Wednesday, December 29, 2010

Nepal’s industrial and export interests in the Doha Round

My last op-ed for this year! It is about Nepal’s industrial and export interests in the upcoming Doha Round of trade negotiations under the WTO. I outline what Nepal’s interests are, what it should do, and why it should align with the LDCs in trade negotiations.

Doha Round & Nepal

Amidst the euphoria and repeated interaction between ministry officials and businessmen regarding cash incentives on exports, there is a different storm brewing, albeit quietly, in the international trade regime. Trade analysts and representatives in other countries are gearing up to outline country agenda for the next Doha Round (DR) of trade negotiations under the WTO. While they are working on ensuring the reflection of their domestic industrial and export interests in the upcoming trade negotiations, and possibly a passage of the DR, Nepali bureaucrats, industrialists and exporters are running after cash incentives on exports. They seem to be oblivious and unbothered by declining exports competitiveness and our national agenda for the next round of trade negotiations.

In 2011, the DR will dominate trade talks globally. Unfortunately, our bureaucrats and business community are unprepared for this. They are oblivious of our industrial and export interests and how to include them in common agenda of Least Developed Countries (LDCs).Their unpreparedness and halfhearted engagement in trade talks should not be surprising. Precisely because of this, since Nepal joined the WTO on April 23, 2004, becoming the first LDC to join the trading bloc through full working party negotiation process, its exports performance has been very disappointing.

For starters, Doha Round, which started in November 2001, is the ongoing trade negotiation round that aims to lower trade barriers globally. Multiple rounds of negotiations failed because of disagreement over agricultural subsidies in the US and the EU, industrial tariffs and non tariff barriers, services and special trade measures. The latest negotiation broke down due to India’s insistence on the inclusion of special safeguard mechanism (SSM), a measure designed to protect poor farmers by allowing countries to impose tariff on certain agricultural goods in case of rapid price volatility. Though it is believed that the developing countries would benefit from the passage of the DR, various studies show only a handful of countries would reap the benefits.

Not only do we don’t know the developmental impact of the DR, we also have no clue how specifically it will aid Nepal’s industrial and export sectors. The most reasonable estimates show that Nepal would see meager gains. A World Bank study showed that total gains from the DR would be as low as $96 billion and only $16 billion would go to developing countries. Worse, half of all the benefits that would go to the developing countries would be reaped by just eight countries (Argentina, Brazil, China, India, Mexico, Thailand, Turkey and Vietnam). For South Asia, real income gains would be about US$2.5 billion. India alone is expected to gain US$ 1.7 billion. That leaves US$ 0.8 billion for the rest of South Asia. It shows that there is very little gains at store for Nepal. Worse, terms of trade, the relative prices of a country’s export to import, is expected to worsen, putting further strain on exports and hurting net food importer LDCs like Nepal. Additionally, another study by Carnegie Endowment shows that total gains from trade would be even lower (between US$ 32-55 billion) than the WB’s estimate, with rich nations getting $30 billion; middle income countries like China, Brazil and South Africa getting $20 billion; and poor countries getting $5 billion (about $2 per head).

Even if the gains are meager, Nepal should not ignore multilateral trade negotiations. We should not be a mute spectator during trade negotiations. It should actively support LDCs’ agenda. That way it can reap benefits offered to all LDCs plus lobby for special measures to ramp up our industrial and export sectors.

Nepal should be pushing for the inclusion of its industrial and trade interests in LDCs’ common agenda. Since a substantial portion of our trade happens with our neighbors, our bureaucrats and negotiators, while supporting LDCs’ agenda, should also push for special concessions such as greater transit rights and non tariff barriers to landlocked LDCs. Pushing for favorable trade measures to exploit regional markets is in our national interest. It will further help penetrate regional markets, where the transaction and transportation costs related to trade are lower than in the EU and the US. Mind you, the latter markets are also important, but all LDCs will have uniform privileges in these markets. Nepal needs those privileges plus greater preferences in the regional markets, where trade complementarities are pretty high.

There are a few LDCs’ agenda that Nepal should support. First, seeking duty-free, quota free (DFQF) trade commitment on all products is in both Nepal’s and LDCs’ interests. The developed countries should agree to this even before the DR negotiations begin next year. It will show seriousness of the developed countries in creating a more liberal trade regime than the existing one, and assure other countries that protectionist measures, especially after the global economic crisis, will not cloud over progress made so far in multilateral trade regime. Since DFQF on all products would erode marginal preference enjoyed by some developing countries, Nepal should also push for securing some sort of marginal preference, over and above DFQF applicable to all LDCs. This could come in the form of low non tariff barriers and relaxed rules of origin for market assess in key regional and nonregional destinations. These are needed to sustain our exports given its existing level of low product sophistication and diversification. Furthermore, convincing and winning India’s confidence in our trade structure and system is in our long term national interest regarding industrial, export and economic growth.

Second, Nepal should also confirm to LDCs’ agenda on “bio-piracy”, which is the use of genetic resources and associated traditional knowledge without benefit sharing and prior consent. Nepal should push for full disclosure on the use of bio products native to a certain indigenous group, community or country. Third, on issues of intellectual property rights (IPR), especially concerning patent on medicines secured by western multinational pharmaceutical companies, Nepal should back LDCs’ agenda that such patents should not compromise on public health needs of the developing countries.

Fourth, regarding Aid for Trade (AfT), it is in our interest to seek adequate, reliable, and predictable funding for not only developing human resources and technical aspects of trade, but also concrete aspects such as funds for the construction of infrastructures along major trading routes. For instance, allocating meager sum of money for building awareness and technical capacity regarding trademarks and packaging will do little to overcome supply side constraints such as lack of roads, electricity, communication and storage facilities. Ensuring the latter would directly aid trade, employment and growth. Note that sometimes for small and medium enterprises, which are the mainstay of our economy, the cost of protecting trademark at the global level is higher than the total revenue generated from sales of such products. Nepal should push for a special facility whereby funds are available to fight trademark breaches in the international market.

Nepal needs smart bureaucrats and negotiators to not only fully understand both domestic and multilateral trade agendas, but also the art of successfully pushing for the inclusion of purely domestic industrial and export interests in the common agenda of LDCs. Along with largely confirming with the position of LDCs for the upcoming DR negotiations, Nepal should also seek greater preference, concession and market access, especially in the regional markets, where it has relatively higher competitive advantage than in the nonregional markets.

[Published in Republica, December 26, 2010, p.6]