National 9 (Spotlight Weekly)

"Nepal's Chance For Exemption From Tariffs Would Be Best If It Can Work With A Group Of LDCs With Similar Concerns"

— Edward Gresser

Edward Gresser is a director of Project on Trade and Global Markets at the Washington-based Progressive Policy Institute (PPI). 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. 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. In a span of three years, Gresser twice received USTR's prestigious "Special Achievement Award," first for contribution to the passage of the African Growth and Opportunity Act (AGOA) and Caribbean Basin Initiative enhancement. In the wake of the expiry of the Multi Fiber Agreement (MFA), Nepalese garment entrepreneurs have expressed apprehensions of collapse of their exports to the US. They have even demanded for the AGOA-like preferential trade pact with the US for their survival. Amid such speculations, Gresser gave written replies to queries by SANJAYA DHAKAL regarding the aftermath of MFA expiry; their impact on LDCs like Nepal; and what Nepal could do in the days ahead to promote its trade interests. Excerpts:

How do you see the US policy vis-à-vis bilateral preferential trading agreement like the AGOA and Caribbean Initiatives?

The U.S. has been experimenting with tariff preferences for particular regions since the 1980s. Once established, these become quite popular in the U.S., and develop broad Congressional support. However, they are very hard to set up, as industries losing tariff protection (especially the textile industry) often strongly object. For example, the AGOA program despite having strong personal support from President Clinton and senior members of Congress, took six years to approve. We now have three regional trade preference programs. The African Growth and Opportunity Act is most extensive, and the Andean Trade Preference Act and Caribbean Basin Initiative somewhat less so. These provide tariff exemptions to a total of 64 countries in Africa, Latin America and the Caribbean. Especially for least-developed countries, their benefits are much more extensive than those of the GSP system, since the GSP excludes clothes, shoes, leather and some other products. In some cases the regional programs also include selected agricultural products. In two cases - Jordan and Egypt - the U.S. has been willing to give single countries duty-free status. This reflects the importance of these two countries in the Middle East peace process, and their willingness to open trade integration programs with neighboring countries, including Israel.

How likely do you think is Nepal in reaching such agreement with the US?

Nepal has a strong champion in Sen. Dianne Feinstein for such duty-free treatment, and does not have very harsh critics who would try to block the program on political grounds. But many other countries are interested in getting duty-free treatment too, and can often make very strong cases. Few have succeeded - Pakistan, for example, was unable to get Administration approval for duty-free treatment on textiles even during the war in Afghanistan. In part this is because duty-free treatment is always hard to achieve, and in part because it is easier for Congress to deal with regions as a whole rather than debating a long series of specific exemptions. I think Nepal's chance for exemption from tariffs would be best if Nepal can work with a group of least-developed countries that have similar concerns. The Bangladeshi and Cambodian embassies in Washington, for example, are quite active in organizing Asia-Pacific LDCs on the issue.

In view of the expiry of the MFA, what do you suggest Nepalese garment entrepreneurs and the policy-makers should do in order to survive and flourish?

There may be four areas to look at:

1. Understand the priorities of American retailers who buy clothing, and focus on areas in which Nepal can meet their needs. These include four points:

- Ability to supply clothes in high volume and rapid delivery. Here China has big advantages over many other countries, and Nepal is at a particular geographic disadvantage. Nepal's policymakers could be thinking about making sure border crossings and land transit arrangements with India are as efficient as possible to keep delivery times fast.

- A good image for labor standards in factories. This is important to many American consumers who want to feel good about the things they are buying. It is also a big issue for retailers, since several have received bad publicity and seen sales hurt by allegations that they are buying from exploitative factories. Cambodia is a good country to study in this regard. It has invited ILO experts to revise labor laws and provide guarantees that its factories are in compliance with ILO standards. Cambodian sales in products removed from quota have so far remained pretty stable, in part I think because the ILO program has given companies a lot of confidence in this labor area.

- Quality and reliability: Mass-market buyers will want to be sure there are no problems with suppliers, which is of course an issue for workers and factory-owners to address.

- Unique products: Higher-priced garment sellers often look for products that can distinguish them from their competitors. Can Nepal promote products unique to Himalaya regions? Ethnic and handicraft products can be quite popular in the United States. The Nepali Embassy and friends of Nepal in the U.S. might be able to develop contacts with stores that sell these goods and would order direct. These need not only be clothes but could include furniture, foods, and so on.

2. Reduce input costs: I am not very familiar with Nepal's trade regime, but some countries that rely heavily on clothing exports suffer because they impose tariffs and quotas on dyes, fabric, textile machinery and the other inputs needed to produce clothing efficiently. If Nepal has restrictions on imports of these goods, that will make clothing production more expensive.

3. Seek tariff equity: Nepal is at a disadvantage in the U.S. because tariffs are high on clothing, and many competitors have been excused from tariffs through preferences. The Nepali government is working on this already of course. It could also think about urging India and China to develop similar preferences for least-developed countries, or at least to implement any Doha Round tariff commitments immediately for Asian LDCs.

4. Diversify export markets: Nepali exports to the EU seem to have dropped in recent years. I am not sure why this is, but Europe is a logical target market.

Recently, Nepal government submitted an application to the US Trade Representative requesting the US government for duty free access to Nepalese Pashmina and woolen carpets under the GSP facility. How useful do you think would this be?

I think this is a good idea, especially since Nepal is already a successful carpet exporter. American tariffs on carpets are not as high as those on clothes, but still can go up to 8%. They are also not as politically sensitive as clothing policies, and so getting tariff exemptions can be easier. For example, late in 2004, Afghanistan and Pakistan succeeded in getting tariffs removed on some types of carpets especially important to their businesses. (I think this also applies to some of Nepal's carpets.) This is probably a good industry for Nepal to be concentrating on in the future, since delivery speed for carpets are not as important as delivery times for mass-market garments.

Private garment entrepreneurs here accuse the Nepal government of not strongly backing their cause. They say that the government ought to have settled the 'payment controversy' with the US Company (Panda Energy) - which they say could have facilitated the passage of a bill (that proposes the preferential access) currently lying at the US Senate. Do you believe it can happen (if the 'payment controversy' is settled)?

I don't know the details of this dispute. As a general matter, though, outstanding disputes like this would probably have more consequences for Nepal's ability to attract foreign investors than for the Senate's decisions on a bill like this.

In the WTO regime, what items of LDCs like Nepal (apart from apparels), do you think, have potentials in the US market?

A range of light-industry products apart from clothing could be successful. Traditional handicrafts, jewelry and artwork are popular in the United States. Furniture might be another one.