Nepal in WTO

Dhananjay K. ShrivastavAce Institute of ManagementEMBA, 2nd Semester, Spring 2013

In July 1998, Nepal submitted a Memorandum of Foreign Trade Regime. The World Trade

organization (WTO) secretariat circulated Nepal’s Memorandum on Foreign Trade Regime

to its member countries and invited for comments and queries from its members. Queries

and comments of WTO member countries were compiled and passed to the government of

Nepal by WTO secretariat in January 1999. The government of Nepal responded to the

queries of member countries of WTO in 1999 and 2000.Nepal became the 147th member of

the WTO on 23 April 2004. Nepal is the first Least-developed Country (LDC) to join the WTO

through the full working party negotiating process.

After obtaining WTO membership, Nepal has been tied to the global trading system which is

based on the principle of non-discrimination. That means it is obliged to offer equal treatment

to all its trading partners within the WTO sphere. WTO is rule-based trade system from

which Nepal can protect its trade interests and can have trade security. If Nepal faces any

trade dispute with other country then it can apply and even use for its purposes dispute

settlement mechanism within the system.

It was believed that by following a rule based trading regime domestic policy of stability

would be ensured and institutional capabilities are enhanced that would help increase

productivity, foreign direct investment and exposure to new technologies. But due to lack of

proper preparation before becoming member of WTO, Nepal could not utilize the benefits of

WTO.

A country can benefit from this rule- based trading mechanism only when it has adequate

products to sell in the outside market. Nepal did not have proper plan for producing goods in

country to sell in foreign market. Prof. Jane Kelsey of University of Auckland had made a

remark at a WTO public symposium in Geneva on May 27 saying 'if the LDCs

like Nepal and Vanuatu have nothing to sell in the outside market, it has no meaning to join

the WTO’.

Statistics show that after joining WTO, exports have declined, imports have increased and

the manufacturing sectors, especially the ones that weighted high in the exports, have been

going downward.GDP has declined from 46.14 to 45.28 percentage from 2004 to 2007.

Imports have been consistently rising since 2004, while exports have been decreasing. In FY

2003/04, exports were approximately 16.7 % whereas it was 12.1% in 2007/08. Imports in

FY 2003/04 were 29.5 per cent of GDP, but it was 32.7 per cent in FY 2007/08. The

investment situation also is far from encouraging. In FY 2007/08, gross investment

(percentage of GDP) was 29.7 per cent, down from 24.5 per cent in FY 2003/04. This

means that even after joining the WTO, the country has failed to get benefits from WTO;

instead, it is at a disadvantage in terms of export promotion, public investment and

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employment generation. Also, export oriented firms are not increasing in country like Nepal

due to removal of quota system and international competitors started eating up previously

guaranteed market share.

Statistical data of exports and import in this year (November 2012- October 2013)

Top 5 Imports:

Petrol – Rs. 27,230.24million

Vehicle and Spare parts – Rs. 7,987.87m

MS billet – Rs. 4657.28m

Crude soybean – Rs. 3827.95m

Medician – Rs. 3581.5m

Top 5 Export:

Zinc sheet – Rs. 2196.74million

Woolen carpets – Rs. 2162.16m

Textiles – Rs.1320.09m

Readymade garment – Rs. 453.39m

Polyester yam – Rs. 1139.53m

Total Imports – Rs. 151.8 bn

Total Export – Rs.23 bn

Trade Deficit – Rs.128.7 bn

However, joining WTO is not the problem. Weak and inadequate preparations before joining

WTO, internal political conflict and trade policy of Nepal itself are the factors which have

directly affect economic growth of Nepal.

Opportunities:

Nepal's entry into WTO has reduced and even avoided in some cases, the cost of non-

membership. A large share of international trade (more than 90 percent) takes place among

WTO members. Nepal's major trading partners and neighboring countries are its members,

in this situation remaining aloof or outside the system might pose high cost to the economy.

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Nepal's entry into WTO is expected to have increased benefits to the consumers due to

cheaper import, sustained increase in volume of export spurred by predictable access to

foreign markets and the possibility of attracting foreign direct investment. The standard of

living is expected to improve with an increase in economic growth through massive

expansion of commercial activities within and outside the country. It offers expanded

market for Nepalese exports. It also helps to expand and diversify exports as it provides a

secure and predictable trading environment. There is a high possibility of foreign direct

investment inflow in the country under transparent and predictable trading environment.

