Back in April 2010 a Nepali delegation led by this author was in Washington DC to negotiate the Trade and Investment Framework Agreement (TIFA) between Nepal and the US. Robert Blake, the US Assistant Secretary of State, during a meeting with the delegation, stated that the US government wished to see Nepal emerge as a peaceful, democratic state that honors rule of law, guarantees human rights of its citizens and that the institutionalization of these fundamental principles would be the foundation of US-Nepal trade and economic cooperation. The expectation was that the constitution making process in Nepal would be completed on time, embodying these important constituents in the supreme legal document of the country. In diplomatic terms, the intention was to link US economic engagement with its foreign policy objectives. The Nepali delegation underlined the need to enhance bilateral economic engagement as the political process of peace building and drafting a democratic constitution remained top agenda of the Constituent Assembly in Nepal. [break]
The signing of Trade and Investment Framework Agreement (TIFA) in April 15, 2011 was a result of smart diplomacy and constant persuasion on the importance of a bilateral process between Nepal and US government. The first TIFA Council meeting was held in Washington DC that considered important issues like utilization of Generalized System of Preference (GSP) facilities by Nepal, extension of the same facilities to some categories of ready-made garments, promotion of Nepali export in the US market, IP registration, technical support to enhance the capacity of Nepali trade, and identification of measures to enhance US investment in Nepal. The meeting resulted in a great deal of optimism towards enhancing economic engagement between the two countries now in polar opposite positions in the economic map of the world.
Sometimes, people confuse and equate TIFA with free trade agreement that is concluded either at bilateral or regional level under the framework of GATT Article-24. In true sense, TIFA creates a bilateral discussion forum of Trade and Investment Council (TIC) that is mandated to discuss trade, investment, intellectual property rights and economic cooperation, among others. This kind of bilateral mechanism may also be useful in initiating negotiations on free trade area agreement and be a precursor of bilateral Free Trade Agreement (FTA).
The US has FTAs with 20 nations, none of them least developed countries. At the same time, the US government has entered into trade and investment framework agreement with 44 countries around the world. These include countries in all categories—developed, developing and least developed countries, most of them concentrated in Europe, Middle East and Africa. Among the eight member countries of SAARC, Afghanistan, Maldives, Nepal, Pakistan and Sri Lanka have such agreements with the US. African countries are privileged to get still better market access and enhanced support from the US. The trade preference program of the African Growth Opportunity Act (AGOA) enacted by the American legislature in 2000 is at the center of US-African engagement on trade and investment. This scheme has helped expand and diversify exports of 39 beneficiary countries to the US, while at the same time fostering an improved business climate through duty-free, quota-free market access to the products including textile and garments. These benefits accruing to the African countries are largely considered to be the result of intense lobbying by the black Americans who influence policy decisions in America.
Another trade preference program of the US is the Generalized System of Preferences (GSP) that was created back in 1974 by the Trade Act. Under this program, 127 developing countries including 44 least developed countries around the world are eligible to export up to 5,000 types of products to the US without paying any duties. The value of US imports under the GSP in 2011 was US $18.5 billion. The number of products and the validity period of the preference schemes are decided periodically by the American Congress.
The third form of US government support to the trade and economy of the LDCs is through the World Trade Organization (WTO) where market access opportunities are being expanded through multi-lateral negotiations. A case in point is the Hong Kong Declaration where the ministers agreed on easing the market access to 97 percent of tariff lines, and commitments were made to build trade capacity of the least developed countries through Enhanced Integrated Framework (EIF) and Aid for Trade program. The US government is supporting the trade capacity building of LDCs under the framework of multi-lateral trading system.
The US has been one of the important trading partners of Nepal for the last four decades. It is a destination market of major Nepali exports like ready-made garments, carpets, pashmina and handicrafts. The trade figure of 2011-12 shows that US is the second largest export destination for Nepali goods (after India) while it has ninth position among the import countries of Nepal. The share of the US in total export was around 7.5 percent (US $74.6 million) and import at 0.9 percent ($ US 65.3 million), which is still not satisfactory.
The US being an economic powerhouse, bilateral engagement with Nepal through the Trade and Investment Council created under TIFA could be an important vehicle to enhance bilateral dialogue in increasing market access, bringing more investments, enhancing collaboration in services like health, education, tourism and IT sector and mobilizing US assistance for trade capacity building. We have thus far underachieved in all these important areas. Achieving these would require reenergizing the mechanism of the joint council under TIFA.
The political uncertainties in Nepal have obvious implications on trade and economy. The development partners of Nepal are waiting for a peaceful resolution of the current stalemate through a process that is based on democratic norms, rule of law and universal principles of human rights. This could be achieved through collective commitment of political leaders to write a democratic constitution for Nepal, albeit the last five years have been lost due to misunderstandings and conflict among the same political forces. Only a stable government under a permanent supreme law of the land and one which is committed to advance economic agenda and good governance can bring optimism to the people at large. Meanwhile, Nepal should try to pursue two approaches simultaneously: re-energizing the dialogue process as envisaged in the bilateral agreements like TIFA while also keeping its house in order to lure international investment.
The author is former commerce secretary
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