Nepal Risks Rs 3 Billion Export Loss with EU after LDC Graduation

Nepal is likely to incur an export loss of around Rs 3 billion in its trade with the European Union (EU) following its graduation from a least developed country (LDC) to a developing country, according to a new assessment.

The loss would result from Nepal’s exit from the EU’s Everything But Arms (EBA) scheme, which currently allows duty-free and quota-free access for all products except arms. After graduation, this facility will be replaced by either the Generalised System of Preferences (GSP) or GSP Plus, both of which offer relatively limited concessions.

Nepal is scheduled to graduate to developing country status in November.

Presenting a paper at a Nepal–EU trade and investment discussion programme on Thursday, Ashesh Shrestha, research fellow at Samriddhi Foundation, said average tariff rates on Nepali exports would increase by 5.7 percentage points after graduation. This could lead to an export loss of USD 20 million (around Rs 2.88 billion).

At present, around 80 percent of Nepal’s exports enter the EU market duty-free under the EBA scheme. The facility applies exclusively to LDCs and allows tariff- and quota-free imports of all goods except weapons.

Stakeholders at the programme stressed the need to strengthen Nepal’s capacity to absorb the shock from losing EBA benefits. Once the EBA facility expires, Nepal will gain access to the EU market either through standard GSP or GSP Plus. However, if Nepal fails to qualify for GSP Plus, exports will fall under standard GSP, significantly raising export costs.

Experts warned that key export items such as carpets, garments and pashmina would be among the hardest hit once existing trade preferences are withdrawn. They said improving competitiveness would require not only cost reduction but also better product quality, timely delivery and reliability.

Speaking at the programme, Narayan Bajaj, president of the European Economic Chamber (EEC), underlined the need to analyse the post-graduation impact in advance and begin preparations immediately.

Trade and logistics expert Rajan Sharma said Nepal should view LDC graduation as an opportunity and strengthen coordination between the government and the private sector to enhance competitiveness.

“To make our exports competitive, we must comply with EU requirements,” he said, adding, “If we fail to address issues such as food safety, pesticide use, heavy metals and microbial contamination, our agricultural and industrial products will not find markets.”

Dr Paras Kharel, executive director of South Asia Watch on Trade, Economics and Environment (SAWTEE), stressed the importance of branding to move into premium markets. He noted that although 75 percent of Nepal’s exports—excluding those to India and China—are transported by air, policies have yet to focus on improving the efficiency, timeliness and cost of air cargo services.