Enhancement in the country’s effectiveness and efficiency in trading capacity. Expansion of trade. A higher level of growth. And enhancement in quality of life of people. These phrases were uttered by then Minister for Industry, Commerce and Supplies Hari Bahadur Basnet right after Nepal became a member of the World Trade Organisation (WTO), the global trade regime, in 2004. 

Almost one-and-a-half decades down the line, Nepal has neither been able to enhance its trading capacity nor attain higher economic growth rate. Of course, Nepal’s trade volume has surged since Nepal’s accession to WTO, but it is lopsided with imports playing the dominant role. Today, Nepal imports goods worth Rs8 for every rupee of goods that are exported. This mismatch widened trade deficit to Rs917 billion, or 35 percent of the gross domestic product, in the last fiscal year. This implies a big chunk of money is leaving the country to finance imports.

Nepal cannot blame anyone other than itself for these consequences, according to Posh Raj Pandey, chairman of the South Asia Watch on Trade, Economics and Environment (Sawtee), a Nepal-based think-tank.

“Over the years, Nepal has not been able to enhance economic efficiency, improve productive capacity and push for innovation. This has eroded our competitiveness,” Pandey, a leading international trade expert, told a discussion organised by the Ministry of Commerce on Tuesday. Nepal currently ranks 122nd out of 137 countries in “innovation and sophistication factors”, 112th in “efficiency enhancer” and 119th in “infrastructure” category of the Global Competitiveness Index of the World Economic Forum. 

Some of the reasons for these poor results are conflict that continued from 1996 to 2006, acute shortage of electricity until a year ago, labour strikes and general strikes like bandhs, according to Shekhar Golchcha, senior vice president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), the largest private sector umbrella body.

These developments have been frowned upon by foreign investors, limiting foreign direct investment to 1.6 percent of the GDP, Pandey said. 

His comments come at a time when Nepali delegation is preparing to leave for Argentinean capital of Buenos Aires to take part in WTO’s 11th ministerial meeting from December 10-13. The ministerial meeting is taking place at a time when countries like the US, which once used to champion free trade, has started showing signs of embracing protectionist policies “to bring back jobs to the country”. 

This turnaround made by the world’s largest economy and withdrawal of the UK from the European Union have prompted some in the country to question the relevance of sticking to the WTO, which they say “hasn’t benefited land-locked least developed countries like Nepal”.

These grudges stem from disparity even among least developed countries (LDCs). For instance, Nepal has accepted average tariff binding rate of 23 percent on 99.3 percent of non-agricultural goods. This means Nepal cannot raise customs duty beyond 23 percent, on average, on 99.3 percent of non-agricultural goods, to protect domestic industries. 

Bangladesh, on the other hand, which is also an LDC, has accepted average tariff binding rate of 39.7 percent on only 2.7 percent of non-agricultural goods. This has given Bangladesh leeway to impose whatever customs duty it wants on 97.3 percent of non-agricultural goods. This is the same for agricultural goods.

Trade experts like Pandey do not call this discrimination because the WTO imposes conditions on member countries based on negotiations. Bangladesh was a signatory to the General Agreement on Tariff and Trade (Gatt) which later took the shape of the WTO. So, the WTO was lax on Bangladesh’s membership conditions. But Nepal was never a Gatt member-although it had applied for the membership in 1989 when talks about formation of the WTO had started doing rounds. 

“Among LDCs that became a member of the WTO after its establishment [in December 1995], Nepal has received the best deal,” said Pandey. “Also, our tariff structure has not changed much since WTO’s accession, indicating protectionist measures introduced in the past are still intact.”

Pandey was trying to drive home the point that blaming the WTO for Nepal’s widening trade deficit was irrational. Former commerce secretary Purushottam Ojha expressed similar views. “Unless we enhance our supply-side capacity to generate export surplus, our trade deficit will continue to widen,” Ojha said, adding, “To give a lift to exports, LDCs like Nepal must lobby for immediate implementation of provisions such as the one on duty-free, quota-free market access.”

The WTO has clearly said that goods that LDCs export can gain duty-free, quota-free market access if domestic value-addition on such products is at least 25 percent. In other words, if the share of domestic inputs in a finished good is at least 25 percent, then such goods will not be subject to any duty or quota restriction in the export market.

However, Nepal’s major trading partners—India, China, and the US—have introduced their own criteria on value addition. For example, China says domestic value addition should stand at 40 percent to qualify for duty-free, quota-free market access. India and the US have put that number at 30 percent, and 35 percent, respectively. “Nepal should push the WTO to implement its own provisions so that we can gain better market access,” said Ojha, adding, “LDCs like Nepal should also urge the WTO to introduce measures to dismantle non-tariff barriers that are creating unnecessary hassles in exports of both goods and services.”

“Support should also be sought to build physical infrastructure and improve productivity so as to enhance our export competitiveness,” FNCCI Senior Vice President Golchcha said.