Nepal can Enjoy Preferential Access in EU Even After LDC Graduation

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Nepal can Enjoy Preferential Access in EU Even After LDC Graduation

Ambassador of the European Union to Nepal, Nona Deprez, has completed her tenure. Madan Lamsal of New Business Age talked to Deprez before she left the country to take up her new assignment. They discussed various aspects of the EU-Nepal relationship and the initiatives taken during her tenure. Here are some excerpts from the interview:

How do you assess the EU-Nepal relationship? 

I think we have come a long way. Next year, we will celebrate 50 years of diplomatic relations between the European Union and Nepal. We have a very mature partnership that is longstanding, trustworthy, and based on mutual respect and common values.

As far as my tenure is concerned, three years is, of course, a relatively short period. It was also a very challenging moment as we faced various turbulences. I arrived in Nepal between the first and second COVID waves, which the entire world was trying to recover from. And then Russia aggressed Ukraine which also led to a major crisis in the world. Despite the challenges, it has been an honour and privilege for me to represent the European Union here in Nepal, to live in this beautiful country, and to connect with its people. Personally, I am very happy with my time here.

This period was largely focused on the EU multiannual indicative program (MIP) and a new MIP is now in implementation for 2021-2027. So how do you assess the achievements of the previous MIP? 

We are currently conducting a country evaluation of the previous Multi-Annual Indicative Program (MIP). This evaluation is led by our headquarters, with the Nepali Embassy in Brussels actively participating in the steering committee of that evaluation. Our core belief is in country ownership, as we strongly believe that you, the Nepali people, know best how to develop what is most suitable for your nation. We provide support for your policies and policy reforms, which is why our preferred aid modality is budget support. This approach allows for a robust policy dialogue with the government, civil society, and other stakeholders, as well as with other development partners. 

The previous MIP was closely aligned with Nepal's national development plan, focusing on rural development, education, nutrition, good governance, and democracy. These priorities remain relevant after extensive consultations with the government, civil society, and businesses. Hence, they continue to form the basis of the new MIP, with a particular emphasis on the green, resilient, inclusive development (GRID) agenda, endorsed by 17 development partners. We will continue to support education and nutrition, because we think Nepal cannot develop if it is not resilient. We will continue to focus on supporting human capital development, and on good governance. 

If you look at the previous MIP, we supported Nepal's agriculture strategy and the implementation of the constitution within the provinces. While continuing to support education, we now aim to enhance the quality of education outcomes and improve inclusivity in access to education through the new MIP. Furthermore, we have been agile and flexible in responding to emerging needs, such as providing assistance during the 2015 earthquake and supporting COVID-related efforts. We have made our programs more flexible to be able to better serve you. So, the initial results of the strategic evaluation look positive. 

How is the progress in the new MIP 2021-2027? 

We recently co-signed two significant new actions with the Government of Nepal. As I mentioned earlier, one of these actions focuses on education which is a budget support where we also work with our colleagues from Finland to improve teacher education. The second action we co-signed with the government is aimed at local adaptation to climate change. This initiative builds on the work initiated over two decades ago by our Finnish colleagues on climate-resilience, access to water, and urban planning to ensure cities are adapted to climate change challenges.

One major issue that Nepal has with the EU is the ban on Nepali air service providers. Why is the EU still strongly in favour of the ban? 

It is called an EU safety list because our primary concern is safety. We are working closely to support the Civil Aviation Authority of Nepal (CAAN) in enhancing safety in aviation. We have observed significant progress on paper. However, to ensure that these recommendations are being implemented in practice, an on-site assessment visit is necessary. We are hopeful that the assessment visit can take place and that it will lead to a positive recommendation to the Air Safety Committee. This issue is highly technical, and the outcome depends on the effective implementation of safety measures recommended by both the European Union and the International Civil Aviation Organization (ICAO). The ultimate goal is to ensure the safety of Nepali passengers, international passengers, and all stakeholders involved. It is our common concern. It is a good thing to witness Nepal's efforts in improving aviation safety. We remain hopeful for positive outcomes. 

One of the demands or requests was to unbundle the CAAN into a regulator and service provider. Is it one of the reasons why the ban is still there, or are there other technical reasons too?

