The non-readymade garment sector in Bangladesh has failed to reap full advantage of the bonded warehouse facility. Bangladesh provides duty-free import benefits to exporters under the bonded warehouse scheme but the benefit is mostly enjoyed by apparel exporters. The scheme allows duty-free imports of raw materials of export items. Export diversification is linked to the existence of the bonded warehouse facility as it provides scope to buy raw materials at international prices.

Around 84 per cent of Bangladesh’s export basket is filled up by readymade garments. High tariffs to protect domestic industries have deterred producers in other industries from exporting and instead made them cater to the domestic market. If these manufacturers have access to bonded warehouse benefits they can think of export diversification. Bangladesh’s source of cost competitiveness is low-cost labor but raw materials and intermediate goods are subject to tariffs. To be competitive, Bangladeshi exporters need to be guaranteed imported inputs at world prices. That is, imports must be available at duty-free prices, upfront. Bonded warehouse benefits ensure duty-free imports, creating a level playing field on the global market. This will ensure labor cost advantages can be exploited fully. As long as tariffs exist and remain high, the bonded warehouse benefit is a must for export success.