WTO Agreement and Nepal's National Laws

Nabin K. Chehetri, Kathmandu

The WTO agreement is different than many other international treaties in the accession procedure. There is no possibility for entering reservations, and the acceding nation is bound to accede to all the provisions of the WTO agreements. As mentioned, the acceding nation has two options – either to take everything or not at all. When the whole WTO package is taken, the receipient nation or the acceding nation is required to confirm her law and regulations with the provisions of the WTO agreements. In Nepal, International Agreements are implemented through the enactment of new legislation or through amendment of the existing laws. Also, following the accession of the Organisation, a member state must very carefully monitor or observe whether or not the laws or rules made or decisions taken by her are compatible with WTO provisions. The member states are required to increase transparency in their trade-related activities. All trade related laws, regulations and judicial decisions must be published and made available to the interested parties. The other important stipulation of the WTO is that any National Law of any country, which contradicts with the WTO rule, can be challenged by any member in the Dispute Settlement Body (DSB). As pointed out earlier, the WTO trading system, is very mush rules-oriented.

We are far behind our neighbours in developing trade-related laws and rules. Some of the laws, which were enacted in India more than 100 years ago, are still to be enacted in Nepal.

1. Need for some New Laws

The development of commercial law in Nepal is in preliminary stage. Nepal would not be able to integrate its economy with the rest of the world without standardising its legal system. Therefore I would like to propose the enactment of some new laws that would facilitate Nepal in improving its legal system as well as integrating the country with the multilateral trading system.

A.     Foreign Trade Act

Not only countries of other parts of the world, but also most South Asian countries have already enacted laws governing foreign trade. In India, for example, the foreign Trade Act was enacted in 1992, replacing the Exports and Imports (Control) Act of 1947. In the US, the foreign Trade Act has been in force for many years. In line with the development in India, as well as some other countries of the world, it would be useful to draft new trade legislation in Nepal, with broader provisions governing foreign trade. The existing Export and Import (control) Act needs to be repealed. It would be useful to review the WTO provisions, and similar laws of other countries, while drafting this legislation. Similarly, it would be important to take note of Part 3 of the 1991 Constitution of Nepal, through which, the citizens of Nepal are given freedom to practice any profession, or to carry on with any occupation, industry or trade.

The proposed legislation in my opinion should also include the following:

1.       Arrangement for development of foreign trade.

2.       Provision with regard to foreign trade policy formulation.

3.       Provisions concerning appointment, rights and responsibilities of the director general for Foreign Trade. He/ She should be made responsible for, besides other things, protecting the national interest on matters related to foreign trade and also for monitoring the implementation of the rights and obligations imposed on Nepal by international treaties.

4.       Provisions on issuance, suspension and cancellation of licenses (only for item specified by law).

5.       Provision concerning restrictions on exports and imports only for specified cases. This provision must be drafted very carefully in order to make it compatible with the WTO Arrangement. For example, a provision may be made for restriction on imports for the protection of human, animal or plant life (Article XX of GATT).  Similarly, a restriction on exports may be imposed on security grounds as mentioned in Article XXI of the GATT.

6.       Provision on power and procedures concerning search and seizure of illegally imported items or products for illegal exports. The section dealing with search and seizure should cover all the procedures such as issuance of warrant, notice to witness etc.

B.     Customs Tariff Act

In order to regulate and increase transparency in customs related matter, as well as to develop the legal provisions harmonious to GATT/WTO, it would be obligatory either to enact a law relating to customs tariff or to make amendment to the existing Customs Act. It is important to clarify that, in a democratic country like Nepal, the government must only impose, increase or decrease any duty in accordance with clear legal provisions. The amendment to the existing Customs Act or drafting of a new customs Tariff Act should be done carefully taking into consideration the WTO provisions, existing practices and the needs of the people of Nepal. However, the proposed law should cover at least the following matters.

·        Provision on lower rate of duty. This section provides for a new provision empowering the government to impose protective duties in case it becomes necessary to protect the interest of any industry established in Nepal.

·        Provision concerning emergency powers of the government to increase or levy exports duty.

·        Provision relating to emergency powers of the government to increase import duties. This section have provision to empower the government to increase the customs duty in circumstances that render it necessary to make immediate modification to tariff schedules.

·        Provision concerning safeguard duty. This section should empower the government to impose a safeguard duty on any article imported by Nepal under such condition or quantity so as to cause or threaten to cause serious injury to domestic industry.

