Shyamal Krishna ShresthaShyamal Krishna Shrestha

Programme OfficerProgramme Officer

South Asia Watch on Trade, Economics & South Asia Watch on Trade, Economics & Environment (SAWTEE)Environment (SAWTEE)

KathmanduKathmandu

1.1. ObjectivesObjectives

To provide a background on trade facilitation To provide a background on trade facilitation (TF) as part of a ‘single undertaking’ under (TF) as part of a ‘single undertaking’ under the ongoing Doha Round trade negotiations, the ongoing Doha Round trade negotiations, launched in 2001launched in 2001

To present Nepal’s situation on TF from a civil To present Nepal’s situation on TF from a civil society perspectivesociety perspective

To examine current debates on TF based on To examine current debates on TF based on studies by international organizations such as studies by international organizations such as World Trade Organization (WTO), The World World Trade Organization (WTO), The World Bank and Organisation for Economic Co-Bank and Organisation for Economic Co-operation and Development (OECD)operation and Development (OECD)

To identify main challenges with respect to TFTo identify main challenges with respect to TF

2.2. BackgroundBackground

WTO defines TF as: “the simplification and WTO defines TF as: “the simplification and harmonization of international trade procedures”, harmonization of international trade procedures”, whereas trade procedures are the “activities, whereas trade procedures are the “activities, practices and formalities involved in collecting, practices and formalities involved in collecting, presenting, communication and processing data presenting, communication and processing data required for the movement of goods in required for the movement of goods in international trade”international trade”

The Doha Declaration (paragraph 27) limits the TF The Doha Declaration (paragraph 27) limits the TF agenda to GATT 1994 Articles V (freedom of agenda to GATT 1994 Articles V (freedom of transit), VIII (fees and formalities connected with transit), VIII (fees and formalities connected with importation and exportation) and X (publication importation and exportation) and X (publication and administration of trade regulations)and administration of trade regulations)

2.2. Background (contd.)Background (contd.) TF negotiations aim to simplify customs TF negotiations aim to simplify customs

procedures and cut commerce-related red tape, as procedures and cut commerce-related red tape, as well as to enhance developing countries' ability to well as to enhance developing countries' ability to participate in international goods trade. The July participate in international goods trade. The July 2004 Framework – in Annex D – specified that 2004 Framework – in Annex D – specified that developing countries and LDCs would not have to developing countries and LDCs would not have to implement future TF obligations unless they implement future TF obligations unless they received the technical assistance necessary to do received the technical assistance necessary to do so so

Negotiating Group on Trade Facilitation (NGTF) Negotiating Group on Trade Facilitation (NGTF) formed on 12 October 2004. It has met several formed on 12 October 2004. It has met several times to further improve and clarify Articles V, VIII times to further improve and clarify Articles V, VIII and Xand X

Some progress reported despite North-South Some progress reported despite North-South divisionsdivisions

3.3. NepalNepal1.1. Nepal became the 147th member of the WTO on 23 April Nepal became the 147th member of the WTO on 23 April

2004. It is the first LDC to join the WTO through the full 2004. It is the first LDC to join the WTO through the full working party negotiation processworking party negotiation process

2.2. Trade profile:Trade profile: GNP per capitaGNP per capita US$ 260 (2005) US$ 260 (2005) Trade per capitaTrade per capita US$ 122 (2002-04) US$ 122 (2002-04) GDP to trade ratioGDP to trade ratio 50% 50% Share in world total exportsShare in world total exports 0.03 (2004) 0.03 (2004) (both merchandise & services)(both merchandise & services) Share in world total importsShare in world total imports 0.04 (2004)0.04 (2004) (both merchandise & services)(both merchandise & services)

3.13.1 Article VArticle V

Nepal, being a landlocked country, requires Nepal, being a landlocked country, requires transit facilities from India for trading with the transit facilities from India for trading with the rest of the worldrest of the world

