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COVER STORY |
WTO
MEMBERSHIP As
it becomes the first Least Developed Country (LDC) to be granted the full-fledged
membership of the World Trade Organization (WTO) through the process of negotiations,
Nepal’s business community, farmers and even the officials are wary about the future
and the likely benefits this poor Himalayan Kingdom could accrue out of the global free
trade regime. Even as a trade toddler Nepal becomes the 147th member of the WTO, its
straggling private sector, unorganized agriculture sector, poor infrastructure, weak
government and feeble economy do not provide an encouraging base to launch a competition
with global giants. However, if prudent policies and practices are adopted, the WTO can
also provide a launch-pad to Nepalese economy as it now puts Nepal in a same legal plank
as any other WTO member state opening untold volume of opportunities By SANJAYA
DHAKAL On Friday (May 14),
hundreds of farmers of Chitawan district located in the western part of the country,
dumped hundreds of kilograms of their fresh vegetables in the main road. Around 300
farmers of the district dumped 500 quintals of fresh vegetables worth nearly a million
rupees in a protest to the week-long ban on the movement of cargo vehicles imposed by the
Maoists.
Farmers of
Chitawan district are leading agriculture producers of the country. But due to the
persistent strikes, the farmers were losing millions of rupees everyday. Due to strike in
transportation their fresh vegetables and other produces were decaying in absence of
proper cold storage facilities. As a result, the farmers were forced to dump their
precious production in the street to draw the attention to their plight. At a time when
farmers of Nepal are reeling due to insecurity, insurgency, market denial, lack of basic
facilities and so on, the country has embarked on the path of global rule-based trade
regime by becoming the latest member of the World Trade Organization (WTO). Even as the
farmers are not fully protected within the national frontiers, they now have to face
challenges that will come from across the world in the years ahead. The membership of
WTO means that the country will now have to open up its domestic market to imports from
elsewhere and at the same time enjoy the access (for its products) to the global markets.
While it is not clear how the ill-equipped Nepalese farmers and private sector will be
able to make use of the access, they will certainly face more heat once cheap products
from elsewhere flood the domestic market. Track Record One of the poorest
countries in the world, Nepal wholly relies on foreign aid for its development. Its
internal revenues are just enough to cover regular expenditure, which, too, have been
sky-rocketing thanks to increased defense expenses needed to counter the raging Maoist
insurgency. It is one of the poorest countries in the world outside the Sub-Saharan Africa
with the per capita income of USD 250 in nominal terms and USD 1450 in Purchasing Power
Parity (PPP) terms. Its population is over 23 million.
In trade,
Nepal has abysmal records. It doesn’t have many goods or services that it has been
exporting extensively. Apart from tourism, exporting carpets and garments are the top two
foreign exchange earners of Nepal at present. The current export-mix of the country is
also not favorable in the long run. Its foreign trade is characterized by heavy
concentration on few products – readymade garments and carpet accounted for 60
percent of all export earnings; and limited import and export destination. Exports to
Europe and North America occupy 50 % of all exports; and around 40 % of imports come from
India alone. Its geographic location as a land-locked country has not helped the matter
either. Distance to the nearest port in India is 660 miles. Experts say that
outright liberalization of custom barriers could bleed the nation’s revenue as it
still depends heavily on customs. “Unlike developed countries like USA, which will
lose only 1 percent of their revenue by liberalizing customs, Nepal stands to lose
staggering 20 percent by doing so,” said Dr. Hiramani Ghimire, chief advisor,
Management Research and Training Academy. In this background,
the country’s entry into the WTO has raised many questions. “Even we
stakeholders are scared. We don’t know how we are going to compete in global arena in
the days ahead,” said Rajendra Kumar Khetan, a leading industrialist and convener of
the WTO Cell at the Confederation of Nepalese Industries (CNI). “The government has
committed to open up service sector and tear down revenue barriers. But it has to do so in
such a way that the impact on domestic industries will be minimal,” said Surendra
Malakar, vice president of Nepal Chamber of Commerce (NCC). Impact On
Agriculture Likewise, the impact
on agriculture, too, could be severe. “The entry into the WTO for us is just like
asking a two-year-old toddler to fight with a giant wrestler,” said Keshav Badal, the
immediate past president of All Nepal Farmers’ Organization (ANFO) – the largest
farmers’ organization in the country. Around 40 percent of
Nepal’s GDP is covered by agriculture. It provides employment to nearly 80 percent of
population. Mostly, the agriculture in Nepal is subsistence-based and not commercialized.
