Nepal and trade in Nepal

Nepal is a small landlocked country, stretched in an area of 1; 47,181 sq km. Nepal is also known as Himalayas with the highest pick of the world¾the Mount Everest. It is located between the two giant nations, China in the north and India in the south, east, and west. Geographically, it is situated between 26° 22' north to 30° 27’ north latitude and 80° 4' east to 88° 12’ east longitude. Nepal is 885 km in length from east to west and 193 km (Non-uniform) in width from north to south. It has a population of 2,27,36,934 with an annual growth rate of 2.24 percent.

International trade has often played a crucial role in the historical experience of the developing world including Nepal. Throughout the developing world, export of primary products has traditionally accounted for a sizable proportion of national income. In some small countries, up to 25 percent or more of national income is derived from the overseas sales of agricultural and other primary products such as coffee, grain, sugar, palm oil, etc.  This is a serious problem because the markets and prices for these products are often unstable. Dependency on primary product export carries with it a degree of risk and uncertainty. This is an important issue because prices of primary products have been gradually falling during a decade of two.

In addition, for most developing countries, import demands have increasingly exceeded their capacity to generate sufficient revenues from sales of export. This has led to chronic deficits on their balance of payment (BOP) position. Such deficits in current accounts (an excess of import payments over exports receipts for goods and services) are more than compensated by a surplus on capital account (a receipt of foreign private and public lending and investment in excess of repayment of principal and interest on former loans and investment). In recent years, the debt burden of repaying earlier international loans and investments has become increasingly acute and severe deficit on current and capital accounts have therefore led to a rapid depletion of their international monetary reserves, currency instability, and a slowdown in economic growth in most of the developing countries including Nepal.

Nepal has been pursuing its trade and foreign exchange policies in tandem with the global liberalization process and pushing its best to integrate it with the changing world economic order. In this light, on 7 December 1995, Nepal entered into an agreement to enforce SAPTA and declared duty exemption on imports of 14 various items from SAARC countries. With globalization, the world today is becoming more and more integrated. Globalization gives nations the opportunity to increase their productive efficiency and attain their comparative advantage. This reward has been attractive to many nations and consequently membership in WTO is ever increasing. In this regard, Nepal has also pursued membership in WTO for many years. Finally, it became the member of WTO on 11 September 2003. Nepal subsequently notified WTO that the process of ratification and acceptance of the Protocol of Accession had completed in Parliament. On 23 April 2004, Nepal became the 147th member of the rule based international organization. Membership in WTO entails both general and negotiated commitments, whose aim is for transparency and stability of international trade. International trade has played a significant role in economic development of Nepal. Despite various strategies adopted by the government to promote international trade, Nepal has been facing increased trade deficit due to lack of import substituting industries and exportable goods. Most of Nepalese major exportable goods are primary products, herbal, handicraft, garments, carpets, etc. Among these products, Pashmina is one of the new exportable products.