It is technical and a bit more complex than that. I think we all agree that there is a potential conflict of interest when the regulator and the air service provider are the same. It is up to the Government of Nepal to decide how to address this conflict of interest. Five years ago, the Government of Nepal decided to split the Civil Aviation Authority of Nepal (CAAN). It drafted a Bill which was in parliament for five years but wasn't adopted. Now, the Minister for Culture, Tourism, and Civil Aviation has proposed a new Bill to the Cabinet.

The EU is one of the major trade partners of Nepal. But Nepal’s trade with the EU is seen concentrated in a few countries like Germany. Are there any plans to diversify trade across the EU member countries? 

We are in favour of increasing trade and investment links between the European Union and Nepal. Nepal has a great opportunity to tap into the vast consumer market in the EU. With that in mind, the European Economic Chamber, with our support, successfully organised the first EU-Nepal Business Forum. The aim was to attract European businesses already operating in India to consider expanding their presence to Nepal. We also tried to create a platform for European and Nepali businesses to interact and look into increasing trade with European countries. 

There is tremendous potential to increase trade both from Nepal to Europe and from Europe to Nepal. Each country possesses its own unique specialties. However, it's essential for Nepali exports to maintain consistent quality. We encourage all Nepali businesses to make the best possible use of our preferential trade regime which is called 'Everything but Arms' which grants Nepali exports duty-free and quota-free access to Europe. This preferential treatment will remain in effect until Nepal graduates from LDC in 2026. But there is also a transition period of three years. This means until 2029 Nepal can benefit from the preferential trade regime. 

This is really the moment to capitalise on these preferential trade arrangements and boost trade flows to Europe. Nepal holds a positive marketing image in Europe. We actively support sectors such as Pashmina, coffee, and tea. After 2029, Nepal will need to qualify for our second best preferential trade regime known as 'GSP+', which is nearly as advantageous as the current arrangement. We align trade with sustainable development, as European consumers increasingly prioritise sustainably produced products. GSP+ is tied to the ratification and effective implementation of various international conventions covering labour rights, human rights, and environmental rights. Preparing for these requirements will take some time, so I urge the Government of Nepal, business associations, and trade unions to collaborate and fulfil the conditions for applying to GSP+ sooner rather than later.

There are numerous opportunities for sustainable and innovative products to thrive in the European market. Products like hemp, clothing, carpets, and other unique ideas have the potential to do exceptionally well in Europe due to the increasing demand for sustainable products. In the service sector, Nepal's growing IT services sector is promising. Scaling up and focusing on software engineering is essential to keep pace with advancements in artificial intelligence. By offering advanced services beyond basic ChatGPT, Nepal can leverage its potential in the European IT market. Tourism is another sector with great potential. However, Nepal should decide on its target market, whether to cater to Asian tourists or western tourists. Western tourists enjoy nature, they prefer slow tourism emphasising sustainable development.

How is the EU helping Nepal in graduation from LDC? 

The EU will not leave Nepal even after it graduates. The partnership between the EU and Nepal is strong, and the EU aims to ensure that Nepal's graduation is sustainable. The National Planning Commission is in the process of designing a graduation strategy, and once it is shared with the EU and other development partners, they are ready to extend their support. Everything that we do now goes towards a sustainable graduation. Our support to the GRID agenda is good for sustainable development. Nepal is working on its 16th National Development Plan and nationally determined contributions for climate ambitions further complement the graduation strategy and are in line with the EU's priorities and the GRID agenda. The EU has been actively working with business associations, trade unions, and the government to raise awareness about the significance of applying for GSP+. The EU remains hopeful that Nepal will ratify the international conventions and effectively implement them. Once ratified, the EU is prepared to provide support in implementing these conventions as well.

The focus of EU assistance overseas has been on green development. But we are seeing green extremism in Nepal as Nepal is seeing huge imports of wood, while the wood in domestic forest is rotting. How are you advising Nepal on this? 

Let me just give you an example of what we try to do internally. We know that historically the EU has emitted a lot of greenhouse gases. We want to become the first climate carbon-neutral continent by 2050. For that, we have a biodiversity strategy. Biodiversity is one of three pillars of our Green Deal, which is our green growth strategy. This is because we believe that development and economic growth go hand in hand, being environmentally sustainable, fiscally sustainable, and socially sustainable, leaving no one behind. Our biodiversity strategy inside the EU is about sustainable forest management. This is about trying to increase our forest coverage, but also at the same time sustainably using our forest to produce timber products. You don't have to reduce your forest coverage to use timber products. What you have to do is to rationally make use of the forest. You can trim those trees that can be used financially, and replant new trees. 

