- By Bijendra Man Shakya
Rather than individual laboratories for exporters, the government should establish a centralised laboratory serving all exporters.
The World Trade Organization (WTO) does not directly generate business or trade opportunities; rather, it functions as a multilateral system that cultivates a conducive environment for global businesses and markets. This environment encourages competition and draws competitors, compelling nations such as Nepal to showcase efficiency and safeguard their domestic trade and business interests. The WTO advocates for equitable trade among partners and fair treatment for both imported and domestic products.
In 1989, the breakdown of the bilateral trade agreement between Nepal and India highlighted Nepal's recognition of the need for joining a multilateral trade regime i.e., WTO membership. While India remains Nepal's primary trading partner, WTO accession has enabled opportunities for multilateral trade. Despite limited growth in exports, Nepal has enacted substantial regulatory reforms after WTO accession. When Nepal joined the WTO as a Least Developed Country (LDC), it leveraged transitional provisions, particularly in intellectual property rights, which were promptly implemented. This helped in addressing challenges like import dumping, helped by the adoption of anti-dumping legislation passed by parliament. Furthermore, Nepal has enacted competition laws which has enhanced the business environment and fostered a fair market for trade.
Regulatory enhancements driven by WTO membership have significantly strengthened Nepal's multilateral trade framework. Reforms such as the introduction of anti-dumping measures, intellectual property rights protection, safeguarding measures, and competition laws represent substantial strides forward. These pivotal regulatory adjustments are largely credited to Nepal's affiliation with the WTO, highlighting its pivotal role in catalysing reform and improving trade practices.
Since Nepal has not made significant strides in expanding its exports, overcoming barriers like inadequate infrastructure, internal bottlenecks, and non-tariff barriers is crucial. Nepal faces significant challenges with non-tariff barriers that hinder export growth, including lengthy customs procedures, high tariffs and multiple fees which pose obstacles for exporters. There is a perception that while regulations are necessary, excessive governmental restrictions could inadvertently discourage trade. Simplifying trade facilitation has the potential to bolster Nepal's export capacities.
While the Nepal Trade Integration Strategy (NTIS) represented a positive initiative, the selection of export products should be guided by comparative advantage. For example, including honey in the initial export list may not have been the most strategic decision. Determining comparative advantage requires thorough research and analysis. The private sector is better equipped to identify export products that enhance Nepal's trade value and should spearhead this effort as the primary stakeholder. There are concerns about the effectiveness of the NTIS, as governmental priorities often prioritise political gains over genuine trade development.
Nepal's readymade garment industry initially flourished under quotas, experiencing growth, especially in exports to Europe and the US. But it faced challenges in subsequent years after the withdrawal of the quota system. At its peak, Nepal's garment exports reached Rs 13 billion. However, due to inadequate infrastructure and a sluggish government response, despite expert recommendations to tackle these issues, garment exports have now dropped significantly to Rs 5-6 billion. The decline in garment exports, however, cannot be attributed to WTO accession. It was primarily due to challenges in competing within the free trade region and inadequate infrastructure. While some may perceive the absence of garment export quotas as a disadvantage, quotas are typically not beneficial in the long term.
Despite these challenges, the private sector continues to be an important driver of certain exports. With Nepal's agricultural base, adherence to sanitary and phytosanitary measures is crucial for exporting agricultural products in accordance with WTO standards. However, the lack of internationally accredited laboratories is a significant infrastructure hurdle that needs to be addressed. Nepal has substantial export opportunities for tea in Japan. However, barriers such as pesticide regulations and sanitary and phytosanitary (SPS) measures have hindered Nepali exporters from accessing this market. Improved government infrastructure support could empower the private sector to enhance product quality and meet the stringent international standards necessary for successful exports.
Nepal has implemented export subsidies. However, this approach may not be ideal as subsidies primarily benefit buyers rather than improving productivity. While cash subsidies may appear appealing, their effectiveness is limited without increased export demand. Direct cash subsidies are generally discouraged by the WTO, although exceptions exist for Least Developed Countries (LDCs) such as Nepal. Therefore, while subsidies might be considered in the short term, investing in infrastructure and productivity improvements offers a more sustainable strategy for Nepal's export sector.
Rather than individual laboratories for exporters, the government should establish a centralised laboratory serving all exporters. This can maximise efficiency and benefits across the entire export sector. Investing in infrastructure is crucial as it supports long-term export growth by enhancing productivity and ensuring compliance with international standards. After graduating from LDC, Nepal will lose access to the Generalised System of Preferences (GSP) which will affect its market access in the EU. To sustain export opportunities in Europe post-graduation, Nepal should engage in lobbying efforts. Establishing a bilateral treaty equivalent to GSP could help alleviate challenges and secure ongoing market access.
Product diversification into service exports, especially in IT, presents promising potential for Nepal. As per conservative estimates, Nepal’s IT exports amount to approximately $1 billion annually which highlights substantial opportunities in this sector. Diversifying into IT and other service exports could contribute significantly to Nepal's economic growth and efforts to diversify its exports. Export diversification can leverage the Nepali diaspora abroad who often consume Nepali products and can stimulate export demand. While this consumer base may be niche, it presents an opportunity for specialised exports.
Nepal also needs to strengthen its government teams with a thorough understanding of WTO principles and regulations. Currently, there is considerable misunderstanding among government officials and the private sector regarding WTO rules. The private sector sometimes overlooks discussions on WTO-related matters, possibly because exports are not their top priority. Enhancing awareness and building capacity within both the government and private sector about WTO regulations and opportunities could better align strategies, improve trade policies and effectively boost Nepal's export potential.
(Shakya is a trade expert )