The treaties of trade and transit between India The treaties of trade and transit between India and Nepal govern the rules and regulations and Nepal govern the rules and regulations pertaining to transit (barring the ‘economic pertaining to transit (barring the ‘economic blockade’ episode during 1988-90)blockade’ episode during 1988-90)

Department of Customs collects for more than Department of Customs collects for more than 50% of Nepal’s total tax revenue50% of Nepal’s total tax revenue

Transit facilities disrupted occasionally due to Transit facilities disrupted occasionally due to domestic political instability such as domestic political instability such as bandhsbandhs and and strikes over the past few yearsstrikes over the past few years

3.23.2 Article VIIIArticle VIII Fees and levies charged are large in number, Fees and levies charged are large in number,

undertaken by individual industry associations.undertaken by individual industry associations. Customs clearance requires filling 83 documents Customs clearance requires filling 83 documents

with 102 copies and 113 signatures, totaling 22 with 102 copies and 113 signatures, totaling 22 days.days.

UNCTAD supported ASYCUDA (Automated Systems UNCTAD supported ASYCUDA (Automated Systems for Customs Data) and ACIS (Advanced Cargo for Customs Data) and ACIS (Advanced Cargo Information System) for reducing documentation Information System) for reducing documentation requirements in Bhairawa, Birgunj, Kathmandu and requirements in Bhairawa, Birgunj, Kathmandu and Biratnagar, covering 90% of Nepal’s tradeBiratnagar, covering 90% of Nepal’s trade

Single Administrative Document (SAD) introduced Single Administrative Document (SAD) introduced under ASYCUDAunder ASYCUDA

Customs reforms on the anvil, dealing with Customs reforms on the anvil, dealing with governance, institutions and infrastructure. Nepal governance, institutions and infrastructure. Nepal has committed in its Working Party Report to has committed in its Working Party Report to comply with international standards on comply with international standards on documentation procedures by 2007.documentation procedures by 2007.

3.33.3 Article XArticle X

Nepal publishes all trade-related measures Nepal publishes all trade-related measures and laws, regulations in which it is a party in and laws, regulations in which it is a party in the Nepal gazette. Plans to introduce an the Nepal gazette. Plans to introduce an official website.official website.

No known mechanisms for advance rulings, No known mechanisms for advance rulings, no single enquiry points and consultative no single enquiry points and consultative mechanismmechanism

Appeals can be made to the Ministry of Appeals can be made to the Ministry of Industry, Commerce and Supplies, within 35 Industry, Commerce and Supplies, within 35 daysdays

3.4 Nepal’s situation3.4 Nepal’s situation Trade transaction costs (TTC) remain high despite Trade transaction costs (TTC) remain high despite

unilateral, bilateral, regional and multilateral unilateral, bilateral, regional and multilateral liberalizationliberalization

Characterized by poor physical infrastructure, high Characterized by poor physical infrastructure, high transport and communication costs, inefficient transport and communication costs, inefficient customs and administrative delays at borders and customs and administrative delays at borders and ports, and inefficient payments systemports, and inefficient payments system

The ratio of the total length of all roadways to area in The ratio of the total length of all roadways to area in Nepal is 0.11 km per sq. km.Nepal is 0.11 km per sq. km.

Poor programme implementation, lack of coordination Poor programme implementation, lack of coordination among and between countries, inadequate skilled among and between countries, inadequate skilled manpower and lack of a multi-sectoral approach to TFmanpower and lack of a multi-sectoral approach to TF

Country is not able to export major products, including Country is not able to export major products, including perishable goods, due to procedural delaysperishable goods, due to procedural delays

4. Overall South Asian 4. Overall South Asian scenarioscenario Chart 1 shows that companies in mostly developing Chart 1 shows that companies in mostly developing

countries perceive border procedures as a serious countries perceive border procedures as a serious impediment to growth. Two-thirds of companies in impediment to growth. Two-thirds of companies in South Asia perceived customs and foreign trade South Asia perceived customs and foreign trade regulations to be a major or moderate obstacle for regulations to be a major or moderate obstacle for their businesstheir business

