Ministry of Commerce And Supplies - Enhanced Integrated ...

N T I S2010Not discussed here is the possibility of Chinese or Indian companies using Nepal as a manufacturing location toserve the other market and take profit from easier access to that market. Currently, Nepal enjoys significantpreferential access to the Indian market, but not to China. If rules of origin allow, then Chinese (or other)manufacturers could add value in Nepal and then export to India. 151 But there is no guarantee that thepreferential access to India will remain, and such preferences will erode in any case with the ongoing tradeliberalization. That, plus the additional costs that would probably occur compared to production in China,makes it doubtful that this will ever happen on a large scale in the near to medium term.SugarNepal produces around 110,000 MT of raw sugar per year, but is a net importer of sugar with consumptionbeing around 150,000 MT. 152 Most sugar is imported from India (mostly refined sugar, but also some rawsugar). There is therefore no potential for ‘normal’ exports. However, Nepal has exported raw sugar to the EUin recent years, where free access is provided for LDCs through the ‘everything-but-arms’ initiative and priceswell above the world market can be achieved. Like many other LDCs, Nepal imports raw sugar for domesticconsumption to be able to export more of its own sugar to the EU. Annual exports since 2003 were around€5 million or 10,000 MT. However, it is questionable whether these exports will continue since the EU isdrastically cutting down sugar prices in its heavily regulated market. At the moment (early 2010), world sugarprices are very high and have reached the level of the (reduced) EU price; so at the moment such exports tothe EU would make little sense. But a premium over world market prices will probably remain in the mediumrun, though it will be much lower than it used to be. Some industry sources estimate the premium to go downto a maximum of 100 €/t, which may hardly be enough to cover additional transport costs for both exports tothe EU and imports from third countries such as India or Thailand to cover domestic demand.CementSeveral participants of a workshop held in November 2009 in Kathmandu suggested that cement should beincluded in the export potential assessment as there were a potential for export to China.According to trade statistics from China and India, Nepal does not trade cement with China currently andis importing substantial amounts of cement from India (US$40-45 million per year). Imports in 2008 were684.000 MT at 60 US$/MT. According to a study from 2008, domestic production covers only 35 per centof demand, the remainder being imported from India. 153 Therefore, there may not be great potential forsignificant exports in the near future. However, there is potential for increased production because Nepal haslarge deposits of limestone, and, therefore, also for export to border areas in India or possibly Bangladesh,depending on the location of such production. In addition, Nepal’s limestone presumably is of higher gradethan that available in India. Prohibitive road transport costs with China might preempt exports to that country.They are currently estimated at 60-70 US$/MT/1,000km in Nepal, 154 which is approximately the distancebetween Kathmandu and Lhasa. In comparison, transport costs on the Golmud-Lhasa railway are only aroundUS$14 /MT/1,000km, making cement produced in China much more cost-competitive, at least in Lhasa.151This could also work in the other direction, but Nepal currently has no preferential access to China, whereas India is granted some preferencesunder the Asia-Pacific Trade Agreement.152See for example http://www.gorkhapatra.org.np/gopa.detail.php?article_id=28620&cat_id=27 .153“P. R. Pandey & N. Banskota, Process of cement production in Nepal, Bulletin of the Department of Geology (2008).154Information obtained from ITC consultant in Nepal.124NEPAL TRADE INTEGRATION STRATEGY 2010BACKGROUND REPORT