Issues on Nepal's Trade Facilitation

Professor Bishwambher Pyakuryal

The growth in international trade has been gradually increasing especially since 1990s in the midst of the volatility of export products with high level of concentration on a small number of products and limited markets. Government's statistics reveal that trade deficit during 1990s remained at 17.5 per cent per annum since export could not commensurate the import growth.

The renewal of trade treaty of 1996 in 2002 with India introduced Rules of Origin criteria necessitating the changes in customs tariff heading. Other issues such as value addition and imposition of quantitative restrictions in India have demanded the immediate execution of trade facilitation measures. Major concern is Nepal's cross border trade with India has resulted into significant high transaction cost. Such high transaction cost is followed by complexities of procedures and documentations, slow and inefficient customs clearances and inadequate transport infrastructures.

Non-physical barriers that adversely impact on the development potential of poor countries have to be seriously contemplated. Its pre-requite is an easy, smooth and hassle-free land transport. There are several international conventions and agreements that provide opportunity to compress the time scale on implementation of TF measures once these conventions are complied. Some of these conventions are; Convention on Road Traffic, Vienna (1968), Convention on Road Sign and Signals, Vienna (1968), Customs Convention on Temporary Importation of Commercial Vehicles, Geneva (1956), Customs Convention on Containers, Geneva (1972) and Convention on the Contract of International Carriage of Goods by Road (CMR), Geneva (1956) (Ojha, 2003:12).

Transportation and logistic have restricted the opportunities of LDCs to explore regional and global markets. This has significantly increased the cost of doing business and adversely affected growth, employment and poverty reduction. The major problem confronting Nepal, is therefore, the transit and transport-related hurdles for reducing pilferage, loss/damages and transit time.

Since the containerization and multi-modal transport system contributes significantly in bringing about the efficiency on the supply chain management by streamlining transit trade; this paper focuses basically on the multimodal transport and trade facilitation.

His Majesty's Government of Nepal initiated the World Bank/ IDA financed US $ 28.5 million Nepal Multimodal Transit and Trade Facilitation Project (NMTTFP) basically with double objectives. The principle objective was to reduce transport costs associated with Nepal's imports and exports and secondly to streamline trade and transit procedures in order to improve the efficiency and organization of transit trade documentation and data exchange. The progress report of March, 2003 of the Ministry of Industry, Commerce and Supplies states seven objectives under the trade facilitation components;

1.Improve Nepal's transit transport operations,

2.Implement trade facilitation measures,

3.Modernize transport-related legislation,

4.Prepare an express procedure for transit of containerized cargo by rail,

5.Establish a MOC based technical team,

6.Promote the benefits of the multimodal transport concept on the Nepal/Kolkatta corridor,

7.Offer standard carrier insurance policies to the road haulage industry.

The success of these objectives however much depend on an uninterrupted railway movement, exchange of cargo information between gateway port and Inland Container Depot (ICD), creation of legal regime for road and rail mode of transport and an introduction of Multimodal Transport System. Therefore, to offer a whole range of modern infrastructures to facilitate the clearance of import and export cargo, ICDs in Bhairahawa, Biratnagar, and Birgunj were constructed. The previous two are the road based ICDs while the Birgunj-based ICD with 6 full-length railway track is connected by a broad gauge rail line with Indian border town of Raxaul. It has the capacity to shift cargo by rail not only for India-Nepal bilateral trade but for Nepal's third-country trade as well.

The NMTTFP has undertaken noteworthy activities including customs reform and modernization, legislative reform on transport operation, improving freight forwarding services, simplification, standardization and harmonization of trade and transport related documents and procedures, establishment of Export Processing Zones (EPZs) and development of ICDs. It is estimated that the movement of cargo to and from the ICD is believed to reduce the cost of transit transportation by 30 to 40% since the cargo will be diverted from road transportation to rail mode. Nonetheless, progress in developing integrated physical facilities at four land custom stations of Biratnagar-Jogbani, Birgunj-Raxaul, Bhairahawa-Sunauli and Nepalgunj-Rupaidiha is not satisfactory.

Nepal's alternative route to the sea through Bangladesh or Tibet is not feasible for large freight movements. Alternative additional transit port at Mumbai and Kandla is under consideration for the movement of third country trade traffic. The diversification of Nepal's transit trade is pursued through the road transits route of Kakarvita-PhulbariBanglabandh which call for using a 45 km land route through India to reach Bangladesh. There is, however, a dire need to develop adequate physical infrastructure and efficient operational arrangements.

Proper analysis of overall economic cost is contingent to framing appropriate strategies that should include; transport cost, loss and damage, inventory costs due to delays in transit, and the shipping costs to the ports of exit/entry that are incurred when there is an important shipping rate differential between the land route and railroad. It is argued that the container terminal at Mumbai can provide direct sailings to European or other destinations by avoiding transshipment at Singapore and feeder service, it can reduce transit costs by about US $ 400 per 200-foot-equivalent unit. A study on Mumbai-Birgunj corridor as an alternative port needs to be investigated for increasing the level of competitiveness.

The UNCTAD assisted components of trade facilitation measures including customs reform and modernization with the introduction of Automated System of Customs Data (ASYCUDA) and the implementation of Advanced Cargo Information System (ACIS) have yet to be consolidated and integrated within the relevant national institutions.

Foremost, Nepal's trade policy is inextricably linked with India, because of the high propensity of total trade arrangement with India and secondly, because of the significant quantity of Nepali goods exported through Kolkata port. Gateway port of Kolkata and Haldia share 98% of Nepal's third country traffic in volume terms. The transit treaty between Nepal and India requires clearance of Cargo at Kolkata and land border station by filing the Customs Transit declaration. Efforts should be made to develop simplified cargo-customs procedures, including transit to reduce transaction costs. Therefore, trade facilitation and institutional structure should be well-developed for effective implementation of legal and regulatory policies.

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