International trade and commerce have undergone a monumental change over the past 18 months. While the situation has returned to normalcy in recent months as the pandemic subsides, clouds of uncertainty still linger in global trade. Nepal's trade (both exports and imports) was also affected adversely as the Himalayan nation found itself in a very difficult situation due to the restrictions on cross-border movement of goods and services. Dinesh Bhattarai, Secretary (Commerce) at the Ministry of Industry, Commerce and Supplies, says that the unprecedented Covid-19 crisis has forced the government to rethink its trade strategies and policies. In an interview with Sanjeev Sharma and Bijay Damase of New Business Age, Bhattarai talked about the impacts of the pandemic on Nepal's foreign trade, the initiatives taken by the Ministry to get things back on track, the issue of how to increase exports and Nepal's participation in the upcoming ministerial conference of WTO, among other topics. Excerpts:
How has the Ministry of Industry, Commerce and Supplies assessed the pandemic's impact on Nepal's trade and commerce? What is the situation like now?
Like other components of the country's economy, Nepal's international and domestic trade and commerce were adversely affected as a result of the disruptions in the international supply chains and production. Particularly, the impacts were more severe during the first wave of Covid-19 last year. The majority of manufacturing industries were shut down while some kept on operating with partial production capacity and market demand for products dropped significantly. At that time, there was much confusion over coronavirus contagion and the sudden implementation of health safety protocols across the world affected our trade and commerce.
The breakdown in global supply chains made it very difficult for us to export products. We have also felt that Nepal's slow progress in developing the IT and e-commerce infrastructures before the pandemic also added to our problems in international trade.
Later on, we worked effectively to manage the supply and distribution system to avoid the shortage of daily essential items in the market. This helped us to face the second wave of the pandemic. It is encouraging for the country's industry, trade and commerce sectors that Covid-19 has come under control.
While the overall economy has been affected badly, Nepal's imports and exports have increased significantly even during the time of crisis. Exports reached Rs 141 billion in the fiscal year 2020/21 which was Rs 97 billion a year before. In the same period, we have also met our long-term export target of Rs 100 billion and this should be taken as an achievement.
What is the size of the damage the pandemic inflicted on our industry, trade and commerce? What challenges have arisen in Nepal's foreign trade?
The size of the damage is yet to be determined. Soon, the national census and industrial census will be conducted. The census will provide a clear picture of the amount of damage incurred by the overall economy. In the meantime, the Ministry of Finance is also conducting a study in this respect. The Ministry of Industry, Commerce and Supplies has already conducted a general study on the impacts of the pandemic and found that transit, borders, production and international market of Nepal's products have been affected adversely. At some point during the crisis, there was a situation where importers faced big losses as they were forced to destroy the imported perishable goods that had expired. The Covid-19 pandemic has taught us a big lesson in terms of crisis preparedness. As a result, we invested heavily in the health sector.
The pandemic has created several challenges in our international trade. The cost of importing raw materials has increased and problems have been seen in the production of goods, supply to markets and delivery of services. We are aware that such challenges may arise in the future and are already preparing accordingly.
Although Nepal's trade with India and third countries via India has returned to normalcy lately, there is little or no improvement in our trade with China. Nepal is still struggling to reopen its borders with its northern neighbour. What is the ministry doing to ease the problems in trans-Himalayan trade?
As China has tightened its border for Covid-19 control, Nepal-China trade has been impacted. The Ministry of Industry, Commerce and Supplies has been working continuously to ease the problems in our trade with China.
The rough terrain also makes Nepal's trade with China strenuous. Due to geographical difficulties at the Nepal-China border in Rasuwagadhi and a small parking yard at Nepal's customs office, only 7-9 containers can be stored at once. Efforts are being made to facilitate trade through the Chinese side in coordination with the Chinese embassy in Kathmandu, Nepal's consulate offices in Lhasa, Chengdu and Guangzhou, and the embassy in Beijing. We have given priority to coordination among local bodies, customs office, private sector and other stakeholders to ease the problems related to import management at the Rasuwagadhi border.
In order to prepare for further dialogue with the Chinese side, a team comprising representatives of ministries and agencies including the Ministry of Foreign Affairs, Ministry of Finance, Ministry of Physical Infrastructure and Transport and Nepal Intermodal Transport Development Committee has been formed. The team has been mandated to work in areas including information gathering, infrastructure reform, and internal and bilateral coordination.
Importers say they have incurred big losses due to the closure of the Nepal-China border and are waiting for the border to fully reopen. When will cross-border movement resume fully?
Nepal is making the highest effort to ease the situation at the border checkpoints. The Covid-19 health safety protocol implemented by China cannot be considered otherwise. We are making necessary preparations with the assessment that the situation for both import and export will ease with Covid-19 coming under control. We are accelerating efforts for the expansion of physical infrastructure to increase trade with China. Meetings are being held in bilateral and multilateral mechanisms to reopen the border and make the cross-border movement smooth again.
You said that the pandemic has taught us a lesson. How is the Ministry working to face future challenges?
During the height of the pandemic, we worked relentlessly to streamline the export, import and supply of goods in the domestic market. Despite the initial setbacks, we succeeded in arranging import, transport, storage and distribution of daily essential items in coordination with neighbouring countries, the private sector and other stakeholders. Alternative arrangements were also made for the supply of essential goods. For example, the Food Management and Trading Company Limited arranged online delivery of food items. There was good cooperation between federal, provincial and local governments to facilitate internal supply and distribution. We have learned to manage stocks of goods and ways to keep the supply chain of high-quality goods intact.
