Nepal will seek to diversify exports to make up for an expected drop in shipments when it loses tariff exemptions after graduating to a middle-income country in 2026, officials said.

The Ministry of Industry, Commerce and Supplies has proposed to add eight items to the list of nine priority export goods under the Nepal Trade Integrated Strategy 2016.

This is the fourth time that the list of goods receiving special attention from the government is being revised. The catalogue will now contain 17 products. Experts say that product diversification will enlarge Nepal's export potential.

The draft Nepal Trade Integrated Strategy 2023 has added three items in the farm products category, one item in the forestry products category, one item in the industrial products category, and three items in the small-scale enterprise products category.

The new priority export goods are vegetables and fruits and their processed goods, spices and coffee under agricultural products; fragrant oil under forestry products; cement under large industry; and processed drinking water, honey and chhurpi (hard cheese) under small-scale enterprises.

The Nepal Trade Integrated Strategy 2016 contains nine products including cardamom, ginger, tea and medicinal and aromatic plants under agro-based products; and fabrics, textiles, yarn and rope, leather footwear, pashmina and carpets under craft and manufacturing products.

The strategy includes skilled and semi-skilled professionals in various categories (remittance generating services), IT and business processing output (BPO) and IT engineering and tourism (including leisure, business, education and medical) under services.

“We are working on finalising the draft of the strategy before sending it to the cabinet for approval,” said Govinda Bahadur Karki, joint secretary of the Ministry of Industry and Commerce. "The Industry Ministry has planned to send the draft to the cabinet by mid-March," he said.

Former commerce secretary Purushottam Ojha said, “There has not been sufficient value addition and processing of listed goods in the past. The strategy should focus on policies regarding product-specific value addition of identified goods for promotion, development, market access and export.”

He added, “There is the problem of coordination in the implementation part of the NTIS. Product development and quality enhancement are not limited to the Industry Ministry. Other ministries like Finance, Agriculture, Forest and Physical Infrastructure, among others, need to work together on this."

He said, "An integrated approach towards implementation is lacking due to which export growth has not happened as expected. The other ministries took the implementation of the Nepal Trade Integrated Strategy as the Industry Ministry's responsibility, and there was no seriousness with regard to budget, human resources and equipment."

Nepal developed and adopted the Nepal Trade Integration Strategy (NTIS) 2010 as an updated version of the Nepal Trade and Competitiveness Study 2004 that focused on the development of 12 goods and seven services to contribute to the poverty reduction goal adopted by the government by making trade inclusive and equitable.

The strategy was revised in 2016. The list of products and services identified for special treatment was whittled down to 12 from 19 in 2016. Items on the list get special privileges for export.

The government rolled out the Nepal Trade Integration Strategy intending to increase and promote exports to narrow the trade deficit. But even after a decade, exports have been pathetic, experts say.

The NTIS is normally reviewed every five years. The Industry Ministry was expected to review the list in 2021 and identify new potential products, but changes in government and the general elections came in the way.

Karki said they spent a year reviewing and preparing the Nepal Trade Integrated Strategy.

“Nepal is graduating from least developed country to developing country status in 2026, which will remove the preferential access it has been getting to several developed and emerging markets under the generalised system of preferences (GSP)," said Manish Lal Pradhan, chairman of the export promotion committee of the Federation of Nepalese Chambers of Commerce and Industry.

"This means customs duty will be imposed on Nepali products when they enter the European market, and this will make them costlier. So, we need to start working on making policies accordingly within three years or it will be difficult to export goods,” he said.

Cardamom, tea, ginger, yarns, carpet, pashmina, medicinal herbs, textiles, footwear and leather are the nine products currently listed in the Nepal Trade Integration Strategy.

The major market for NTIS-listed farm products is India. Europe and the United States are the largest buyers of NTIS-listed handicraft goods.

The government has talked about branding and marketing exportable goods, but government agencies have not done anything about that, say Nepali producers and traders.

The Trade and Export Promotion Centre said the trade deficit had ballooned as a result of poor exports of listed products.

Nepal’s trade deficit stood at Rs711.85 billion in the first six months of the current fiscal year ended mid-January, down 19.15 percent year-on-year.

The trade deficit dropped mainly due to the import ban on certain luxury goods imposed in April 2022. The embargo was lifted on December 6 last year.

“The biggest question about the Nepal Trade Integrated Strategy 2023 is its implementation,” Shrestha said. "Such strategies have come before too, but due to weak implementation, they failed to produce the desired results."

The NTIS 2009 contained 12 products and seven services. In 2016, the list was shortened to nine products and three services.

“But there has not been exciting progress in export performance and production of identified goods. So, we need to analyse why achievements were not made as per the target,” Ojha said.

"There are problems in the agriculture sector in Nepal as farmers have been facing fertiliser shortages and commercialisation has been slow. Nepal has lots of farmland and there is huge potential to increase production. This is why vegetables and fruits have been identified as emerging products," Karki said.

"The strategy contains an action plan for each listed product to increase its production and boost exports," Karki said. "The action plan also includes a budget and responsible government agencies for the implementation of the strategy."

The draft Nepal Trade Integrated Strategy 2023 also contains a plan to build a wholesale market in each province for modern farm and forestry products.

According to Karki, discussions have been held with stakeholders in all seven provinces in coordination with private sector industry and commerce associations.

"A central-level discussion was also held in Kathmandu with private sector organisations and government agencies. The participants consisted of high-level government officials and trade experts," he said.

According to Pradhan, the proposed Nepal Trade Integrated Strategy has included almost all the issues raised by the private sector like accredited lab, freight forwarding, customs and warehouses.