US-Nepal trade

US-Nepal trade
TKP, 6-Apr-2010
By Donald A. Camp

The US visit of the Nepali delegation headed by Commerce Secretary Purushottam Ojha has raised expectations in Washington and in Kathmandu. That is because officials in both capitals are eager to revitalise our commercial ties, and recent trade trends tell you why. Nepal’s total exports to the United States have declined dramatically, since peaking at nearly US $230 million in 2000. Last year, they fell to US $85 million. US exports to Nepal haven’t plummeted as precipitously, but they have fallen nevertheless, from US $35.1 million in 2000 to US $31 million in 2009. Beside the international economic downturn, concerns of US investors and traders are about Nepal’s political stability, the electricity crisis, and labour unrest.

But, there are many reasons to be optimistic about reversing recent trends, which is why we have high hopes for increasing US trade with Nepal. Efforts are underway to conclude the peace process and establish stable government institutions, which are crucial for improving Nepal’s competitiveness. Nepal has also enacted a new trade policy in response to economic changes that have occurred in recent years, both inside and outside the country. Additionally, the United States will soon launch a new, multi-million-dollar development assistance programme focused on building Nepal’s trade capacity.

The trade policy the government enacted last year replaces one adopted in 1992. It is sure to strengthen trade ties with the United States, as well as other countries, because it addresses new economic realities, including the fact that some of Nepal’s traditional exports, such as ready-made garments, no longer enjoy a comparative advantage in the global market — with or without favourable tariff treatment. The updated trade policy aims to promote, in partnership with the private sector, “new exportable goods of comparative advantage.”

Fifteen “special thrust areas” have already been identified. Nepal’s advantage in terms of production is not the only thing that makes these agricultural and handicraft goods prime targets for export promotion. All of these goods also fall within the various categories of products that enjoy duty-free access to the US market under the Generalised System of Preferences (GSP). And, twelve other countries currently have GSP schemes similar to that of the United States, which provides duty-free access to about 4,800 products.

In recognition of GSP’s export-boosting potential, the new trade policy calls for converting the government-run Trade and Export Promotion Center into an autonomous Trade Promotion Institute, charged with, among other things, encouraging more Nepali businesses to capitalise on duty-free access provided by GSP. The US Embassy in Kathmandu is also committed to helping Nepal take maximum advantage of GSP and, to promote this, it is planning a workshop for late July or early August to familiarise government officials and entrepreneurs with GSP processes.

The objectives of Nepal’s new trade policy are generally aligned with those of USAID’s new Nepal Economic, Agriculture Trade (NEAT) Activity, a US $30-million, multi-year initiative designed to strengthen the foundations for rapid, sustained and inclusive economic growth. For example, both are built on the belief that increased trade can provide substantial economic benefits to traditionally disadvantaged groups and marginalised communities. They also share a “value chain” approach to trade promotion, which fosters competitiveness by increasing efficiency of the numerous linked activities required to move a product from inception to consumer. Furthermore, many of the products USAID suggested its potential partners consider are also targeted by Nepal’s new trade policy. These include coffee, tea, cardamom, honey, essential oils, pashmina, and wooden handicrafts.

In a recent newspaper interview, Secretary Ojha said, “The main objective of the visit is to get tangible and formal public and private links established so that economic engagements between the two countries could be rejuvenated.” This is a commendable objective, and the US government has worked to ensure it is achieved by arranging for the delegation to meet with senior officials at the Office of the US Trade Representative, Department of Commerce and other relevant agencies. What makes this objective most pragmatic is its recognition of the vital role public-private partnerships will play in strengthening our economic relationship, a point Secretary Ojha further underscored by inviting top officials from business associations to join his delegation.

In the lead up to the delegation’s visit, much has been written about a US-Nepal Trade and Investment Framework Agreement (TIFA). The possibility of signing a TIFA has generated enormous enthusiasm in certain sectors in Nepal. But the TIFA should not be overstated. TIFA is not a bilateral trade agreement, nor would it provide ready-made garments or other products duty-free access to the US market. TIFA provides a framework for resolving bilateral investment and trade disputes, an important and positive step, but one with limited impact on trade. Fortunately, a formal bilateral agreement is not a pre-requisite for revitalising trade between our two countries. The tools we need are already at our disposal, and we are committed to working with Secretary Ojha and his delegation to ensure they are put to good use.

Camp is Chargé d’Affaires, US Embassy, Kathmandu