→ Nepal has made various bilateral and multilateral agreements related to trade in order to protect & promote Nepal’s trade. Till date, Nepal has made bilateral trade agreements with 17 different countries, including both region China and India & global powers such as the USA.
→ The core objective of such bilateral agreements is to minimize trade-related barriers to promote trade between Nepal and other countries with the agreements.
→ Among the 17 countries with bilateral trade agreements Nepal-India trade treaty, which was originally signed in 1996 and amended in 2009, is the most significant one because, given the geographical proximity, free and open border with socio-cultural similarities, Nepal trades more than 60% with India.
→ The Nepal-India trade treaty has given duty-free free-quota free market access for most of the Nepali products in the Indian market. There are a few sensitive items which have to follow some technical standard, such as sanitary phytosanitary standards.
→ The trade treaty with India provides unilateral preferential market access to Nepalese products, which provides a strong incentive for export-oriented production. Nepal also has a transit treaty with India, which facilitates the transport of Nepalese products through Indian territory, giving access to third-country trade via Indian ports like Calcutta and Visakhapatnam.
→ Similarly, Nepal has a bilateral trade agreement with China, which also provides market access for Nepali products. The trade and payment agreement with China in 1981 facilitates the trade and payment mechanism. There is duty-free market access for 297 Nepali products in the Chinese market. Being a neighboring country, the trade agreement with China also plays a significant role in Nepal’s trade.
→ The bilateral trade agreement with USA is one of the earliest trade agreements that was carried out in 1947. After the 2015 Earthquake, there is an agreement between Nepal and USA under the trade preference program. The USA provides duty-free, quota-free market access for 77 different Nepali products.
→ Recently, Nepal has made an agreement with Bangladesh on the export of hydropower, which is considered one of the significant agreements to promote Nepal’s export of hydropower.
➔ In addition to this, Nepal has made bilateral trade agreements with UK in 1965, Sri Lanka 1979, then USSR in 1970, Pakistan 1982, South Korea in 1974, South Korea in 1970, etc.
Regional & Multilateral trade agreement
➔ Nepal has made regional and multilateral trade agreements in order to protect & promote Nepal’s trade by maximizing market access. At the founding member of SAFTA, there is a preferential trade agreement 2006, which provides preferential market access for Nepal’s product in the SAARC region.
➔ From the SAFTA agreement, Nepal has benefited from the reduced traffic with increased export of products like tea, lentil, cardamom, and ginger to India, Bangladesh & Sri Lanka.
➔ Similarly, Nepal enjoys the benefit of DFQF market access to most of the products, with a few sensitive items such as alcohol, tobacco, etc.
➔ Similarly, Nepal has its trade agreement under the BIMSTEC framework, which provides easy market access for Nepali products in this region. The framework agreement for BIMSTEC eliminates tariffs on goods and promotes cooperation in customs management and investment in the exportable sector.
➔ There are different agreements under the BIMSTEC framework, such as trade facilitation agreement, which supports minimizing trade barriers in this region. There is a connectivity and power trade agreement with India, China, Nepal, and Bangladesh under the BIMSTEC transportation and energy sector cooperation for trade.
➔ Nepal has been a member of the BBIN (Bangladesh, Bhutan, India, Nepal) initiative, which facilitates cross-border movements of goods & passenger vehicles. For example, under the BBIN framework, its container carrying Nepali products to Bangladesh via India without transshipment. The BBIN framework simplified
the cross-border movement of goods and services and is in practice for the digitalization of customs clearance. Under the BBIN cooperation, there are energy trade agreement that allows Nepal’s export of hydropower to Bangladesh via the Indian grid.
➔ Nepal has multilateral trade agreements under the WTO framework as Nepal itself the member of WTO. Under the WTO framework, Nepal has made agreement on GATT, GATS, TRIPS, agreement on agriculture, agreement on sanitary and phytosanitary measures, agreement on trade facilitationm dispute settlement agreement, and agreement on the Technical Barriers to Trade (TBT).
➔ These agreements have given easy market access for Nepali products globally as well as Nepal enjoys the special and differential treatment as an LDC member since its membership in 2004.
Issues of Nepal’s Foreign Trade
- Weaker production capacity and lower productivity.
- Inability to increase domestic production to meet demand for the consumer.
- Rising remittance inflow & fueling consumption-led purposes.
- Lack of industrialization based on local resources & raw materials.
- Structural problems such as lower productivity of the agriculture sector, poor quality of infrastructure & backward technology.
- Limited benefits from bilateral, regional, and multilateral trade agreements.
- Failure to diversify the export by country, state & the products.
- Higher share of primary and lower value-added products in exports.
- Growing attractions towards trade and business over industrial investment.
- Higher cost of trade due to poor quality of infrastructure, red tapism, and lack of trade facilitating measures.
- Distortion in domestic & foreign trade due to open borders, smuggling, and informal trade.
Strategies of Nepal’s Foreign Trade
➔ After the restoration of the multiparty system in 2046, Nepal initiated comprehensive market-oriented reforms and to make the foreign trade more liberal and market-friendly, the commercial policy 2049 was enacted with the objective of enhancing the supply capacity of the economy and export promotion. After membership of the WTO in 2004, Nepal replaced the earlier commercial policy, and new trade policy 2065 was enacted, aligned with the agreement under WTO. However, the trade deficit continues to increase, and the new trade policy 2072 with the objective of enhancing supply side capacity and increasing export to reduce the trade deficit. But during this past decade, there have been significant changes in the structure of trade, such as emergence of e-commerce and the digital economy, and the trade policy needs to be revised. So, the new trade policy 2081 is in practice and the strategies of this policy are the major strategy of Nepal’s foreign trade, including the domestic trade.
→ So, the major strategies of Nepal’s foreign trade are:
- Promotion of export-oriented sector and industries with comparative advantage and competitive capacity by developing infrastructure, human resources, and modern technology.
- Reducing production cost and improving quality through technology transfer, and improving the quality of human resources.
- Supporting SMEs with incentives and facilities focusing on value-added and niche products.
- Expanding digital trade and IT-based services through legal reforms, facilitation & capacity building.
- Strengthening trade diplomacy to secure international market access and attract foreign investment through embassies and diplomatic missions.
- Deepening regional cooperation and bilateral & multilateral agreements to secure a market for the Nepali product.
- Strengthening policy & legal uniformity, harmonization, and institutional coordination at national & international level.
- Re-implementing custom and non-custom measures in a rules-based manner to increase exports and make Nepal’s trade competitive.