Trade Policy 1993 adopted by the country for increasing the contribution of this sector to the economy by making the commerce sector liberal, competitive and market oriented, has given the private sector a lead role in the open and free trade. The country has liberalized other economic policies accordingly. The reforms in foreign exchange rules and regulations, simplification in the export process, construction of dry pots, institution of specialized committees for the promotion of major export items and the Export Promotion Fund have been undertaken. However, these efforts have proved to be inadequate for the development of new exportable items and widening the base of export. It is necessary to create new opportunities in export trade through the policy as well as working coordination, promotion and mobilization of resources, physical, human and social capital, structural changes and the development of technical competence. At the same time, it is necessary to maintain a proper geographical distribution of export oriented industries, so that the benefits reach the entire nation especially the underprivileged groups.
Review of the current situation: Some efforts were made during the Tenth Plan period in the field of the development of the proper policy and legal base related to commerce. During this period, Competition Act, Bankruptcy Act, New Company Act and Cyber Act were enacted for the development of a healthy and competitive market. In a similar way, Perspective Industrial Development Plan, Special Economic Zone Act were drafted to address the new challenges. Anti Dumping Act, New Industrial Policy, Trade Policy, and Foreign Investment Policy drafts have also been prepared. By bringing the scattered agencies related to export together, Trade and Export Promotion Center, and Trade Information Centre have been established. Private firms to be involved in trade can now be registered in any district of the country.To expedite the flow of commercial cargo, procedural simplification was made. In order to reduce costs in the foreign trade transaction, the construction of dry ports at Birgunj, Bhairahawa and Biratnagar have been completed. Initiatives have been made to establish special economic zones at Bhairahawa and Birgunj in order to provide the export oriented industries with tax free environment and remove the procedural hassles for them. In addition to this, the work of establishing Computer Software and IT business under foreign investment in Information Technology Park established at Banepa is going ahead. However, due to internal conflict and deficiency in reforms in strengthening of institutions and service delivery, expected results have not been accomplished by the export sector. As a result, the target of creating 250,000 jobs could not be met. During this period, Nepal having entered into WTO, SAFTA/BIMSTEC, new opportunities and challenges have cropped up.
During the Tenth Plan period, the total foreign trade stood at Rs. 1,059 billions. Of this, trade with India accounted for 60.6% and trade with other countries 39.4%. During this period, the target set for export was Rs. 320 billion. However, the actual export turned out to be only 283.6 billion. Of this export to India accounted for 63% and other countries for 37%.
In a similar way, as regards to imports, of the total import of Rs. 775.6 billion, India had a share of 59.7% and the remaining 40.3% was from other countries. During this period, a target was set to reduce the trade deficit to 12.2% of the GDP. However it has reached 17% of the GDP. IN the FY 2006/07, the ratio of trade to GDP stands at 35.1%.
Problems and Challenges: Export trade of Nepal has not been able to contribute to the economy as expected, due to the following reasons:
- Inability to undertake legal and institutional reforms as expected to support trade.
- Inability to integrate export oriented industries with other sectors of the economy (agriculture, forestry, tourism etc.).
- Lack of forward, backward and parallel inter-linkages within exportable industries.
- The predominance of industries based on imported raw materials.
- The competitive capacity of Nepal’s readymade garments being reduced with the expiry of Multi-fiber Agreement.
- Quality deterioration of leading exportable products (carpet, Pashmina etc.) and lack of diversification in products.
- Inadequate development of physical infrastructure to support export.
- Lack of full utilization of the existing infrastructure (for example, dry ports). Nepal has entered the Multilateral and Regional Trade Regime. The countries within the regional trading arrangement seem to have similar export products. They seem to have better competitive strength than Nepal. So Nepal faces a lot of challenges in the export front, such as:
- To link the potential advantages of trade with poverty alleviation.
- To execute programs related to legal, policy and structural reform in order to comply with the responsibility of trade liberalization arising from the entry to regional trade agreements.
- To identify, develop and diversify markets of the exportable goods with comparative as well as competitive advantages, and to create a niche for Nepali products in the world market.
- To reduce transaction costs by developing physical and trade related infrastructure, in order to expand export trade with the neighboring countries.
- To bring quality in the value chain of the exportable goods through production of competent human resources in the field of commerce and industry.
- To develop a multi-model transport system.
- To reduce the transport cost by managing the supply chain.
- To enhance capacity in bilateral and multilateral trade negotiations.
Long term vision: To support poverty alleviation and economic development by addressing the challenges emerging out of the process of globalization and by increasing the trade of goods and services with deep forward and backward linkages.
- To help alleviate poverty by ensuring that the benefits from trade reaches the people through the maximum use of local physical and human resources.
- To mobilize trade to achieve the goal of economic development through the development and promotion of goods with competitive advantages and identifying areas of comparative advantages with the private sector involvement.
- To help alleviate poverty by taking advantage from the opening of trade service under the WTO agreement.
- To reform and develop commercial, physical and institutional infrastructure in order to take the maximum advantage arising out of the changes in the bilateral, regional and multilateral trade and transit system.
- The export of goods to reach 100 billion in the final year of the Plan from 61 billion.