Already the government has withdrawn most subsidies from the agriculture sector. “As
it is we are already competing with the Indian farmers who get heavy subsidies from their
government on irrigation, power, cold storage, fertilizers and so on. For instance, price
of one sack of fertilizers in Jumla of north-western Nepal is six times more than that in
Raxaul – a bordering Indian town. How can we expect Nepalese farmers to compete when
the playing field is not level?” asked Badal, who has been involved in the
farmers’ movement for the last three decades and who is also a member of the Standing
Committee of the Communist Party of Nepal (Unified Marxist Leninist) – the largest
party in the dissolved parliament. Badal rues the
absence of government initiatives to create an inventory of biodiversity of the country
and register it for patent sake. “Nepal is quite rich in terms of biodiversity as
well as different varieties of cereal crops, herbal medicines and vegetables. But in
absence of proper initiatives to register their patents, we could land in trouble once the
WTO takes over and multi-nationals start coming with their hybrid seeds,” he said. Challenges
And Opportunities
Some experts
and civil society representatives, too, agree that Nepal is not yet ready to face the
global competition in trade. Dr. Shibesh Chandra Regmi, country director of the ActionAid,
an INGO that is working in the sector of poverty alleviation, said, “It is a fact
that most farmers are not even aware about WTO or how it could affect their livelihood.
Nepal is grossly ill-prepared and needs to do a lot of homework soon if it is to survive
amid WTO.” However, Ratnakar
Adhikari of the South Asia Watch on Trade Economics and Environment (SAWTEE) has a
different argument. “The WTO rules have provisions for Green Box subsidies –
including subsidies on environment, pest control, research & development – which
can continue; and Amber Box subsidies – including those given on fertilizers,
irrigation and so on which does not exist in Nepal – which must be brought down below
10 percent of total agricultural GDP. So, I don’t think, subsidies are going to be
any problem for us,” he said. By joining the WTO,
Nepal can now fully enjoy the rights that all members have under the WTO agreements, such
as non-discrimination by other WTO members and the ability to use the WTO’s dispute
settlement procedure. In return for those
rights, like all WTO members, Nepal has accepted some obligations under the WTO
agreements. As a result of the negotiation, Nepal has agreed to open up 11 services
sectors initially. In tariffs front, Nepal has accepted an average tariff binding of 42%
in agricultural products and around 24% in industrial goods. Nepal has also
promised to implement fully the provisions of the Agreement on Sanitary and Phytosanitary
Measures by 1 January 2007 following an action plan in different stages which started with
the adoption of the Food Act and the implementation of Codex Alimentarius, and will
continue with the establishment and operation of a single enquiry point. As a least-developed
country, Nepal is preparing the new Industrial Property (Protection) Act, which would
incorporate all the substantive provisions of the TRIPS Agreement. It would cover all
categories of industrial property and would incorporate the basis for an adequate
enforcement and be promulgated no later than 1 January 2006.
