Experts urge for regional supply chain

India and Nepal can join hands in developing a regional supply chain as it will benefit both countries, according to experts.

"Nepal can play a key role in enhancing the regional supply value chain, if Nepal and India join hands in service sectors like IT-based entertainment, business processing outsourcing, and insurance," said executive chairman of South Asia Watch on Trade, Economics and Environment (SAWTEE) Ratnakar Adhikari, presenting his paper on 'Facilitating Integration in Regional Supply Chains in South Asia Nepalese Perspective' during the second and last day of 'Brainstorming meeting on Integrating South Asia in Regional Supply Chains: New Directions for Research and Sharing Experiences,' in New Delhi, yesterday.

"Nepal has comparative advantage in animation, and India is better in graphics, sound mixing and special effects," he said, adding that while the higher end of the value chain can be retained in India, the lower end — network management, payroll, call centres, accounting, and document management — for business process outsourcing can be sub-contracted to firms in Least Developed Countries (LDCs) including Nepal. "Likewise, insurance companies that are reinsuring through European and North American insurance companies have the potential to bring these businesses to the region."

The two-day meeting also dwelt on various opportunities and challenges in the regional integration of South Asia.

However, there are hurdles like trade barriers, supply capacity and lack of policy support, too, Adhikari said. "Most service sectors are restricted under General Agreement on Trade in Services (GATS) and schedules of commitments under SAARC Agreement on Trade in Services (SATIS) are yet to be negotiated, apart from domestic regulations of various countries aimed at protecting consumers, maintaining services standards, and achieving other policy objectives could also become de facto trade restrictions," he said. He added that lack of skilled human resources, limited internet penetration and bandwidth, political instability and inhospitable business environment are some other bottlenecks.

"Likewise, services trade is not the priority of trade negotiators in the region, coupled with lack of proactive policy initiative at national levels that are also blocking regional integration," Adhikari added.

However, the region can benefit, if it harmonises customs procedure, brings uniformity in standards and collaborates on training, research and development and establishes institutes such as fashion design/technology institutes in goods trade, and liberalises hitherto protected services sector during SATIS negotiations and harmonises domestic regulations to facilitate regional value chain development in service trade facilitations.

Similarly, development of proactive agenda, conducting in-depth study to identify sectors — both goods and services — in which development of regional value chain is feasible and desirable, and trade integration fund for overcoming supply-side constraints at the regional level, and incentives for exports and engagement in regional value chain, establishment of special economic zones and areas and investment in public goods like human capital and infrastructure at the national level will help for a regional supply value chain that will integrate the South Asia economically, he added.

Nepal fails to attract investment in service sector

Nepal could not take any advantage despite the country's commitment under the General Agreement on Trade in Services (GATS) of global trade regime being the most liberal in the South Asia.
"Nepal should table its initial offer under SAARC Agreement on Trade in Services (SATIS) with GATS schedule of commitments," South Asia Watch on Trade, Economics and Environment's (SAWTEE) research director Puspa Acharya said, adding that Nepal could show flexibility in relaxing conditions on the share of foreign equity participation in the offered sectors during the negotiations.
Similarly, the country can request other members of SAARC to open up their services sector in which Nepal has high growth potential, comparative advantages and policy direction to develop the particular sector, he added.
After years of realisation on the need for regional cooperation in other areas like services trade, besides trade in goods, the SAARC member countries have brought the SATIS, but they still need to identify the services sectors that they would offer to liberalise.
Recently during the Eighth meeting of Expert Group on SAARC Agreement on Trade Service that concluded in Kathmandu Nepal had selected its five service sectors to open for the SAARC member countries.
The service sectors within Nepal Trade Integration Strategy (NTIS-2010), the country offered to open trade, tourism, Information Technology, health and education for the SAARC member countries to invest in Nepal.
Nepal Trade Integration Strategy 2010 has identified 19 products that includes seven services — tourism, labour, health, education, IT and BPO, engineering and hydro-electricity — having maximum potentials.
Earlier, the South Asian regional block’s member states have already made their initial offer to open over 170 sub-sectors of service for foreign investments under the WTO norms. The 16th SAARC summit in Bhutan in 2010 had decided to introduce service sector in the SAFTA, which would incorporate only goods for regional preferential trade.

FDI to be allowed in travel, trekking agencies

The government is opening up the service sector in line with its commitment to World Trade Organisation (WTO).
A recent meeting of Investment Promotion Board has 'decided to open the sector for the foreign investment.
"We are planning to allow 51 per cent foreign direct investment (FDI) in travel agency,” said a Investment Promotion Board member, who was in the meeting.
According to the current law, travel agency, trekking agency, tourist lodging, water rafting, pony trekking, horse-riding are under the list of industries not to be granted permission for foreign investment.
However, Nepal had committed to open up foreign investment in travel agency and tour operator service after the WTO membership, but limited to 51 per cent. "But up to 80 per cent foreign investment has already been accepted in hotel, lodging services and graded restaurants with government's permission," he said, adding that Nepal’s commitments under GATS in twelve sectors including tourism sector, the country needs to access Nepal’s capabilities and resources to compete in the global tourism industry, find the optimum balance between local and foreign participation in this industry, access the ability and resource to fight barriers to market access created by other counties through technical standards, subsidies, discriminatory access to information and distribution channels.
"Currently there is only one travel agency that has FDI," chief of Travel Section under Tourism Industry Division Deepak Silwal said, adding that the agency was regiestered before the law banned the foreign investment in 2049 BS on travel agencies.
At present, there are 2,669 registered tour guides and 1,765 travel agencies in the section that also monitors these agencies. "We have fined some agencies also in the last fiscal year," he said, adding that after Nepal Tourism Year 2011 declaration, more agencies have been registered.
"Tourism industry will have the largest monetary turnover in the world by the year 2020," according to the global survey. Thus, trade liberalisation constraints in tourism must be acknowledged and differences between the SAARC nations must be rectified in order to reap the highest benefit of this growing industry.
"The Industrial Promotion Board is being formed under the chairmanship of Minister for Industry, in order to increase the pace of the industrialisation in the country, to formulate the policy regarding industry and investment and to coordinate between central and implementing level," the source said, adding that the board has to render necessary co-ordination in formulating and implementing policies, laws and regulations pertaining to the industrialisation of the country, and give guidelines in attaining the objectives of liberal, open and competitive economic policies pursued by the country.
"Thus the opening of the travel sector is i nline with the policy," he added.