Kathmandu, February 29

The government is preparing to develop a garment processing zone (GPZ) within Simara Special Economic Zone (SEZ), located in Bara district, to enhance the competitiveness in production of readymade garments.

As the production cost in the country is considered to be relatively high in the region, the government’s move is expected to bring down the production and export costs. SEZs are set up especially to facilitate export-oriented industries.

The concept of the GPZ came into light after the United States extended zero tariff preference for 66 products, including apparels, into its market through ‘Trade Facilitation and Trade Enforcement Act’. The world’s largest economy is all set to provide preference for Nepali products through a separate act to support the country’s aspiration to graduate to the league of developing nations by 2022 through sustainable and robust economic growth.

The United States through the act, which is expected to come into effect after a month, has declared it would provide duty-free access to 66 Nepali products and support the country in trade capacity enhancement. Nepali apparel entrepreneurs are excited with the recent development because the United States was a major export market for Nepali apparels until Multi Fibre Agreement (MFA) was phased out on January 1, 2005. The country had exported readymade garments worth Rs 12.5 billion in fiscal 2001-02. Garment industry, which is on the verge of collapse after MFA was phased out, is expected to revive once again.

As per SEZ Development Committee, GPZ in Simara SEZ will be completed within three years, will house 69 blocks for garment industries and will be equipped with all required facilities — power, road connectivity, water supply and sanitation, among others.

However, apparel entrepreneurs have also been demanding for a separate labour law within SEZ. The SEZ Development Committee has sought Rs 2.5 billion with Ministry of Finance for the development of GPZ, according to Chandika Prasad Bhatta, executive director of SEZ Development Committee.

The GPZ is expected to compensate high transport and shipment costs due to Nepal’s landlocked status because the proposed zone is located near the country’s only rail-linked dry port in Birgunj. Apparel entrepreneurs are also optimistic about the government’s initiative to develop separate zone for garment factories and its ancillary industries.

“A separate GPZ will also help lure foreign direct investment,” said Chandi Prasad Aryal, acting president of Garment Association Nepal.

Entrepreneurs have also sought implementation of ‘cargo ambulance’ concept that Bangladesh has been extending to exporters. Neighbouring Bangladesh is a giant exporter of readymade garments in the markets of developed economies. Apparel entrepreneurs here are confident they can compete with the products of other exporters in the United States market by utilising zero tariff preference. The United States has extended zero tariff facility for 66 Nepali items with value addition above 35 per cent that are not covered by the generalised system of preferences.

It has to be noted though that garment entrepreneurs are still not even sure whether the new law of the United States has incorporated readymade garments. This is because entrepreneurs have interpreted the provisions of law as being similar to the African Growth and Opportunity Act (AGOA), which has provided preference to African countries in export to the United States market to stimulate growth.

However, according to former commerce secretary Purusottam Ojha, classification of goods incorporated in ‘Trade Facilitation and Trade Enforcement Act’ does not incorporate major readymade garment items produced in the country.

“Articles of leather, bags, belts, harness, travel goods, handbags and similar containers; carpets and other textile floor coverings; headgears; pashmina products have been incorporated in the law,” he explained.

Meanwhile, Ministry of Commerce has also urged various agencies of the government to work collectively in export promotion stating that the current piecemeal approach has failed to boost export. In this regard, the government is preparing to set up an export promotion cell to streamline export promotion activities and deal with supply side constraints. The cell will comprise officials from Ministry of Commerce, Ministry of Industry, Ministry of Finance, Ministry of Labour and Employment, and Nepal Rastra Bank.