INTERNATIONAL TRADE AND
WTO
Pushkar Bajracharya
CONTEXT
Political transition
 Slow economic growth
 Fast growth in trade particularly imports
 Stagnancy in exports
 BoT, CA, BoP deficits
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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.
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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.
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REFORM INITIATIVES..
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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
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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.
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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
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OBLIGATIONS
General multilateral principles: MFN and
transparency (Does not confer market access)
 Specified negotiated obligations
 Tariff adjustment as per tariff binding
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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
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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
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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
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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
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CHALLENGES..
Rigid labour laws
 Problems from lengthening political transition
 Inefficient production systems/ low productivity
 Competing nations doing better.
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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
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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.
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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.
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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
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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.
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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.
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THANKS