Ministry of Commerce And Supplies - Enhanced Integrated ...

Chapter 6Trade FacilitationN T I S20106.1 IntroductionThe high costs associated with trade facilitation in Nepal are directly affecting the competitiveness of Nepaleseexporters. Global estimates suggest that, on average, each additional day a product is delayed prior to beingshipped reduces a country’s trade by 1 per cent. 1 On this basis, if Nepal reduced the time it took its goodsexports to reach a ship from 41 days to 33 days (the South Asia-SAFTA mean), i.e. a reduction of eight days,this would equate to increasing Nepal’s exports by around 8 per cent. 2Addressing trade facilitation is a requisite for Nepal. As a landlocked country, it must compete with its coastalneighbours and attract new investment. Time delays and time variability in shipping goods particularly affecttime-sensitive goods. This is reflected in the predominance of time-insensitive goods in Nepal’s export basket.In order for Nepal to move into new product areas it will need to make progress on lowering trade facilitationcosts.Similar to tariff cuts, improvements in trade facilitation can help reduce the cost of traded goods and canhelp increase trade flows. But unlike tariffs, trade facilitation reforms do not require regional or multilateralagreements, and countries can derive large benefits by carrying out trade facilitation reform. For example,countries with lower trade costs are consistently associated with higher foreign investment. Furthermore,improved trade facilitation regimes can improve the efficiency of customs revenue collection and increase taxrevenue.Trade facilitation refers to the simplification and harmonization of international trade procedures and theinformation flows associated with them. Accordingly, the focus of trade facilitation reform is generally on thecoordination and modernization of the processes of customs and other border agencies. This chapter focusesin part on customs reform. It also adopts a broader definition of trade facilitation to ensure it addresses other,and important, elements of the supply chain, particularly in relation to the transit of goods through India.6.2 Benchmarking Nepal’s Trade Facilitation EnvironmentComparative indicators of the costs of trading across countries provide some guidance as to the severity ofthe issue in relation to other countries and guidance as to where priority should be given. Specific businesssurveys covering trade facilitation issues in Nepal also provide insights.The World Bank’s 2010 Doing Business Survey breaks down the costs of importing and exporting an 8-footcontainer. As shown in Table 6.1, it costs US$1,764 and takes 41 days on average to export a container fromNepal. The substantive cost (50 per cent) is for inland transportation and handling, but charges for customsclearance and technical control are high for the South Asia region.1Djankov, S., Freund, C. and Pham, Cong S., “Trading on Time”, World Bank 2008.2Nicita and Hoekman in “Assessing the Doha Round: Market Access, Transaction Costs and Aid for Trade Facilitation, 2009” estimate theelasticity of trading to trading costs to be around 0.5. So if an 8 day reduction is approximated to be a 20% reduction in export costs, Nepalcould expect exports to increase by around 10%.NEPAL TRADE INTEGRATION STRATEGY 2010BACKGROUND REPORT161