Nepal and Bhutan on Thursday agreed to prepare a list of export products which will get duty-free market access in both countries. They also expressed their consent to take forward the trade protocol at the joint-secretary level talks held in Kathmandu.

“We have finalised the draft of the trade agreement, and are carrying out discussions to finalise several bilateral trade issues for inclusion in the proposed trade protocol,” said Navaraj Dhakal, spokesperson for the Ministry of Industry, Commerce and Supplies.

Dhakal led the Nepali team while Sonam Tenzing, joint secretary of the Bhutanese Commerce Ministry, led the Bhutanese delegation at the talks.

The two countries are members of a number of multilateral trade initiatives—South Asian Association for Regional Cooperation (SAARC), Bay of Bengal Initiative for Multi-sectoral Technical and Economic Cooperation and Bangladesh-Bhutan-India-Nepal—but they have not signed any bilateral trade agreement till date.

According to the ministry, Nepal and Bhutan have been mulling to sign a trade agreement citing the expanding trade volume between the two countries. The first meeting of Nepal-Bhutan Bilateral Trade at the level of joint secretaries of the Ministries of Commerce was held in Kathmandu in March 2010, and the second meeting was held in Thimpu in May 2011 to discuss the bilateral trade agreement.

Failure to finalise the product list and the issue of Bhutanese refugees then had held up the signing of the trade agreement, ministry officials said.

Dhakal said the two countries revived the talks by agreeing to prepare a new list of products. “In the new scenario, the product list has been prepared as per the internationally accepted Harmonised System codes revised in 2017,” said Dhakal.

Rules of origin was another major item on the agenda at the bilateral talks, according to the ministry. Officials said Nepal had asked Bhutan to provide duty-free access to local products with a value addition of 25 percent and above under the rules of origin. “However, the two countries are yet to reach an agreement on the issue,” an official told Post, adding that the talks would continue into late Thursday evening.

Nepal has signed trade agreements with 17 countries including India, China, Bangladesh, South Korea, Pakistan, Sri Lanka, the US and Mongolia. Nepal has a bilateral preferential treatment arrangement with India while it receives preferential treatment from China, the US and European countries.

Trade analysts expect Nepal to benefit little by signing a trade agreement with Bhutan. “As Bhutan is a small market dominated by products from India and Bhutan, and Nepal has a small basket of exportable items, there is little hope that Nepal can maximise out of the trade agreement,” said Purushottam Ojha, former commerce secretary.

For the past few years, Nepal has been facing a growing trade deficit with Bhutan. According to the Trade and Export Promotion Centre, in the last fiscal year, Nepal exported goods worth Rs162 million to Bhutan against imports of Rs1.67 billion, resulting in a trade deficit of Rs1.51 billion. In the fiscal year 2014-15, the trade deficit with Bhutan stood at Rs284.41 million.

Nepal imports gypsum, coal, heavy equipment, boring machinery, juice and industrial equipment, among others, from Bhutan. Iron rods and alloy of aluminium, transformer, snack, soap, furniture, woollen carpet, farm products, jute bag and cooking appliances are among the major items shipped to Bhutan.