As small and medium enterprises create most new As small and medium enterprises create most new jobs in low-income countries, surveys show that they jobs in low-income countries, surveys show that they are more negatively affected by inefficient customs are more negatively affected by inefficient customs procedures than are multinational enterprisesprocedures than are multinational enterprises

India plans to build 13 trade centres along its India plans to build 13 trade centres along its borders at a cost of US$ 185 million to boost borders at a cost of US$ 185 million to boost commerce with its South Asian neighbours. Eight will commerce with its South Asian neighbours. Eight will be developed along India’s border with Bangladesh, be developed along India’s border with Bangladesh, four along the border with Nepal, and one with four along the border with Nepal, and one with PakistanPakistan

5. Economic impact of TF (see 5. Economic impact of TF (see OECD, 2005)OECD, 2005)

On trade flows: positive link between trade On trade flows: positive link between trade facilitation and trade, significantly facilitation and trade, significantly increased trade for even modest increased trade for even modest reductions in TTC, esp. for developing reductions in TTC, esp. for developing countriescountries

Improved customs procedures – especially Improved customs procedures – especially in ports – increase trade flows, in ports – increase trade flows,

All trading countries stand to gain, viz., All trading countries stand to gain, viz., exporters and importersexporters and importers

Underscores the need for unilateral action Underscores the need for unilateral action

5. Economic impact of TF 5. Economic impact of TF (contd.)(contd.)

On government revenue: Raising efficiency of On government revenue: Raising efficiency of weak customs administration has a positive weak customs administration has a positive impact on revenue collectionimpact on revenue collection

Curbs smuggling, narrows the gap between Curbs smuggling, narrows the gap between ‘actual’ and ‘potential’ revenue‘actual’ and ‘potential’ revenue

On FDI: Insertion into global production On FDI: Insertion into global production networks rely on timely delivery of imports and networks rely on timely delivery of imports and exportsexports

Efficient TF reduces hassles and red-tape and Efficient TF reduces hassles and red-tape and determines investment decisionsdetermines investment decisions

6. Challenges6. Challenges

Technical assistance and capacity building Technical assistance and capacity building required, especially for LDCsrequired, especially for LDCs

Required from developed WTO Members and Required from developed WTO Members and international agencies under ‘aid for trade’ international agencies under ‘aid for trade’ packagepackage

Bilateral and regional cooperation is also Bilateral and regional cooperation is also necessarynecessary

Individual countries must also address supply Individual countries must also address supply side bottlenecks and allocate resources in an side bottlenecks and allocate resources in an optimal manner for development prioritiesoptimal manner for development priorities

7. References7. References Thennakoon, J; and D. Weerakoon. 2006. Thennakoon, J; and D. Weerakoon. 2006. Trade Trade

Facilitation in South Asia: Doha Round and Beyond.Facilitation in South Asia: Doha Round and Beyond. Briefing Paper. No. 2. Kathmandu: SAWTEEBriefing Paper. No. 2. Kathmandu: SAWTEE

Engman, M. 2005. Engman, M. 2005. The Economic Impact of Trade The Economic Impact of Trade FacilitationFacilitation. Trade Policy Working Paper 21. Paris: . Trade Policy Working Paper 21. Paris: OECD (http://www.oecd.org/trade)OECD (http://www.oecd.org/trade)

His Majesty’s Government of Nepal. 2004. His Majesty’s Government of Nepal. 2004. Nepal: Nepal: Trade and Competitiveness Study.Trade and Competitiveness Study. Kathmandu: Kathmandu: Ministry of Industry, Commerce and SuppliesMinistry of Industry, Commerce and Supplies

Wikramasinghe, U. 2004. Wikramasinghe, U. 2004. A Multilateral Approach to A Multilateral Approach to Trade Facilitation in South Asia.Trade Facilitation in South Asia. Discussion Paper. Discussion Paper. Kathmandu: SAWTEEKathmandu: SAWTEE

World Trade Organization (WTO)World Trade Organization (WTO)

THANK YOU!THANK YOU!