Edible oil export ban and trade gap with india

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Sunday, December 31, 2017

https://dailyasianage.com/news/101585/edible-oil-export-ban-and-trade-gap-with-india

Edible oil export ban and trade gap with India M S Siddiqui

Developing countries find an opportunity to use their low-cost labor, proximity to market and location near the sources of major inputs, minimal environmental regulations and easy electronic communication system and facilitate interpretation to global value chain (GVC).

GVC depends on fragmentation of production and trade of intermediate products in order to exploit cost advantage of each location/stage in the chain, up to the assembly stage. GVCs are value chains, which are activities that companies engage in to bring a product from producers from all the way to the final consumer, and that are global in a way that are spread over several countries.

The developed market find cost advantages to buy low technology based consumer products from developing countries. This value added global value chain is foundation of economic development.

The domestic value added in gross exports is real value added by an economy in producing goods and services for export. It is the difference between gross output at basic prices and sale value of the final products.

Bangladesh is in such at the lower end of global supply chain of garments for the end market in developed countries. The chain starts from production of cotton - yarn - fabric - stitching garments. This fragmentation of production has created new opportunities for developing countries

to enter global markets as components or services suppliers, without having to build the entire value chain.

GVC has changes the concept of "country of origin" as the value of an imported good does not necessarily fully originate from the geographical origin of export. For example, Korea is importing cotton from USA (USA origin) and madding yarn exporting yarn to Indonesia (Korea origin) and Bangladesh importing fabric from Indonesia (Indonesian origin) and stitching garments and export (Bangladesh origin) to USA. Due to globalization of production, economies use to give highest priority to those sectors which have special export potentials, but such potentials could not be utilized properly due to certain constraints, and more success is attainable, if adequate support is rendered to them.

Our export trade is featured by the dominance of a few commodities in a narrow market. Such dependence on at limited number of export items targeted a limited market is not desirable for economic development. We must, therefore, aim both at product and market diversification or else our export trade will become stagnant in the near future.

In line with success story of Garment in revolutionized the economy and framing a dynamic Export policy 2015-18. The Export Policy order 2015-18 included following product sectors as the special development sectors: (1) Light engineering products (including auto-parts and bicycles); (2) Electric and electronic products; (3) Jute products; (4) Hand loom fabrics; (5) Ceramic products; (6) Frozen fish; (7) Printing and packaging; (8) Rubber; (9) Uncut diamonds and jewelry; and (10) Cosmetics and toiletries.

Government decided to render to the Special Priority worth project loans at comparatively low rate of interest on a priority basis; consideration for export loans on soft terms and at reduced interest rates; provide subsidies in consistence with WTO Agreement on Agriculture, and Agreement on Subsidies and Countervailing Measures; shipment of products at reduced air fare; duty draw-back/ bond facilities; give priority in getting utility services such as electricity, gas, telephone for setting up backward linkage industries including infrastructural development to reduce production cost; expansion of technical facilities to improve the quality of products; assistance in marketing of product; assistance in exploring for foreign market; 14 possible financial benefits for utility services such as electricity, water and gas etc. Government will take necessary initiatives should be taken to attract foreign direct investments (FDI).

Government has decided to offer many facilities such as bond system, duty draw-back, subsidies etc. will be reviewed to keep export price at a competitive level. Similarly, the project will assess and take necessary steps regarding issues such as product development and market expansion, trade cooperation and infrastructural constraints hindering export trade. It will undertake project to acquire modern technology promoting expansion of export trade and strengthen the export development activities of these export diversified products.

But unfortunately the Export Policy has legacy of last caretaker government of banning export of edible oils with a plea to "keep domestic prices stable". The measure was temporary for six months but now it has been included in negative list of current export policy. Moreover, there is hardly any co-relation between local market and global supply chain as evident in our Garment sector.

According to policy, Bangladesh use to import and consume cholesterol pawn Soyabean and Palm oil and allowed export of rice bran, the raw material of the completely cholesterol free natural oil namely rice bran oil. The Rich bran oil is considered as nitration-rich cooking oil and advised by doctors to replace Soybean and Palm oils. This is like a saying that "somebody sells milk and buys wine and somebody sells wine and buys milk ".

The Rice millers are producing three byproducts namely husk, bran oil and de-oiled bran while the grain is extracted. Of those, bran oil is used for producing edible oil, de-oiled bran is used as poultry and cattle feed, and husk as fuel. According to the EPB, the export figure of rice bran in 2012-13 stood at around $16m while it was only about $6m in 2013-14.

Bangladesh already has few oil manufacturers from rich bran. The annual demand for rice bran as a raw material for the existing seven rice bran oil factories is around 7.65 lakh tons; the total demand for all 13 factories will stand at 12.45 lakh tons. The country produces around 24 lakh tons of bran annually. Bangladesh may set up more Rice bran oil factory and stop export of Rice bran.

Bangladesh entrepreneurs have already invested in fixed assets and local oil refiners currently have the capacity to produce 60 lakh tons of Soyabean and Palm oil per year against the local demand of only 20 lakh tons. Local producers used to export edible oil to India until the then caretaker government imposed a ban on edible oil exports in 2007. Bangladesh has already entered into global value chain of edible oil by remaining close to a market like India and successfully exporting to India. Entrepreneurs developed the edible oil market without any support from government.

Government also decided that the National Board of Revenue (NBR) will consider the possibility of providing bonded warehouse facilities to import-dependent export industries. Especially, the Board will examine whether bonded warehouse facilities can be extended to all other export-oriented industries. Besides, providing additional bonded warehouse facilities to trading houses and export houses under certain conditions will be examined.

Bangladesh now should ban export of rich bran and increase capacity of manufacturing health rich bran oil for own consumption and allow export Soyabean and Palm oil to India, Nepal and other countries since it is already in the GVC of edible oil. Recently government has kindly given permission to some edible oil industries to export edible oil to India and some other industries applied to Ministry of Commerce for permission of export.

By this time India has increased import tax on crude and finished oil and Bangladesh has duty free excess to India under FTA. Unfortunately policy makers in Bangladesh are not realizing the opportunity of export of edible oil into export.

The theory of absolute advantage of Adam Smith proposed in 1776 for unrestricted free trade facilitating the unrestricted free trade for benefits of all for production of sell to each other nations.

We find two additional theory based on theory of absolute advantage are developed by English Economist David Ricardo and subsequently two Swedish Economists Eli Heeckscher and Bertil Ohlin, whose theory is named as Heeckscher-Ohlin theory of Free and unrestricted free trade. After the change socialist economic system and gradual opening up of closed economies has created congenial atmosphere of global single market.

This has accelerated through the bi-lateral, regional and multilateral free trade agreements greatly facilitate the excess to market of other countries.

The writer is a legal economist.

Email: mssiddiqui2035@gmail.com