Trade and transit rights that safeguards from unilateral decision, is of immense

importance for Nepal since it ensures the right to challenge any unilateral actions taken by

trading partners, that are against her economic and trade interest and WTO

provisions. Being a land-locked country, freedom of transit as it is enshrined in Article V of

GATT, would be a major achievement of Nepal. Now as a WTO member she has a legal

right to trans-ship goods through India via the routes most convenient for entry or exit.

Nepal, being one of LDC, can enjoy special provisions, benefits, concessions and

facilities of WTO. Similarly, she can obtain technical assistance from developed countries.

As mentioned earlier, there are a number of special provisions of positive

discrimination in favor of LDCs. The participation in WTO can also relieve LDCs like

Nepal from the scourge of periodical renewal of bilateral trade agreement.

However, at the same time, we may also observe that the WTO system has done little in

areas of interest to the least developed countries (LDCs) or the poorest countries including

Nepal. While rich country tariffs are very low or zero for most items, they are still unbearable

for exports of the poorest countries, particularly for products having a comparative

advantage to LDCs such as labor-intensive manufactures and farm products.

The tariff rates in the developed countries go up for imports of products with a higher degree

of finishing process. In other words, if you export cotton to these countries, the tariff is

extremely low; but if you want to export textiles or clothing, for instance, the tariffs on these

products rise intolerably. As a result, this has discouraged development of manufacturing

activities in the poorest countries like Nepal.

In spite of this disappointing outlook, there is rationale behind Nepal’s affiliation to the WTO.

Although the WTO does not guarantee preferential market access, it assures a predictable

trading environment through binding of tariffs among members and transparency of partners’

trade policies. In case of unfair trade practices by partners, Nepal can resort to contingency

measures within the system. In case there is any trade dispute with them, it can go to the

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powerful dispute settlement mechanism within the system. With these provisions at its

disposal, Nepal can protect its trade interests and have trade security. At least for that

reason, Nepal’s membership in the WTO can be justified. However, these measures are

worthwhile only if its foreign trade expands and becomes influential globally.

No doubt, WTO membership offers a large number of opportunities to the least developed

countries like Nepal. However, benefits do not derive automatically, it requires tapping

opportunities. Benefits of WTO so far have been confined to industrialized countries

and a few large and influential developing countries. Similarly, the cost and

challenges of membership are immediate whereas opportunities and benefits are only

prospective.

Benefit:

Nepal has many befits of WTO multi-lateral trading system; it doesnot claim that everything is

perfect- otherwise there would be no need of further negotiations and for rules to be revised. Nor does

it claim that everyone agrees with everything in the WTO. That’s one of the most important reasons

for having the system: it’s a forum for countries to thrash out their differences on trade issues.

Here we have some reasons why Nepal is better off with WTO system than she would be without it.

• The system helps promote peace

• Disputes are handled constructively

• Rules make life easier for all

• Freer trade cuts the costs of living

• It provides more choice of products and qualities

• Trade raises incomes

• Trade stimulates economic growth

• The basic principles make life more efficient

• Governments are shielded from lobbying

The system encourages good government

Implication:

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After a long political turmoil, Nepal is in the process of state restructuring. Now, the immediate need

of economic development for the betterment and upliftment of the people and country from poverty,

underdevelopment is must. The process of globalization and liberalization offer Nepal a good

platform to uplift its economic position. Whose impact can be realized only in the long with the

significant policy adjustment and investment in different sectors.

Undoubtly Nepal is facing numerous problems such as lack of skilled technical manpower, inefficient

bureaucracy, and unstable political environment. In spite of numerous issues, Nepal has opened its

economy to the global economy with a hope of reaping the benefits from a more liberal, transparent,

predictable and stable rule based trading environment.

References:

1. http://www.nepjol.info/index.php/sedp/article/viewFile/1049/1065

2. http://red.nrb.org.np/publications/special_publication/Special_Publications--

WTO_and_Nepal_(April_2002).pdf

3. Assessing the Least Developed Countries' Participation in WTO: The Case of Nepal

by Ram Prasad Ghimire.

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