Introducing re-export may turn Bangladesh into a regional hub of economy

Introducing re-export may turn Bangladesh into a regional hub of economy


M S Siddiqui

The economic integration and cooperation with all regions are a necessity for the growth of all the economies. An economy cannot grow in isolation from its neighbours. Some isolated economies like that of Myanmar and Cuba failed and were rather left behind by others. These countries are now opening up their economies to avail the existing opportunity of openness for exchange of technology, products and investment. There may be difference in the rate of growth but neighbours can supplement and support each other. Some nations try not to take cognisance of reality because of historical and political reasons. They don't always make enough distinction between economic integration and political unification. In our country, 'desh bikri' (sale out of the country) is a widely used term. The integration of economies is essential to supplement each other with source of technology, manpower, raw materials and market for products etc. The exchange of human sources and technology is easier due to close relation of language and culture and easy communication. Any cooperation among nations are to create jobs and raise standards of living, transfer new skills and expertise to local human resources, boosting up non-traditional exports, increase foreign exchange earnings, create backward and forward links to increase output and raise the standard of local enterprise, introduce new technologies, develop backward regions and attract industries, kick-start the economy as a whole, stimulate strategically important sectors to the economy etc.

The exchange of skilled and unskilled human resources is another method of cooperation which often takes place beyond formal legal framework. Many skilled persons from Korea, China, Sri Lanka and India are working in Bangladesh and unskilled Bangladesh manpower are working almost everywhere in the world. The authorities keep their eyes closed and keep mum about such exchange of human resources.

The economic cooperation is ensured by regional or bilateral agreements for duty free trade apart from political, cultural or educational cooperation. There are some other relations between north and south, and south-south agreements and alliances are very common. The trade relation/ cooperation also has various options like:

a. Bonded warehouse for manufacturer

b. Bonded warehouse for re-export

c. Duty draw-back

d. Temporary admission

e. Transit

f. Corridor

g. Re-export

Bangladesh already have six export processing zones (EPZs) which provide manufacturing facilities only. But in India, the terms Free Trade Zones and Export Processing Zones are synonymous. India has seven EPZs in Kandla, Santa Cruz (Bombay), Falta (West Bengal), Madra, Noida, Cochin and Visakhapatnam. They allow manufacturing and trading of foreign products for re-export. Because of this Indian policy, Bangladesh is now importing products of other origins from India through EPZs but is unable to take benefit of re-export to the one of the fasted growing big market of India.

There is no alternative to exchange of low-cost and low-technology products between the developing and developed economies for their mutual benefits. The developing economies offer various fiscal and institutional supports in production or conversion of product for developed economies. The export-oriented manufacturers import their inputs without paying the applicable duty/tax. In such cases, the duty/tax is suspended or relieved pending the re-exportation of these inputs incorporated in the finished goods being exported. It includes inward processing, manufacturing under bond, export processing zones, temporary admission for re-exportation in the same state, and Customs warehousing. Another method is drawback duties/ taxes to be paid at the time of importation and then refunded after the finished goods are re-exported. The other options are free zone for manufacturing and trading, temporary admission and transit.

These regimes are designed to remove or reduce the tariff burden to give exporters access to their industrial inputs at world prices and thereby make exports more competitive. By exempting duty/tax on inputs at time of import, or refunding duty paid when the inputs are incorporated into the finished goods and exported, capital costs can be reduced. The principle of not levying import duty/tax on goods that are not remaining in the Customs territory is fully consistent with WTO rules, provided the amount refunded does not exceed the duty/tax payable (in which case it would be an export subsidy and be prohibited under WTO rules).

Some countries like Bangladesh have inefficient procedures and burdensome document requirements resulting in exporters incurring extremely high costs. In the end the firm simply gives up on receiving a refund or the refund received has been drastically reduced in value due to inflation of cost of products. It is important to note that in many countries there has been massive drawback refund fraud when Customs does not exercise proper controls when goods are exported or does not perform post-audit checks. This problem can be especially acute in developing countries where the fiscal situation of the country is such that the government may at times not have sufficient budget to pay drawback refunds, and is instead obliged to provide credits against duty/tax payable on future imports. Given the fact that, duty/tax is being temporarily deferred, it is very important that Customs services exercise effective controls to ensure that there is no leakage of such raw materials into the domestic market.

Free Trade Zones: A free trade zone (FTZ) is one or more special areas of a country where the usual trade barriers such as tariffs and quotas are eliminated and bureaucratic requirements are lowered in hopes of attracting new businesses and foreign investments. Most FTZs are located in developing countries, and they are labour-intensive manufacturing centres that involve the import of raw materials or components and the export of factory-finished products.

Free trade zones came about because of the need to promote trade between and amongst nations. Free zones or bonded warehouses became increasingly popular in the last decade, with many countries attempting to promote exports of non-traditional manufactured goods, strengthen the competitiveness of exporters, attract investors, diversify the economy, create employment, transfer technology, expand trade and transport linkages to the country as a whole, promote tourism, encourage foreign direct investment (FDI), and achieve development and growth. Sometimes referred to as Free Trade Zones, Duty-Free Zones, Tax-Free Zones, Free Export Zones, Special Economic Zones, Export Processing Zones, by whatever name, such zones are considered legally outside the Customs territory of the country and thereby subject to an entirely different Customs tariff and income tax regime. The process is simple like break-bulk and shifting of goods from one container to another, sorting/repackaging/re-labelling, further assembly or manufacturing, etc.

In many free zones, quantitative restrictions apply on how much of an operator's production can be allowed into the domestic market (say, about 10- 20%). Licensed operators in the zone are required to submit a simplified Customs declaration for approval to admit or remove goods from the zone. Normally no duty/tax is payable on goods entering or being exported from the zone to third countries. However, certain administrative fees may be collected to finance the zone authority's administrative operations, and to maintain or improve the zone's infrastructure facilities that it rents or leases to operators.

