INTERNATIONAL TRADE AND WTOPushkar Bajracharya

CONTEXT

Political transition Slow economic growth Fast growth in trade particularly imports Stagnancy in exports BoT, CA, BoP deficits

CONTEXT..

Nepal is a small open economy. About 20% of Nepalese export is related to

agriculture and the country has large potential of expanding it.

Export oriented industries are mostly based on imported raw materials.

Lacks diversification both in terms of products and market destinations.

REFORM INITIATIVES

Recognising the role of trade in economic development, the Nepal adopted open, liberal and market oriented trade policy since the mid-1980s and early 90’s.

A series of policy reforms such as reduction of import duties, elimination of quota system and licensing requirement, introduction of one window system, and curtailing of negative list for investment, etc were initiated.

Trade infrastructure such as dry ports (ICD) were built and customs modernisation programs were lunched for facilitating trade and investment.

REFORM INITIATIVES.. Nepal became members of two regional trading

arrangements, viz SAFTA and BIMSTEC, and also the multilateral trading system, the WTO, with a view to integrating its trade and economy with the global economy.

Diversification of transit facilities were made with the opening of Kakarbhitta-Phulbari-Banglabandha corridor in 1997.

Similarly, the transit point development between India and China through Nepal is a recent initiative being promoted by the country.

Moreover, policy towards developing appropriate route and related services is under way.

New trade policy was adopted in March 2009 revising the 18 year old trade policy.

Introduction of cash incentives.

TRADE POLICY

Nepal’s trade policy 2009 focuses on making trade sustainable mainly through:

simplification of processes and trade facilitation,

enhancing the capabilities of the government and private sector institutions,

development of entrepreneurship and creation of employment opportunities,

revival of the traditional products and development of export potential based on comparative and competitive advantage.

tariff reduction

EXISTING SITUATION

After the adoption of liberal trade policy, a gradual increase in volume of Nepal’s foreign trade, and change in the structure of the trade was witnessed in the early period but it could not be sustained.

Export growth more related to exchange rate depreciation than trade liberalisation.

Despite increasing integration to the global economy and various measures taken for enhancing export trade, Nepal is experiencing decline in its export growth further aggravated by the global economic crisis.

FOREIGN TRADE

2004/05

2005/06

2006/07

2007/08

2008/09

2009/10

Exports 8.9 2.6 0.9 -0.2 13.5 -11.1

Imports 9.7 16.3 10.3 14.0 28.2 29.1

Deficit 10.2 25.1 19.2 20.2 33.6 41.5

WTO MODES

Cross-border supply Consumption abroad Commercial presence Presence of natural persons

OBLIGATIONS

General multilateral principles: MFN and transparency (Does not confer market access)

Specified negotiated obligations Tariff adjustment as per tariff binding

WTO PRINCIPLES

MFN applies to all goods/ services except one-off temporary exemptions

In the areas of commitments, national treatment applies

Transparency in regulations, enquiry points Regulations have to be objective and

reasonable International payments normally unrestricted Individual countries’ commitments

negotiated and bound Progressive liberalisation through further

negotiation

FURTHER NEGOTIATIONS

Bilateral negotiation on market access (2002) GATS rules (1995) MFN exemptions (2000) Assessment in trade in services(1999) Review of air transport services (2000) Domestic regulations (2000) Autonomous liberalisation (2003) Special treatment for LDCs (2003) Doha round

REASONS FOR INABILITY TO TAKE ADVANTAGE FROM WTO

Membership with regional/multilateral agencies as with any bilateral agreements in itself may generate opportunities but to translate into trade one has to work

Lack of efforts in product-market diversification

Lack of efforts in generating competitive/comparative advantage

Govt. policies too not conducive to respond to changing requirements

Domestic difficulties

CHALLENGES

Poor forward and backward linkages Lack of stability in policy/legal framework Poor identification of goods/services with

comparative advantage Diversification Poor and insufficient infrastructure Poor institutional capacity Weak monitoring

CHALLENGES..

Rigid labour laws Problems from lengthening political transition Inefficient production systems/ low

productivity Competing nations doing better.

RECOMMENDATIONS

Identification of high export potential products and developing their value chain

Explore potential foreign markets Enhance trade facilitation including

simplification of transit procedures Enhancing supply side capacity To achieve the objective of product and

country diversification, there is need to identify niche market where Nepalese products have comparative and competitive advantage

Develop export processing zone

RECOMMENDATIONS..

Adopt one window policy for simplification of export procedures.

Improvement in the quality of leading exportable products like carpets, garments, and pashmina essential to reverse the declining export.

Need duty free and quota free access of Nepalese products in the developed markets.

Enhance aid for trade for trade related capacity development.

RECOMMENDATIONS..

Need to improve investment climate. Need to ensure most efficient use of

available resources. Selective Market promotion. Establish incentive system as a short term

solution Strengthen monitoring.

POLICY RECOMMENDATIONS..

Promote productivity growth, resource use efficiency, and create competitive/contestable market through market reforms.

Few trade related reforms since WTO accession Drive by domestic efficiency Trade deficit more a reflection of macro-

economic imbalances Nepal’s peg and appreciating REER make

exports less competitive Mainstreaming trade related policy in national

policies

POLICY RECOMMENDATIONS..

Establish key policy priorities to removing binding constraints to economic development

Priorities set through WTO and foreign donors will not necessarily reflect Nepal’s top economic priorities in tackling main binding constraints

Capacity building, technical assistance, aid for trade and their proper use needed.

TRADE POLICY

Improve investment environment Institution Climate One stop arrangement Capacity

TRADE POLICY..

Trade Facilitation Customs valuation and process improvement Harmonizing computerised system with India,

Bangladesh Labs. And facilities Transparency

TRADE POLICY..

Adhere to technical standards Legislate/implement sanitary/phytosanitary

measures Strengthen IPR Improve domestic service sector regulation.

THANKS