Touting trade tricks

  • Resources meant for boosting trade should be directed towards the real beneficiaries

Nov 8, 2017-

In a globalised world, an individual country has immense opportunities to exploit international markets. However, a country’s capacity to take advantage of this situation depends largely on its policy of adapting with the rapidly changing international trading environment. Usually, economies are integrated globally through liberalisation of trade regimes. Empirical evidence has confirmed that economies which were open had a higher growth rate than those which were self-sustaining. 

Identifying anomalies 

Formulating a trade policy is a rigorous task. There are two common policy options available in principle. One is based on promoting self-owned export strategies of the business community. They are supported by the government’s commitment to eliminate trade-related constraints and enforce the appropriate policies. The sum total of the individual business strategies generated by this mechanism will constitute the national export strategy. This makes an explicit national strategy redundant. The second policy option is recognising the importance of an explicit national strategy for export promotion of prioritised sectors. This will be supported by policy interventions to improve trade-related infrastructure and services to assure an enabling trading environment.

Nepal has been pursuing a mixed approach as it has been applying the national trade policy and the strategy for prioritised export sectors separately. For example, the Trade Policy 2009 was complemented by the much hyped Nepal Trade Integration Strategy (NTIS) 2010 which prioritised 19 export potential goods and services for action plans. Similarly, the NTIS 2016 has supplemented the Trade Policy 2015 by embracing only nine prioritised products. On top of that, the Ministry of Commerce, under the auspices of an international donor, has recently formulated sectoral strategies applicable to four high export-valued products: large cardamom, tea, coffee and handmade paper. 

However, despite frequent policy interventions in such a short period, the country’s trade scenario has not improved. Instead it has been wavering. In fact, this has been one of the bleakest periods for the country’s trade prospects since it liberalised the economy in the early 1990s. During this seven-year period, exports as a percentage of the gross domestic product (GDP) remained at around 4 percent annually while imports amounted to more than 28 percent and the trade deficit to more than 25 percent. In 2016, the trade deficit crossed the Rs700-billion mark, and it is anticipated to reach around Rs800 billion by the end of this year.

These disappointing figures reveal that trade policy formulation in Nepal is not without anomalies. Looking at current trends, it seems that Nepal has produced more policies and strategies on paper than it has added new products to its export basket. Except for a handful of products which have been able to maintain their place in the global market, most products are languishing despite an array of policy strategies. Interestingly, all policy papers have identified three broad areas for government intervention. They are market access, supply constraints and capacity building, and trade facilitation. The government has repeatedly been claiming that it is working on them, but the problems persist because the policies and strategies have been piling up at Singha Durbar. 

Policies without prejudice

Consider market access which has drawn the attention of almost all policymakers and exporters. The issue of non-tariff barriers has been identified as being widespread in all policy papers. To overcome these barriers, the urgency of establishing international standard facilities for testing and accreditation in the country has been emphasised many times. It is known that many exporters lost export orders as they failed to meet stringent sanitary and phytosanitary certification to get easier market access. Likewise, the importance of building trade infrastructure and support services--primarily roads, dry ports and market intelligence services--has repeatedly been mentioned as being vital to boosting exports. Trade facilitation, including simplification and harmonisation of trade and customs procedures, has frequently been devised for cutting high transaction costs and raising the delivery efficiency of exporters.

The core of the trade policy strategy is not only about constraints, it is also about delivering the action plans that have been proposed. Hindrances to cultivation and trade of tea, coffee and large cardamom are already in the policy domain and are commonly understood. What is lacking are pre- and post-harvesting facilities, testing labs, access roads, trade information and training centres. They are what will motivate farmers and traders in, for instance, Ilam, Taplejung, Jhapa and build real trade capacity. Instead, the government has been wasting time by wallowing in superfluous policy strategies which reiterate the same old things as if to utilise the aid for trade or benefit those around it.

Policies and strategies are not an end in themselves. They are actually a means to realising capacity building and boosting exports. Without this, it will be almost impossible for a country to convert its comparative advantage into entrepreneurs’ competitive advantage which is a prerequisite for trade promotion. Therefore, resources meant for trade enhancement, whether domestic or foreign, should be directed towards deprived places and the real beneficiaries across the country instead of being used for touting trade tricks as is happening now. Can Singha Durbar do this without prejudice?

- Shakya is an associate professor of economics at Tribhuvan University

Published: 08-11-2017 07:39

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