National 2 (Spotlight Weekly)

Teething Problems

As Nepal moves closer towards entering WTO, experts point to several problems like tariff binding and ODCs

By SANJAYA DHAKAL

"The road to Cancun is quite bumpy. Our vehicle is old and we tend to change drivers frequently." Dr. Yubaraj Khatiwada, a member of National Planning Commission (NPC) aptly summarized the situation of Nepal.

Nepalese authorities expect to receive the membership of the World Trade Organization (WTO) in Cancun, Mexico in November at the fifth ministerial conference there.

But before the Cancun meet, a decisive meeting is being held in Geneva, Switzerland this week to discuss the Nepal's accession to the World Trade Organization (WTO). A Nepalese delegation led by Commerce Secretary Dinesh Chandra Pyakurel is attending the meet.

"The meeting will finalize whether Nepal will receive the WTO membership in the 5th ministerial meeting in Cancun, Mexico in November this year," said Dr. Posh Raj Pandey, manager of the Nepal's Accession to WTO National Program, speaking at a program organized last week by the SAWTEE and ActionAid to discuss Nepal's preparation for Cancun meet.

In Geneva, the meeting will focus on protocol drafts prepared for Nepal. "The issues that are yet to be resolved with other member states, will also be discussed there," said Dr. Pandey. Last month, the WTO partner states showed some flexibility regarding Nepal's conditional membership. Nepal is holding bilateral talks with WTO members including India, New Zealand, USA, Australia, Japan, EU nations, Canada, Malaysia, Sri Lanka and so on.

Meanwhile, experts point to several issues needing immediate concern before Nepal enters the rule-based free trading regime. "Major issues of our concern include the tariff binding, ODCs and further opining up service sectors," said Professor Pushkar Bajracharya at the Central Department of Management, Tribhuwan University. "Nepal is a low tariff country with average tariff of around 13 percent so it has to take serious considerations before going for tariff binding (in WTO) at the existing rates," he said.

Once Nepal enters the WTO, it will have to do away with what are called ODC (Other Duties and Charges). Presently, the government imposes ñ on all imports - around 1.5 percent tariff under the heading of Local Development Charges and 0.5 percent as security charges. "Though these are temporary tariff, we may not be in a position to remove them outright given our special circumstances," said Professor Bajracharya.

Dr. Khatiwada concurs. "Our tax base in very narrow and therefore we are not in a position to remove these tariffs. We have to demand certain transition time (to remove them completely)," he said.

At a time when the country is passing through economic slowdown and when the security expenses are mounting, the government certainly will not be able to severe charges like security and local development. "When its revenue base is not expanding as expected, the government will certainly be in no mood to remove the existing ones," said an economist. "The WTO member states will have to understand the difficulties of the LDC like Nepal."

Likewise, the issue of further opening service sectors, too, is another important factor. "When even big countries like India have not fully opened their service sector, how can we? Besides, are our professional organizations like for instance the lawyer's association willing and ready to face international competition that comes with opening the legal sector?" asked Bajracharya.

Despite these sore points, experts, however, concurred that there is no alternative to Nepal than to join the WTO. "The loss we will have to bear by not joining WTO could be immense whereas by joining it we might be able to benefit," said Dr. Khatiwada.

Nepalese officials, however, are weighing two options at present. "If the Geneva meeting gives green signal for our entry, we will have one strategy at the Cancun. But if there is deadlock in Geneva itself, we will have to present ourselves in an aggressive manner at Cancun," said Dr. Khatiwada.