February 7: Nepal’s trade treaty with India is in need of substantial revisions in order for Nepal to be able to address its ballooning trade deficit with its biggest trade partner, experts suggested during a recent interaction held in Kathmandu.

Trade experts, industrialists and former policymakers expressed this view at the interaction on the topic Nepal-India Trade Treaty: Opportunities and Challenges, jointly organised by the Ministry of Industry, Commerce and Supplies and South Asia Watch on Trade, Economics and Environment (SAWTEE) on February 5. According to the organisers, this programme was organised to gather inputs from stakeholders at a time when the Government of Nepal is in the process of negotiating a review of the trade treaty with the Indian government.        

Making his presentation on Nepal-India Trade Treaty: Some Avenues for Review, Dr Posh Raj Pandey, chairman of SAWTEE, said that there are many issues that need to be discussed and revised in the treaty in view of the facts such as a burgeoning trade deficit, failure to participate in value chains, the presence of non-tariff barriers, preference erosion, the adverse impact of the treaty on producers of primary agricultural goods, inadequate trade facilitation measures and lack of or slow targeted support for building trade capacities.

He further added that the government needs to put forward the proposal to remove the provision of tariff rate quotas on vegetable fats, acrylic yarn, copper and zinc oxide, waive Integrated Goods and Services Tax (IGST) for the products produced by small units, allow Nepal to import third country goods from India for specific purposes, and also remove the time-bound nature of the trade treaty to ensure greater certainty. 

Shekhar Golchha, senior vice president of the Federation of Nepalese Chamber of Commerce and Industries (FNCCI), said that Nepal has not been able to promote its exports as the cost of doing business is very high and the business environment was also plagued by political instability and energy crisis, among others, but now that these issues have been resolved to a certain extent, the focus now needs to be on developing infrastructure at the border areas to promote export.

Hari Bhakta Sharma, president of the Confederation of Nepalese Industries (CNI), said that the treaty needs a paradigm shift with revisions as it has only benefited India.

Former secretary Purushottam Ojha said that some of the favourable provisions of the treaty remain unimplemented. Such provisions include a partial rebate of excise duty on exports by Nepali medium and large firms that can prove that their cost of production is higher than that of their counterpart firms in India; a pledge by India to help Nepal build its capacity concerning standards and testing; local-level committee comprising local stakeholders in border areas to address trade frictions. He urged the government to work out ways to have such provisions implemented.

Participants stressed the fact that the treaty needs to be reviewed before renewing. They further added that Nepal needs to build its strength and capacity in order to promote its exports.