- To create additional 200,000 jobs in the trade sector.
- To reduce the existing trade deficit of 17% of the GDP to 15%.
Strategies: With due consideration of the present internal situation and international requirements, the following strategies are set for the plan with respect to the development of trade:
- To make the supply-side strong by increasing production and productivity.
- To develop physical and other infrastructure related to trade.
- To give continuity to policy reforms.
- To adopt the measure for increasing market access and export promotion.
- To carry out trade facilitation services.
- To give special emphasis on production and export of handicraft goods based on traditional skills.
- To develop competent human resources in the trade sector in addition to institutional reforms.
Policy and working policies
- In order to make foreign trade regime, liberal, competitive, and market-oriented in accordance to the global trade regime and to ensure improvements in the price, cost effectiveness and quality of the export products through the private sector involvement, priority will be accorded to the identification, development, and production of export items with comparative advantages based on climate, biodiversity and topography of the country.
- The value addition in export products will be increased through forward, backward and parallel linkages of the exportable industries with the agriculture, forest and tourism sectors.
- Continuity will be given to incentives being provided to export oriented and supporting industries. Principal exporters and the foreign importers of Nepalese goods and local consumers’ organizations and agencies will also be facilitated.
- In order to reduce transaction cost, physical infrastructure, rules and procedures will be reformed and upgraded.
- In order to develop export oriented and supporting industries, export processing centres and industrial clusters will be developed. Further, procedural simplification and incentives will be provided for their operation.
- Initiatives will be taken to further the concept of the growth quadrangle, including the international highway connecting India, Nepal, Bangladesh and Bhutan of South Asia, in consultation with the concerned parties.
- All the agencies related with import and export (food quality, quality control, commerce, agriculture, forestry) will be brought under one umbrella in major custom points.
- New trade policy will be prepared and implemented.
- Import procedure of raw materials required for the principal exportable goods will be reviewed and made convenient.
- Provision for the minimum quality assurance of the imported raw materials will be made.
- Necessary initiatives will be taken to make the custom clearance process in the border custom offices simple and sound in coordination with the custom offices of the neighboring countries and an integrated custom inspection system will be adopted.
- In order to protect domestic industries and consumers and to develop fair and competitive environment in domestic and international market, the Competition Act will be implemented effectively. Timely reforms in the Consumers Protection Act will be made. Countervailing, Anti-dumping, Anti-trust Acts will be prepared and implemented.
- For the promotion of exports, various promotional programs fund incentives will be identified and implemented with the involvement of the private sector.
- Participation of National Chambers and Associations of Businesses in single country trade fairs in partner countries will be facilitated in collaboration with trade related government and non-government agencies of the importing countries. The Export Promotion Fund will be used for these purposes.
- Initiatives will be taken in a coordinated manner to get geographical indication recognized as Industrial property for export products like tea, coffee, carpet, shawls, honey etc. and patent, design trademark under TRIPS. In order to protect Nepal’s Intellectual Property, the international market will be promoted.
- Collaborations with least developed countries and countries with similar interests will be encouraged in order to utilize the opportunities emerging from international and regional trade agreements.
- In order to increase cost competitiveness in international trade and to enhance the capacity of the government agencies concerned with trade facilitation as well as the private sector, an action plan, after being prepared, will be implemented.
- Provisions related to the following will be made simpler, export friendly and quick:
- registration/renewal of the exporting firms;
- process related to the import of raw materials imported by export oriented industries;
- process of refund of duty and VAT in case of the return of exported goods;
- custom duty for the sample received for an export order; and provisions related to duty drawback.
- Procedural matters related to the following will be regularized and simplified:
- agency issuing the certificate of origin,
- agency making recommendations as per the need,
- service charge applicable in the utilization of these services,
- monitoring agency,
- working procedures and conditions related to the above.
- Legal and procedural provisions related to multi-model transport will be implemented. Custom process will be simplified and custom reforms will be carried out in order to facilitate trade.
- Mutual compatibility and acceptance will be ensured, by making procedures of custom, transit and quality certification, standards and policy regulation, uniform in the member countries of SAARC and with the two big neighbors in particular.
- Reforms will be initiated with the study of alternate transit routes, for reducing the international transaction cost to Nepal and a process to avail alternate transit routes will be initiated.
- Arrangements will be made to ensure the grant from the government, DDCs and town development committees for the infrastructure development in order to create industrial villages, which will be managed and operated by their stakeholders.
- The involvement of cooperatives and export houses will be ensured in the marketing of export products of the industrial villages.
- Study and preliminary works will be completed for the establishment of a separate promotion center for the production, processing and export of diamonds, jewels, precious and semi-precious stones, gold and silver ornaments. For this, a separate policy and procedure will be prepared as regards to import of raw materials, control of production or process, local sale, export, custom process and duty incentives and domestic human resources will be trained. An integrated technical institute will be established in joint collaboration with the private sector for quality improvement, product development and diversification.
- Special economic zones will be established at feasible locations.
- Foreign aid will also be mobilized to fulfill the identified needs after making a review of the needs assessment of Nepal’s foreign trade.