Report

By Business Age Special Correspondent from New Delhi

The hullabaloo regarding the renewal of 1996 Trade Treaty has finally been over with both countries agreeing to renew the Trade Treaty for further five years with some changes. However, skepticisms prevail back home that whether the renewed trade treaty which has incorporated quantative restrictions for Nepalese products exporting to India would benefit Nepal in a free market system. The ground results, it is feared, will be far from reality despite the treaty is signed bilaterally.

Bhanu Prasad Acharya, Secretary, Nepalese Ministry of Commerce, Supplies and Industry and Deepak Chatterjee, Indian Commerce Secretary had signed the accord on behalf of their respective governments in New Delhi on March 2. The renewed treaty has both pros and cons’ when it comes to reaping benefits out of the whole gamut of foreign trade prevailing between Nepal and India.

It took almost six months to settle the row to renew the trade treaty between the two countries following the objections raised by the Indian businessmen citing that with excessive exports of certain items from Nepal to India, Indian domestic industries have been hit hard and some are even allegedly closed down in recent months. Not only that, Nepalese entrepreneurs are also saying that with increased imports from India more than many small and medium scale industries have already been closed down. Now the question arises— does the trade treaty renewed this time in the Indian capital would help to rescue the already collapsed industries in both the countries.

Even after tough negotiations, Nepal got the smaller chunk of pie regarding the renewal of Trade Treaty. In a free market economy, to impose quota system is not a good idea instead India could regulate the borders and smuggling trade in close cooperation with Nepal.

India had earlier allowed duty free access for Nepalese exports to India but after the treaty is signed the facility is no longer valid.

Federation of Nepalese Chamber of Commerce and Industry (FNCCI), the apex body of the business community, has hailed the new treaty saying it has been renewed for further five years and also requested all concerned to accept the changes made in the protocols positively and move ahead with keeping the national interest in mind. FNCCI is going to change the procedures of issuing Certificate of Origin for examining the eligibility of Nepalese products to be exported to India to make the system more reliable. No sooner the treaty was signed, FNCCI has also formed an action committee for the implementation of the same.

Since the business sector has already hailed the provision in the renewed trade treaty , now it is the job of the businessmen to go effectively for industrialization process in the country by producing raw materials and using more local labor to produce quality products and export to other countries.

However, the question here is— are our entrepreneurs capable enough to abide by the provisions incorporated in the Trade Treaty as to value addition of 25 per cent to all 184 exportable products after the enforcement of the treaty. Although the treaty is done between the two governments, the treaty’s provisions is meant to be practiced by the businessmen and they have to do business as per the rules and regulations and export the products. Only then foreign currency can be earned by exporting goods that ultimately goes to the national coffer.

In such a situation where India has made a provision of quota system for 4 products namely vegetable ghee, acrylic yarns, copper wire and zinc oxide which had been a bone of contention between the two countries since long.

As per the new provision of the 2002 Nepal-India Trade Treaty, all 184 Nepalese exportable products to India will have a value addition of 25 per cent for the first one year effective from the date of the new treaty’s enforcement. And for the subsequent four years, 30 per cent of value addition will be incorporated. It means that for the first one year, a Nepalese manufacturer/exporter can use 75 per cent of raw materials imported from third country to manufacture the products, which are to be exported to India. And for the rest 4 years, such percentage will be 70 per cent. The term ‘value addition’ has been defined as the percentage of local labour and material input in the Nepalese products to be exported to India. Along with value addition, the provision of quantitative restrictions has also been included in the treaty for four contentious export items – vegetable ghee, acrylic yarns, zinc oxide and copper wire. Under the provision, these items cannot be exported to India exceeding the ‘quota’ fixed by both the countries under the new trade treaty. As per the quota system, export of vegetable ghee to India is limited to 100 thousand metric tons per annum. Similarly, the same kind of quantitative restrictions for acrylic yarns, copper products and zinc oxide have been fixed at 10,000 metric tons, 7500 metric tons and 2500 metric tons per annum respectively.

