Submitted by: Yudina Poudel

One of the prime objective of macroeconomic policy of Nepal is to maintain the stability
of the external sector. But Nepals trade deficit has continuous to grow alarmingly year
after year. In this background, write the major challenges of Nepals international trade
and your opinion to improve the trade imbalance through the use of various concessions
and facilities available to Nepal by WTO.

Trade is one of the means to achieve growth, employment, and welfare. In many countries,
trade has a significant share in the Gross Domestic Product (GDP). In several developed
countries, international trade and long-term capital flows acted as 'engine of growth' in bringing
rapid economic growth and development. External trade is one of the main sources of foreign
exchange earning which is necessary to import capital goods plus other consumer goods and
services that are not produced domestically. A persistent and high deficit in international trade
is less likely to resemble the good health of an economy, leaving the question of its
sustainability.

Nepal, a small economy having 49% of contribution by trade in its GDP (2004) has been
running a trade deficit since 1965. This trade imbalance in Nepal has become a serious problem
in Nepal. The alarming trade-deficit has triggered a multiple effect since it drains money from
the countrys economy. Nepals deficit in trade of merchandized goods has been increased by
6 times in the last decade. Major products contributing to the rising trade deficit are petroleum
products, motor vehicles and their parts. According to the TEPC data, these two products
(petroleum and motor vehicles & parts) comprises 20 percent of the total import in 2015-16.
The monetary policy for 2017/18 is set to support the implementation of the programs and
policies to achieve the targeted economic growth. Also, the policy aims to consider adverse
impact of widening trade deficit. Balance of Payment is surplus by Rs. 163.81 billion at the
end of the first nine months of the 2016/17 Fiscal Year. Operational targets and instruments of
monetary policy are designed to facilitate attaining economic and monetary goals, which
follow the policy stance developed on the basis of the internal as well as external macro-
financial outlook.

Nepals International Trade Major Challenges

a. High import and Low export

One of the major challenge in Nepals international trade is the amount of import vs
export. Nepal imports more than it exports in terms of items and value. Nepal imports
Submitted by: Yudina Poudel

tremendous amount of goods for daily uses, mostly FMCG products along with luxury
item.
b. Low Investment
Low investment is one of the major problems of foreign trade in Nepal. There are very
limited economic activities in Nepal. The infrastructures for development and industrial
base are not well developed. There lacks favorable environment for both private and
foreign investment, which means there is very little capital formation in the country.
This is not a favorable situation for international trade.
c. Lack of Production
One of the primary reason for low export is lack of the production capability of
Nepalese industry. To compete in the international market, Nepal needs to deliver
according to the quota requested by the international market.
d. Inadequate Infrastructure
The biggest constrain limiting the prosperity of industrialization in Nepal is lack of
adequate infrastructure. Shortage of electricity, lack of reliable road network, and lack
of investment along with lack of access to sea are some of the reason why Nepal cant
compete in global market. Due to shortage of electricity, the production cost sky rockets
as industry needs to run in diesel power. Thus, whatever goods is manufactured is
expensive for consumption.
e. Standardization
The quarantine certification adapted by Nepal is not recognized, hence the products
such as agricultural goods are barred from entering the neighboring market. The
laboratories certification acts as a major obstacle for Nepal to conduct International
trade.
f. Bureaucratic red tapes
Nepalese exporters have to produce at least 9 documents and it takes 41 days to process
them before they are cleared for export. These numbers are one of the highest in the
region. Furthermore, Nepal has one of the worst logistics performances and ranks 147
out of 155 countries in the latest Logistics Performance Index ranking, which is also
published by the World Bank. Nepals logistics ranking is worse than that of
Afghanistan.
g. Lack of business environment
Submitted by: Yudina Poudel

