The great barrier

Published On: December 1, 2016 12:25 AM NPT By: Gunjan Upadhyay

The new trade integration strategy has acknowledged non-tariff measures as ‘serious bottleneck’ to boosting exports
In September, this year, the Ministry of Commerce finally unveiled the Nepal Trade Integration Strategy (NTIS), 2016 which has trimmed down the list of ‘export-potential’ goods to nine products (along with three service categories) from the 12 that were incorporated in its previous avatar, the NTIS 2010. 

The previous version had delivered mixed results for the basket of 12 goods that were included in its priority list and had focused, rather disproportionately, on the identification of products with export potential. The new report, however, incorporates various cross-cutting issues with inputs from all stakeholders and there is optimism that the results for this particular version, come 2020, will have improved as a result of the lessons learned from previous initiatives.  

In the report released by the government, the overarching theme of supply side issues understandably dominates the list of constraints to our trade competitiveness and export development. But of equal salience is the issue of Non-Tariff Measures (NTMs) that given their trade restrictive effects perhaps should have been subjected to more scrutiny. NTMs are defined by the United Nations Conference on Trade and Development (UNCTAD) as ‘policy measures other than ordinary customs tariffs that can potentially have an economic effect on international trade in goods, changing quantities traded, or prices or both.’  

Traditional policy instruments like tariffs have long ceased to be obstacles to trade for Nepal, partly due to gradual liberalization and also because of favorable market access granted to us by virtue of being a Least Developed Country (LDC). However, for most of the countries we export to—including India—the same multilateral trade agreements have lessened the room for maneuver vis-à-vis policy instruments like tariffs. It is in this context that non-tariff measures are being increasingly used to regulate trade. 

A lot of our export destinations use NTMs as both instruments of trade policy (e.g. quantitative restrictions, quotas, fees, safeguard measures) and to serve non-commercial objectives (e.g. environmental safety, protection of human and plant life). Hence this makes the case for understanding them and devoting resources to them all the more compelling. Moreover, understanding the objective behind the application of NTMs is critical for building our trade negotiation capacity, which incidentally features prominently in the NTIS agenda. 

But the nature of NTMs means that identifying and understanding them is easier said than done. NTMs are usually hard to quantify and often the line where an NTM (a legitimate policy instrument) becomes a Non-Tariff Barrier (NTB, an NTM improperly applied or applied with protectionist intent) is often blurred. As a result, their impact on trade can be hard to pinpoint as they are sometimes very subtle and almost always differ on a case by case basis—in the case of Nepal, by the nature of product or even from one customs area to another. For example, revenue targets given by the government to each customs office translates into inconsistent policy applications on the ground. Ginger from Palpa often goes to Nepalgunj where the cost is approximately Rs 10,000 per truck instead of Bhairawaha where it is Rs 15,000-16,000 per truck.  

Because NTMs are not purely quantitative in nature, understanding them often requires stakeholders to sift through paperwork comprising technical documents, regulatory acts, policies, provisions, etc. of myriad government agencies in partner countries, many of which may not even be involved directly in the trade process. This is even before we consider that the federal set up of countries—as is the case with India’s five different states with which we share border—means different rules for different states. Needless to say, the scale of this work requires resources comparable to what our government normally dedicates to traditional statistical analyses. 

NTMs are of paramount importance because they are often applied by partner countries to product groups in which we have a comparative advantage. Various studies on NTMs show that they disproportionately affect agricultural products and the scenario for Nepal is no different. In Nepal, the NTM issues hampering trade have largely remained the same, especially in the case of agricultural or agro-based products, a few of which feature in the NTIS as priority goods. For these perishable goods, Sanitary and Phyto Sanitary (SPS) Requirements and Technical Barriers to Trade (TBT), continue to be major impediments to smoother trade.

Recently, the International Trade Center, Geneva with the support of the Ministry of Commerce, conducted an NTM Business Survey in Nepal that focused on company’s perspective on Non-Tariff Measures, covering over 258 respondents and compiled over six months. The number of businesses that reported facing NTMs for the agricultural sector was a staggering 77 percent compared to 42 percent for the manufacturing sector. Close to around 80 percent of exporters whose main destination is SAARC—notably India—reported problems. Furthermore around 78 percent of NTM related obstacles for exporters were applied by partner countries with 21 percent of it being applied by Nepal as export-related measures. A good proportion of these NTMs that were highlighted in the report haven’t surfaced recently, but have repeatedly been flagged by commodity associations and other stakeholders to the concerned line ministries.

The NTIS has taken a step in the right direction and acknowledged the issues of NTMs as a ‘serious bottleneck’ to boosting exports. However, in the process of supporting the development of value chains the government, along with all stakeholders should simultaneously pursue the agenda of fulfilling Sanitary and Phyto Sanitary (SPS) and Technical Barriers to Trade (TBT) requirements in the short to medium term and standards harmonization in the longer term. Even if our value chains develop and our trade competitiveness improves, so long NTMs are not targeted our exports will continue to be plagued by the same old market access problems. 

The author is the Non-Tariff Measures Desk Officer at Confederation of Nepalese Industries and works under the SAARC Trade Promotion Network (TPN) Project.

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