Officials say
that being an LDC, Nepal could negotiate for the WTO membership in flexible terms and
conditions. Hari Bahadur Basnet, the outgoing minister for Industry, Commerce and Supplies
said, “It is our conviction that joining this organization would not only enhance our
effectiveness and efficiency in trading capacity but would also result in expansion of
trade, leading to a higher level of growth and enhancement of quality of life of our
people.” In fact, Nepal had
been working to join the global rule-based trade regime for the last 12 years – since
1989 when Nepal first tried to get the membership of General Agreement on Trade and Tariff
(GATT), which is the predecessor of WTO. In its fifth
ministerial meeting held in Cancun, Mexico in 2003, Nepal and Cambodia – two LDCs
– had been granted membership. As per the WTO provisions, Nepalese government had to
ratify the membership within six months to get the full-fledged membership. The cabinet
had ratified the membership a month ago and had communicated the same to the WTO
Secretariat. As a result, Nepal was granted the full-fledged membership with all the
responsibilities and rights of WTO member on April 23. “The efforts of
the last 12 years were the easier part. Now we have to work hard to extract benefit from
the WTO membership,” said Prachanda Man Shrestha, joint secretary at the Ministry of
Industry, Commerce and Supplies (MoICS). Nepal now needs to
amend around 24 laws and 14 regulations to conform with the WTO rules. Although there is a
palpable sense of nervousness among both officials and business community; they, however,
agree that there was no way out of WTO net. Benefits Of
WTO “A whopping 97
percent of total global trade is conducted among WTO members. So, it is also a matter of
relief for Nepal that it is now a part of that network,” said Dinesh Chandra
Pyakurel, Secretary at the MoICS.
Even Badal who
belongs to a communist party agrees. “We cannot remain isolated in this age. But we
must be active to protect our interests and rights,” he said. Likewise, as an
international trade researcher and a director of Washington-based Progressive Policy
Institute (PPI) Edward Gresser notes, “As a WTO member, Nepal is on a legally equal
basis with the U.S., India, China and the European Union and other large economies.
By setting some clear priorities in the "Doha Development Agenda" talks, the
Nepali government can reshape the country's trading environment in a more fair and
favorable way.” According to him, “The good news is that as a WTO member, Nepal
has a great deal more power and influence than before, and can use them to address these
problems and take greater advantage of the opportunities.” Among many things
that Nepal now needs to carry out include amending its legislations, building
institutions, enhancing capabilities, identifying and promoting products/services in which
the country enjoys competitive advantage, diversifying exports and so on. There are also
inherent beneficial opportunities to which the officials point out. “The strategic
location of Nepal between two large economies India and China should be turned into our
advantage. The combined market of over 2 billion people is in our neighborhood. We must
try and exploit the potentials to our benefit,” said Dinesh Chandra Pyakurel,
Secretary at the Ministry. “We must grab the possibilities of market access thrown by
the trade regimes,” he said. “Nepalese
Farmers Can Compete Only If There Is A Level Playing Field” — Keshab
Badal
Keshab
Badal is a former minister and immediate past president of All Nepal Peasants Association
(ANPA) – the largest farmers’ group in the country. A standing committee member
of the Communist Party of Nepal –Unified Marxist Leninist, Badal has been involved in
the farmers’ movement for the last three decades. He spoke to SANJAYA DHAKAL on
Nepal’s membership of the World Trade Organization (WTO) and its likely implications
on the agriculture sector. Excerpts: As a person
involved in farmers’ movement, how do you see the Nepal’s membership of WTO? I see the
Nepal’s membership of the WTO as a sad but compulsory development. Nepal could not
have remained isolated and not joined WTO. That was simply not possible when around 147
countries around the world, including our two neighbors, have become its members. However,
there is a nagging fear that by becoming a member without adequate preparation and
strength, we could lose more than gain. What kinds
of challenges do you foresee the Nepalese farmers will have to face in the days ahead? At present, over 76
percent of Nepalese people are engaged in agriculture. But we do not have adequate
agriculture infrastructures in place. The feudal land ownership prevails –
nearly 19 percent of our farmers (around one million people) still do not own any land.
