Friday, December 20, 2013

Lots of agenda, a dearth in implementation

Analysis: Nepal-India IGC

Nepal recently completed election to the Constituent Assembly (CA) and India is preparing to hold a parliamentary election early next year -- a political situation that is bringing together trade officials of both neighbors to the negotiating table within a couple of days.

The Inter-governmental Committee (IGC) -- commerce secretary-level meeting, which is going to be held in Kathmandu from Saturday to Monday after a gap of two years, is crucial for the promotion of bi-lateral trade.

With Nepal suffering from a ballooning trade deficit, especially with India -- Asia’s third largest economy -- trade officials of the both countries are holding a discussion on around three dozen issues including trade facilitation, control of unauthorized trade, dispute resolution measures, and other trade related issues.

“We have set agendas in consultation with Indian officials by incorporating long-running as well as emerging issues which are crucial to facilitate Nepal’s trade with India and overseas countries and bring down the surging trade deficit of our country,” a high-level source at the Ministry of Foreign Affairs told Republica. However, most of the issues agreed on earlier are still to see implementation from both sides.

Nepal’s trade deficit increased by 6.3 percent, to touch Rs 180 billion, in first the four months of the current fiscal year.

Bilateral trade has been skewing toward India -- the largest trade partner covering two-third of Nepal’s trade -- due to a weak supply capacity compared to import volume.
Nepal imported goods worth Rs 137.87 billion from India while its export to South Asia’s largest economy was limited to Rs 18.85 billion during the review period.

Dibakar Golchha, who is knowledgeable on Nepal-India trade issues, said Nepali officials should seek Indian support on facilitating the entry of Nepali goods to overseas and Indian markets.

“Nepal should request India to remove quantitative restriction on export of Nepali vegetable ghee, copper wire, zinc products and pharmaceutical goods, and review the flawed formula of determining value addition level for Nepali exportable goods,” said Golchha, a former vice-president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI).

Under the transit facilitation measures, both sides will discuss amending the existing Nepal-India Treaty of Transit to replace the current provision of mandatory transportation of imported vehicles by containers by introducing a new provision of on-its-own-power system.

Nepali traders complain that India has been enforcing the provision of compulsory transportation of vehicles which, according to traders, has increased their transport costs by five fold.

The Nepali side is also proposing amendment of the treaty that has barred export of goods imported from third countries via Indian transit route. Restriction on outflow of overseas goods through Indian ports has created difficulty in repatriating such goods mainly imported for trade fairs and different projects.

In a bid to pave the way for Nepal to use alternative routes for international trade, officials will discuss opening up additional routes for bulk operationalizing multimodal transport link in Kolkata-Jogbani-Biratnagar, and Kolkata-Nautanawa-Sunauli-Bhairawa routes.

Officials from both sides will discuss the implementation process for trans-shipment of Nepal-bound third country cargos via Kolkata, a system which will allow transportation of goods directly to the Nepali border without going through port and customs-related hassles in Indian ports.

Amid a prolonging process of renewal of the bi-lateral Railway Service Agreement (RSA), the IGC meeting will see discussions on expediting the process for clearance of Letter of Exchanges (LoEs) for bringing into operation the already existing five railway routes that Nepal can use for trade with other countries, including Bangladesh.

Delay in giving approvals on LOEs from the government of both countries has put the RSA renewal in limbo. So, the Nepali team is proposing introducing a system of automatic renewal of RSA.

Putting forth a condition for imposing a system of additional lock on Nepal-bound containers carrying overseas imports, India has been denying renewing RSA with new provisions which, among others, includes operationalizing Vishakhapatnam port as an alternative to the Kolkata port where Nepali traders have been facing a host of procedural problems in clearing goods. However, Nepal has not accepted the additional lock in Vishakhapatnum, though such a system was put in place by India in Kolkata unilaterally a couple of years back.

Just as in previous meetings, both sides will seek ways to minimize cross-border unauthorized trade by activating respective customs and security agencies.

On the back of growing complaints from Nepali traders against frequent imposition of Counter-veiling Duty (CVD) on Nepali export by Indian states, Nepali officials will ask India to revenue the duty that ranges from 6 percent to 12 percent depending on products.

Such additional duty has increased the price of Nepali products, weakening their competitive power with the southern neighbor.

“Upholding the spirit of the bi-lateral trade treaty, India has to remove CVD for Nepali products as this facility has already provided to goods from Bangladesh and Bhutan,” Golchha said.

During the talks, the Nepali side will also seek settlement of outstanding dues to be received by the Nepali government from Indian authorities under the Duty Refund Procedure (DRP). Though India agreed to scrap DRP in 2011 in line with the Nepal-India Trade Treaty signed in 2009, Nepal has yet to recover outstanding DRP dues.

Nepali traders had long been opposing DRP, stating that it is a time-consuming process of claiming back the amount that the Indian government charges on imports from India as central excise duty.

Under the DRP system, the amount paid by Nepali importers as central excise duty to the Indian government used to be deducted from the import duty that they were required to pay to the Nepali government. The Nepal government later used to claim the deducted amount back from India.

Indian officials are also seeking removal of non-tariff barriers from Nepal for Indian ayurvedic and pharmaceutical products and reduction of customs duty on cement and clinker from India.
Mutual recognition of quality certificate issued by the designated authorities of both the countries, removal of customs duty for Indian cement and clinker and abolition of agriculture reform fee on import of primary farm products from India are also among the agendas to be discussed under trade facilitation measures.

Keeping in view the long-running dispute over dues to be paid by both Indian and Nepali companies to their respective governments, the meeting is expected to set out measures to resolve the problem in an amicable fashion.

Under the trade-related issues under discussion at the meeting, trade officials will also discuss ways to allow circulation of Rs 500 and Rs 1,000-denomination of Indian notes, minimizing the chances of circulation of counterfeit notes.

In a bid to facilitate Nepali traders, who have been facing non-tariff barriers in exporting farm goods, the Nepali negotiators will ask the Indian side to simplify the process to allow the entry of such products -- mainly perishable – into the Indian market.

Issues of trade in energy -- especially construction of transmission lines and trading of electricity -- and improvement of trading facilities across the border are also incorporated into the agenda.

Nepali officials will ask the Indian authorities to speed up the process of completing Integrated Check Post (ICP) in Birgunj and the temporary use of ICP Jogbani facility by Nepali authorities until ICP Biratngar becomes operational.

Both sides will also discuss the modalities of traffic to be diverted through ICPs at Raxual and Jogbeni so that smooth movement of goods will be facilitated in the coming days.
Besides, development of the proposed ICPs at Sunauli and Rupaidiha of India for bi-lateral trade purposes is also on the agenda.

During the meeting, the Nepali side will discuss with Indian officials ways to facilitate the Nepali private sector to import petroleum products, import of hybrid cows to increase the supply in the domestic market that has been witnessing a widening deficit of fresh milk, operationalization of additional customs points, and restoration of margin of preference on import duty for Indian goods.

Besides trade issues, both countries are also discussing promotion of Indian investment in Nepal. Given the nominal progress in increasing investment in Nepal through Bi-lateral Investment Promotion and Protection Agreement (BIPPA) and Double Taxation Avoidance Agreement (DTAA) with India, the Indian envoy to Nepal Ranjit Rae is also for introducing investment agenda in the trade negotiations. Around Rs 40 billion worth of Indian investment has entered Nepal so far.

Published on 2013-12-20 09:10:18

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