At the same time safeguard measures for the affected country are also adopted in the Treaty following the demand of Indian businessmen. According to the provision, either party can call an inter governmental committee (IGC) meeting to discuss export surge and hence sort out the differences. If other-way round, Indian domestic industries are hit with excessive exports from Nepal, in such a time, India can adopt preventive measures to protect its industries, it is said in the new treaty.

Following such provisions of ‘surge’ and ‘safeguard’, if any country’s industry is hit with excessive exports and is considered injured/threatened, in such a situation, either party can adopt safeguard measures. This is an international practice, according to one of the participants of the Nepalese delegation.

Talking to Business Age correspondent, Purushottam Ojha, Joint Secretary at the Ministry of Commerce, Industries and Supplies, said that Nepal had a tough negotiation with Indian officials but finally succeeded in it. He asserted that the main spirit of 1996 trade treaty has been kept intact while renewing it. This time too the treaty has the provision for automatic extension for five years, he said. However, in the treaty, there is a provision that either party can adopt safeguard measures anytime if domestic industries of either country is hit hard.

Economist and Member of Parliament Dr Dilli Raj Khanal commenting on the new trade treaty renewal said that the renewal this time is against the spirit of the 1996 trade treaty. The new treaty, especially the provision of value addition will adversely affect Nepal’s economy. Nepal is already in trade deficit with India and the value addition will further increase the trade deficit, said Khanal.

President of Nepal Chamber of Commerce (NCC) Rajesh Kaji Shrestha also echoed the same view that safeguard measures incorporated in the new trade treaty will have severe impact on bilateral trade in the days ahead.

According to a random telephonic poll conducted by Business Age, most of the businessmen and intellectuals have termed the treaty as good but are worried that it would not do good to explore Nepal’s economic activities compared to previous years in the long run. Regarding the quota system imposed by India, the survey stated that to impose quota on Nepalese exportable products is totally against the free market concept, which would not have done for a country like Nepal as she is slowly learning the lessons of globalization making its products competitive to sell in the world market. People have being fearing that Nepalese exports would be hit hard under the new treaty, says the survey.

However, some participants in the Business Age survey poll have mixed comments on the value addition for Nepalese products.

Some of the points of the protocol to the Nepal-India Trade Treaty with reference to Article V are as follows:

The government of India will provide preferential access to the Indian market free of customs duties normally applicable and quantitative restrictions, except as mentioned elsewhere, for all articles manufactured in Nepal, provided they fulfill the qualifying criteria given below:

a) The articles are manufactured in Nepal wholly from Nepalese materials or Indian materials or Nepalese and Indian materials; or

b) i. the articles involve a manufacturing process in Nepal that brings about a change in classification, at four digit level, of the harmonized commodities description and coding system, different from those, in which all the third country origin in materials used in its manufacture are classified; and the manufacturing process is not limited to insufficient working or processing as indicated in Annexure ‘B’ and

b) ii. From 6th March 2002 to 5th March 2003, the total value materials, parts of produce originating from non-contracting parties or of undetermined origin used does not exceed 75 per cent of the ex-factory price of the articles produced, and the final process of manufacturing is performed within the territory of Nepal. From 6th March 2003 onwards, the total value of materials, parts or produce originating from non-contracting parties or of undetermined origin used does not exceed 70 per cent of the ex-factory price of the articles produce, and the final process of manufacturing is performed within the territory of Nepal.

Nepalese exports to India stood at Rs. 1.55 billion rupees in 1990/91. The same went up to Rs. 33 billion during fiscal year 1999/00 with vanaspati ghee alone comprising a significant percentage. According to statistics, export of vanaspati ghee addedup to 31,722 tons during 1997-98, 65,249 tons during 1998-99 and 84,028 tons during 1999/00. The total Nepalese exports to India in the first five months of the current fiscal year stands at Rs. 14038.6 million, whereas, Nepal imported goods worth Rs. 18276.3 million in the same period. The figure notwithstanding Nepal has a trade deficit of 19 billions rupees with India makes for 48.9 per cent of its total foreign trade.