·        Provision on countervailing duty. This provision should authorise the government to impose a countervailing duty on subsidise articles imported into Nepal.

·        Provision on anti-dumping duty. This section should provide a tool to the government to impose anti-dumping duty on articles dumped into territory of Nepal. In other words, a provision needs to be developed in the legislation for imposition of anti-dumping duty in case article is imported from any country into Nepal at less than the normal value of that article. It is relevant here to note that the USA has separate ‘Anti-Dumping Act”.

·        Provision on restriction on imports in case of balance of payment difficulty.

C.     Competition Act

Competition Law can be defined as a tool to ensure that markets always remain open to direct or potential competition or free-competition, and also to ascertain that the consumer take advantages of such competition in the market. A Competition Law Policy is very important for a country pursuing the free market economy. Nepal has been adhering to free market ideas since 1992, but still needs to develop the said policy in order to check unhealthy business practices and to ensure smooth competition in the market. The Competition Law Policy is relatively a new concept for many policy makers and lawyers in Nepal. Yet, it is important for the country –particularly for accomplishing the following objectives.

1.       To maximise consumer welfare and protect small firms from large aggregation of economic powers of powerful firms.

2.       To achieve the optimal allocation of resources.

3.        To promote economic efficiency and innovation in business.

The WTO agreements, particularly the General Agreement of Trade in Services (GATS), Trade Related Intellectual Property Rights (TRIPS) and Trade Related Investment Measures (TRIMS), have some provisions related to Competition Law. The principle of Competition Law Policy has been further elaborated in the rules and commitments on the WTO Agreement on Telecommunications. UNCTAD has also developed a set of model laws on Competition Law Policy.

Most South Asian nations have already enacted Competition Laws. Taking into account WTO’s initiative on Competition related issues, and the ongoing unhealthy business practices (cartels, syndicates, monopolies etc) in Nepal, it has now become urgent to draft and implement a Competition act in Nepal. While drafting such laws, the provisions of the WTO, its relevant reports, the document of UNCTAD as well as similar laws of other countries need to be thoroughly examined. The proposed legislation should prohibit, except under specified circumstances, the following activities:

a)      Agreements among firms to fix prices, including of exports and imports;

b)      Collective tendering;

c)      Market or customer allocation arrangements;

d)      Allocation by quota as to sales and production;

e)      Collective action to enforce arrangements, e.g. Concerned refusal to deal;

f)       Concerned refusal of supplies to potential importers;

g)      Collective denial of access to an arrangement, or association, which is crucial to competition.

In addition to the above-mentioned provisions, enterprise or companies should also be checked on the following matters:

a)      Predatory behaviour towards competitors, such as using below-cost pricing to eliminate competitors;

b)      Discriminatory pricing or terms or conditions in the supply or purchase of goods or services.

c)      Mergers, take-overs, joint ventures or other acquisitions of control with the intention of eliminating competitors.

d)      Making supply of particular goods or services dependent upon the purchase of other goods or services from the supplier or his designee.

In order to ensure proper competition in the market and also to look after other matters, a Fair Trading Commission or a similar agency needs to be established in Nepal. Therefore the proposed law should have provisions concerning the establishment of a Fair Trading Commissioner. The commission should function as a quasi-judicial institution.

D.     Sale of Goods Act

There is no direct link between domestic Sale of Goods Law and the WTO Agreement, as the former is a part of private trade law whereas the latter belongs to public trade law. However, it is necessary to legislate the above mentioned Act in order to harmonise our trade laws with other nations in order to integrate our trade system with the international trading regime. The primary objective of the Sale of Goods act is to legalise sale transactions within the country; nevertheless, it would also contribute to the development of international trade because domestic trade is linked with Trans-boundary trade. Most of the South Asian nations had already enacted and implemented such laws years ago. In India, the Sale of Goods Act was introduced way back in 1930.

The proposed legislation should be drafted taking consideration similar laws of other countries, as well as the UN Convention on Contracts for the International Sale of Goods, 1980. The legislation may include, inter alia, the following:

1.       Provision on formation of Sale Contract including some stipulations on condition of sale and warranties.

2.       Transfer of property following the sale of goods.

3.       Performance of sale contract, including rules concerning delivery of goods.

4.       Rights and obligations of buyer and seller.

5.       Provision relating to breach of contract.

(To be concluded).