Prashant Pokhrel

The end of quota regime has resulted in a sudden decline in Nepal’s garment export.

Today, more than 700 million people live in the least developed countries(LDCs). Eighty per cent of them live on less than $2 per day and 50 per cent on less than $1. The Tariff Relief Assistance for Developing Economies Act of 2005 (TRADE Act 2005) introduced by senator Gordon Smith in the US Senate aims to boost economic growth and reduce poverty in the LDCs currently lacking preferential market access to the United States. Many of these countries are particularly vulnerable to shifting global patterns of apparel trade or are considered weak or fragile nations. Removal of the textile quotas on January 1, 2005 has put these countries at a severe competitive disadvantage and threatens the critical apparel industries of Bangladesh, Nepal, Sri Lanka and Cambodia. The garment industry accounts for up to 95 per cent of the total export earnings of these countries. Extending duty-free export facility to these nations, as the US has done to other LDCs, will give TRADE countries the chance to compete with larger, more developed nations such as China and India.

At present, the US provides trade preferences to all but a handful of these LDCs thro-ugh laws such as the Africa Growth and Opportunity Act (AGOA) or the Caribbean Basin Initiative. Most of the poor countries lacking market access benefits lie in Asia and the Pacific. Like AGOA, the TRADE Act 2005 would extend trade preferences to these LDCs. The passage of the TRADE Bill 2005 into a law can bridge this gap in US trade policy and eliminate tariffs that are regressively impacting on both LDCs and US consumers. This bill covers 14 of the LDCs as defined by the UN and US State Department but not covered by any current US trade preference programme. They include Muslim countries like Afghanistan, East Timor, the Maldives, Bangladesh, and Yemen. The bill also includes a special emergency trade provision to help the tsunami-hit Sri Lanka.

These TRADE countries are subject to some of the highest US tariffs in the world, averaging 20 per cent. By contrast, some of America’s wealthier trading partners enjoy nearly zero tariffs. The TRADE LDCs have been given duty-free entry from the EU, Australia, Japan and Canada. At this juncture of WTO quota phase-out, Nepal now desperately needs US help.

In the past, US Congress has acted generously toward the LDCs in the Caribbean and Sub-Saharan Africa, but many of the world’s poorest countries are outside these regions. Now is the time to give those left out a fair deal through duty-free market acces, thus helping them diversify their economies, create more jobs and promote democracy. As the US fights the global war on terror, it must also lead on trade by helping these countries devastated by everyday tsunami called Poverty. The TRADE Bill 2005 allows the US to do both.

What does the TRADE Act mean for Nepal? Nepal is a landlocked LDC with few exportable products and with limited access to the external market. Readymade garments are a primary export item for Nepal and the US is its major buyer (80 per cent). Garment exports bring in about 40 per cent of Nepal’s total export earnings and contribute about 7 per cent to the GDP. The garment industry alone once provided jobs to about 200,000 people, one-fourth of them women. After the WTO quota phase-out, the employment figure has now come down to 20,000 because the number of the factories in operation has come down to 20 from 200. The end of quota regime has led to a decline in the volume of Nepal’s garment export. As a result, foreign exchange earnings have nosedived and so has the employment of feeder industries.

Without preferential treatment, and with the end of quota system, Nepal’s fragile economy is at a severe competitive disadvantage, vis-à-vis larger more competitive countries like China and countries with preferential arrangements with the US. At a time when Nepal is fighting terrorism, nothing could be more ominous than losing a major source of foreign exchange earnings. At such a crucial time , any act that leads to a rise in unemployment in Nepal will only produce more insurgents. This is neither in Nepal’s interest nor in the interest of the US or the others. By granting preferential treatment to Nepal, the US would be providing Nepal with a level playing field to compete with economies at a similar level of development. Besides

helping generate economic growth and reduce poverty, this Act would represent an important and positive political statement the US could make to the least developed world at a time when intentions in the war on terrorism remain under constant criticism from extremists. To ensure US preferential treatment for Nepal, the role of those Americans who know and love Nepal, particularly those who have held influential positions at various times, like visiting former senator Thomas A Daschle, is all the more important.

Pokhrel is first vice president, Garment Association-Nepal