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International Trade and WTO. Pushkar Bajracharya. Context. Political transition Slow economic growth Fast growth in trade particularly imports Stagnancy in exports BoT , CA, BoP deficits. Context. Nepal is a small open economy.

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International trade and wto

International Trade and WTO

PushkarBajracharya


Context
Context

  • Political transition

  • Slow economic growth

  • Fast growth in trade particularly imports

  • Stagnancy in exports

  • BoT, CA, BoP deficits


Context1
Context..

  • Nepal is a small open economy.

  • About 20% of Nepalese export is related to agriculture and the country has large potential of expanding it.

  • Export oriented industries are mostly based on imported raw materials.

  • Lacks diversification both in terms of products and market destinations.


Reform initiatives
Reform Initiatives

  • Recognising the role of trade in economic development, the Nepal adopted open, liberal and market oriented trade policy since the mid-1980s and early 90’s.

  • A series of policy reforms such as reduction of import duties, elimination of quota system and licensing requirement, introduction of one window system, and curtailing of negative list for investment, etc were initiated.

  • Trade infrastructure such as dry ports (ICD) were built and customs modernisation programs were lunched for facilitating trade and investment.


Reform initiatives1
Reform Initiatives..

  • Nepal became members of two regional trading arrangements, viz SAFTA and BIMSTEC, and also the multilateral trading system, the WTO, with a view to integrating its trade and economy with the global economy.

  • Diversification of transit facilities were made with the opening of Kakarbhitta-Phulbari-Banglabandha corridor in 1997.

  • Similarly, the transit point development between India and China through Nepal is a recent initiative being promoted by the country.

  • Moreover, policy towards developing appropriate route and related services is under way.

  • New trade policy was adopted in March 2009 revising the 18 year old trade policy.

  • Introduction of cash incentives.


Trade policy
Trade Policy

  • Nepal’s trade policy 2009 focuses on making trade sustainable mainly through:

  • simplification of processes and trade facilitation,

  • enhancing the capabilities of the government and private sector institutions,

  • development of entrepreneurship and creation of employment opportunities,

  • revival of the traditional products and development of export potential based on comparative and competitive advantage.

  • tariff reduction


Existing situation
Existing situation

  • After the adoption of liberal trade policy, a gradual increase in volume of Nepal’s foreign trade, and change in the structure of the trade was witnessed in the early period but it could not be sustained.

  • Export growth more related to exchange rate depreciation than trade liberalisation.

  • Despite increasing integration to the global economy and various measures taken for enhancing export trade, Nepal is experiencing decline in its export growth further aggravated by the global economic crisis.



Wto modes
WTO Modes

  • Cross-border supply

  • Consumption abroad

  • Commercial presence

  • Presence of natural persons


Obligations
Obligations

  • General multilateral principles: MFN and transparency (Does not confer market access)

  • Specified negotiated obligations

  • Tariff adjustment as per tariff binding


Wto principles
WTO Principles

  • MFN applies to all goods/ services except one-off temporary exemptions

  • In the areas of commitments, national treatment applies

  • Transparency in regulations, enquiry points

  • Regulations have to be objective and reasonable

  • International payments normally unrestricted

  • Individual countries’ commitments negotiated and bound

  • Progressive liberalisation through further negotiation


Further negotiations
Further negotiations

  • Bilateral negotiation on market access (2002)

  • GATS rules (1995)

  • MFN exemptions (2000)

  • Assessment in trade in services(1999)

  • Review of air transport services (2000)

  • Domestic regulations (2000)

  • Autonomous liberalisation (2003)

  • Special treatment for LDCs (2003)

  • Doha round


Reasons for inability to take advantage from wto
Reasons for inability to take advantage from WTO

  • Membership with regional/multilateral agencies as with any bilateral agreements in itself may generate opportunities but to translate into trade one has to work

  • Lack of efforts in product-market diversification

  • Lack of efforts in generating competitive/comparative advantage

  • Govt. policies too not conducive to respond to changing requirements

  • Domestic difficulties


Challenges
Challenges

  • Poor forward and backward linkages

  • Lack of stability in policy/legal framework

  • Poor identification of goods/services with comparative advantage

  • Diversification

  • Poor and insufficient infrastructure

  • Poor institutional capacity

  • Weak monitoring


Challenges1
Challenges..

  • Rigid labour laws

  • Problems from lengthening political transition

  • Inefficient production systems/ low productivity

  • Competing nations doing better.


Recommendations
Recommendations

  • Identification of high export potential products and developing their value chain

  • Explore potential foreign markets

  • Enhance trade facilitation including simplification of transit procedures

  • Enhancing supply side capacity

  • To achieve the objective of product and country diversification, there is need to identify niche market where Nepalese products have comparative and competitive advantage

  • Develop export processing zone


Recommendations1
Recommendations..

  • Adopt one window policy for simplification of export procedures.

  • Improvement in the quality of leading exportable products like carpets, garments, and pashmina essential to reverse the declining export.

  • Need duty free and quota free access of Nepalese products in the developed markets.

  • Enhance aid for trade for trade related capacity development.


Recommendations2
Recommendations..

  • Need to improve investment climate.

  • Need to ensure most efficient use of available resources.

  • Selective Market promotion.

  • Establish incentive system as a short term solution

  • Strengthen monitoring.


Policy recommendations
Policy Recommendations..

  • Promote productivity growth, resource use efficiency, and create competitive/contestable market through market reforms.

  • Few trade related reforms since WTO accession

  • Drive by domestic efficiency

  • Trade deficit more a reflection of macro-economic imbalances

  • Nepal’s peg and appreciating REER make exports less competitive

  • Mainstreaming trade related policy in national policies


Policy recommendations1
Policy Recommendations..

  • Establish key policy priorities to removing binding constraints to economic development

  • Priorities set through WTO and foreign donors will not necessarily reflect Nepal’s top economic priorities in tackling main binding constraints

  • Capacity building, technical assistance, aid for trade and their proper use needed.


Trade policy1
Trade policy

Improve investment environment

  • Institution

  • Climate

  • One stop arrangement

  • Capacity


Trade policy2
Trade policy..

Trade Facilitation

  • Customs valuation and process improvement

  • Harmonizing computerised system with India, Bangladesh

  • Labs. And facilities

  • Transparency


Trade policy3
Trade policy..

  • Adhere to technical standards

  • Legislate/implement sanitary/phytosanitary measures

  • Strengthen IPR

  • Improve domestic service sector regulation.



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