The location of FTZs in underdeveloped parts of the host countries attract employers, thus reducing poverty and unemployment and stimulating the economy of the host country. They are normally organised around major seaports, international airports and national frontiers -- areas with many geographic advantages for trade like Hong Kong, Singapore and Nigeria.

There are more than 3000 FTZs in more than 225 countries, with nearly 50 million workforce engaged in them at various times and seasons. The FTZ is meant for manufacturing and re-export of products imported from other countries.

One of the popular businesses is re-export trade. Several countries throughout the world engage in re-export activities. It is a trade of imported good exported by the importing country. According to Wikipedia, re-exportation can occur when a member of a customs union charges lower tariffs to external nations to win trade, and then re-exports the same product within the customs union, but tariff-free. Thus re-exportation involves export without further processing or transformation of a good that has been imported. It is also called entrepot trade. In the "Essex" case (1805), a British judge declared that U.S. ships could not circumvent the Rule of 1756 by using the 're-export trade'. To get around the Rule of 1756, U.S. merchants had been first shipping foreign goods to a U.S. port, then re-exporting them to England and Europe as "neutral" goods.

Re-exports consist of foreign goods exported in the same state as previously imported, from the free circulation area, premises for inward processing or industrial free zones, directly to the rest of the world and from premises for customs warehousing or commercial free zones, to the rest of the world. It creates opportunities of development of trading centres and diversified economic bases. Trade, service, industry, banking, etc. are free. Vendors and shipping forwarders, shipping agents and customs brokers, exporters and importers, manufacturers and investors have free entry to free zones without much formality.

The FTZs are so important that the World Free Zone Summit held in Dubai on 2 November 2010 called for "increased synergy between free zones".

Jebel Ali Free Zone in Dubai, UAE, is probably the most successful zone in the world. Created in 1985, this free zone has no taxation. The restrictions are minimal, and there is no obligation to have a local partner. Staff can be recruited from anywhere. There are excellent port facilities, warehouses, office space, and factories already built and ready for lease. The port is the busiest in the Middle East and now the 10th busiest in the world.

Aqaba Special Economic Zone in Jordan is another recent bold initiative to turn the entire port city area of Aqaba into a duty/tax free zone in an attempt to attract economic development and FDI. What is interesting with the Aqaba Special Economic Zone Authority (ASEZA) is the authorities' decision to create a separate Customs service to operate inside ASEZA. ASEZA Customs is autonomous from the national Jordanian Customs administration, in an attempt to provide a focused, specialised and a better level of service to firms operating inside the zone. ASEZA has been very successful in a very short period of time at attracting several billion USD of FDI since its creation in what was otherwise a seriously economically depressed region of southern Jordan. ASEZA constitutes a pilot/catalyst for nationwide Customs reform.

Colon Free Zone in Panama operates almost exclusively as an entrepot/warehousing hub, focusing on commercial warehousing and repacking operations for firms that export finished goods to the Caribbean and Central America.

Singapore was traditionally a re-export economy by virtue of her historical role as an entrepot for Southeast Asia. Singapore's imports included goods for re-exports. According to International Enterprise Singapore (IES), Singapore's exports for all goods in 2004 were about $200 billion and re-exports accounted for 46 per cent of total exports. Singaporean companies have become some of the most active Asian importers and re-exporters of US goods and services. American exports 2007 to ASEAN rose to over US$60 billion (approximately S$81.1 billion), making ASEAN's combined market the fifth largest trading partner for the United States. Approximately 43% of exports from the United States to ASEAN countries went to Singapore. Singapore is the 11th largest export market for American products, with over US$26 billion.

A noteworthy change for Dutch trade is the recent growth of imports from China. A large share of goods imported from China is destined for other countries. Exporting partners often declare the Netherlands as the destination of goods intended for re-export. This is because suppliers are unaware of the final destination of goods. Asia supplies 25 per cent of the Netherlands' goods for re-export, with China as the leading supplier from the region. Other large re-exporting countries include Belgium, Germany and the United States where more than 10 per cent of their exports are re-exports.

Vietnam has introduced temporary entry of goods and transit provisions, temporary import for re-export and transit of goods.

The ASEAN nations are exploring trade and investment opportunities in Malaysia under seamless trade, utilising the country as a gateway to emerging markets in South Asia and the Middle East under the ASEAN Free Trade Agreement (Afta).

Free trade zones have transformed themselves into leading service centres for attracting foreign investment in the world and are greatly needed.

The opportunity before Bangladesh: Strategic located between two fastest growing economies, China and India, Bangladesh should take the opportunity to become a re-export hub for the future market of world products to more than 350 billion buyers.

The position of Bangladesh within the global map makes it a natural candidate to become a regional hub of economy. However, the globe wouldn't come to it unless it aligns itself to become a hub. Re-export has a big promise for the economic development of Bangladesh. It also has the potential to facilitate trades for land-locked Nepal and Bhutan and land-locked Indian provinces in the North-East.

We are negotiating with India for some transit fee and appealing for transit facilities to Nepal and Bhutan as relatively weak parties. We should stop bargaining for transit fee and also domestic political debate and confusion over transit versus corridor. There is no need for negotiation with any country to allow EPZs as manufacturing and free trade zones. The nation can decide alone and become a middle income country well before the celebration of the 50th anniversary of independence in 2021. The decision to became middle income country is our own and can take any time without any negotiation with any other country.

If India can re-export to Bangladesh, why should Bangladesh voluntarily ban re-export to India and other countries? This question may come as a surprise to the policy

makers.