Improving Governance Of Trading System by By Purushottam Ojha(Source:New Business Age)

Nepali trades in the ancient and medieval times were limited to Tibet (Autonomous Region of China) and India with the barter system in vogue. Nepal also provided transit passes between these two countries where the Tibetan and Indian traders and their goods were transported on the backs of the humans and animals to reach the other side of the Nepali borders. The treaty of Thapathali signed on 4th April 1856 was one of the land marks in forging trade, peace and amity between Nepal and TAR as it lifted the duties and taxes levied by the Tibetan government on Nepali exports, opened Bhardari Office (Lords Office) and Nepali trade mart at Lhasa besides ending the long standing conflict between the two countries. This Bhardari Office was later named as Lawyer’s office (Vakil Adda) and upgraded to Consulate Office in the mid 1950s.

Similarly, Nepal established Buying Office at K o l k a t a a n d Alainchi Adda (cardamom selling office in Patna) during the Rana regime. A treaty of friendship, trade and commerce was signed between Nepal and British-India in 1923. Soon after the change of political regime, Nepal signed another historic treaty of trade and commerce with India on July 31, 2050 for a period of 10 years. This treaty allowed using any port of India for the third country trade of Nepal. However, the customs tariffs were to be applied at the same rate applied by India for its imports. In this sense, it was in the form of single customs union. This was later modified by the treaty signed in 1960 as Nepal preferred to apply its own rate of duty, rather than tying up with the Indian duty structure. The use of transit ports was also limited to Kolkata and Haldia. The trade and transit provisions were separated for the first time in 1978 with the conclusion of separate agreements with India. This was also followed by the third agreement on control of unauthorised trade. These treaties have been carried forward till date.

The decade of the 1990s and the beginning of the new millennium saw many changes in the international trading regimes and Nepali trade faced several challenges during the past two decades. The opening of trade and economy outside the world, abolishment of licensing system for exports and imports, promulgation of new trade and industrial policies and the enactment of legislations to give effect to these policies increased the engagement of Nepali officials and business communities outside the world. The development of trade related infrastructures including the dry ports, integrated check posts, transport network and upgrading of testing and certification facilities combined with customs reform and automation were taken up for enhancing the enabling conditions of trade. Taking up memberships of regional trade organisations and multilateral trading system also compelled the country to revisit trade and related policies.


Governance of Trading System

Anywhere trade is regulated by the business ecology inside and outside the country. Nepal enacted the exportimport control act in 1958 for the first time providing a general framework for trading across the border. Export- Import Regulations of 1974 and the Gazette Notifications of 2008 are framed under the said act. Besides, various acts and rules of the relevant institutions form the part and parcel of the trading system. These basically inlcude the laws and regulations in the domain of customs, quality tests and certifications, protection of intellectual property rights, private firm and company registration, foreign investment, food safety, animal health and livestock services, consumer protection, medicines and public health. Similarly, various acts and legislations governing education, health,

tourism, IT and BPO, accounting and engineering services are also the constituents of trade regulations. The Government of Nepal has brought out policies related to different specific sectors that would provide long term visions and goals of the specific sectors with a view to ensure quality and achieve sustainability of trade in goods and services. The government also formulated trade policy, industrial policy, tourism policy, and IT policy in recent years that provide a framework for regulating trade.

The next important part of trade regulation is the international rules. Openness of trade has remained a prime agenda since the inception of General Agreement on Tariff and Trade-1947. Various rounds of negotiations during the ensuing decades have seen the liberalisation process being built up through removal of tariff and non-tariff barriers. The agreements on agriculture, multifiber arrangement and the generalised system of preferences (GSP) are some of the notable outcomes of the GATT process. As a least developed country, Nepal is also enjoying the unilateral tariff preferences under the GSP scheme. The bilateral trade preferences for Nepal are available under Nepal- India treaty of trade for a long time while such preferences are available also through the agreements signed with Canada, European Union and China in recent years.

As a member of the regional trading arrangements of SAFTA and BIMSTEC free trade agreements (FTAs), Nepal is actively involved in rule-making of these organisations. Similarly, the accession to the multilateral trading system of WTO has brought several opportunities and challenges that need to be managed prudently in framing rules and utilise them in the best interests of the producers and growers in the country. One of the advantages of presence in the regional and multilateral trading arrangements lies in creating and working together with like-minded member countries to persue the areas of common interest. In WTO forums, groups of African countries, LDCs, Caribbean countries etc are very effective and persuasive in advancing their agendas. The voices of LDCs like Nepal could be strengthened with enhanced engagement at these groups of countries.


