As it becomes the first Least Developed Country (LDC) to be granted the full-fledged membership of the World Trade Organization (WTO) through the process of negotiations, Nepal’s business community, farmers and even the officials are wary about the future and the likely benefits this poor Himalayan Kingdom could accrue out of the global free trade regime. Even as a trade toddler Nepal becomes the 147th member of the WTO, its straggling private sector, unorganized agriculture sector, poor infrastructure, weak government and feeble economy do not provide an encouraging base to launch a competition with global giants. However, if prudent policies and practices are adopted, the WTO can also provide a launch-pad to Nepalese economy as it now puts Nepal in a same legal plank as any other WTO member state opening untold volume of opportunities

By SANJAYA DHAKAL

On Friday (May 14), hundreds of farmers of Chitawan district located in the western part of the country, dumped hundreds of kilograms of their fresh vegetables in the main road. Around 300 farmers of the district dumped 500 quintals of fresh vegetables worth nearly a million rupees in a protest to the week-long ban on the movement of cargo vehicles imposed by the Maoists.

Farmers of Chitawan district are leading agriculture producers of the country. But due to the persistent strikes, the farmers were losing millions of rupees everyday. Due to strike in transportation their fresh vegetables and other produces were decaying in absence of proper cold storage facilities. As a result, the farmers were forced to dump their precious production in the street to draw the attention to their plight.

At a time when farmers of Nepal are reeling due to insecurity, insurgency, market denial, lack of basic facilities and so on, the country has embarked on the path of global rule-based trade regime by becoming the latest member of the World Trade Organization (WTO). Even as the farmers are not fully protected within the national frontiers, they now have to face challenges that will come from across the world in the years ahead.

The membership of WTO means that the country will now have to open up its domestic market to imports from elsewhere and at the same time enjoy the access (for its products) to the global markets. While it is not clear how the ill-equipped Nepalese farmers and private sector will be able to make use of the access, they will certainly face more heat once cheap products from elsewhere flood the domestic market.

Track Record

One of the poorest countries in the world, Nepal wholly relies on foreign aid for its development. Its internal revenues are just enough to cover regular expenditure, which, too, have been sky-rocketing thanks to increased defense expenses needed to counter the raging Maoist insurgency. It is one of the poorest countries in the world outside the Sub-Saharan Africa with the per capita income of USD 250 in nominal terms and USD 1450 in Purchasing Power Parity (PPP) terms. Its population is over 23 million.

In trade, Nepal has abysmal records. It doesn’t have many goods or services that it has been exporting extensively. Apart from tourism, exporting carpets and garments are the top two foreign exchange earners of Nepal at present. The current export-mix of the country is also not favorable in the long run. Its foreign trade is characterized by heavy concentration on few products – readymade garments and carpet accounted for 60 percent of all export earnings; and limited import and export destination. Exports to Europe and North America occupy 50 % of all exports; and around 40 % of imports come from India alone. Its geographic location as a land-locked country has not helped the matter either. Distance to the nearest port in India is 660 miles.

Experts say that outright liberalization of custom barriers could bleed the nation’s revenue as it still depends heavily on customs. “Unlike developed countries like USA, which will lose only 1 percent of their revenue by liberalizing customs, Nepal stands to lose staggering 20 percent by doing so,” said Dr. Hiramani Ghimire, chief advisor, Management Research and Training Academy.

In this background, the country’s entry into the WTO has raised many questions. “Even we stakeholders are scared. We don’t know how we are going to compete in global arena in the days ahead,” said Rajendra Kumar Khetan, a leading industrialist and convener of the WTO Cell at the Confederation of Nepalese Industries (CNI). “The government has committed to open up service sector and tear down revenue barriers. But it has to do so in such a way that the impact on domestic industries will be minimal,” said Surendra Malakar, vice president of Nepal Chamber of Commerce (NCC).

Impact On Agriculture

Likewise, the impact on agriculture, too, could be severe. “The entry into the WTO for us is just like asking a two-year-old toddler to fight with a giant wrestler,” said Keshav Badal, the immediate past president of All Nepal Farmers’ Organization (ANFO) – the largest farmers’ organization in the country.

Around 40 percent of Nepal’s GDP is covered by agriculture. It provides employment to nearly 80 percent of population. Mostly, the agriculture in Nepal is subsistence-based and not commercialized. Already the government has withdrawn most subsidies from the agriculture sector. “As it is we are already competing with the Indian farmers who get heavy subsidies from their government on irrigation, power, cold storage, fertilizers and so on. For instance, price of one sack of fertilizers in Jumla of north-western Nepal is six times more than that in Raxaul – a bordering Indian town. How can we expect Nepalese farmers to compete when the playing field is not level?” asked Badal, who has been involved in the farmers’ movement for the last three decades and who is also a member of the Standing Committee of the Communist Party of Nepal (Unified Marxist Leninist) – the largest party in the dissolved parliament.

