Domestic and Foreign Market Access

Overview: Trade Policy and Business Environment

 The Federal Democratic Republic of Nepal is classified as a low income, landlocked country in South Asia. In the latest World Economic Forum (WEF) Enabling Trade Index (2012) which measures institutions, policies and services to facilitate trade in countries, Nepal was ranked 124th out of 132, the lowest in the region. After a 10-year long political conflict, Nepal is undergoing a transition period in which political instability remains one of the main obstacles to running a business and attracting FDI. Moreover, the Nepalese economy is vulnerable to the international economic environment, firstly due to a lack of export diversity. Even though trade in Nepal, exports and imports of goods and services, amounts to 40 per cent of its GDP, its exports are concentrated on a narrow basket of goods, including iron and steel, textiles, and wool carpets to a few countries led by India, the US, and Bangladesh. Secondly, Nepal heavily depends on remittances from abroad, which were equivalent to around 20 per cent of GDP and three times greater than total exports in 2010/11. These remittances cover Nepal's persistent trade deficit and often create a current account surplus (WTO 2012).

WEF, 2012, Global Enabling Trade Report
World Bank, 2013, Country Data (Nepal)
WTO, 2012, Trade Policy Review (Nepal)

Domestic Market Access The pillar assesses the level and complexity of a country’s tariff protection as a result of its trade policy. This component includes the effective trade-weighted average tariff applied by a country, the share of goods imported duty free and the complexity of the tariff regime, measured through tariff variance, the prevalence of tariff peaks and specific tariffs, and the number of distinct tariffs. 136 2.75
Foreign Market Access The pillar assesses tariff barriers faced by a country’s exporters in destination markets. It includes the average tariffs faced by the country as well as the margin of preference in destination markets negotiated through bilateral or regional trade agreements or granted in the form of trade preferences. 3 4.74
Tariff rate (%) This indicator is calculated as a trade-weighted average of all the applied tariff rates, including preferential rates that a country applies to the rest of the world. The weights are the trade patterns of the importing country’s reference group (2012 data). An applied tariff is a customs duty that is levied on imports of merchandise goods. 135 17.73
Complexity of tariffs , index 1-7 (best) This indicator is calculated as the average of the following indicators: Tariff dispersion, Specific tariffs and Number of distinct tariffs. See description of each individual indicator for more details. Prior to averaging, values for each indicator were transformed to a 1–7 score, using the min-max method. 71 5.87
Tariffs dispersion (standard deviation) This indicator reflects differences in tariffs across product categories in a country’s tariff structure. The variance is calculated across all the tariffs on imported merchandise goods, at the 6-digit level of the Harmonized Schedule. 128 21.51
Tariffs peaks (%) This indicator is the ratio of the number of tariff lines exceeding three times the average domestic tariff (across all products) to the MFN (most-favoured nation) tariff schedule. The tariff schedule is equal to the total number of tariff lines for each country. These tariffs are revised on a yearly basis. 51 1.03
Specific tariffs (%) This indicator is the ratio of the number of Harmonized System (HS) tariff lines, with at least one specific tariff, to the total number of HS tariff lines. A specific tariff is a tariff rate charged on fixed amount per quantity (as opposed to ad valorem) 77 0.69
Number of distinct tariffs This indicator reflects the number of distinct tariff rates applied by a country to its imports across all sectors. 73 44.00
Share of duty-free imports (%) Share of trade, excluding petroleum, that is imported free of tariff duties, taking into account MFN tariffs and preferential agreements. Tariff data is from 2013 or most recent year available and imports data is from 2012 127 6.30
Tariffs faced (%) This indicator is calculated as the trade-weighted average of the applied tariff rates, including preferential rates that the rest of the world applies to each country. The weights are the trade patterns of the importing country’s reference group (2012 data). A tariff is a customs duty that is levied by the destination country on imports of merchandise goods 20 4.91
Index of margin of preference in destination markets, 0-100 (best) This indicator measures the percentage by which particular imports from one country are subject to lower tariffs than the MFN rate. It is calculated as the average of two components: 1) the trade-weighted average difference between the MFN tariff and the most advantageous preferential duty (advantage score), and 2) the ratio of the advantage score to the trade-weighted average MFN tariff level. This allows capturing both the absolute and the relative margin of preference. 2 80.56
Source : World Economic Forum, Global Enabling Trade Report 2014

Trade Policy and Market Access

 Nepal acceded to the WTO in April 2004 as the 147th Member. Nepal benefits from the Generalized System of Preferences (GSP) but it does not participate in the Global System of Trade Preferences (GSTP) among developing countries (WTO 2012). The average applied MFN tariff in Nepal was 12.3 per cent in 2011/2012, with weapons and automobiles being subject to the highest applied MFN tariff and the unbound tariff for the purposes of revenue collection and environmental protection. Cement also faces the unbound tariff in order to develop the domestic industry as Nepalese consumption of cement is largely met by domestic production. Tariff escalation on certain products, including paper printing and publishing, textiles and leather, and chemicals, exists between first stage processing, semi-processed, and, if applicable, fully processed products. It aims to collect revenue rather than to protect its processing or manufacturing industry. Nepal concluded a bilateral agreement with India, which constitutes its largest trading partner. The agreement provides Nepal with preferential treatment for nearly all of its industrial manufacturing products and transit access to the Kolkata/Haldia ports in India (WTO 2012; WTO 2013).

WEF, 2012, Global Enabling Trade Report

WTO, 2013, Tariff Profile (Nepal)

WTO, 2012, Trade Policy Review (Nepal)

Standard Compliance and Other Relevant Import/Export Restrictions

In Nepal, standards with regard to products, processes, and services fall under the remit of the Nepal Council for Standards (NCS), which is chaired by the Minister for Industry, whereas SPS-related issues for food, plants products, animals products, and agricultural products are dealt with by the Department of Food Technology and Quality Control (DFTQC), under the Ministry of Agriculture and Cooperatives. Infrastructure of standardization and conformity assessment in Nepal is not sufficient as the country lacks an accreditation system and testing facilities. This makes it difficult for Nepalese exporters to compete in global markets due to, for example, exports of food, plant products, animal products, and agricultural products requiring sanitary and phytosanitary certificates issued by the Ministry of Agriculture and Cooperatives (WTO 2012).

WTO, 2012, Trade Policy Review (Nepal)