Nepal can be really proud of its achievements. It has increased forest coverage. I think Nepal has already met its target of having a 45% forest coverage. But the forest can be managed sustainably, and it has several uses. It is used not only for carbon credits, nature, and the well-being of the planet and its people. It also has economic value. So I would not subscribe to your word of green extremism.

Another focus of EU assistance in Nepal is in strengthening the federal structure. But there is growing criticism of federal structure in Nepal, with some advocating for its reversal. How is the EU advising Nepal on this? 

We cannot advise Nepal. Our role is to support Nepal in the implementation of its constitution. Federalism is a fundamental part of Nepal's constitution, and as long as it remains unchanged, we will continue to provide support for its implementation.

The rollout of federalism is one of the important aspects of the constitution. We have been working closely with the Government of Nepal, provincial governments, and local governments to assist in its implementation. Our aim is to ensure that each tier of government has the capacity to fulfil its responsibilities as per the constitution.

However, we have observed that certain laws required to implement the constitution have not yet been passed by parliament. Approximately 50 laws, including the Civil Service Act, Education Act, TVET Act, and Police Act, are still pending, preventing federal provinces from fully exercising their roles as per the constitution.

There are some opinions suggesting that federalism is acceptable, but concerns have been raised about the financial burden imposed by the provinces. As a friend of Nepal, what are your thoughts on the provincial system? 

On this particular issue, it appears that Nepal is becoming a bit impatient. This is because the provincial level is the newest one for Nepal, and it takes time to have institution building. Since the promulgation of constitution in 2015, Nepal held elections in 2017, then there was COVID in 2019, and again the elections in 2022. Additionally, certain crucial laws required to support federalism have not been passed which has hindered provinces from fully exercising their roles.

It takes time to implement federalism. I come from a federal country, Belgium, which has been working on federalism for the last 50 years, and still it is not fully done. We should allow time for the system to be properly implemented. There is also a sense of urgency in fully implementing the constitution by passing these laws.

How have you analysed the findings of Nepal’s latest population census?

We have been looking at the statistics published by the National Statistics Office. I think Nepal will need to take very important decisions in the two decades to come due to the changing structure of society. Like many other countries, Nepal is experiencing an ageing population. It needs to make some decisions on its social security coverage and related matters. What is worrying to me is also the increasing difference in the sex ratio at birth. Previously, it was 107 boys to 100 girls, but it has now risen to 112 boys to 100 girls. This will be worrisome in the coming decades when all those boys will grow up because there might be an inadequate number of girls for them. These are important societal things to look into. I think Nepal is working on various sectoral studies, and it will be crucial to incorporate these demographic data into future policy-making and the strategic vision for the development of Nepal in the coming decades. 

I think the EU also has done study on LDC and SDG growth issues. There were some findings also. Would you like to share something about that? 

There was a very interesting study conducted by Dr. Swarnim Wagle. It highlights that when comparing Nepal to its regional neighbours, there is no comparative disadvantage in graduating, as many of the neighbouring countries have either already graduated, such as Sri Lanka and Pakistan, or are in the process of doing so like Bangladesh and Laos. This finding underscores the importance of utilising the advantages available to Nepal at present. Nepal has also not been able to fully benefit from the advantages of being a least developed country, not in terms of access to the European market, but also in terms of concessional loans because there is also a low absorption capacity. I think Nepal should also work on that. 

What were the major achievements of your tenure? 

I have been very proud of the support that the European Union has provided to Nepal in terms of COVID. The EU provided a lot of medical equipment and vaccines under COVAX. The other achievement is that we have worked even closer with the EU member states as Team Europe, but also with the European Investment Bank. We are increasing our investment and support to the renewable energy sector. I think that is also very important going forward, looking at both solar energy and hydropower.

Any concluding remarks?

I have thoroughly enjoyed my tenure here in Nepal. I have had the pleasure of meeting some individuals, including young people, women, deputy mayors. I believe there is immense potential in this country. Nepal is a beautiful country with wonderful people. What particularly struck us, coming from Europe, is that Nepal has the same motto as Europe ‘Unity in Diversity’. 

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