Nepal and Bhutan to sign trade agreement

Nepal is planning to sign a trade agreement with Bhutan hoping to expand trade between the two countries.
According to the Ministry of Industry, Commerce and Supplies, Kathmandu and Thimpu are holding a series of joint secretary-level meetings starting from August 29 to discuss a trade protocol, after a Bhutanese delegation arrives in Kathmandu.
Though, both the countries are members of various multilateral trade regimes including South Asian Association for Regional Cooperation (SAARC), Bay of Bengal Initiative for Multi-sectoral Technical and Economic Cooperation (BIMST-EC) and Bangladesh-Bhutan-India-Nepal (BBIN), they have not yet signed any bilateral trade agreement till date.
They will discuss ways to simplify trade barriers and finalise the rules of origin (RoO) before signing the trade protocol, according to the ministry. “Nepal will ask Bhutan to provide duty-free access to local products with a value addition of 25 per cent and above under the rules of origin,” the ministry informed. But Nepal is, currently, receiving preferential treatment from a number of countries on exportable goods that have a minimum 30 per cent to 40 per cent value addition.
Nepal has signed trade agreements with 17 countries including India, China, Bangladesh, South Korea, Pakistan, Sri Lanka, the US and Mongolia. And Nepal has also signed bilateral preferential treatment arrangement with India while it receives preferential treatment from China, the US and European countries.
China provides duty-free, quota-free access to more than 8,000 Nepali products, though Nepal does not produces most of the products in the list. Likewise, the US also offers access to 77 tariff lines under the Trade Preference Programme (TPP), while the European Union (EU) provides duty-free access to products imported from the least developed countries (LDCs) including Nepal under the ‘Everything but Arms’ scheme. But Nepal has very few products to export to these countries, as the country is import-based economy and has never promoted exports.
Nepal has not been able to exploit the preferential treatments from trading partners also due to lack of exportable items. Thus, signing the trade agreement with Bhutan also seems not beneficial to Nepal as Nepal has not much to offer to Bhutan either.
Likewise, Bhutan is a small market dependent on imports from India and Bangladesh. Nepal will have to compete with Indian and Bangladeshi products in the Bhutanese market. Nepali products have been not able to compete with Indian, and thus the Nepal-Bhutan trade agreement could not bear much expected benefit for Nepal. “If Nepal needs to take advantage, Nepal and Bhutan must enter into a transport agreement first to benefit from bilateral trade,” according to trade experts.
Nepal will also have to provide similar facility to Bhutanese products on a reciprocal basis after signing a trade agreement with Bhutan, which might not be in Nepal's favour as it has been facing a widening trade deficit even with this SAARC member country.
Nepal has been facing a growing trade deficit with Bhutan, according to the Trade and Export Promotion Centre (TEPC). “Nepal exported goods worth Rs 162 million to Bhutan against imports of Rs 1.67 billion, resulting in a trade deficit of Rs 1.51 billion,” the TEPC data revealed, adding that the trade deficit with Bhutan stood at Rs 284.41 million in the fiscal year 2014-15.
Nepal imports gypsum, coal, heavy equipment, boring machinery, juice and industrial equipment, among others, from Bhutan, whereas it exports iron rods and alloy of aluminium, transformer, snack, soap, furniture, woollen carpet, farm products, jute bag and cooking appliances to Bhutan.

US announces expansion of trade facilities for Nepal

Nepal received duty-free market access in the US for its travel goods like luggage, backpacks, handbags and wallets under the Generalised System of Preferences (GSP) programme. The United States Trade Representative's (USTR) Office has announced the Annual Product Review under the Generalised System of Preferences (GSP) Programme.
The measure adds new duty-free status for travel goods – like luggage, backpacks, handbags, and wallets – for Least Developed Beneficiary Developing Countries (LDBDCs), including Nepal.
According to a statement issued by the US Embassy in Kathmandu today, the new rule makes these products eligible for duty-free status beginning July 1. "US imports of travel and luggage goods products totaled almost $10 billion in 2015," it added.
"This is a tremendous opportunity for Nepali businesses to expand their exports to US markets,” US Ambassador Alaina B Teplitz is quoted in the statement. "A strong commitment to open-market policies, a stable and transparent legal environment that secures property rights, policies that foster dynamic entrepreneurial activity and strategic infrastructure investments will help Nepal make the most of this opportunity," she added.
In 2015, Nepal ranked second, after Cambodia, of all LDC exporters of luggage products to the US. Nepal's exports of these products have grown seven per cent since 2014, totaling $1.8 million in 2015.
US trade preference programmes provide opportunities for many of the world's poorest countries to use trade to grow their economies and climb out of poverty.  The 40-year old GSP is the largest and oldest US trade preference programme.
Under GSP, the US provides duty-free treatment for many imports from beneficiary developing countries, and additional products for LDBDCs. About 5,000 products from 122 beneficiary developing countries and territories, including 43 least-developed countries, are eligible for duty-free treatment when exported to the US under the GSP programme.
Nearly 1,500 of these products are reserved for duty-free treatment for LDBDCs only.
According to economic counsellor at the Nepali embassy in the US Kailash Raj Pokhrel, Nepal has received the duty-free facility for 27 items. These items are in addition to the 66 garment products that have received a similar facility under a separate Nepal-specific legislation.
Although the GSP facility covered 5,000 items from 127 countries, the list included only 5 per cent of Nepali products, including flags, caps, cigars and scarves of the total items exported to the US. Now, the new items have been added to the list of goods for which Nepal will get duty-free market access in the US.
Earlier, in February, US President Barak Obama signed legislation authorising special trade preference to Nepal providing duty-free market access to 66 types of garment items including certain carpets, headgears, shawls, scarves and travel goods. This is a new Nepal-specific tariff preference programme while the GSP is a 40-year-old trade preference programme, the oldest such programme.