Infrastructures like irrigation, road, banking facilities, cooperatives, agro-industries,
market relations, technology, etc are all in middle-age rudimentary stage. The cost of
production is not competitive. At a time like this when we will now have to come out in
the unavoidable situation of open competition, we are terribly concerned that the days
ahead could be far more difficult for our farmers. What kinds
of benefits could the farmers get from the WTO membership? We are concerned
that the developed countries like the United States and European nations, who have modern
and developed agriculture sector, would use the WTO to protect the interest of their
farmers only. These countries provide protect to their farmers. They impose huge custom
tariffs on agricultural goods they import from other countries. For example, the USA,
Canada and EU impose heavy tariffs on milk products and wheat products - up to 200 and 300
percent. In such a situation, one can only imagine how competitive our products are going
to be when we don’t have basic infrastructure and when the state is withdrawing all
kinds of subsidies. This is our major worry. However, if a level playing field is
guaranteed, we can also compete. If we also get concessions on power, road, finance,
market, technology and so on, we can compete effectively. In fact, Nepalese farmers do not
enjoy support from the state even when compared to neighboring India. Do we have
some competitive advantages? We do have some
advantages. For instance, we are quite rich in terms of biodiversity. Compared to the
geographical area we cover, our biodiversity is 17 times more. Such diversity is evident
in the plants, seeds as well as wildlife. We also have tremendous indigenous experiences
particularly in herbal medicines. But we need to protect these natural and intellectual
properties by registering their patents. Otherwise, we may stand to lose our advantages. Are Nepalese
farmers ready to enter the global free trade regime? Are they aware of the WTO and its
implications? Apart from few
business houses and a few farmers who live close to urban areas, overwhelming mass of them
do not have a clue on what free trade is all about. Moreover, let alone the global free
trade, the Nepalese agriculture sector is yet to be fully integrated in domestic front.
The price of a sack of fertilizer in Birgunj will rise by five to six times when it
reaches Jumla district. Likewise, if the cost of transportation of a quintal of rice from
Terai to Kathmandu is Rs 500, the same will cross Rs 8000 when transported to Humla –
which do not have a road access. When we do not even have market connection, how can we
talk about market economy. Has the ANPA
organized programs to sensitize the farmers? ANPA has been
informing the farmers about the economic readjustment programs for the last ten years.
Since the last ten years we have been meeting with the concerned ministries and agencies
to tell them about our issues. We have been constantly urging the government to protect
our interests. What are
your views about the agricultural subsidies? We are for
time-bound subsidies. We are not asking for subsidies for indefinite period. There are
6000 rivers and streams in the country but it is a pity that the irrigated land is less
than 20 percent of the total land used by farmers. The state must invest in irrigation and
here farmers will need subsidy. Likewise, due to lack of transport facilities, the farmers
of remote areas must be provided with subsidy in transport charge. For instance, why
cannot the government provide subsidy in the transportation of apples of Jumla for at
least four months a year? Similarly, subsidies are necessary in fertilizers, electricity
used in cold storage and so on. These subsidies are pre-requisite if we want to compete
with farmers of neighboring India, who enjoy all these things. Not only India, these days,
we can see gingers and garlics from China flooding in our market. The costs of these
products are highly competitive and are displacing Nepalese products. So what do
you suggest the government needs to do at this juncture? For the development
of agricultural economy, the state needs to develop the integrated use of water – as
in drinking water, irrigation, hydropower, fisheries and so on. The state also needs to
establish local rights on our natural resources. A revolutionary land-reforms and
redistribution would add energy to this process. This will also usher in dense farming. At
present, an average farmer family owns less than 0.8 hectares of land; most of them do not
have alternate means of livelihood; and are illiterate. Therefore, the government must be
alert in protecting their rights and interests. That apart, I also urge the international
community and the WTO to open up labor market if they want totally free trade. Since they
talk about equality, they must also open up labor market so that our laborers can freely
travel to their countries to work. That would be appropriate from the perspective of
social justice as well. Otherwise, the WTO will remain a tool to legitimize the monopoly
of around 500 multinational companies – already around ten top companies control 45
percent of seed generation and distribution market. Therefore, I also want to add that
LDCs and developing countries should form a unified front to protect the interests of the
poor. “Trade Policy
In The US And To Some Extent Worldwide Is Tilted Against Asian LDC” — Edward
Gresser Edward
Gresser is a director of Washington-based Progressive Policy Institute (PPI). Mr.
