TIFF Exploring Benefits

Nepali business community discusses how to increase trade with U.S under Trade and Investment Framework Agreement (TIFFA)

April 24, 2017, 10:45 p.m.

Despite the slowdown of Nepalese exports to the United States, it is still the third largest trading partner of Nepal after India and China. Moreover, the United States is the only country with which Nepal has a huge trade surplus.

At a time when Nepal’s remittance inflow is gradually declining, with the reduction of demands of Nepali workers in Gulf countries, improving industrial base and regulations and increasing export to the United States of America under TIFFA will be a good option.

According to IMF annual review, the growth of migrant workers is expected to fall in FY2017 as well because of the slowdown in investment in the major overseas employment destinations following the impact of low oil prices.

As Nepal is passing through a transition from remittance dependence, the third meeting of TIFFA Council is very significant.

Realizing this Nepal USA Chamber of Commerce and Industries (NUSACCI) organized a joint seminar with government officials and officials from US Embassy. 

The council meeting provides a forum for the Nepal and United States to engage on a range of bilateral trade and investment issues, such as intellectual property, standards and conformity assessment, technical cooperation, labor, manufacturing, sanitary and phyto-sanitary (SPS) measures, and capacity building, as well as coordinate on multilateral and regional issues.

Under TIFFA, land locked Nepal is given benefits from the United States Generalized System of Preferences program, which provides preferential access to the U.S. market for up to 5,000 tariff lines duty free. 

 

Following the Gorkha Earthquake, the United States agreed to provide necessary support for Nepal’s economy recovery. As Nepal’s remittance flows are gradually declining, TIFFA can be a good policy for Nepal to fill the gap of foreign currency.

According to a recent IMF report, the merchandise trade deficit widened to $3.9 billion, much larger than in the previous corresponding periods. This and deceleration of remittance inflows contributed to the current account deficit of $10.1 million, down from a surplus of $1.5 billion in the corresponding period in FY2016.

“The seminar helps us to keep updated and we are talking about the bottle necks. As we are celebrating 70th years of establishment our diplomatic relations, there will be more new opportunities in the days to come,” said Michael C. Gonzales, Charge d’ Affaires of US Embassy. “We need to build the economic relations for shared prosperity.”

The bilateral trade between the two countries was US$ 129 last year and Nepal’s export to United States was US$ 89 Million. “Hearts of Americans are always open to Nepal and Nepalese people,” said Gonzales.

Last year Americans have invested equivalent to US$ 2.5 million in small and cottage industries directly benefiting Nepalese at lower level.

“As Nepal government has already initiated certain reform initiative as per its commitments to TIFFA, the coming third round of TIFFA Council meeting will be most significant,” said Trade Secretary Naindra Prasad Upadhyaya. "As Nepal’s trade with United States is profitable, Nepal needs to increase the trade. Although we established our diplomatic relations in 1947, TIFFA is a first bilateral trade agreement.”

As expressed in second TIFFA council meeting, the government has already tabled Labor Act, endorsed framework for Intellectual Property Rights and the government is in process to bring Foreign Investment and Technology Transfer Act and amendment of other acts, but there is still some uncertainty.

“We are focusing on enhancing base for industrialization, including small and cottage industries,” said Upadhyaya. “Nepal can make huge benefits under successful implementation of TIFFA.”

“With a strong industrial base and investment environment, Nepal also benefits from Indian and Chinese markets,” said Andrew J. Neilson, mission economist.

Currently, Nepal’s overall ranking in the World Bank’s Doing Business report fell to 107th in 2017 (from 99th in 2016). Getting credit and construction permits, and enforcing contracts remain difficult.

Moderated by Prachanda Man Shrestha, ex-joint secretary of Nepal Government, Kiran Sakha stressed the need to make proper arrangement to boost Nepalese trade with USA, including that of traditional products like garment.

Nepal US Trade

As the US Senate has endorsed a Bill that paves the way for duty-free quota-free (DFQF) entry of these goods into the world’s largest economy, there is opportunity as well.

The latest act gives a new lease of life to the readymade garment industry, which is on the verge of collapse since the expiry of Multi Fibre Agreement (MFA) in January 2005.

After the act comes into force, Nepali products, such as readymade garments, pashmina and leather products, will get zero-tariff access into the US market. Nepal can enjoy duty free facility till December 9, 2025.

Readymade garments then had 20 per cent share in total export. Its ranking slipped to fifth position in overall exports of 2014-15, amounting to Rs 5.29 billion.

Nepali apparel entrepreneurs believe that the US market could help resurrect the garment industry. However, there are some challenges in reviving the sector. Along with the quota phase-out, over 85 per cent of garment factories had pulled down their shutters.

With deteriorating industrial environment in country with problems of power shortage, labor unrest, conflict and higher interest rate charged by banks and financial institutions.

To be able to fully capitalize on preferential treatment extended by the US, apparel entrepreneurs have sought export incentive of up to 10 per cent for five years, early approval of the Labor Bill from the parliament, subsidized interest rates from banks and financial institutions and abundant supply of power in factories.

The limit set by the US customs law allows import of up to 1.5 per cent of the total apparel import under zero tariff facility, which means there is room for the country to expand its apparel market in the US.

“Nepal and United States need to find out better ways for trade. The time has come to act,” said Narendra Kumar Basnet, former president of NUSACCI.

The US has announced preferential access for another 27 products from the least developed countries (LDCs) including Nepal. In addition, Nepal has received the same facility for 66 products under the special Nepal Trade Preferences Act (NTPA), which was passed by the US Congress last year.

This means Nepal can export 93 products to the US duty-free. They include handbags, carpets, pashmina items, hats and headbands, in addition to about 4,800 goods already covered by the US generalized system of preferences (GSP) program for all LDCs.

“The US is the second largest important trade partner for Nepal. It is a vital export destination for all major products including carpets, clothing, pashmina products and jewelers. The US offers huge prospects for every Nepali product, and more importantly, Nepal has the highest preference utilization rate in the US of around 85 percent. This means that 85 percent of the exports covered by the US preference scheme entered America duty-free. This is far higher than in the European Union (EU) which is the next important export market for Nepal,” said Bijendra Shakya, associate professor Tribhuwan University.

Instead of demanding duty free and such other facilities for traditional items, like carpets and garments, Nepal needs to encourage small and cottage industry products to export to US to make the trade sustainable and profitable.

 

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