Nepal’s trade has received preference at the multilateral, regional, and bilateral levels. The multilateral preference has been received as a member of the WTO, where Nepal has enjoyed the preferences and privileges as an LDC (Least Developed Country) member since it became a member in 2004. Under the WTO framework, Nepal has received DFQF (Duty-Free, Quota-Free) market access for most goods in the developed market.
Similarly, as an LDC country, Nepal has received flexibility in implementing the rules and compliance, as well as a longer period for implementing the agreement. In addition to these, Nepal is able to have the right to sea as a landlocked country of the WTO.
Similarly, Nepal has been enjoying regional preferences under SAFTA, BIMSTEC, and the BBIN framework. Under SAFTA, Nepal has received preferential market access in the SAARC region with reduced tariffs on most of the products. Similarly, Nepal can enjoy DFQF market access in some of the products.
- Under the BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation) framework, the preference received by Nepal is for trade facilitation and tariffs consession. It has given opportunities to hydropower and tourism service export to Thailand, Myanmar, and Bangladesh, etc.
- The BBIN (Bangladesh, Bhutan, India, Nepal) framework of sub-regional cooperation has also given preferences for Nepalese products. This initiative is mainly focused on transit, transport, and energy trade. This framework has given easy access to the market where Nepalese exporters can directly export to Bangladesh via India without transshipment. Similarly, Nepal can export hydroelectricity to Bangladesh using India grid.
- Nepal has received bilateral trade preferences such as the preference given by the Nepal-India trade treaty, trade agreements with China, the USA, and Bangladesh. The Nepal-India trade treaty provides DFQF market access to most of the Nepalese products except few sensitive items. It also provides the transit route for Nepal’s trade with other third countries.
- Similarly, the Nepal-China preferential trade agreement of 2002 has provided duty-free market access for more than 8000 Nepali products since 2010. This preferential agreement has provided easy market access to Nepali product which get tariffs preference in the Chinese market. The preferential trade agreement with the USA in 2016 provides DFQF market access to 77 Nepali products in the USA.
- Nepal has received unilateral preferences from the developed market. May developed countries provide a generalized system of preference (GSP) to Nepal. For example, the EU provides DFQF for all the products except arms under the Everything But Arms (EBA) policy.
- In addition to the preferences in the goods market, Nepal has received service trade preferences. For example, the WTO provides an LDC service waiver, which gives Nepali service preferential access in the developed market. The tourism services are also promoted under a preferential arrangement.
- Nepal has enjoyed much under the labor mobility preference in the developed market from the LDC market.
- Therefore, Nepal’s trade has received preference from the various markets through multilateral, regional, bilateral, and unilateral levels, but given the limited supply capacity and poor competitiveness of Nepalese products, Nepal has not been able to maximize the benefits given by such trade preferences.
Comparative Perspective on Trade and Development
Trade is said to benefit all the countries, but the benefits of trade are not evenly distributed. Some countries may get more benefits and develop fast, whereas other countries are not able to maximize the benefits from the trade and are unable to transform their economy to a developed status.
The classical and neo-classical theory on trade argues that trade makes all the countries better-off througn absolute comparative advantage. It means the trade between the countries helps them to develop simultaneously, but the structural and dependency theories argue that trade often increases global inequality, where the developed countries are the winners and low-income or poor countries are the losers.
Similarly, the modern perspective of trade argues that trade between countries spills over to knowledge, technology transfer, and economies of scale. So, the integration into the global value chain promotes industrial development and growth if the domestic policies and priorities complement it.
The benefits of trade to development depend on the strategy and priority of the country. Those who can benefit from trade if their policy is investment/trade-friendly. For example, China has benefited from the global trade in recent years despite its controlled political system. It is due to its foreign investment-friendly and consistent policy for the private sector.
If the country is more private sector-friendly and provides adequate incentives and priority they can benefit from the trade, whereas state controlled nature of the economy may not be able to promote trade and development. For example, most of the Latin American countries started an import substitution strategy by establishing public enterprises to substitute the imports, whereas North American countries started an export promotion strategy and the de-nationalization of the public enterprises. Then the North American countries increased their exports and promoted the growth and developement whereas the Latin American countries suffered from inefficiencies of public enterprises. This implies that the nature of policy and priority determines the benefits from trade and development.