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STAR BUSINESS REPORT

Trade policies in South Asia are shielding less productive sectors while constraining job creation and export competitiveness, economists said at a session of the ninth Sanem Annual Economists’ Conference held at BRAC Centre Inn in Dhaka yesterday.

“South Asia’s trade policies are protecting the least dynamic parts of its economy while holding back job creation,” said Franziska Ohnsorge, chief economist for South Asia region at the World Bank, in her presentation at a session on “Development challenges and policy responses in a changing world”.

Around 40 percent of workers in the region are employed in sectors -- mainly agriculture -- protected by tariffs exceeding 30 percent, she noted. These sectors have contributed little, or even negatively, to employment growth over the past decade.

Ohnsorge said that, in contrast, low-tariff sectors account for nearly three-quarters of new jobs, underscoring the role of more open, competitive industries in driving employment.

High tariffs also raise input costs, particularly for manufacturing, weakening export competitiveness.

“Workers in protected sectors are typically older and less skilled, suggesting that tariff protection is shielding a stagnant segment of the labour market,” she said.

Ohnsorge suggested that reducing tariffs, alongside measures to ease worker mobility, could boost growth, create better jobs, and increase overall government revenue.

Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD), highlighted a key gap in trade liberalisation debates, arguing that domestic reforms cannot be assessed without considering partner-country policies.

He stressed that trade is inherently reciprocal. “It takes two to tango,” he said, warning that ignoring partners’ policies oversimplifies real outcomes.

Referring to Ohnsorge’s keynote, Rahman acknowledged that tariff reduction can improve resource allocation and support employment in efficient sectors, reflecting the widely accepted theory of comparative advantage.

He also noted that while Bangladesh is expected to lower tariffs on US imports, its exports could face duties of nearly 35 percent, raising annual payments to around $3 billion.

Bringing up the garments sector, he said a mix of liberalisation and incentives enabled strong backward linkages and over 50 percent domestic value addition.

As Bangladesh approaches LDC graduation in November 2026 -- though the government has requested a deferment -- he urged calibrated reforms, noting that global rules allow policy flexibility amid an uneven playing field.

Anirudh Shingal of SP Jain Institute of Management and Research in India highlighted practical strategies for countries facing rising trade policy uncertainty, drawing on recent research.

He said informal networks such as the Commonwealth can play a stabilising role during crises, as countries tend to trade more within culturally and linguistically connected groups when uncertainty rises.

Shingal also noted that “aid for trade” remains effective. Across multiple manufacturing sectors, such support has been found to boost exports from recipient countries to donor markets, offering a viable cushion for low-income economies.

Srimal Abeyratne, professor of Economics at the University of Colombo, said Sri Lanka’s weak export performance remains puzzling despite decades of export-oriented reforms.

He noted that the country has endured multiple shocks in recent years, including the pandemic and the 2022 debt crisis.

While macroeconomic stability has improved and recovery is visible on the surface, poverty has deepened, businesses have collapsed, and structural vulnerabilities persist.

Abeyratne stressed that trade is central to sustaining recovery, reducing poverty, and meeting debt obligations from 2028. However, Sri Lanka faces ongoing challenges in external financing and reserve adequacy, which remain below IMF targets.

Despite this, rising foreign exchange earnings from these sources have reduced urgency for reforms. Abeyratne argued that meaningful trade reforms remain essential to drive growth, create jobs, and ensure sustainable economic stability.