Nepal-China transit treaty to shift geo-political balance

In a major geo-political shift, Nepal has signed a transit and transportation treaty with China today that will give the land-locked Nepal access to sea from China.
Currently, Nepal has the access to sea, which is vital for third country trade, only through India, the southern neighbour. India and Bangladesh are the only two other countries with whom Nepal has signed transit treaties. But the transit treaty with Bangladesh is based on India, as Nepal and Bangladesh do not share border, and thus has not been implemented fully.
However, today's treaty will give Nepal access to a Chinese port for its third country trade, which is expected to reduce Nepal's dependency on India for trade and transit.
Despite historic and socio-cultural integration between India and Nepal, India's imposition of economic blockade for almost five months generated widespread disenchantment in Nepal, forcing Nepal to seek trade alliances beyond the southern neighbour. Though Tianjin Port, the nearest Chinese port is 3,300 km away from the Nepal border – as against the closest Indian port of Kolkata which is only 1,000 km – the treaty is also expected to shift the geo-political power balance in the region.
The agreement on transit and transport with the People's Republic of China could be a psychological shift for the future, according to senior economist Bishwhambher Pyakuryal. "The agreement is going to have a huge psychological shift in otherwise India-locked Nepal as the country will now have an option for international trade," he said, adding that the implementation of treaty is but a herculean task.
Likewise, trade expert and former commerce secretary Purushottam Ojha also opines that the treaty is a milestone, but Nepal needs to invest its huge resources and efforts on road infrastructure to benefit from the treaty. "Nepal must increase road and railway connectivity to take advantage from the transit treaty and increase economic integration with China," he added.
Apart from widening of Rasuwagadi customs point, and upgrading Korala and Kimathanka customs points and access roads, Nepal also has to work hard to simplify trade-related issues, including visa, currency and language, to make the treaty work in its favour, Ojha said.
Likewise, Nepal has to exchange a protocol with China, which will define the procedures that need to be followed. Nepal also have to have railway connectivity to take advantage from the agreement, which will be automatically reviewed every 10 years, as ferrying goods via road through Tibet may not always be cost-effective and convenient.
The visiting prime minister Khadga Prasad Sharma Oli and his Chinese counterpart Li Keqiang today witnessed the signing of the 10-point bilateral agreement and memorandum of understandings (MoU), including landmark transit and trade deal, in Beijing's Great Hall of the People, according to a press communiqué issued by the Nepali Embassy in Beijing after the signing ceremony.
To increase the connectivity, China has also agreed to construct a strategic railway link between the two countries through Tibet. The railway link, which is expected to link Kathmandu and Tibet, is also likely to be expanded to Pokhara and Lumbini.
According to officials in the meeting, Oli's visit has raised the possibility of the construction of two rail lines connecting three of Nepal's most important cities. China has already expanded its railway service to Shigatse, in Tibet, which is around 450 km from Kerung. Kerung lies at a distance of around 26 km from Rasuwagadi in Nepal. China plans to extend its railway service to Kerung by 2020, and also a longer term plan of extending railway lines from Kerung to Kathmandu depending on geographic and technical conditions, as well as financing, according to the officials.
But, Nepal will have to enter into a separate deal with Beijing to make use of the Chinese railway service for trade purpose.
The high profile visit also witnessed signing of Memorandum of Understanding (MoU) between the Ministry of Commerce of the People's Republic of China and the Ministry of Commerce of Nepal for launching the Joint Feasibility Study of China-Nepal Free Trade Agreement (FTA). Based on the findings of the feasibility study, both the governments will decide whether to sign the FTA.
The FTA is, however, not going to benefit Nepali products, which have lost their competitive advantage against the Chinese products. "Nepal should have pushed for preferential trade agreement with China," Ojha said, "As Nepali products cannot compete with that of China's."
China has already given duty free access to over 8,000 Nepali products. Of the total trade, Nepal's exports to China stand at just 2 per cent, whereas Nepal's imports from China stand at 12 per cent, widening Nepal's trade deficit with China. "FTA will only further widen the trade gap," according to Ojha.
Trade between China and Nepal has been governed by Trade and Payment Agreement signed for the first time in 1974.
According to the press communiqué the two countries also signed agreement on concessional loan for a new airport in Nepal's Pokhara and a feasibility study for oil and gas survey projects, though the much-anticipated agreement on commercial import of petroleum products from China was cancelled at the last moment.
Likewise, China has also agreed to distribute solar panels in Nepal’s rural areas by tapping its Climate Fund, and build, manage and maintain Xiarwa Boundary River Bridge at Hilsa, Humla, apart from signing MoU to strengthen intellectual property system in both the countries, and extend cooperation and exchange information on banking regulation.