Why Nepal scores low in cross border trade

-By Akash Shrestha

This article was originally published in The Himalayan Times on 14 February 2016.

The way global economies operate today is— countries produce what they can at cheaper prices than other parts of the world, export them, and use the proceeds to import goods and services that other countries produce at cheaper prices. The world is now so significantly inter-connected that living a normal life and engaging in day-today economic activities is almost impossible without cross-border trade. What that implies to global economic actors is that the pace of this movement of goods and services across borders plays a substantial role not just in promoting economic growth but also in maintaining the economy. But trading across borders is where Nepal scores below par vis-à-vis a lot of other developing economies. Understanding some of the nuances of Nepal’s regulatory provisions relating to international trade and those of Nepal-India trade and transit provisions will thus shed light on some of the factors hindering Nepal’s economic growth, and there are some preposterous ones.

Begin introspectively

World Bank’s Doing Business Report 2016 shows that it takes processing of 10 documents and costs as much as 78 hours of time and USD 236 worth of monetary cost to import one container of goods into Nepal. Other land-locked countries get it done with just five documents, within 10 hours and around USD 150 worth of monetary cost. If trade through land is the only viable means of engaging in crossborder trade and we impose so much regulation on ourselves, when do we trade?

Going beyond borders

Once we move beyond Nepal’s borders and delve into Nepal-India transit provisions, we begin to see more reasons as to why Nepal has not been able to keep pace with other developing countries in terms of cross-border trade. Let’s look at, for example, the proposition by India (in 2013) to allow it to put a One Time Lock on Nepal-bound containers. It would mean that Nepali traders would have to pay an additional small sum (less than USD one) to get the lock, but in return, they would be able to release and transport their containers faster. The Ministry of Commerce and Supplies had agreed to the terms. But Nepal’s Ministry of Foreign Affairs took this proposal as a direct threat to Nepal’s sovereignty and stalled the process. The proposed changes in transit arrangements did not materialise. This sensitisation in the name of national sovereignty has deprived Nepal of other benefits that would otherwise accrue to the economy.

More than sovereignty at stake

One of these benefits that we never got to reap is the use of Vishakhapatnam port to transport Nepal-bound goods-in-transit. Currently, only the Kolkata port is in use, meaning, goods coming from all over the world enter Nepal via this port. Vishakhapatnam port would have given additional options to Nepal. Trading with the western world would be easier, cheaper and faster, if ports in western India could also be used by Nepali traders. India’s willingness to allow Nepal to use other ports is a manifestation of their own interest to ease trading across borders for Nepal. This case could be used to negotiate with India to allow Nepali traders to use other ports if it means trading gets easier, faster and cheaper. There are many privately-managed ports in India that are even more efficient than the Kolkata port. Presumably, these ports would not grace Nepali traders with the same benefits that the Kolkata port is allowing, but in return, Nepal would be able to take advantage of the competition among various ports. Like aforementioned, time is key. If goods can be transported faster, that means greater volume of trade and more economic activity.

Third country goods

Provisions worth discussing are aplenty. For instance, we cannot import third country goods from India. Now with India being liberalised, it may sometimes become faster and cheaper to import third country goods from India itself. Besides, our orders are sub-optimal in quantity. Yet, we go on insisting that we will not allow import of third country goods from India paying full duty. Similarly, getting multimodal bill of lading and allowing transhipment would mean that international shippers could bring goods up to the Nepal border. That would mean that the shippers would themselves bear the responsibility of transporting containers back to the port. Currently, Nepali traders have to bear this responsibility and failing to return the containers within two weeks renders them liable to pay demurrage. Transaction cost could be done away with using these provisions.

Back to the drawing board

Things are indeed easier said than done. However, given the role that trade plays in the economy today, it is absolutely imperative that Nepal gets serious about reviewing both the Nepal-India Transit provisions and the regulatory provisions we have put in place within our very borders for cross-border traders. At a time when the economic progress of an economic actor depends on how quickly one can identify demand in the market and respond, it should be unacceptable that Nepal cling to decades-old agreements with India and refuse any update in the name of false national integrity. Some reforms have already been agreed to in principle. Nepal should, at once, go back to the agreements made in the past at Nepal-India Inter-Governmental Committee meetings and expedite concurrence so that the agreed terms and conditions can be implemented. On other issues that have not been covered already, the more we shy away from reforms, the more we lose