Why trading across borders is a challenge in Nepal?

– This article was originally published by Ashesh Shrestha in the Himalayan Times on the October 14, 2018

The comparative advantage theory of international trade which states that any country should export the goods which it produces at a relatively cheaper price and should import the goods which is relatively costlier to produce, is probably one of the most undebated and highly recognized theory in the field of economics. The reason behind this is that such trade setting benefits both trading parties and is optimally efficient. However, if the cost of cross border trade is very high, this efficiency is distorted. The cost of goods tend to be significantly higher than initially intended affecting the consumer’s welfare in both the trading countries. Hence, it becomes necessary to ease and facilitate international trade.

If we look into Nepal’s situation in trading across borders, we can observe various problems that have increased the overall cost of import and export. Nepal’s score on the trading across borders category of World Bank’s Doing Business Index reflects that there exist several problems that need to be addressed to facilitate and ease cross- border trade.

One of the problems currently faced by exporters and importers, especially small and medium ones is that lack of proper access to detailed information regarding the preparation of documents required for cross- border trade. The Custom Regulation has only specified different documents required for import and export but there is no information regarding the procedure to prepare such documents. Hence a lot of time has to be spent on gathering information for the preparation of these documents which increases the total time to be spent on complying with documentary requirements. Apart from the list of documents required for import and export, Custom Regulation also specifies the need for additional documents such as recommendations, license and certificate to be obtained from various institutions as per the prevailing law. In order to comply with this provision, importers and exporters will have to spend time to read various laws and check if these laws require them to obtain additional documents or not. This further increases the time required for documentary compliance.

Moreover, the total time required for border compliance is one of the longest amongst the land-locked countries. The manual inspections of containers has been cited by freight-forwarders as one of the reasons for such delay. Customs in Nepal have not made use of the scanners for inspection of the containers and hence the goods have to be inspected manually. This has unnecessarily increased the time required for border compliance.

According to the Customs Regulation 2007, importer or exporter may clear the goods or perform other works related to customs or they may also appoint a licensed custom agent to perform such works for them. This gives them the choice. However, while talking to the freight forwarders, it was found that traders mandatorily have to appoint a custom agent in practice. Hence, there exists discrepancy between what is mentioned in the law and what is actually in practice.
Currently, importers and exporters have to prepare physical copies of the all the documents that are required for cross-border trade. Even though Automated System for Custom Data (ASYCUDA), a computerized system designed by United Nations Conference on Trade and Development (UNCTAD) for automation of custom procedures has been adopted by Nepal, it has only been used for filing Custom Declaration or Single Administrative Document. The physical copy of all other documents along with the printed copy of Custom Declaration has to be prepared by the traders. Having to prepare and submit the physical copies to the custom authorities in both India and Nepal costs several days to the traders in Nepal. This has increased the total number of days required for documentary compliance significantly. Currently, the Custom transit Declaration (CTD) has to be made in sextuplicate by the importer. Upon arrival of goods at the Kolkata port, the Custom House endorses all the copies of CTD, hands over the original copy to the importer, sends duplicate and triplicate to Indian border customs officer by post and retains the remaining copy. Upon arrival at border land customs or border railway station, the importer has to present the original copy of CTD endorsed by the Indian Customs House of entry to Indian custom officer at border land custom station who then compares the original copy with duplicate and triplicate received by him and endorses all the copies of CTD. The Indian custom officer then hands over the original copy of CTD to the importer, sends the duplicate to Indian Custom House at the port of entry, and sends the triplicate to Nepalese custom officer. Then, after being endorsed by Nepalese Custom Officer at the corresponding Nepalese post, it retains the triplicate copy for the record.

Here, the process of circulation of copies of CTD among Indian custom house of entry, Indian custom officer at border and Nepalese custom officer has increased the border compliance while importing from third country. Use of electronic data interchange system for sharing CTD along with other documents among various parties mentioned above could significantly reduce the border compliance time.