BY Krishna Raj Bajgain

The World Bank's Nepal Development Update for 2021 states that Nepal's missed export potential is estimated at $9.2 billion (approximately Rs. 1,080 billion). China's share in this missed export opportunity stands at $2.2 billion (about Rs. 258 billion). Surprisingly, in 2021, Nepal's total exports to China were a mere $8.4 million.

Despite the long-standing and cordial relations between Nepal and China, with a rich history of trade and mutual commitments to enhance bilateral trade, Nepal's exports to China are pathetic. This trend is further exacerbated by a discouraging export ratio of 1:126 in Fiscal Year 2022/23.

In the fiscal year 2022/23, agricultural products accounted for 20% of Nepal's total exports to China, with the remaining share comprising non-agricultural products. Key exports to China from Nepal include woollen carpets, felts, paintings, musical materials, statues, ready-made garments, leather, and herbs. Additionally, items like tea, handmade paper, rudraksha, noodles, incense sticks, essential oils, copper articles, furniture, human hair, wigs, soap, aluminium products, cosmetics, jewellery, hats, cotton bags, and vacuum flasks have also been exported in substantial quantities (each exceeding Rs 100,000 in value). However, a range of other goods, including dairy products, flour, sugar and sugar products, chocolate, processed food, rosin, resin, turpentine, baskets, mats, lenses, and toothpaste, which were intermittently exported in the past, have seen no exports in the last two years.

Nepal and China have established numerous bilateral mechanisms aimed at strengthening economic, cultural, and developmental relations and overseeing ongoing projects. According to the Ministry of Foreign Affairs, nine such mechanisms designed to address bilateral concerns are in place. Notably, the Nepal-China Joint Consultation Mechanism, led by the Foreign Secretary of Nepal and the Vice Minister in the Foreign Ministry of China, plays a pivotal role. Other mechanisms include the Nepal-China Inter-Governmental Economic and Trade Committee, Nepal-China Joint Committee on Agriculture Cooperation, Border Law Enforcement Cooperation, Border Customs Meeting, Joint Tourism Co-ordination Committee, Nepal-China’s Tibet Trade Facilitation Committee (NTTFC), Energy Cooperation Mechanism, and Mechanism for Facilitating the Implementation of China-Nepal Cooperation Programs and Projects in Nepal.

China has provided duty-free, quota-free facilities to underdeveloped countries, including Nepal, on 8,930 products. This list covers most of Nepal's exportable products. Despite all this, Nepal's export performance to China remains underwhelming. Several concerns and issues demand attention to capitalise on this conducive environment.

First, it is crucial to enhance the effectiveness of Duty Free Quota Free Market Access for Nepali products in China. Given that non-tariff measures hold more weight in international trade than tariff measures, addressing quality-related concerns of Nepali exporters is paramount. Establishing quarantine offices at entry points and customs locations in China would streamline procedural challenges faced by Nepali exporters.

Second, a mutual recognition agreement between Nepal and China to acknowledge quality certificates issued by Nepali certifying agencies is imperative. Such agreements would facilitate easier and more predictable access to the Chinese market.

Third, predictable border management is a top concern for Nepali traders. Intermittent border closures significantly impact Nepal's import and export trade with China and disrupt the domestic supply chain.

Fourth, addressing poor infrastructure at Nepali customs points along the China-Nepal border is essential for efficient trade operations.

Fifth, the implementation of transit facilities provided by China could reduce trading costs and enhance Nepal's trade with China, Central, North East, and South East Asia.

Sixth, the long-standing demand for a branch of a Chinese bank in Nepal would simplify export-import payments, promote Chinese investment in Nepal, and facilitate trade.

Seventh, to tap into the missed export opportunities identified by the World Bank, Nepali and Chinese entrepreneurs should collaborate on joint ventures for goods intended for export to China. Orientation programs, featuring presentations by relevant government agencies from both countries, can motivate investors.

Eighth, scheduled meetings of existing bilateral mechanisms should be prioritised to address structural and procedural obstacles and ensure adherence to agreed-upon provisions.

Ninth, trade negotiations in various formats (G2G, B2B, G2B, and B2G) can help overcome existing bottlenecks in Nepal's exports to China.

In summary, realising Nepal's potential in the world's second-largest economy requires the effective implementation of Duty Free Quota Free Trade facilities, mutual recognition agreements between Nepal and China, predictable border operations, infrastructure upgrades at customs points, transit route operations, the presence of Chinese banks in Nepal, a conducive environment for Chinese investment in Nepal's export industry targeted at the Chinese market, and scheduled meetings of existing bilateral mechanisms.

(Bajgain is a Senior Officer with the Trade & Export Promotion Center. The views expressed here are his personal.)