Despite the United States of America being Nepal’s second largest trading partner in terms of exports after India, exports to the US are low in terms of value and are limited to the export of garments. However, the recent trade preference programme that the US has announced for Nepali imports is expected to boost exports of Nepali readymade garments to the country. Sujan Dhungana of The Himalayan Times caught up with Kiran Saakha, who was recently appointed the President of the Nepal-USA Chamber of Commerce and Industry to know about NUSACCI’s future plans to boost US-Nepal trade relationship, Nepal’s move to reap benefit from the trade preference announced by the US government and future possibilities of American investment in Nepal. Excerpts:
What are your top priorities to enhance US-Nepal trade ties as the new president of NUSACCI?
We need to understand that NUSACCI is a platform for both Nepali investors and investors in the US to promote businesses between both the countries. NUSACCI is not involved in providing facilities to businesses but in facilitating traders and investors of both countries to do business in each other’s country. The major role of NUSACCI is to increase bilateral trade between Nepal and US and as the president I am committed to do the needful to increase export of Nepali products to the US and lobby to draw US investment in Nepal. NUSACCI will serve to eliminate business hurdles that traders of both the countries are facing. However, both aforementioned tasks are not as easy as they sound. One major issue that I have identified personally is the current export figure to the US market maintained by the government does not reflect reality. It is because a number of trade fairs are organised in the US every week these days and Nepali traders are seen participating in those events. However, a majority of Nepali traders participating in such fairs do not clear their goods through the official channel. Even if the goods are officially cleared from Nepal, they do not clear their goods in the US through the official channel. Traders do not have the habit of declaring their products while entering the US due to procedural hassles in clearance. They rather prefer to take goods like jewellery, thanka and pashmina in handbags without declaring them officially as an individual is allowed to take up to two handbags without declaring them in the US. However, the fact is the US does not impose customs duty on a majority of items being imported from Nepal. So why are Nepali traders taking goods to the US market unofficially even though they enjoy customs waiver facility? This trend is not beneficial to both the countries and due to this we also do not get the real export data. I have thus been trying to bring such items under the official channel. I will soon sit with Nepali traders and US customs officials to solve the matter. Similarly, I will take a delegation of the Nepali private sector to the US soon and arrange for meetings with the business community there. NUSACCI will also hold some fairs in the US to promote Nepali goods and increase Nepal’s participation in big fairs.
The government has been talking about boosting foreign investment in the country. What have you planned to do to encourage US investment in Nepal?
It is my obligation to encourage US investment in Nepal and I will do it. The first thing I will focus on is to bring an American business delegation to Nepal to show them potential areas of investment. However, we have to realise that any foreign investor will come to Nepal only if they see investment prospects here and are assured of good returns. But the fact is we don’t have an investment friendly atmosphere at present. Bringing foreign investment in manufacturing and production sector will just remain a dream at a time when even domestic investors are reluctant to invest. Though the government talks about bringing investment-friendly policy, it has not even properly implemented its existing policy and has been creating hassles for domestic investors against its own rules and regulations on many occasions. We don’t have compensation law in the country to compensate businesses and investment. With such realities, bringing large scale foreign investment in Nepal is a huge challenge.
The US has started implementing its trade preference programme that provides duty-free treatment to dozens of products from Nepal. Will this help revive domestic garment industry which had been hit hard after the Multi Fibre Agreement (MFA) was phased out in 2005?
The domestic garment industry was on the verge of collapse after the expiry of the Multi Fibre Agreement in 2005 as the Nepali garment industry lost its biggest market. A number of domestic readymade garment companies were shut down then. With the US Senate endorsing the bill that gives ‘duty-free-quota-free’ facility to 66 different items, people expect it to boost Nepal’s export to the United States and help revive the readymade garment industry. However, the assumption is wrong. We had requested the US government to give such facility on sensitive garment items like cotton and synthetic series in the way it has done for African and Caribbean nations through the African Growth and Opportunity Act (AGOA). The current trade preference that the US has announced for Nepal is for such products that it already does not impose customs duty on or has very low customs rate. These 66 items are all low customs tariff goods. Had the US announced such facility for synthetic and cotton items, it would have helped to revive domestic garment sector. Giving trade preference to cotton and synthetic series would have counted more for Nepali exporters. This facility will not bring a huge change to domestic garment industry. The duty free facility that has been given to Nepal is not going to drastically bring down the high cost of Nepali readymade garments in US market as only four to five per cent duty was being levied on those products. Nepali readymade garments in the American market will still be about 10 per cent more expensive than garment products of other countries. The US should have given duty free facility on those products that have high customs rate and are in high demand in the US market. Thus, the current preference facility announced by the United States is not going to change export value of our garment products to US significantly. However, extensive promotion of Nepali garments in the US market by the government can make a difference.
Like the US, Australia too has given duty-free access to Nepali garments. However, Nepali exporters seem less attracted to Australian market. Why?
It simply is because of the market size. The United States is a huge market for Nepali garments while Australia is very small. As a result, traders prefer to market their products in the United States and European nations over Australia.
Export of readymade garments has come down by 13 per cent in the first four months of this fiscal. What is the reason behind it?
Nepal’s garment products under ‘patch and cut work’ had high demand in the US and other markets and such products had a majority stake in the overall export volume of readymade garments from Nepal. However, with the change in fashion in the American culture, particularly from last year, the demand for ‘patch and cut work’ garment has come down drastically in the foreign market contributing in bringing down overall export of domestic readymade garments.
What do you expect from the government to boost export of readymade garments?
The first thing government should do is conduct a study to find out by what per cent in terms of price are Nepali garments failing to compete with foreign brands in the international market. I assume that it is by around 15 to 20 per cent. The government should calculate tax rate difference and labour wage difference between Nepal’s garment industry and other nations. The government should find out the exact figure of competitive difference of Nepali garments in terms of price due to factors like high production cost including high wages and taxes. Then comes the issue of export subsidy. Once every factor hindering Nepali garments from competing in international market is analysed, government should announce certain per cent tax subsidy. However, tax subsidy alone is not going to lift up garment industry. It should be followed by extensive promotion in international market from government side.