Badal rues the absence of government initiatives to create an inventory of biodiversity of the country and register it for patent sake. “Nepal is quite rich in terms of biodiversity as well as different varieties of cereal crops, herbal medicines and vegetables. But in absence of proper initiatives to register their patents, we could land in trouble once the WTO takes over and multi-nationals start coming with their hybrid seeds,” he said.

Some experts and civil society representatives, too, agree that Nepal is not yet ready to face the global competition in trade. Dr. Shibesh Chandra Regmi, country director of the ActionAid, an INGO that is working in the sector of poverty alleviation, said, “It is a fact that most farmers are not even aware about WTO or how it could affect their livelihood. Nepal is grossly ill-prepared and needs to do a lot of homework soon if it is to survive amid WTO.”

However, Ratnakar Adhikari of the South Asia Watch on Trade Economics and Environment (SAWTEE) has a different argument. “The WTO rules have provisions for Green Box subsidies – including subsidies on environment, pest control, research & development – which can continue; and Amber Box subsidies – including those given on fertilizers, irrigation and so on which does not exist in Nepal – which must be brought down below 10 percent of total agricultural GDP. So, I don’t think, subsidies are going to be any problem for us,” he said.

By joining the WTO, Nepal can now fully enjoy the rights that all members have under the WTO agreements, such as non-discrimination by other WTO members and the ability to use the WTO’s dispute settlement procedure.

In return for those rights, like all WTO members, Nepal has accepted some obligations under the WTO agreements. As a result of the negotiation, Nepal has agreed to open up 11 services sectors initially. In tariffs front, Nepal has accepted an average tariff binding of 42% in agricultural products and around 24% in industrial goods.

Nepal has also promised to implement fully the provisions of the Agreement on Sanitary and Phytosanitary Measures by 1 January 2007 following an action plan in different stages which started with the adoption of the Food Act and the implementation of Codex Alimentarius, and will continue with the establishment and operation of a single enquiry point.

As a least-developed country, Nepal is preparing the new Industrial Property (Protection) Act, which would incorporate all the substantive provisions of the TRIPS Agreement. It would cover all categories of industrial property and would incorporate the basis for an adequate enforcement and be promulgated no later than 1 January 2006.

Officials say that being an LDC, Nepal could negotiate for the WTO membership in flexible terms and conditions. Hari Bahadur Basnet, the outgoing minister for Industry, Commerce and Supplies said, “It is our conviction that joining this organization would not only enhance our effectiveness and efficiency in trading capacity but would also result in expansion of trade, leading to a higher level of growth and enhancement of quality of life of our people.”

In fact, Nepal had been working to join the global rule-based trade regime for the last 12 years – since 1989 when Nepal first tried to get the membership of General Agreement on Trade and Tariff (GATT), which is the predecessor of WTO.

In its fifth ministerial meeting held in Cancun, Mexico in 2003, Nepal and Cambodia – two LDCs – had been granted membership. As per the WTO provisions, Nepalese government had to ratify the membership within six months to get the full-fledged membership. The cabinet had ratified the membership a month ago and had communicated the same to the WTO Secretariat. As a result, Nepal was granted the full-fledged membership with all the responsibilities and rights of WTO member on April 23.

“The efforts of the last 12 years were the easier part. Now we have to work hard to extract benefit from the WTO membership,” said Prachanda Man Shrestha, joint secretary at the Ministry of Industry, Commerce and Supplies (MoICS).

Nepal now needs to amend around 24 laws and 14 regulations to conform with the WTO rules. Although there is a palpable sense of nervousness among both officials and business community; they, however, agree that there was no way out of WTO net.

Benefits Of WTO

“A whopping 97 percent of total global trade is conducted among WTO members. So, it is also a matter of relief for Nepal that it is now a part of that network,” said Dinesh Chandra Pyakurel, Secretary at the MoICS.

Even Badal who belongs to a communist party agrees. “We cannot remain isolated in this age. But we must be active to protect our interests and rights,” he said.

Likewise, as an international trade researcher and a director of Washington-based Progressive Policy Institute (PPI) Edward Gresser notes, “As a WTO member, Nepal is on a legally equal basis with the U.S., India, China and the European Union and other large economies. By setting some clear priorities in the “Doha Development Agenda” talks, the Nepali government can reshape the country’s trading environment in a more fair and favorable way.” According to him, “The good news is that as a WTO member, Nepal has a great deal more power and influence than before, and can use them to address these problems and take greater advantage of the opportunities.”

Among many things that Nepal now needs to carry out include amending its legislations, building institutions, enhancing capabilities, identifying and promoting products/services in which the country enjoys competitive advantage, diversifying exports and so on.

There are also inherent beneficial opportunities to which the officials point out. “The strategic location of Nepal between two large economies India and China should be turned into our advantage. The combined market of over 2 billion people is in our neighborhood. We must try and exploit the potentials to our benefit,” said Dinesh Chandra Pyakurel, Secretary at the Ministry. “We must grab the possibilities of market access thrown by the trade regimes,” he said.