Nepal | July 08, 2020

‘Indian authorities are positive about addressing trade deficit through bilateral treaty’


Sujan Dhungana
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The two-day Nepal-India Trade Treaty review meeting between the commerce joint secretaries of the two countries concluded in Pokhara last week. The meeting was held to identify hassles witnessed in bilateral trade and commerce sector and take necessary measures to address such challenges through the treaty. Moreover, the meeting is regarded as an important event that determines the necessary changes to be made in the trade treaty between the two nations. Sujan Dhungana of The Himalayan Times spoke to Ravi Shankar Saiju, joint secretary at the Ministry of Industry, Commerce and Supplies, to get an insight into the meeting. Excerpts:

The Nepal-India Trade Treaty review meeting between the two countries recently concluded in Pokhara. What were the major outcomes of the meeting?

This is the second commerce joint secretary level meeting between the two countries that dwelt on different provisions that can be reviewed in the Nepal-India Trade Treaty to enhance Nepal’s bilateral trade with India. The first meeting, which was held in July, basically discussed broadly on what amendments could be made in the trade treaty. However, the review meeting this time discussed minutely on necessary amendments sought in the trade treaty by both nations to enhance bilateral trade. Earlier, Nepal felt the necessity to review the bilateral trade treaty basically to address the increasing trade deficit of Nepal with India. We have raised different agendas in the review meeting and the Indian authorities are positive towards most of them. The current provision in the Nepal-India Trade Treaty has given customs tax waiver facility for primary products of the two countries in each other’s market.

However, import of such primary products, basically food items from India is increasing significantly as they are comparatively cheaper than Nepali products. As the Indian government has also given different subsidy facilities in primary products and the production base of India is very high, Nepali products are finding it difficult to compete in both domestic as well as Indian market. Thus, we have strongly raised the agenda at the meeting to revise the reciprocity provision in the treaty regarding tax facility for primary products. We have sought to end zero-tariff facility for Indian primary goods in Nepal while giving continuity to this facility for Nepali primary agriculture goods in the Indian market. This will ensure that the penetration of Nepali products will increase both in the Nepali as well as Indian market. This will help to narrow down the country’s trade deficit with India. Meanwhile, Indian authorities were positive towards this proposal of Nepal.

Similarly, we also raised the issue regarding the rule of origin criteria on export of Nepali products to India at the meeting. The rules of origin criteria in Nepal-India Trade Treaty require 30 per cent value addition. The treaty was renewed in October 2016 without any changes to the 2009 treaty. The provision is in contrast to India’s commitment to World Trade Organisation to allow duty-free, quota-free market access to exports of least developed countries.

We have requested Indian authorities to relax the 30 per cent provision to 25 per cent or even below.

The Indian authorities said that they would discuss further on this agenda with higher authorities. Likewise, we have also raised the issue regarding quarantine hassles that Nepali products have to face during export. Due to lack of proper accreditation, Indian authorities do not give validity to Nepali quality certifications. But we have strongly raised the agenda that India should give validity to Nepal’s quality certificates. We have requested India to form a joint technical team under the inter-governmental sub-committee (IGSC) and take recommendations from the team on ways to harmonise the quarantine issue. And the Indian authorities have agreed to this proposal too.

Lastly, we have also raised the agenda to amend a provision in the most favoured nation (MFA) agreement.

Under this provision, if Nepal gives any type of concession to goods of any other country, Indian goods will automatically enjoy the concession.

As a result, Nepal could not sign necessary agreements with other nations for different goods as our trade is heavily inclined with India and any sort of concession agreement with other countries in trade will affect Nepal-India trade. We have requested Indian authorities to remove such provision in MFA. India has sought the detailed proposal from Nepal on this agenda. Along with this, we have also raised issues regarding relaxing the documentation process in trade and upgrading border points, among others. We have asked India to prioritise upgrading eight different border points initially and all 27 border points in the long run.

Nepal is also said to have urged India to introduce the provision allowing re-export of goods to and from Nepal. What progress has been made on this front?

Article 3 of the Unauthorised Trade Control Agreement signed between Nepal and India restricts re-export of third-country goods between the two countries. However, we have strongly raised our concern that such provision in the agreement has raised the cost of doing business in Nepal and sought a relaxation to this provision. As India is a big market, a majority of multinational companies have production plants in India and India has become an investment hub today. If we are allowed to import third-country goods from multinational companies based in India, this will significantly reduce our import cost. However, we cannot do so and are compelled to import goods from third countries even though the same product is available in India. We have proposed India to at least introduce the reciprocal re-export provision in three type of goods — industrial raw materials, spare parts and life saving drugs. The Indian authorities have said that they will address this issue through the bilateral trade treaty by scrapping this provision from the Unauthorised Trade Control Agreement.

We are optimistic that this concern will be addressed soon.

Some Nepali products that enjoy duty-free access to Indian market sporadically face export hassles following frequent change in Indian laws. Was this issue raised at the meeting?

It is true that our products face export hassles in India at times. We raised this issue at the meeting and Indian authorities have assured us they will further examine it.

What about operating the transshipment facility for Nepal-bound cargo containers in a full-fledged manner?

This issue was also discussed at the meeting. The transshipment facility for Nepal-bound cargo containers has already begun from Visakhapatnam (Vizag) Port, though it is still in the pilot phase. Meanwhile, we are introducing this facility from Haldia and Kolkata from February 15. Initially, this facility will target railways in the first phase and we will also introduce the facility for trucks soon. However, regularising this facility for Nepal-bound cargo containers has to be done through the transit treaty itself. Meanwhile, we have proposed the Indian government to regularise this facility within the next few months through Letter of Exchange. Indian authorities are positive on this front. Most importantly, the trade treaty review meeting has agreed to draft the legal text of all aforementioned discussed issues and it will be shared between the two countries as soon as possible.

The next review meeting, which will take place within the next two months, will discuss on the draft of the legal text prepared to make necessary amendments in the bilateral trade treaty.

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