EYE ON exportS : Policy pitfalls stymie progress

Gopal Tiwari

Kathmandu, July 10:

Export sector generates billions in crucial foreign currency in both developed and developing nations, working as a key cog in the wheel of economic growth. But in Nepal, one of the least developed nations in the world, the export sector has been inundated with procedural, legal and tax-related problems. As a consequence, the Nepali export sector has failed to cope up with the challenges brought about by globalisation. Lack of market and product diversification has also severely limited Nepali products’ ability to compete. Till 1980s, Nepal’s export trade was predominantly focused towards India but by 1991-92, exports to India accounted for a mere 11 per cent, due to a surge in the export of carpets and garments to US and European markets. However, the Indian market slowly regained its prominence, climbing up to over 31 per cent during 1997/98. This was primarily due to the favourable Nepal-India Trade Treaty signed in 1996.

Today, Nepal exports over 50 per cent of its total exports to India. Nepali exports to US and Europe has been hurt severely in recent years due to a variety of reasons, including problems related to duty-free access, lack of variety in exportable products, weak marketing and procedural problems. Prof Dr Bishwambher Pyakuryal, President of Nepal Economic Association (NEA) commented that policy failures have affected large-scale industries as well as small and medium size enterprises. He urged for moving towards preferential trading arrangements as against the conventional policy of quota utilization. Prof Bhuwan Bajracharya commented that the government has failed to implement its commitments for helping the export sector advance. Unless policy and financial environments improve, the export sector will not improve, Prof Bajracharya said. He said that operational level policies are not user-friendly and bureaucratic delays coupled with harassments have hit the export sector hard. It is easy to start an industry but it is difficult for exit due to labour laws, therefore, there is a need to reform, he stressed.

Government reports reveal that quality problems and concern in importing countries over child labour issues, have adversely affected Nepal’s major export items such as carpet.

The share of tax from exports to the total national revenue (customs duty and income tax) was only 2.7 per cent in 2000-01, which has increased to 3.2 per cent in 2002-03 which is not very significant. The share of income tax from exports to the total income tax revenue is not more than six per cent. Krishna Hari Banskota, director general of the Customs Department (CD) said the government has already reduced export taxes to make the sector more competitive, which is also as per the WTO commitments. He said that customs has no role in the declining fortunes of the export sector. Currently customs duties are charged on about 100 to 150 exportable items, but we have import taxes on more than 5,000 products, he said. Despite export duties on copper wire, zinc oxide and marble having been waived in last year’s budget, export of these items does not seem to have increased as expected. Rajesh Kaji Shrestha, president of Nepal Chamber of Commerce (NCC) said that the export sector is not being given priority. “The problems of bureaucratic hassles in customs and other departments should be understood by the government. Subsidies to boost exports is needed,” he said.

The 2002 Trade Treaty with India, according to experts, is limiting exports to India as there is an import quota system for exports to India for the products such as vegetable ghee, copper wire and zinc as against duty free access for Nepali exportable items to India without quota as per the 1996 Trade Treaty. The provision of rule of origin and allocation of quota and other non-tariff barriers have cut down the availability of large Indian markets for Nepali products. Time is running out to make Nepali economy more competitive in the context of WTO membership by boosting the export market.