Experts have pointed out the need to exclude primary agriculture products from being reciprocated under the duty-free market access when Nepal and India renew their trade treaty in October this year.

They said there is no need to grant duty-free market access to India, which is one of the fastest-growing economies in the world.

Removing duty-free market access to India in primary agricultural products will enable Nepal to impose a duty on the imported agricultural goods from India, which are heavily subsidised.

Posh Raj Pandey, chairman of South Asia Watch on Trade, Economics and Environment, a think tank in Kathmandu, said that—agriculture, horticulture, floriculture and forest products, rice, pulses, flour, livestock, poultry bird and fish, bees, beeswax and honey needs to be excluded from the reciprocal list.

Also, milk, homemade products of milk and eggs should not be reciprocal, he said.

The treaty is reviewed every seven years.

Speaking at a roundtable discussion on Nepal-India Trade Treaty, Pandey suggested that the rules of origin provision also need to be reviewed.

“The domestic value addition requirement should be reduced to 20 percent, from the existing 30 percent,” Pandey said.

“Nepal should request the Indian government to assist in increasing its capacity to trade through improvement in technical standards, quarantine and testing facilities, including the capacity building of human resources to conclude the mutual recognition agreement,” he added.

Pandey said that the revised treaty should address some procedural irritants on the exports of some products such as pharmaceutical products, vegetables, and medicinal and aromatic plants and remove tariff rate quota on vegetable fats, acrylic yarn, copper and zinc oxide.

According to the Department of Customs, imports from India to Nepal declined 17.61 percent to Rs656.8 billion in the first eight months of the current fiscal year ended in mid-March, compared to the same period last fiscal year.

The export from Nepal to India declined 37.54 percent to Rs74.21 billion during the review period. The trade deficit with India stood at Rs582.58 billion during the review period.

The import from India to Nepal increased 23.52 percent to Rs1.2 trillion in the last fiscal year 2021-2022, compared to the previous fiscal year.

Nepal’s exports to India increased 45.92 percent on-year to Rs155.22 billion in the last fiscal year. Nepal’s trade deficit with India was at Rs1 trillion in the last fiscal year.

India should exempt goods and services tax (GST) for the products produced by small units, Pandey said. He also suggested withdrawing anti-dumping duties being levied by India.

There is also a need to simplify the procedure for the return of defective and damaged products imported from India to Nepal.

Pandey highlighted the emerging trade issues between Nepal and India.

“Increasing trade deficit, failure to participate in the value chain, presence of non-tariff barriers, preference erosion and adverse impact of the treaty on primary and agriculture sectors are the emerging trade issues between Nepal and India,” he added.

Shreejana Rana, president of the Nepal-India Chamber of Commerce and Industry, said that despite a lot of changes in trade and transit over time between Nepal and India, there is still a need for changes in some key areas.

“India should facilitate Nepal on transit for the products imported from third countries,” she said.

Purushottam Ojha, former commerce secretary, said that as Nepal is graduating from Least Developed Country status in 2026, it should negotiate on renewing the treaty more wisely.

The Indian government imposes new rules without informing Nepal.

“The treaty has to include a provision to make India liable to notify Nepal prior to making any changes to its trade and transit rules,” Ojha added.

Nepal’s first treaty on trade with India was signed on 31 July 1950.

The bilateral framework for trade is anchored on the India-Nepal Treaty of Trade and Agreement of Cooperation to Control Unauthorised Trade - 2009. The revised trade treaty, valid for seven years, was signed on October 27, 2009.

Both Treaties were automatically renewed for a further period of seven years in October 2016.