In the Global Enabling Trade Report 2010, Nepal ranks 118 out of 125 countries in
terms of having the enabling factors for fostering trade. The business environment,
particularly regulatory environment and physical security, is considered as one of the
worst in the world. This is a major challenge for the promotion of international trade.
h. Lack of good governance
Government instability is identified as the most problematic factor of doing business in
Nepal. It is followed by inefficient government bureaucracy, policy instability,
corruption, inadequate supply of infrastructure, and restrictive labor regulation, among
others. All these problems affect both exports and imports.
i. Lack of Proper trade policy
Lack of Proper Trade Policy is another major problems of foreign trade in Nepal. Nepal
has adopted a liberal trade policy since 1990. According to this policy, Nepal has been
following open door policy. This allows uncontrolled flow of foreign goods into Nepal,
whereas Nepal doesnt have the capacity to counter this. This is causing large trade
deficit. There lacks proper trade policy due to political instability and lack of political
commitment.

In order to enhance and encourage trade around the world, Nepal became the 147th member of
World Trade Organization on April 23, 2004. The first LDC to join WTO through full working
party negotiation process started in 1989. WTO deals with the rules of trade between nations
at a global or near-global level. The WTO agreements cover a wide range of activities such as
agriculture, textiles and clothing, banking, telecommunications, government purchases,
industrial standards and product safety, food and sanitation regulations and intellectual
property. The WTO agreements comprise several provisions giving developing and least-
developed countries special rights or additional leniency, i.e. special and differential treatment.
These provisions also allow developed countries to treat developing countries more favorably
than other WTO members. As a member of WTO, Nepal undertook various obligations such
as tariff reductions on industrial and agricultural goods, protection of intellectual property
rights. Specific provisions within the individual agreements allow LDCs more flexibility in
implementing certain WTO rules and encourage other members to cooperate when LDC
interests are involved.

Ways to Improve Trade imbalance through use of various concession provided by WTO
Submitted by: Yudina Poudel

a. Market Access Opportunity

Market access opportunities provided by the WTO system can lead to further
investment addressing the constraint of limited domestic market for economic scale of
productive operation, which will also help to raise investment, economic production of
goods and services and industrialization process. The membership has secured
extended market opportunities. Nepals excessive reliance on three exports markets
India, Germany and the United States (US)had made the countrys export trade
extremely vulnerable. It is therefore expected that WTO membership would provide
Nepal the opportunity to explore other destinations for exports.
b. Policy Stability
The WTO regime provides opportunity for policy stability internally which is of
utmost urgency in the context of the existing political instability in order to provide an
environment of predictability for investment and industrialization. National policy
decisions are locked to the framework of WTO provisions, which enhance the
credibility of the country in terms of economic governance

c. Special & differential Treatment

The WTO offers special and differential treatments for LDCs like Nepal. These
include longer transition periods for the implementation of the agreements, technical
support, due restraint on disputes involving LDCs, and special treatment while
liberalizing the services sector.

d. Attract Foreign Direct Investment

Policy stability due to WTO membership provides credibility to the nation in terms of
economic activities with predictable environment. Such environment is essential to
attract foreign direct investment (FDI) and technology to expedite industrialization
process in Nepal. Additionally, the mandatory provision of WTO in protecting
intellectual property rights creates a better situation for attracting investment.
e. Technical Support
WTO provides and has initiated the programs of aid for trade and Enhanced Integrated
Framework (EIF) to enhance the supply side capacity of the developing countries.
Nepal has participated in this process and it is hoped that this will further help to build
the trade capacity in the days to come.
f. Transit Right
Submitted by: Yudina Poudel

One of the reasons why Nepal had sought membership of the General Agreement on
Tariffs and Trade (GATT) was the transit problem it had encountered during the Indo-
Nepal transit stalemate in 1989. It was expected that under the GATT/WTO, Nepal
would be granted access to the sea as a right as per Article V of the GATT10. In theory,
as a WTO Member, Nepal should benefit from access to international markets without
discrimination.
g. Access to dispute settlement body
WTOs best achievement is dispute settlement body.12A WTO membership would
accord Nepal the right to challenge in any measures taken by trading partners ,which
are against Nepals economic and trade interest