes.

A ban on the import of sugar, salt and some other commodities by authorities was somewhat meaningless, it said, because large amounts of these goods are imported illegally from India.

It also blamed a price differential and the enormous import clearance procedure in the two countries for the resort to unofficial channels of trade.

 

Quoting a survey, the Bank said illegal imports constituted about ten per cent of total imports into Bangladesh. Smuggling from India into Bangladesh totalled $519 million against Bangladeshs export of $126 million to India.

Despite significant reforms, the current trade regime continues to provide strong incentives for smuggling and duty evasion through under-invoicing of imports, the report said.

The Bank, suggesting further import liberalisation, said the Bangladesh government should announce a medium term strategy in its next budget projecting tariff changes for next few years.

It said that for an open and stable trade regime which attracts investors and stimulates export growth, the government should announce across the board reforms.

Advance announcement of tariff reforms is essential to reduce uncertainty for investors and producers, it said.

The Bank recommended that a three-rate schedule of 10, 20 and 35 percent be adopted in the next budget, which is to be announced this month, with zero rates only for imported inputs for exporters.

A further compression of rates down to zero for exporters, 10 and 20 per cent in the following year with intensive analysis and input from the Tariff Commission has also been suggested.

Low rates between zero and 20 per cent should be announced now for the fiscal 1999-2000, the report said, adding that a maximum rate of 20 per cent would retain some protection for domestic industry against alleged foreign dumping.

Additional protection - a 2.5 per cent import permit fee, a 15 per cent value added tax (VAT) on textiles and use of tariff values in duty assessment - should be removed, it suggested.

Stressing on completing the crucial items remaining on the trade reform agenda, the report said import liberalisation was the most effective way to promote trade, specially export, and tariff reform was the most crucial element of import liberalisation.

The progress made by the government in reducing tariff was termed good by the report, which said more reform was needed in establishing more uniform rates of protection by compressing the number of tariff rates to reduce dispersion and simplify the regime.

Dispelling the fears of large revenue losses, the World Bank said a cut in the import weighted tariffs to half of their present level would lead to an estimated Taka 19 billion revenue loss, but it would be offset by the yield from an increased volume of imports.

It said quantitative restrictions, specially on textiles, were preventing the development of backward linkage with the readymade garment sector.