New Course
The New Year brings new challenges as the country ventures into SAFTA as well as BIMSTEC with the promises of new avenues
By SANJAYA DHAKAL
The year 2006 could be an exciting one as far as trade is concerned. Beginning January 1, 2006, the enforcement of the South Asian Free Trade Area (SAFTA) has official begun.
The Bay of Bengal Initiative for Multisectoral Technical and Economic Cooperation (BIMSTEC) will also come into force from July this year.
These apart, post Hong Kong Ministerial, LDCs like Nepal can hope to benefit more from the multilateral trading regime provided by the World Trade Organization (WTO).
The seven member states of South Asian Association for Regional Cooperation (SAARC) will be implementing SAFTA – which has the potential of becoming the world’s largest free trading bloc given the huge population in this region.
As per the provision of SAFTA, the member states will need to bring down custom tariffs. Nepal , too, will need to cut down its tariff by at least 10 percent on goods that are not in the Sensitive List.
Already there are reports that the government is preparing to substantially bring down tariffs in the upcoming economic ordinance, which could hurt revenue collection by as much as Rs 2 billion. Nepal will need to cut down tariff by August, 2006 as per SAFTA commitments. In the second phase of tariff slashing, Nepal would need to cut them by at least 30 percent within next two years and within 2016 it will need to bring them down between 0 to 5 percent.
There are two categories within SAFTA – LDCs including Nepal , Bhutan and Maldives and developing countries including rest of the member states. According to officials, Nepal has prepared separate list of Sensitive products for two categories of states. Its Sensitive List for LDCs has 1300 products while that for developing member states has 1355 products.
On the other hand, BIMSTEC provides unique opportunity to Nepal to further its trade towards East Asia . BIMSTEC member states include Thailand , Myanmar , Nepal , India , Bhutan , Bangladesh and Sri Lanka .
For the first phase of the enforcement of the free trade pact, the BIMSTEC member states have reached an understanding on the framework related to ‘trade in goods.’ Recently, the 10 th meeting of the Trade Negotiation Committee (TNC) of the regional grouping was held in Kathmandu .
The BIMSTEC member states do not only wish to open trade in goods and services but also investment and technical cooperation.
These apart, the new promises made by the developed countries at the recently concluded Sixth Hong Kong Ministerial of WTO also could help in improving the international trade scenario for Nepal . The developed countries have agreed to allow 97 percent of products from LDCs duty free and quota free access to their markets. If garment is included in this 97 percent, Nepal stands to benefit greatly. It has seen a drop by 41 percent in the exports of readymade apparels to the United States in 2005 after the Multi Fiber Agreement expired.
Likewise, the commitment to simplify the Rules of Origin by the developed countries and their promise to extend technical cooperation could also turn out to be beneficial.
Unfortunately, the internal scenario within the country is not as rosy as these regional and international prospects. For consecutive months, the rate of inflation has been increasing with fears growing that it could soon touch double-digit.
The economic growth has stagnated with contraction of investment and decrease of agriculture production. Following February 1, the government has lost many foreign assistance commitments. The revenue growth is not as expected.
On the other hand, unproductive expenditures are likely to increase. The municipal elections and fears for escalation in conflict could increase security expenditures. The resumption of full-fledged conflict could further dampen the business confidence and tourism potentials. The feeling of gloom setting in could ultimately unravel the prospects that lie ahead.