Exploring Services


While talking trade, we normally think of goods. But there are areas of services that can bring benefits to exports. Services constitute around 42 per cent in the composition of Nepali GDP and Nepal has made commitment to open 11 sectors and 67 sub-sectors of services within the WTO framework. Foreign investment is allowed between 51 per cent and 100 per cent in various sub-sectors and there are no market access limitations except the restriction on bringing the expatriate staffs and workers. Nepal also possesses comparative advantage in the service sector mainly due to the presence of various ecological belts within short traverse, abundance of hydro-power potentials (of course, this being a sector of potential investment), well developed communications and telecom infrastructure, growing number of professionals in the field of engineering, medicine, nursing, accountancy and information and communication technology. The open and liberal investment regimes along with well developed financial sectors also lend strength to the services industries. However, Nepal needs to manage some key challenges like restoring peace and stability, improving law and order situation, developing transport infrastructure, ensuring energy supply, improving standards of services, addressing labour problems and ensuring policy stability and good governance at the same time. The key services sectors for Nepal as identified by NTIS-2010 includes tourism, health services, education, ICT, transportation, engineering and hydropower. A systematic development of these sectors can tremendously outpace the export earnings of trade in goods.



Key Issues and the Road Ahead

The development of potential products and services along the value chain is of utmost importance in view of the increasing trade volume and export earnings. At the same time, this will also help in linking poverty reduction strategy with the export trade and making trade inclusive and sustainable. The improvement in the quality of products and services, bringing efficiency in transit systems, reducing the cost of transaction, and rallying the support of development partners for trade development are the key issues for trade development agenda. The following points are important in view of carving the road maps of the Nepali trade.

 

1. Enhance the supplyside capacity:

The Nepal Trade Integration Strategy-2010 has identified 12 products and 7 services as potentially important for the trade sector. These need to be developed along the value chain so that various stakeholders (including the producers and growers at the farming level) could benefit from the trickledown effect of exports. It is advisable to pick up few selected products and pilot them in value chain on a “farmto- fork” concept. Such choice of products and services need not be limited to NTIS study as the range of products may change periodically depending upon consumer choice and destination markets. Pocket area development in the modality of one-village-one-product (OVOP), development of quality infrastructures and international accreditation of Nepali laboratories are quite important for increasing the supply of tradable goods.


2. Continue efforts in expanding market access:

The market access opportunities available under the bilateral or multilateral trading arrangements need further consolidation in order to ensure unhindered flow of traded goods across the border. Engagement in constructive dialogue with the trading partners at regional or multilateral level leverages the opportunity of market access. Similarly, attention needs to be paid to initiate bilateral dialogue for trade openness in the niche markets of neighboring countries like China, Bangladesh and Bhutan.


3. Overcome the systemic hindrances:

Growth of production of goods and services depends upon a number of systemic issues like improvement in the business climate, reduction in cost of doing business, development of human resources, proper planning for the development of services sector and appropriate institutional mechanism. Promotion of good governance with transparency, accountability and predictability is a sine-qua-non for a healthy business environment. These issues need to be addressed properly for the healthy growth of trade.


4. Streamline transit and trade facilitation:

The cost of doing business is normally high in Nepal and high transit cost is one of the factors for such elevated costs. Diversification of transit corridors, creation of inter-modal competition of transport, use of electronic data interchange among partnering customs, enhancing customs cooperation and application of IT based single windows are important steps in improving transit operations.


5. Enhance visibility in international trade forums:

With the advent of regional and multilateral trade forums, the member countries including Nepal are obliged to engage in dialogues and discussions in international rule-making and its enforcement. As discussed earlier, there are opportunities to seek redresses of poor performance of trade. Various windows are available under the auspices of the WTO for tapping the resources for trade development. Standard Trade Development Facility (STDF), Enhanced Integrated Framework (EIF) and Aid for Trade (AfT) are some of the initiatives to support capacity building measures of the least developed countries. Engagement at various levels of negotiations and working together with the countries having similar interest would require a pool of adequately trained and knowledgeable people. This will help make the country visible among the international community and leverage benefits concerning trade.

Rule-making of trade and its enforcement requires necessary skills and extensive knowledge in the domestic and international settings. Thus, trade negotiations and trade policy formulation have become complex and technical subjects as trade is overwhelmed by the complexities of overlapping rules under the various trade agreements. Professor Jagdish Bhagwati has termed it as spaghetti bowl phenomenon in the context of a single country requiring compliance with the criss-crossing rules of various trade agreements. The domestic rules of trade are also framed under the purview of various sector-specific rules and regulations and cross-cutting issues.

In view of this, many countries around the world are focusing on maximising gains for the economy through improvement in trade governance. However, Nepal is marred by political uncertainty, policy instability and myopic visions of the political leaders. Improving governance requires a long term vision and an honest effort. Without this, we would be reeling under the vicious cycle of deprivation, low trade and low economic growth. Only a strong political will and broad vision of the policy makers with a conscientious effort can bring the country out of this predicament.


(Ojha is an expert in international trade and currently serves as a Secretary at the Prime Minister’s Office and the Office of the Council of Ministers.
The views presented in the article are strictly personal of the author. He can be reached via email at puruojha@ gmail.com)