Real import protection nearly doubles
Bangladesh’s effective protection for imported goods is nearly twice the level indicated by its official tariff schedule, with regulatory and supplementary duties – or para-tariffs – accounting for much of the gap and creating a major fiscal challenge for tariff reform, according to a new World Bank study.
The study, Bangladesh Trade Policy at a Crossroads: Evidence for the National Tariff Policy, LDC Graduation, and the Next Generation of Trade Agreements, was presented on Tuesday by Nora Dihel, Senior Economist for Macroeconomics, Trade and Investment at the World Bank, at a programme organised by the Policy Research Institute of Bangladesh (PRI) at its Banani office.
Using FY2026 data, the study estimates Bangladesh’s trade-weighted average Most Favoured Nation (MFN) tariff at 7.0 percent across 5,666 tariff lines.
Once regulatory and supplementary duties are included, however, average nominal protection rises to 15.4 percent.
The gap is particularly wide in several sectors, rather than being spread evenly across the economy.
Footwear, hides and skins, stone and glass, and transport equipment face some of the highest levels of additional protection.
In footwear, for example, nominal protection reaches 70.4 percent compared with an MFN tariff of 25 percent.
The World Bank said tariff rationalisation, pledged under the National Tariff Policy gazetted in August 2023 and reiterated in the Smooth Transition Strategy, has yet to move beyond the proposal stage.
The FY2026-27 budget revised duties on 261 tariff lines, but independent assessments cited in the study found that the incentive structure remains largely geared towards the domestic market and has fallen short of earlier commitments.
The issue has become more pressing as Bangladesh approaches its scheduled graduation from Least Developed Country (LDC) status on November 24, 2026.
The government has formally sought a deferral of at least three years, with a decision pending.
Para-tariffs drive reform cost
Using its Tariff Reform Impact Simulation Tool (TRIST), the World Bank assessed the potential fiscal impact of different reform scenarios.
It found that the revenue risk comes predominantly from para-tariffs rather than conventional customs duties.
A 10 percent reduction in customs duties alone would reduce import tax revenue by about $189 million. If the same reduction were combined with the complete removal of para-tariffs, however, the estimated revenue loss would rise to $1.4 billion.
Eliminating both customs duties and para-tariffs entirely would cost about $3.7 billion, equivalent to 40.8 percent of import tax revenue or 0.83 percentage points of GDP.
The World Bank recommended a phased reform programme, beginning with cuts in duties on intermediate inputs alongside reductions in the most heavily protected consumer goods.
This should be followed by a pre-announced, multiyear phase-out of remaining para-tariffs and eventual convergence towards tariff levels in regional competitors such as India, China and Vietnam.
It warned that reducing tariffs on intermediate inputs alone, without addressing high protection for consumer goods, could deepen the existing bias against exporters.
Exemptions weaken tariff structure
The study also found a significant divergence between Bangladesh’s statutory tariff rates and the duties actually collected.
An analysis of FY2025 transaction-level customs data showed that 28.4 percent of Tk5,686 billion in total imports entered without full payment of customs duties, while 25.6 percent benefited from exemptions covering at least half of the statutory duty.
More than half of imports from China and India received such exemptions, with the incidence of exemptions increasing alongside both transaction value and the statutory tariff rate.
Trade deals could boost GDP
A separate computable general equilibrium analysis using the GTAP model examined Bangladesh’s broader trade policy options following LDC graduation.
If all existing trade preferences expired without replacement, real GDP would fall by 0.24 percent, or roughly $1.1 billion, the study found.
A passive “do nothing” scenario, in which Bangladesh allows preferences to lapse while competing countries expand their own market access, would reduce GDP by about 0.21 percent. Unskilled wages would fall by 0.83 percent and total exports by 2.48 percent under that scenario.
A deeper multi-partner free trade agreement strategy, benchmarked against the depth of Vietnam’s trade deals, could instead raise real GDP by 0.73 percent, equivalent to about $3.2 billion.
Around two-thirds of the gains would come from agreements with countries in the Regional Comprehensive Economic Partnership (RCEP) and ASEAN.
The study also found that unilateral reforms requiring no negotiating partner could generate GDP gains of up to 0.52 percent, particularly through deeper cuts in input tariffs and the removal of para-tariffs on intermediate goods.
The World Bank said the fiscal impact of tariff reform would remain manageable, at less than one percentage point of GDP even under the most comprehensive scenario.
But it stressed that tariff reform should be accompanied by stronger domestic revenue mobilisation, removal of non-tariff barriers, liberalisation of services trade and adjustment support for workers in sectors most affected by greater competition.
