Kathmandu, June 6

As Nepal and India are going to revise the trade treaty by October 27, experts and private sector players have said that the new treaty should address the escalating trade deficit, participation in Indian value chain, technical barriers to trade, preference erosion, trade facilitation, attracting investment, and trade capacity enhancement. They have also stressed on the need for effective implementation mechanism of the agreement.

Some of the provisions included in the existing bilateral trade agreement extend less number of facilities than as agreed in the multilateral and regional trade agreements. In this scenario, the new trade treaty should be harmonised with the arrangements of World Trade Organisation (WTO) and South Asian Free Trade Area, say experts.

As per the provision of the existing treaty, exporters must meet 25 per cent value addition criteria to export to neighbouring India, whereas the WTO ministerial meeting held in Nairobi of Kenya last year agreed on 20 per cent value addition criteria for least developed countries. Such provisions that contradict with regional and multilateral trade agreements need to harmonised, as per experts.

Similarly, private sector players have emphasised on the elimination of quantitative restrictions. The prevailing treaty has set quantitative restrictions on vegetable fats (Vanaspati ghee) up to 100,000 tonnes, acrylic yarn up to 10,000 tonnes, copper products up to 10,000 tonnes and zinc oxide up to 2,500 tonnes per year. The private sector has also sought elimination of state taxes and simplification of prevailing procedural hurdles in exporting pharmaceuticals, cardamom, ginger and medicinal herbs, among others.

The trade treaty offers preference for the goods of each other’s country on reciprocal basis. However, the Article V of the treaty has provided favourable treatment in respect to the customs duty in the export of industrial products to India on non-reciprocal basis to support Nepal’s industrialisation. Expansion of such treatment, according to the private sector players, will support production capacity enhancement, which is one of the major constraints for the country to boost export.

Likewise, the Article III of the existing treaty has been hindering to provide favourable treatment to other trading partners on mutual basis because Nepal needs to provide similar facility to India. The provision has ensured that any favourable treatment extended by either Nepal or India to a third country will have to be extended to each other in terms of customs duties and import regulations like quantitative restrictions. Experts believe this provision needs to be scrapped to tap the potential of expanding trade relations with other countries.

As the foreign direct investment (FDI) from India and export from Nepal to India has very strong nexus — like juice exported by Dabur Nepal (Indian investment in Nepal) — Nepal should promote such ventures, as per experts. However, Indian investors enjoy better facilities when investing in the rural parts of their own country than when investing in Nepal.

Experts and private sector players aired their views during a programme titled ‘An Interactive Session on Nepal-India Trade’ organised by the Ministry of Commerce and private sector umbrella organisations — Federation of Nepalese Chambers of Commerce and Industry, Confederation of Nepalese Industries, Nepal Chamber of Commerce and Nepal-India Chamber of Commerce and Industry — here today.

Addressing the programme, Commerce Minister Jayanta Chand stressed on the institutional and productive capacity enhancement to boost export to the southern neighbour, which is emerging as a promising market. He opined that attracting investment from India could give opportunity to Nepal to boost export and lower the escalating trade gap.

Also speaking in the programme, Ambassador of India to Nepal Ranjit Rae suggested the government and private sector to set the goal of doubling the trade volume within five years and developing action plans that will address all the issues raised by Nepal like quarantine-related matters, trade-related infrastructure development and other various trade facilitation measures.

Further stating that international investors tend to closely monitor inflow of Indian investment in Nepal, Rae said, “In this sense, Indian FDI is critical for Nepal to attract investment from other countries.”

Similarly, Posh Raj Pandey, a former member of National Planning Commission and trade expert, opined that participation of Nepali companies along the Indian value chain process could not only enhance productive capacity of Nepal but would also be supportive in

Indian Premier Narendra Modi’s ‘Make in India’ campaign.