FTA for only tariff concessions on Chinese goods could be deadly for Nepal

— Purushottam Ojha, former commerce secretary

Kathmandu, July 22

The feasibility study of the free trade agreement (FTA) with China carried out by the Ministry of Commerce has drawn a conclusion that the FTA could be signed only on the condition of bringing Chinese investment into the country and enhanced connectivity with the northern neighbour.

As the country’s production base is already weak, tariff concession for Chinese goods under FTA would not only hurt the government’s revenue, it could destroy the production base due to free flow of cheaper goods from China.

“We have analysed economic benefits and possible implications of the FTA,” said Ravi Shankar Sainju, spokesperson for MoC. “If we can bring investment from China and enhance connectivity, it will help to improve supply-side constraints and boost exports.”

There is not much significance for Nepal to sign the FTA with China as the duty-free facility provided by the northern neighbour for 8,700 products remains largely unutilised due to lack of production capacity.

Nepal’s trade deficit with China is alarming. According to data of the first 11 months of last fiscal unveiled by the Trade and Export Promotion Centre, the country exported goods worth Rs 1.6 billion to China against imports of Rs 116.62 billion from the northern neighbour.

Under FTA, both the countries would have to remove trade barriers, like tariff and other technical barriers of trade. The feasibility study carried out by MoC has also identified numerous non-tariff measures adopted by the northern neighbour on Nepali products.

MoC had carried out the feasibility study as per the agreement signed with the northern neighbour during former prime minister KP Sharma Oli’s visit to China in March last year. The Chinese side has also initiated a study on possible impacts on Chinese market from signing FTA with Nepal.

“As Nepal’s export to China is already low, there may not be large impacts for China in signing FTA with Nepal,” said former commerce secretary Purushottam Ojha, adding FTA for only tariff concessions on Chinese goods could be deadly for Nepal.

Nepal and China will sit for talks after the Chinese side concludes its study on impact of FTA with Nepal on its market. Both sides will put their observations on possible implications and benefits of signing FTA, according to Sainju.

Nepal will make its stances clear during the meeting that the country cannot afford FTA with China without commitment of enhancing Nepal’s production base with Chinese investment and developing better connectivity between the two countries.

“We are looking forward to more engagement and economic integration between Nepal and China,” said Sainju, “FTA between two countries would have to foster possibilities of better economic ties.”

The FTA will be signed only after all contentious issues have been ironed out.