Gresser's major focuses have included investigation of the American tariff system, Trade
Promotion Authority and the future U.S. trade negotiating agenda, hemispheric integration,
economic relations with China in the wake of WTO membership and Asian affairs, as well as
international finance and labor issues. Mr. Gresser joined PPI in 2001 after ten years of
service in the Clinton Administration and as a senior Congressional staffer. As Policy
Advisor to U.S. Trade Representative Charlene Barshefsky from April 1998 through the close
of the Clinton Administration, he was the USTR's principal policy advisor and research
aide. An international trade researcher, he gave written replies to queries by SANJAYA
DHAKAL regarding Nepal’s entry into WTO and how it could benefit from the rule-based
free trade regime. Excerpts: How do you
think Nepal will fare in the days ahead? Ultimately, the most
important factor for Nepal is the restoration of peace and political stability. If
that succeeds, Nepal has its destiny in its own hands and can do quite well. In that
case I see three basic issues to address: (1) a global trade regime that is tilted
in important ways against least-developed Asian countries; (2) the challenges emerging
from the end of the textile quota policy; and (3) the potential opportunities
created by the rapid growth and development of China and India. The good news is
that as a WTO member, Nepal has a great deal more power and influence than before, and can
use them to address these problems and take greater advantage of the opportunities. What do you
think Nepal should do? As a WTO member,
Nepal is on a legally equal basis with the U.S., India, China and the European Union and
other large economies. By setting some clear priorities in the "Doha
Development Agenda" talks, the Nepali government can reshape the country's trading
environment in a more fair and favorable way. In policy terms, Nepal's government
might set two goals. First, it could seek early elimination of US garment
tariffs, so as to give Nepali exporters and workers parity with those of other
least-developed countries in Africa and Latin America, and help balance the size of China
and India. Second, it could seek reform of trade policies in India and China
that disadvantage small and least-developed Asian countries. A good example is the
Indian 'specific-duty' policy - that is, the practice of charging flat fees of hundreds of
rupees on low-cost cotton and synthetic garments - which makes it very hard to reach
the Indian consumer market. Politically, Nepal has some likely allies in these
issues. Other Asian LDCs in the WTO, in particular Cambodia, Mongolia and
Bangladesh, face similar challenges and all can gain strength by working together. How do you
find US trade policies vis-à-vis Nepal? It really seems to
me that trade policy in the US and to some extent worldwide is tilted against Asian LDC.
Over the past two years I have been looking at the operation of American trade policy
vis-a-vis different countries. It is especially tough on Nepal and a few other Asian
LDCs (Cambodia, Bangladesh and Mongolia in particular). This is because: US tariffs
and trade barriers generally are much higher in clothing than other products - for
clothes the average is about 15 percent and for other manufactured goods about 1.5 percent
. In contrast to Africa and Latin America, the US has no special program to offset
the effects of this system for Asian countries. In practical terms this means
that least-developed Asian countries already get treated a good deal worse than most
others. Last year we collected about $21 million in tariffs on $150 million
worth of Nepali rugs, shirts and similar goods - and only $20 million on $5 billion worth
of Norwegian salmon, oil and airplane parts, or $27 million on $18 billion worth of
Irish medicine and computers. LDCs in other parts of the world, notably Africa, do not
have such problems, since they have been excused from tariffs through our African Growth
and Opportunity Act and two programs for Latin America. This might ironically make
life harder for Nepal in coming years, since when the quota system ends next January,
exporters in the Asian LDCs will be dealing with duty-free competitors in Africa and Latin
America on one hand, as well as very big countries with powerful economies of scale
(notably China and India) on the other. Policies in at least some of Nepal's neighbors
also seem tilted against the Asian LDCs. India is a good example, though probably
not the only one - it has a two-tier system that in practice probably discriminates
against Nepal, Bangladesh and possibly Sri Lanka. One example is that the Indian
system puts a 30% tariff, or a 110-rupee flat fee - whichever is higher - on cotton
skirts. So in practice an American skirt gets a 30% tariff and the Nepali one
probably a 100% or even 200% tariff. |
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