Officials from Nepal and India meet next month to discuss trade-finally. The next three months until end-September are crucial because, by treaty, this is the window for either side to notify the other of its desire to amend the 1996 Trade Treaty which allowed unprecedented access for Nepali exports to India. If either side has something to say, the entire trading regime could change.
India began raising concerns about trade early this year, in the form of a barrage of reports in the Indian press about "dumping" of non-Nepali products. Rather than looking into these "concerns", Nepal postponed every meeting of commerce officials that was planned. Then early this year the government suddenly "promoted" a senior official at the commerce ministry-a Nepal-India trade specialist-and made him a Regional Administrator. The retirement of other government secretaries after that meant the commerce ministry would be playing a new hand.
Nepali business sensed these early warnings and held several rounds of meetings with its Indian counterparts, and early this year agreed on a thorough review of trade before coming to any conclusions. That process is now complete and business sources on both sides say they have found a way to keep the broader trading regime unchanged. "We don't think it would be wise to touch the main treaty," says Prabhakar Rana, who is vice-chairman of the Joint Economic Committee of the Confederation of Indian Industry (CII) and the Federation of Nepalese Chambers of Commerce and Industries (FNCCI), two business groups that lobbied jointly for the treaty. "Even CII members and Indian officials are concerned about some products, but we believe we can suggest ways to address them." Rana was in New Delhi last week where both organisations reviewed trade and agreed on some joint recommendations to ensure the main Treaty of Trade can be renewed automatically. The two sides are expected to pass on recommendations to their respective governments by August.
Sources told us tentative agreements have been reached on dealing with fly-by-night companies, which, India charges, re-export semi-finished imports. The CII and the FNCCI are also working on ways to handle borderline products, which India does not think are real manufactures. One possibility is introducing value addition as criterion to qualify for duty-free export to India for products using imported raw materials. This would not apply to products using Nepali or Indian raw material. The two sides have also come to an agreement on ways to monitor "manufacturing", by requiring products to undergo a one-digit change in the four digit harmonised code as proof of process. The CII and the FNCCI are also to recommend ways to define "surge"-still another Indian concern-to ensure that trade lobbies and interest groups do not use treaty provisions to make frivolous complaints or seek protection.
Contrary to reports in the Indian media both the CII and the FNCCI are convinced that the treaty has benefited both countries. Every year Nepal exports about IRs 3 billion worth of goods to India and imports about IRs 2.7 billion worth of Indian goods. Around 250 Nepali products have been certified for duty-free export, of which about 50 actually sell something. Of these, the exports of only around 10 are significant. FNCCI sources say value addition may sound restrictive but that it is the only way to go, as it addresses Indian concerns but also forces Nepal-based industries to add more value-and ensure that real industrialisation takes place. Unofficially, even today Nepal has in place a provision to check value addition (about 20 percent) on exports when companies file for duty-drawback refunds. That may now become an official requirement of 30 percent. Surprisingly, even today, many of the six "problem products"-vanaspati ghiu, zinc oxide, copper wires, black pipes, acrylic yarn and plastic bags-singled out as not being genuine manufactures pass the value addition test. Both the CII and the FNCCI feel that rather than restrict imports of borderline products immediately, the industries should be given time to add value.