For an industry beleaguered by continuing decline of exports, the decision by the European Commission to prolong derogation from GSP rules of origin for certain textile products has come as a rare piece of good news.

The EC has recently decided to prolong Nepal’s exemption from the GSP rules of origin for certain textile produces for next two years. This derogation would allow Nepalese garment manufacturers to take advantage of lenient Rules of Origin to penetrate the European market – which they have not been able to do in the past few years. The derogation will also allow them greater flexibility in choosing from where they want to obtain raw materials.

As per the request made by Nepalese government as well as garment manufacturers, the Commission decided to prolong the preferential access till 31 December 2008. “However, it will be subject to a review when the future new GSP rules of origin are decided. The new GSP rules of origin are expected to be more development friendly than the present one,” said Mr. Eduardo Lechuga-Jimenez, the Charge d’ Affaires of the Delegation of the European Commission to Nepal.

Since Bulgaria and Romania also became members of the European Union on 1 January 2007, Nepal may also export to them under the GSP and in particular under the derogation.

“This is pure promulgation, with no change in the terms or conditions of the derogation, therefore, the products covered, countries from which materials may be sourced and the levels of the quantitative limits all remain exactly as they are at the present,” states a press release issued by EC office in Kathmandu.

Nepal has been enjoying such preferential access to Europe for certain textiles since 1997.

However, till now European markets occupy minuscule share of exports of Nepalese garments. Over 80 percent of readymade garments from Nepal are exported to the United States. Canada is the second largest market followed by Europe.

Ever since the Multi Fibre Agreement (MFA) expired from January, 2005, Nepal’s growth volume has continued to fall as US withdrew quota and duty facilities. In 2005, the garment exports fell by around 41 percent. According to the Garment Association of Nepal (GAN), in 2006 garments worth US$ 47.7 million were exported to the US compared to the exports worth US$ 50.7 million in 2005 – a fall of 6 percent. In 2006 alone, over two dozen garment industries shut down.

In its heydays, during 2000/01, Nepalese garments used to export their products worth around 14 billion rupees – mostly to the US – and they used to be one of the largest foreign exchange earning industry. Now, it has crashed by over 60 percent.