Chance to sustain export trade

Prime Minister (PM) Madhav Kumar Nepal during his press meet in Kathmandu at the end of his four-day official visit to India expressed that the Nepal-India trade treaty will help in taking bilateral trade to a new height by providing leeway to narrowing trade deficit in the long term. The treaty is built on the foundation of an earlier treaty signed in 1996 and has added several provisions on the way to remove barriers and facilitate bilateral trade as underscored by the PM. The major provisions included in the treaty have been made public through different media and repeating them here is not necessary.

However, some crucial elements enshrined in the treaty are worth mentioning which, among others, are that India would assist Nepal to improve technical standards, quarantine, testing facilities and human resources capacity, facilitation of cross border flow of trade through simplification, standardization and harmonization of customs and trade-related procedures, collective effort to reduce or eliminate non-tariff, para-tariff and other barriers, recognition of sanitary and phyto-sanitary certificates on the basis of reciprocity, equal treatment on tax benefits to Indian export to Nepal irrespective of the currency and the mode of payment, calculation of value addition of the Nepali goods on Free on Board (FOB) basis in lieu of Ex-Factory as mentioned in the previous arrangements and procedures of safeguard measures to follow the principles and guidelines of World Trade Organization (WTO) agreements.

It is but natural for Nepal, as a neighboring country maintaining very close economic, social and cultural ties with India since time immemorial, to engage with it in meaningful dialogue in trade and economic cooperation.

India has remained the single-largest trading partner of Nepal during most of its history. The export trade of Nepal increased at an encouraging pace between 1997 and 2001 from 9 billion to 28 billion Nepali rupees. The process slowed during 2002-07 period (export figures increased from 28 billion to just 42 billion Nepali rupees within a period of five years) while exports has seen a decline from 2007 onwards (from 42 billion to 39 billion in 2007-08).

The reasons behind the fall in exports are mainly attributed to erosion of preferences to Nepali goods due to the decreased Most Favored Nation tariff in India. India has signed several free trade area (FTA) agreements with various countries; it has commitment to lower the customs duty as non-least developed country member of South Asian Free Trade Area (SAFTA) and Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) FTA. It also announced Duty Free Tariff Preferences (DFTP) scheme as part of commitments made in Hong Kong ministerial meeting of WTO. Nepal would be importing more due to tariff reduction at home while it will face tough competition in the Indian market as other countries would find it easy to compete under the lower tariff regime in India. It is obvious that Nepal will go on loosing exports and would be in a precarious situation if some concrete measures are not taken to check and reverse the process. It is in this context that the process of revision on the treaty of trade was taken up by Nepal in early 2007.

Many least developed countries (LDCs) around the world are being marginalized in the wake of openness and increased competition in the world markets. These countries are desperately looking for contiguous and niche markets for promotion of trade. Hence, south-south cooperation and integration of markets at the regional and sub-regional level is being discussed among such countries resulting in the emergence of several bilateral and regional FTA agreements and customs unions. Around 300 such agreements have now been notified to the WTO.

Comprehensive Economic Partnership Agreements (CEPA) is emerging as a new paradigm in a bid to integrate the trade and economy of countries. India has concluded such an agreement with Singapore and the agreement with Sri Lanka is under negotiation. The notion behind CEPA is to achieve meaningful integration of trade and economy by bringing the various sectors of economy like investment, tourism, intellectual property rights, services, etc. under a single umbrella. The trade treaty also reflects the commitment of India to provide assistance for improving the trade-related capacity of Nepal. In a sense, the proposed treaty could be taken up as a step forward in the direction of comprehensive approach to trade promotion.

It has been increasingly realized that market access alone does not guarantee the promotion of international trade. Three things seem to be of utmost importance in leading the trade agenda. The first is hassle free market access through reduction of tariff and non-tariff barriers, second is the facilitation measures through increased connectivity, customs harmonization, simplification of trade rules and procedures and efficient trade logistics and the third is the enhancement of supply-side capacity. We have seen that many LDCs are lagging in trade capacity due to non-availability of sufficient number of products, on the one hand, and the quantity and quality of the available products to meet the standards and economies of scale in the importing countries, on the other hand. Nepal is not an exception to this common pitfall of the LDCs.

The position of India as the fastest-growing economy in the region has diverted the attention of the developed world to enhance economic linkages with this country. Several countries in the north are engaging in dialogue at various levels with India for FTA agreement, economic partnership agreement and investment promotion measures by considering the big market size and the robust economy of India. It is but natural for Nepal, as a neighboring country maintaining very close economic, social and cultural ties with India since time immemorial, to engage with it in meaningful dialogue in trade and economic cooperation. The ongoing effort to sign a new treaty is the manifestation of mutual understanding, zeal of cooperation and commitment to take trade to a new height as stated by the PM of Nepal.

The most important and considerable aspect is that we cannot remain complacent by signing a new treaty. There is a need for constant persuasion and follow-up in realizing the objectives of the treaty by working out the instruments for effective implementation of the various provisions outlined in it. Identification and development of export potential products and diversification of the existing products is of paramount importance in sustaining the export base of Nepal. The treaty has also made a permanent institutional mechanism of Inter Governmental Committee (IGC) and Sub-Committee that will meet regularly at six-month intervals for reviewing the implementation and removal of the barriers. The treaty provides a framework and opportunities for increasing export to India. However, it is important for both countries to work together in devising various instruments through bilateral mechanism that will help in achieving complementarities and sustainability of Nepali trade.

(Writer is commerce secretary.)

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