TAKING STOCK: Smuggling vs free trade


At the end of one of my talks advocating a duty free status for Nepal, the former finance minister Ram Sharan Mahat, said, “Nepal is already a duty free nation for many products. You can go to New Road and find goods cheaper then they are in Dubai or Singapore”. The implied question then is, “What additional benefits, if any, would an official duty free status confer?”

It is true that you can find watches, cellphones, and many electronic items cheaper in Nepal. In fact a friend who is knowledgeable about such matters said Kathmandu is the cheapest place on earth for picking up Rolex watches. So, would opening up Nepal to free trade be much ado about nothing – a pointless exercise?

No, free trade differs from smuggling. Traders do bring in goods into Nepal in cahoots with custom’s officials and, because no duty is paid, can offer it cheaper. However, this means that the importers put themselves at risk, they face not only fines, but jail sentences as well if things go wrong. Smuggled goods, as cheap as they maybe, are priced to reflect not only the cut given to the custom officers, but also the risk of loss of liberty faced by the smuggler or his agent. Goods officially (hence without risk) imported duty free, and sans payment of a bribe would be cheaper still, making Nepal even more competitive than it is now. The benefits

do not stop here.

When businessmen import legitimately, they can do so in bulk, by the container load. This leads to bigger discounts from the foreign sellers and also reduces freight costs. Smuggling is surreptitious, the quantities limited, so as to minimize risk. Obtaining goods in small quantities

through human carriers who fly abroad is inefficient and increases costs. It is to the credit of the Nepali traders that, even with all the road blocks in their way, they can still price their goods as cheaply as they do. Consider how much their competitive edge would be sharpened if free trade happens. The real advantage for Nepal would come from big stores openly storing a variety of goods from all over the world. They cannot do so now. Imagine what would happen to Bluebird and Bhat Bhatani if they stocked smuggled goods? They would be prosecuted and risk closure by the authorities.

Legality is the reason why Singapore, Hong Kong, and Dubai have mega stores, huge shopping malls and corner shops lined with an incredible array of goods from around the world. Free trade when practiced with the government stamp of approval is open and can be advertised. Smuggling is done clandestinely, in limited quantities, and under the overhang of fear from authorities. Have you ever seen a smuggler advertising his products on TV?

Along with making Nepal duty free, major benefits would come with the opening up of the retail sector to foreign investment. Let foreign capital and expertise help Nepal in setting up the latest in retail establishments. Let Wal-Mart, Carrefour, and Tesco open their stores here. End currency controls as well, and we will have a Big Bang changing Nepal’s direction towards prosperity.

With its two giant neighbours, Nepal does not have to worry about the market for its goods. Indians and Chinese will find Nepal cheaper than any other place on earth – thanks to low costs of real estate and insignificant labour rates. Tourists love Nepal’s weather, no other country can match its natural beauty, add duty free shopping to what foreign visitors can

do here, and we have an unbeatable competitive advantage. Employment, opportunities and wealth will all come Nepal’s way with this opening up. And it will come in an environmentally friendly manner. Shopping malls do not spew out smoke as factories do. Let Nepal become a shopper’s and trader’s paradise. The time for action is now.

(The writer can be contacted at: everest@mos.com.np)