Trade: NEPAL - COMPANY PERSPECTIVES (An ITC Series on Non-Tariff Measures)

Nepal: Company Perspectives study has just launched in October 2017. This is based on a large-scale survey of Nepalese exporters, producers and logistics service providers. It highlights the major regulatory and procedural obstacles to trade encountered by the Nepalese business community. Here is given the Executive Summary and you can download full report below.

Executive summary

One in two exporters face difficulties with NTMs

Half of Nepalese exporters face difficulties with various regulations applied either by Nepal or partner countries.

There are large variations in the affectedness rate across different products and sectors. While 42% of exporters from manufacturing sector are affected, the rate is over 77% among agricultural exporters.

Exporters of fresh and processed food products are very affected. These products are the most regulated for reasons of public health, making this sector highly sensitive and protected by both tariffs and non-tariff measures (NTMs). In contrast, affected rate among garment and textile exporters is relatively low (35%) compared to exporters of other sectors.

Most burdensome NTMs are associated with foreign regulations

Partner countries apply the majority (78%) of NTM-related obstacles for exporters. Around one in five NTM cases related to exports are applied by Nepal.

More than one-third of difficulties relate to regulations of the EU-28 countries, most of which when exporting to Germany and France. Difficulties with EU regulations are well documented in ITC survey in other countries. Exporters from developing countries find EU regulations, in particular, the SPS and quality requirements, too difficult to comply with and the accompanying conformity assessment procedures too strict. Asian countries apply 23% of the burdensome NTM cases, followed by 19% by the South Asian Association for Regional Cooperation (SAARC) countries and 23% by rest of the world.

At the individual partner country level, the largest number of difficult NTM cases are Indian regulations or procedures that account for 18% of the burdensome NTM cases. This comprises most of the difficulties faced in the SAARC region (19%). Among other partners, 10% of the difficult NTM cases are United States and Japanese regulations each, while 6% relate to Chinese and Australian regulations, each.

Technical (SPS/TBT) regulations are burdensome

Two-thirds of burdensome NTM cases for Nepalese exporters are technical measures. Technical measures include technical requirements, which are product specifications for exported products including sanitary and phytosanitary (SPS) measures, as well as conformity assessment procedures such as certification that provide proof of compliance with underlying technical requirements. Exporters face more problems proving compliance with regulations than with the regulations itself.

Among technical requirements, regulations on maximum residues limits of contamination by certain substances, fumigation requirements, and prohibition or restriction on SPS/TBT grounds are main concerns.

On conformity assessment related NTMs, difficulties related to product certification and testing requirements make up the bulk of the difficulties, followed by quarantine requirements.

Other issues such as rules of origin, pre-shipment and border clearance procedures of partner countries, and quantitative restrictions are comparatively minor compared to the difficulties related to

SPS/TBT technical requirements.

Majority of the export related measures, i.e. Nepalese regulation and procedures on export, is related to export inspection and border clearance procedures or formalities.

Procedural Obstacles are a major concern

The NTM survey methodology identifies both the measures that are burdensome to the exporters and the reasons they are burdensome. Often exporters face difficulties with a given regulation not only because it is too strict and complex but also (and at times solely) because of the related procedural obstacles (POs). While NTMs are official regulations implemented by competent authorities in the exporting or importing country that traders must comply with, POs are hindrances from the manner the regulation is applied or implemented.

Only 13% of problems faced by Nepalese exporters are due to regulations being too strict or difficult to comply with. In contrast, 73% of NTMs are difficult due to various procedural obstacles, most of which occur in Nepal itself. In the remaining 14% of NTM cases, both the measure and the related procedural obstacles are problematic.

Almost two-thirds of the POs occur in Nepal. Procedural obstacles hindering exports in Nepal relate mostly to unavailability of testing and certification facilities and test results from Nepal not being accepted in partner countries.

POs related to high fees and charges to obtain required certification or testing occur in foreign countries. This issue is related to the lack of appropriate facilities for testing and certification in Nepal that leads to exporters having to send their products to other countries for testing. The fees for such services in foreign countries are expensive.

Informal payments and slow procedures to get the necessary paper work issued, clear shipment or expedite the process are other commonly reported POs.

Lack of accredited testing and certifying agencies is a major hurdle

More than half of reported burdensome NTMs are conformity assessment requirements. Factors such as lack of clearly defined responsibilities among public agencies, limited capacity to oversee responsibilities and delays in implementation have contributed to various problems of compliances.

Among conformity assessment-related concerns include Nepalese laboratories not being able to do the necessary testing and issue the required certificates. There are concerns that certificates issued by Nepalese public institutions are not recognized internationally. This has led exporters to use laboratories in other countries such as India, Australia, United States and China, which contribute to increased processing time and higher costs.

Burdensome Nepalese NTM regulations include inspections and advance payment requirement

Nepalese regulations on exports make up almost one-quarter of burdensome NTM cases. These include measures on export inspections, certification requirements, advance payment requirements, and import tax on return goods.

Exporters of paintings and thankas, processed wool, hand-carved wooden products, metal statues, mane stone carving, mandala, and hand-made carpets need certificate from the Archaeology Department to prove that their products are of any historical, religious or cultural significance. Companies find the process of obtaining these certifications difficult because of slow processing, officials asking for informal payment, frequent changes of officials and t arbitrary behaviour.

Exporters, especially of manufactured products, find Nepalese regulation requiring advance payment of goods prior to shipment a hindrance. Many foreign buyers are not willing to pay the full amount before the delivery of goods. As a result exporters are losing business. In addition, very strict implementation of this measure by Nepal customs affects exporters.

