I NTERNATIONAL T RADE AND WTO Pushkar Bajracharya

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

C ONTEXT.. 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.

R EFORM I NITIATIVES 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.

R EFORM I NITIATIVES.. 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 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.

T RADE P OLICY 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

E XISTING 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.

F OREIGN TRADE 2004/052005/062006/072007/082008/092009/10 Exports Imports Deficit

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

O BLIGATIONS General multilateral principles: MFN and transparency (Does not confer market access) Specified negotiated obligations Tariff adjustment as per tariff binding

WTO P RINCIPLES 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

F URTHER 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

R EASONS 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

C HALLENGES 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

C HALLENGES.. Rigid labour laws Problems from lengthening political transition Inefficient production systems/ low productivity Competing nations doing better.

R ECOMMENDATIONS 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

R ECOMMENDATIONS.. 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.

R ECOMMENDATIONS.. 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.

P OLICY R ECOMMENDATIONS.. 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

P OLICY R ECOMMENDATIONS.. 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.

T RADE POLICY Improve investment environment Institution Climate One stop arrangement Capacity

T RADE POLICY.. Trade Facilitation Customs valuation and process improvement Harmonizing computerised system with India, Bangladesh Labs. And facilities Transparency

T RADE POLICY.. Adhere to technical standards Legislate/implement sanitary/phytosanitary measures Strengthen IPR Improve domestic service sector regulation.

THANKS