Ministry of Commerce And Supplies - Enhanced Integrated ...

N T I S2010The Nepal-India Trade Treaty was renewed in March 2007. It provides for rules of origin criteria with theinclusion of value addition requirements and changes in the Harmonized System Code of manufacturedarticles as the qualifying clauses for duty-free access to the Indian market. The list of insufficient workingin manufacturing process has also been provided in the qualification clauses. Four products (vegetable fat,acrylic yarn, copper products, and zinc oxide) have been included again under a tariff rate quota system.Safeguard provisions were introduced for the first time in the Nepal-India Trade Treaty in 2002 and they wereincluded as a separate protocol to Article IX of the 2007 treaty. The treaty is effective until March 2012.Nepal acceded to the World Trade Organization (WTO) in 2004 and also joined the regional tradingarrangements of South Asian Free Trade Area (SAFTA) and Bay of Bengal Initiative for Multi-Sectoral Technicaland Economic Cooperation (BIMSTEC). Similarly, the country participated in Asia Pacific Trade Agreement(APTA) as an observer of this trading bloc. With the advent of SAFTA and BIMSTEC, Nepal is bound to reduceits tariff rate with member countries of these trading blocs according to the provision of the respectiveagreements. Currently, Nepalese manufactured commodities enjoy duty-free access to Indian markets ona non-reciprocal basis. Trade treaty obliges both parties to provide unconditionally to each other treatmentnot less than favourable than that accorded to any third country with respect to customs duties and charges,import regulations, and quantitative restrictions.In addition, India is bound to provide preference to the products of other countries under the framework ofregional trading arrangements and bilateral free trade area agreements. The country is bound to reduce itsMost Favoured Nation tariff rates due to its bilateral agreements with some of the neighbouring countriesand as a member of the various regional trading arrangements. Besides, India has introduced Duty-FreeTariff Preferences Scheme for all Least Developed Countries around the world with a commitment of givingduty-free access to them over the next five-year period. It has already signed Free Trade Area agreementswith Singapore, Thailand, and the Association of Southeast Asian Nations (ASEAN) and some Latin Americancountries like Brazil and Peru. India will also provide tariff preferences to SAFTA, BIMSTEC, and APTA countries,which of course will result in preference erosion for Nepalese exports to India. The paradox arising fromthis complex web of India’s bilateral and regional preferential trading arrangements is that, comparativelyspeaking, India would have enjoyed a higher degree of preference for its exports to Nepal than what Nepaleseproducts could enjoy on the Indian market vis-à-vis their non-Indian competitors.In view of the above facts, the two countries commenced negotiations in order to find a solution to this‘paradox’, although, technically speaking, the treaty was to expire only in 2012. As a result of these negotiations,a draft new Treaty of Trade and draft Agreement on Unauthorized Trade were finalized and initialled in August2009. The new Treaty of Trade (valid for seven years) and new Agreement to Control Unauthorized Trade (alsovalid for seven years) between the two countries were signed in October 2009.3.3 NTBs Constraining Nepal-India TradeThe following categories of NTBs were analysed through discussions with business executives, businessassociations, and government officials in both countries: Import policies such as import charges other than tariffs, quantitative restrictions, import licensing, andcustoms barriers; Standards-related measures, including standards, technical regulations, and conformity assessmentprocedures; Government procurement restrictions such as ‘buy national’ policies and closed bidding;NEPAL TRADE INTEGRATION STRATEGY 2010BACKGROUND REPORT129