We have already started working to protect Nepal's trade from a crisis like the Covid-19 pandemic. In preparation, work is underway to upgrade the labs and quarantine centres and to make the facilities technology-friendly, and to also develop various infrastructure related to trade and commerce. The railway line between Nepal and India is being expanded and Nepal Railway is being brought into operation soon. The Nepal National Single Windows System, a robust platform that simplifies and speeds up customs and trade processes for both traders and government agents through a single online interface, is being brought into operation. Similarly, a draft of the law on e-commerce business has been prepared.
There are still many problems in the internal supply chain. For instance, producers of fruits and vegetables are not getting a good market for their farm produce. Their problems were exacerbated during the first and second waves of the pandemic. Why can't the government arrange markets for domestic products?
During the first and second waves of the pandemic, our main focus was on facilitating exports and imports. We saw how farmers were forced to destroy fruits, vegetables, eggs and dairy products as they were unable to supply their farm produce to the market. These unfortunate scenes drew the attention of the ministry and we have realised the importance of having an effective mechanism for the market supply of goods.
We have worked in two phases to resolve the issues. First, we informed the Ministry of Agriculture and Livestock Development about how the farm produce was going to waste across the country due to problems in the collection and supply of farm produce. The Ministry of Agriculture will resolve the issues related to the collection of farm produce. Second, homework has been started to protect ordinary consumers from hikes in market prices. The Consumer Protection Act has mandated specifying the levels for the supply of goods to keep the profit margin of sellers in check.
How is the Ministry raising the issues related to the pandemic and Nepal's long-term concerns in international forums such as the World Trade Organization (WTO)?
The WTO Ministerial Conference will take place on November 30 in Geneva. Work is underway to prepare a 'position paper' of the Government of Nepal. Our focus is on the multilateral trading mechanism and the document will show how much we have benefited from the mechanism. The government will prepare a policy based on the same document. When Nepal became a member of WTO in 2004, the country received commitments to get various facilities in international trade. After a review of the situation, we will present our opinion on how easy or difficult it has been for us to access the facilities.
We have been raising our voice in various international forums for the generous implementation of the trade commitments given to us. Similarly, Nepali products have not been able to compete in the international market in terms of quality and price due to the new protocols implemented in international trade. We will also raise this as one of our concerns in the upcoming Ministerial Conference of WTO.
Nepal is graduating from a Least Developed Country (LDC) to Developing Country (DC) at a time when the dark clouds of the Covid-19 pandemic still hang over the global economy. This will naturally bring us opportunities as well as challenges. Nepal needs more support from developed countries so that it doesn't have to go back to the previous position.
Nepal's export is relying on items like refined soybean oil and palm oil that have little or no value addition. The export of these items to India has basically flourished due to the duty differential arrangements. Why are the prospects for Nepal to export other products so weak?
I don't understand why palm oil and soyabean oil are labeled as export items with no value addition for Nepal. We have data from producers that show these products have value-addition of up to 30 percent. Palm oil and soybean oil are exported to India under the SAFTA facility by maintaining a certain level of value-addition. It needs to be understood that we should trade such products that are beneficial to us. The latest figures also indicate that our exports of these items would have been much better had there been no pandemic situation and restrictions placed by India on the import of refined palm oil which was lifted in June.
In the first two months of the current fiscal year, our exports have totaled Rs 48 billion. If the current pace continues, Nepal's exports will reach around Rs 300 billion by the end of FY2021/22. Having said that, we should also think if we can sustain the export of palm oil and soybean oil. The time has come to engage in homework to increase the export of these items. We should also find ways to maintain the pace should a decline occur in the export of these items.
At present, most of our export items have a good level of value-addition. The Ministry is seriously thinking to work on the branding of these items in the international market and increasing the quantity of exports.
What else is the Ministry doing to expand Nepal's foreign trade?
A concept paper has been drafted for the construction of an intercountry economic zone between Nepal and India. An environmental impact assessment (EIA) is being carried out for the construction of an integrated check post at Chandni-Dodhara in Kanchanpur district and in Nepalgunj to support trade in the western region of Nepal. The construction of the Chobar Dry Port has been completed and preparations are being made for its operation. Talks are underway to review the Nepal-India Trade and Transit Treaty. Negotiations are also underway to sign a facilitated trade agreement with Bangladesh. Necessary preparations are being made to sign trade and investment framework agreements with Australia and Cambodia.
The Ministry has given priority to discussions in various bilateral and multilateral talks on the issue of market access to Nepal's commodities, while a study is being carried out on the increase in rice imports. Similarly, the Logistics Policy is being formulated to increase domestic trade. Goods and services listed on the Nepal Trade Integration Strategy (NTIS) are also being reviewed and updated. As per international practices, the trade policies of the countries are updated every five years. Another reason behind this is to include more exportable goods and services in NTIS; currently, the goods and services listed in NTIS account for only 30 percent of the country's total exports. Likewise, changes that have occurred in Nepal's governance and preparations for the country's graduation to DC from LDC have also mandated the NTIS to be updated.
The sharp increase in shipping and container charges is making Nepal's import and export costly. How is the Ministry working to resolve this issue?
We are working in coordination with the Consulate General of Nepal in Kolkata to ease the problems created by the price hike in shipping and the low availability of containers. Discussions have also been held with the international shipping liners that operate in Nepal to register their company in the country.
There has also been a reduction in railway cargo fares. Due to the recent amendment of the Nepal-India Rail Services Agreement, railway fares have decreased.
What progress has been made on the implementation of the trade and commerce agreements reached during the state visit of the Chinese President Xi Jinping in 2019?
The agreements reached during the visit of the Chinese President are in the process of being implemented. For this purpose, the Joint Working Group on Bilateral Trade has been formed and bilateral talks have already been held. Similarly, Nepal has formed a Joint Consultation Committee and a subcommittee and has informed China about it. The implementation of the agreements has been delayed as the two countries are yet to reach a consensus on some issues.