Over 100 trucks of Goldstar shoes failed to get export clearance after India refused to issue the Bureau of Indian Standards certificate, putting Nepal’s homegrown shoemaker on the brink.

Exports have been banned for the past 25 days without any formal notification.

The Bureau of Indian Standards (BIS), launched two years ago and strictly implemented in the last two months, issues the mandatory certification for products to be imported into and sold in India. The BIS certification assures that the products comply with Indian standards.

“It has been nearly a month since our Bhairahawa factory closed as we cannot get the certificate from India,” said Vidushi Rana, executive director of Goldstar Shoes.

“We have already laid off 1,200 of our 3,500 workers ahead of Dashain as our footwear business remains stagnant.”

The company is preparing to lay off another 1,000 workers.

During the insurgency (1996-2006), the Goldstar Shoes brand gained popularity among the Maoists. Over time, it grew to become Nepal’s leading footwear manufacturer and exporter.

The company has been exporting 60 percent of its production to India.

Insiders say the Chinese factor could have influenced the southern neighbour's harsh treatment of the Nepali manufacturer. The company has been sourcing raw materials mainly from China, India, and Taiwan.

India does not buy power from Nepal-based hydropower projects that have any kind of Chinese involvement. Likewise, it has not granted permits for a Nepal-China joint venture airline to land in New Delhi. The southern neighbour has denied permission for Nepali airlines to connect Indian cities via the new international airport in Pokhara built by China.

Besides, Nepal’s request for air entry routes to make the new international airport in Bhairahawa and Pokhara commercially viable remains pending due to New Delhi’s denial.

India has also prevented the import of cement produced by Nepal-China joint venture companies.

“India is reluctant to provide the BIS certificate on strategic grounds. We are clueless about what to do,” said Rana. “We asked Indian officials to explain, and they say, ‘order from higher-ups.’”

Rana raised the issue at the ‘Policy Dialogue on Nepal-India Trade and Transit Issues’, organised by USAID and the Nepal-India Chamber of Commerce and Industry, in Kathmandu on Monday.

In October 2021, Goldstar Shoes made its foray into the US market.

“We have fulfilled all the required provisions, including the standards set by India,” said Rana.

For the past three decades, Goldstar has been exporting shoes to India, particularly to the heavily populated states of Bihar and Uttar Pradesh.

Until recently, the company employed 3,500 people directly.

Rana said she has been frequenting all relevant ministries and the Nepali Embassy in New Delhi but to no avail.

Insiders from Nepal’s private sector trade body said India also stopped Bangladeshi goods citing the BIS certification requirement. When Bangladesh threatened a reciprocal action, India promptly issued the BIS certificate.

“Nepali products have been facing non-tariff barriers due to our weak government mechanism and poor economic diplomacy. India cannot impose non-tariff barriers on Nepali products,” said Rana.

Trade experts have said that Nepal is facing trade issues with India due to its weak negotiation skills, frequent changes in the bureaucracy, and lack of study and data.

Rana said that, like India has imposed a BIS certificate on shoes, if Nepal imposes a Nepal Standard certificate on Indian goods, the illegal import of shoes, which is rampant in Nepal, will stop.

While the private sector has been expressing its grievances on export restrictions to India on products like tea and ginger, government officials have been celebrating achievements in trade and transit between Nepal and India.

“As a least developed country, Nepal has been given different subsidies on trade. There are around a dozen India-funded constructed or under construction dry ports, which is an achievement in Nepal’s trade transit,” said Tarka Raj Bhatta, joint secretary at the Ministry of Industry, Commerce and Supplies.

But Bhatta said that when neighbouring India, Nepal’s key trading partner, imposes bans or restrictions, it makes negotiations difficult, as Nepal usually lacks homework.

“We have frequently raised issues during the bilateral mechanism meetings between Nepal and India.”

The previous Inter-Governmental Committee (IGC) meeting was held in December 2020, virtually due to the Covid-19 pandemic. The next meeting of the (IGC), the common platform to raise trade and transit issues, which will be led by the commerce secretaries of the two countries, is scheduled for November.

Bhatta said that private sector participation in trade and transit is equally important. In 2023, they formed a joint business forum with ten representatives each from India and Nepal.

There are four instruments on trade and transit between Nepal and India: the Trade Treaty 2009; the Transit Treaty 2023; the Rail Service Agreement 2004, and the Agreement of Cooperation to Control Unauthorised Trade 2009.

Despite these mechanisms to address issues, experts say Nepal’s poor negotiation skills have always put Nepali traders in a difficult situation.

Nepal was the 17th largest importer from India in 2023.

Sixty-eight percent of Nepali exports are to India, and 62 percent of imports are from India.

Nepal imported goods worth Rs996.68 billion from India in the last fiscal year, while exports stood at Rs103.17 billion.

The Department of Customs’ foreign trade statistics show a deficit of Rs893.50 billion in the review period with India.

Posh Raj Pandey, the chairperson of South Asia Watch on Trade, Economics and Environment (SAWTEE), said that the objective of the Nepal-India trade agreement is to promote industrialisation in Nepal, and its success needs to be measured by the contribution made by industry to the national GDP.

“However, we are measuring success from the trade perspective, which is a wrong parameter. We must look at how the trade agreement helped Nepal industrialise.”

Nepal was in India’s top 10 import destinations till 2021. It has now fallen to 17th rank in 2023, largely due to the import restriction Nepal imposed in 2022 and India’s ban on food items, including rice.

“One reason for Nepal’s rising trade deficit with India is our failure to adapt our trade structure with the southern neighbour. Trade dynamics change frequently, but we still export traditional goods to India, such as zinc sheets, juice, jute, polyester yarn, cardamom, and textiles,” Pandey said.

Purushottam Ojha, the former commerce secretary, said Nepal will graduate from the least developed country in November 2026, and the country’s rules of origin threshold, currently 30 percent, will decline to 20 percent, making it difficult for exports.

Currently the rules require that 30 percent of the value of a Nepali export item including labour and materials, must come from Nepal. But after Nepal exits the LDC club, this threshold will drop to 20 percent. Although export items will need less local content, they could face higher tariffs and stricter trade barriers.

“During the IGC meeting, Nepal should raise trade facility issues following LDC graduation,” said Ojha.

“Indeed, the Nepali side has not been effective in trade discussions mainly due to the frequent changes in bureaucracy,” said Baburam Adhikari, joint secretary at the industry ministry.

“We need a double ‘C’ strategy while negotiating with India, consisting of competence and confidence,” Adhikari said.

Poor coordination among government bodies and delay in addressing internal issues must be taken seriously, which in turn will help with bilateral negotiations.

“We are planning to have a mechanism that includes experts and former government officials with deep trade knowledge. It will help address new issues at the earliest,” said Adhikari.