south asia watch on trade, economics and environment

Featured Events

SAWTEE and the Export Promotion Committee (EPC) at the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) held a virtual dialogue on 23 February 2022 to discuss the implications of Nepal’s graduation from the least developed country (LDC) category. The representatives from the committee expressed concern about the potential impacts as well as lack of knowledge about several aspects of the graduation and urged the government to provide proper policy support to the export sector and support in capacity-building of the private sector to deal with the post-graduation international trade regime for Nepal.

Dr. Paras Kharel, Research Director, SAWTEE, provided an overview of the potential implications of LDC graduation, based on an ongoing study that SAWTEE has undertaken. While LDC graduation will mean loss of certain preferences such as duty-free market access to Nepal’s exports of several products and potential loss of policy space in certain areas, this does not mean that Nepal will lose all the preferences in the international market, as there exists other alternative preferential schemes that will continue to provide preferential market access to Nepal, mentioned Dr. Kharel. Furthermore, Nepal will continue to be eligible for most of the important existing preferences until 2029, three years after the graduation, and hence the effort has to be made to maximize preference utilization until then and adopt the best possible policy measures to ease graduation after that, added Dr. Kharel.

Manish Lal Pradhan, Chairperson of the EPC, expressed dismay at the government’s rush to pursue graduation without proper stock-taking of the ground realities. He added that there is a serious lack of policies, or implementation of policies, that would help the export sector deal with structural constraints such as extremely high logistics costs. The government has to make serious efforts to win the trust of the private sector, such as through proper policies and through building the capacity of the private sector, enabling them to weather the graduation, added Mr. Pradhan.

Dr. Posh Raj Pandey, Chairperson, SAWTEE, highlighted the fact that while inclusion in the LDC category requires the consent of the country concerned, an LDC that meets the required objective criteria for graduation cannot block graduation, adding that Nepal had become eligible for graduation in the 2018 triennial review, having met the graduation criteria in two successive triennial reviews, but the graduation had been deferred on account of the devastation wrought by the 2015 earthquakes. Furthermore, normally, after being recommended for graduation, a country gets a three-year transition period. But when being recommended for graduation through a United Nations decision in 2021, Nepal, along with Bangladesh and Lao PDR, received on an exceptional basis an additional two years of transition, such that it will graduate in 2026 instead of 2024.

Udaya Chapagain, advisor to the EPC, and tea entrepreneur, highlighted the huge potential of many of Nepal’s exportable products, including tea, under proper policy support from the government. If current incentives (cash subsidies) offered to exporters become unviable after graduation, that will be a severe blow to the export competitiveness, and hence the government must devise alternative mechanisms such as subsidized energy, tax rebates, etc. to boost the competitiveness of Nepali exporters, emphasized Mr. Chapagain.

Ashok Kumar Agrawal, General Secretary, Garment Association of Nepal, mentioned that loss of duty preferences could result in up to 25 percent loss in Nepal’s exports of readymade garment products, especially because the cost of production in Nepal is already 26 percent higher than that of other neighbouring countries. The potential loss of policy space would also be disastrous for Nepal as many of the competing countries have a much better export-incentive structure, asserted Mr. Agrawal. Furthermore, he added that sectors with significant exports must be classified differently than other domestic industries because of some fundamental differences and should be provided with special facilities such as subsidized interest rates to boost export competitiveness. However, the government has not been too supportive as was highlighted by the fact that garment entrepreneurs were not properly consulted regarding the operation of the Garment Processing Zone in Simra, stressed Mr. Agrawal. Furthermore, while other countries such as Bangladesh have been proactive in securing the best possible market access after graduation, Nepal’s efforts so far have not been visible, emphasized Mr. Agrawal.

Ajaya Singh Karki, Secretary General, Nepal Pashmina Industries Association, also echoed the view that the loss of current preferences could have a dire impact on Nepal’s industries, including on pashmina industries. A serious effort has to be made to mitigate the impacts, which, however, is currently missing, added Mr. Karki.

Samik Bikram Shah, Vice-President at Nepal Carpet Manufacturers & Exporters Association, mentioned that the carpet sector has generally benefitted from the preferences granted to LDCs but entry conditions vary across destinations and hence there is a need to do a destination-specific assessment and prepare accordingly.

About a dozen representatives from the EPC, including exporters, and researchers from SAWTEE participated in the virtual dialogue.