Exporters complain that they have to pay duties on re-import of their products, usually when they are not accepted by foreign buyers.

Facilities at Nepal Customs is not sufficient but is improving

While many logistics companies are not satisfied with automation system at Nepal Customs most indicate that they have experienced improved conditions in customs clearance mechanism and electronic or computerized procedures in the last five years.

Around half of companies express dissatisfaction with risk management systems, warehousing facilities and safety of cargo at the customs point. Lack of proper warehouse and cold storage facilities at major border points is a problem. Though there has been significant increase in the volume of cargo over the years, existing infrastructures at both Nepali and Indian customs are ill equipped to deal with the rising volume of both import and exports.

Proper equipment to handle cargos is in short supply at custom points. Essential equipment like forklifts, cranes, containers to unload and offload the goods usually have to be hired from private operators with high cost because customs offices and airports lack such facilities. There is a need to increase warehousing space and improve the management system together with necessary equipment such as forklifts and cranes for heavy lifting.

Traders say customs systems and practices are obsolete and major reforms are needed. The customs clearance process takes too long, due to reasons such as shortage of human resources, lack of automation and corruption.

Companies face difficulties on transit and cross-border trade with India

Exporters and logistics service providers face difficulties in India when exporting or transiting. Among exporters key concerns relate to Indian authorities not accepting product test results conducted in Nepal, requiring testing to be done in Kolkata, arbitrary decisions of customs officers, slow clearance processes and demand for bribes.

Many companies perceive risks associated with high cost in the port in India and feel that the port operation in Kolkata is not efficient. High cost of land transportation in India is perceived as risky. Road conditions between Kolkata and Nepal are poor.

There are restrictions on Nepalese trucks transporting goods in India. Consignments have to be offloaded and re-loaded into Indian transport carriers at the border point. Due to obstruction in movement of vehicles, importers have been compelled to pay high detention charges to the port and shipping liners.

Many producers rely on middle-men for exports due to lack of information on market access

Nepalese producers of tea, ginger, cardamom, coffee and, handmade paper highlighted that lack of proper information on plant diseases, use of proper fertilizers and pesticides, and lack of appropriate equipment for further processing of products are hindering productions. Frequent power cuts are affecting irrigation during the dry season, while most producers face shortage of labours due to increase in labour migration to foreign countries.

Many producers are not able to export their products directly and have to rely on middlemen, either Nepalese or Indian, for exports. They do not have adequate information on the market conditions or prices and usually have to rely on what is offered by the middlemen. Lack of proper information on quality assurance and value addition, necessary processes and requirements to export are some reason Nepalese producers are not able to access export markets.

The way forward

Several interventions are necessary to alleviate the difficulties of exporters and for export development.

The Government of Nepal is aware of the challenges ahead and has taken many steps to facilitate trade. Nepal has recently ratified the WTO Trade Facilitation Agreement and the Revised Kyoto Convention. The government’s customs reform and modernization plan is on-going. Automation at the Customs through the implementation of Automated System for Customs Data (ASYCUDA) and development of single window will benefit Nepalese traders. Completion of these works and the training of the private sector to best make use of these facilities must be ensured.

Facilities at Customs, including warehouse and equipment, which are currently insufficient should be upgraded.

Dialogues with India should be engaged to avoid arbitrary and inconsistent implementation of trade rules that have heavily affected Nepalese traders.

Diversifying the economy and broadening the export base towards high growth sectors is critical for future development and poverty alleviation.

Improving quality infrastructure and enforcing quality compliance are key to Nepal’s export development. It is necessary to review the current SPS-related control systems and strengthen existing laboratories.

Trade transparency should be enhanced through the national trade information portal. Integrating new modules such as trade obstacle alert mechanism, the WTO notification system, and business guides on exports, regulations on foreign regulations will benefit the Nepalese business community.

Survey implementation

The results presented in this report are based on a business survey implemented by the International Trade Centre (ITC), in collaboration with the Ministry of Commerce (MoC) of Nepal. It assess the Nepalese business community’s perspectives on non-tariff measures (NTMs), provides a better understanding of the trade obstacles experienced by Nepalese companies and identifies potential bottlenecks related to trade procedures and cross-border operations. The survey took place between March and September 2016.

ITC interviewed 577 Nepalese enterprises which include over 500 active exporters and importers. A further 34 non-exporting producers - either formally registered or informal farmers – of strategically important Nepali products – tea, coffee, large cardamom, ginger and handmade paper – were also interviewed to understand the production, supply and other constraints in addition to market access issues they are facing, and to understand why they are not export ready. These producers have not been able to export their products directly for a variety of reasons.

The survey also covered 42 freight forwarders – Cargo and Logistics Companies (CLCs). Close to half of all companies interviewed relied on the services of CLCs for their export/import processing. Given the important role CLCs play in Nepalese trade, interviews with these companies were important. The objective was to get CLCs’ inputs on difficult border clearance procedures, transit issues, available customs and transportation infrastructure, and their views on the export preparedness of Nepalese exporters.

Stakeholder consultations

As part of the survey the study team visited nine customs points in various parts of the country and held discussions with customs officers to get latest information on the operation of the customs points, constraints they face and their perception of Nepalese traders. In addition, bilateral consultations were held with various public agencies, business associations and technical experts.

ITC and MoC jointly organized three stakeholder meeting in Kathmandu in March, July and September 2016 to update stakeholders on the progress of the survey project, present the survey results and initiate discussion on necessary actions to alleviate the problems due to NTMs. Recommendations presented in this report are based on consultations with relevant stakeholders and experts.

Download Nepal: Company Perspectives (An ITC Series on Non-Tariff Measures)