The last renewal of Nepal-India trade treaty was done in March 2007. The renewal gave continuity to the treaty signed in 1996 and once renewed in March 2002. The treaty provides for rules of origin criteria with the inclusion of value addition requirements and changes in Harmonized System Code of the manufactured articles as the qualifying clauses for duty free access to the Indian markets. The list of insufficient working in manufacturing process has also been provided in the qualification clauses. Besides, four products, namely vegetable fat, acrylic yarn, copper products and zinc oxide, has been included under tariff rate quota and the usual negative list products under three categories were included in the protocol. The provisions of safeguard were made for the first time in the Nepal-India trade treaty in 2002 and it was included as a separate protocol to Article IX of the treaty. The treaty will be effective till March 2012.
Duty refund procedure has added burden to Nepali imports from India. There are hassles in refund of excise duty collected in India. This arrangement must be given a fresh look.
Nepal acceded to the World Trade Organization as its 147th member in 2004 and also joined the regional trading arrangements of South Asian Free Trade Area (SAFTA) and Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) Free Trade Area as the original or signatory member. Similarly, Nepal participated in Asia Pacific Trade Agreement (APTA) as the observer of this trading block. The dynamism of trade taking place after these new arrangements has created new challenges and obligations in order to retain the trading capacity.
Moreover, with the advent of SAFTA and BIMSTEC Free Trade Area, Nepal is bound to reduce its tariff rate with the member countries of these trading blocks according to the provision of the agreements. Currently, Nepali goods are enjoying duty free access to Indian markets on non-reciprocity basis. Article III of the bilateral trade agreement obliges both parties to provide unconditionally to each other treatment not less than favorable than accorded to any third country with respect to customs duties and charges, import regulations and quantitative restrictions. This provision would onwards further facilitate the Indian exports into Nepal.
In addition, India is bound to provide preferences to the products of other countries under the framework of regional trading arrangements and bilateral free trade area agreements. India is bound to reduce its Most Favored Nation tariff rates due to its bilateral agreements with some of the neighboring countries and as a member of the various regional trading arrangements. Besides, India has introduced Duty Free Tariff Preferences Scheme for all Least Developed Countries around the world with a commitment of giving duty free access to them by the next five-year period. India has already signed Free Trade Area agreements with Singapore, Thailand and Association of Southeast Asian Nations and some of the Latin American countries like Brazil and Peru. India will also provide tariff preferences to SAFTA, BIMSTEC and APTA countries, which of course will have the effect of preferences erosion to Nepali exports into India. This will create a paradox for Nepali trade, as it will give more preference to Indian exports to Nepal and vice versa.
MAJOR ISSUES TO BE CONSIDERED
- Non-tariff and para-tariff barriers have become burning issues and hassles to Nepali exports to India as has been experienced in recent years. The benefit to accrue from duty free access has largely been offset by such barriers. There is a need for addressing issues of quarantine, food test (Prevention of Food Adulteration), countervailing duties on maximum retail price, state taxes and luxury taxes through their articulation in the trade agreement.
- Duty refund procedure has added burden to Nepali imports from India. There are hassles in refund of excise duty collected in India. A fresh look is required towards revisiting the existing arrangement of duty refund procedure in the treaty.
- It is preferable to have the trade facilitation measures as part of the bilateral trade agreement. There is a need for identifying the measures on documents and procedural simplification so that transaction costs are reduced and trade takes place in an uninterrupted way. Harmonization of technical standards, mutual recognition of standards, quarantine certifications and food test certifications and accreditation of testing laboratories are to be effected to facilitate the flow of goods across the border. Further, there is a need for harmonization of customs procedures, promoting customs cooperation, rules for fair competition and venture capital.
- India should consider a flexible approach in application of trade remedy measures, including the application of anti-dumping duties, countervailing and safeguard on Nepali exports.
- Trade-related technical assistance might be sought by Nepal from India in order to enhance the capacity to trade. This may include the support on research and development, product identification, quality improvement, sustainable use of resources and so on.
- Taking consideration of the long and porous border between the two countries and the practice of traditional trade, a Border Trade Arrangement may be considered in order to facilitate the small and petty trade of agriculture and primary products. Such an agreement practiced in some other parts of the world would eliminate the requirement of quarantine and food test for the small quantity to be sold within few kilometers of the international border on both sides. The existing number of 22 trading corridors in Nepal–India border may be reviewed and adjusted in order to cater the need of trade.
- The tariff rate quota imposed on four products and the canalization of vegetable fat would no longer be required in the context of openness of trade.
- Instruments of implementation of bilateral trade agreement have been suggested in the new text. Second layer of Inter Governmental Committee (sub committee) at the operational level shall be formed in order to address the issues of implementation that will also work as the Dispute Settlement Mechanism. Further cooperation would be required for promotion and protection of investment and progressive liberalization of investment regime and trade in services. Effective cooperation would also be required to enhance cooperation in the promotion of small and medium enterprises.
(Writer is commerce secretary.)
puruojha@gmail.com
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