Nepal will Face Challenges in Adjusting to LDC Graduation

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Nepal will Face Challenges in Adjusting to LDC Graduation

How do you evaluate Nepal's 20-year journey as a member of the WTO?

The outcomes have been varied. Nepal has engaged actively in international trade negotiations, such as the Doha Round, trade facilitation negotiations and securing duty-free quota-free provisions for LDCs. Additionally, initiatives like Aid for Trade and the Enhanced Integrated Framework have provided opportunities to advocate for Nepal's interests on the global stage and garner attention from other countries regarding Nepal's perspectives. As an LDC, Nepal benefits from preferential market access in several developed and developing countries, including initiatives like the Everything But Arms (EBA) program by the EU, Duty-Free Quota-Free (DFQF) market access in countries such as Canada, China, South Korea and the USA, among others, as well as GSP facilities and the Nepal Trade Preferences Bill of 2015 in the US.

How has the WTO accession positively impacted Nepal's foreign trade?

Although there have been incremental increases in export volumes, there has also been a significant surge in imports following trade liberalisation under both multilateral and regional trading agreements. Trade deficit has been growing annually. The liberalisation has posed a dual challenge for Nepali goods and services: reduced tariffs have led to a flood of cheaper foreign goods in Nepali markets, while Nepali exports have struggled to compete with more competitive foreign exporters. Both factors have contributed to a widening trade deficit for the country. The main culprits behind this are poor production and low productivity which represent significant supply-side constraints. We need to strengthen our productive capacity to arrest this situation. The focus should be on developing products and services that leverage Nepal's comparative and competitive advantages.

Has Nepal been able to diversify its trade in the past 20 years?

Over the past 20 years, Nepal has successfully diversified its trade. Nepali goods are now exported to 146 countries, and Nepal imports goods from 162 countries, as per the recent trade statistics from the Department of Customs. This indicates Nepal’s export market is expanding, although the overall trade volume remains modest.

After joining the WTO, where did Nepal miss opportunities to leverage the multilateral trade regime?

Nepal has missed crucial opportunities to capitalise on the benefits of its membership in the multilateral trading system. These include: a) insufficient investment in industrial and logistical infrastructure, b) failure to harmonise provisions of bilateral trade treaties with those of the multilateral trade system, c) inadequate investment in human resource development, d) lack of development in necessary legal and institutional infrastructure to support production and exports, e) weak implementation capacity stemming from institutional weaknesses, f) limited mobilisation of aid for trade initiatives, and g) insufficient negotiating capacity to advocate effectively for national interests.

What steps should Nepal take now, particularly after transitioning from LDC to developing country status?

Nepal will face challenges in adjusting to LDC graduation, including the loss of preferences and special treatments provided under regional and multilateral trading systems. It will also face heightened pressure to sustain preferences through bilateral agreements. The transitional strategy should have two main approaches. First, the government should prioritise developing the productive capacity of niche products and services to enhance their competitiveness in international markets, focusing on items identified in Trade Policy-2015 and NTIS-2023. Efforts should also be made to reduce current market access barriers, especially non-tariff barriers. Second, Nepal should lobby in regional and multilateral forums to secure the continuation of current preferences for a transition period of 10 years. This will allow the country to significantly enhance the competitiveness of Nepali products and industries. 

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