For almost five years Nepal has tried to become a member of the WTO. Now, we can be almost certain of our place at the fifth Ministerial Conference at Cancun on 10 September. We completed the negotiations last weekend and all that is pending is formal approval.
Nepal has tariff rates that are generally lower than those of our trade partners. Our approach has been to bind the rates at a higher level than our presently existing rates. A few of the eight countries that have expressed trade interest are calling us to bind the rates at existing or lower rates.
Although the WTO is meant to liberalise trade and our effort to bind the rates at a higher level is rather regressive, the challenge will be to protect the interest of present producers without jeopardising future potential. As the basic principle of the WTO is protection through tariff, other routes to protect producers will be blocked. Under these circumstances, we need to identify products that will allow us a margin of critical potential put at a higher bound rate (at around 40 percent) that can be traded off with lower rates on products that are less important.
Along with the tariff, special duties and local development taxes will come to the fore. The WTO discourages levying taxes other than custom duties on imports. In the tariff negotiations, we must pay close attention to agricultural products. It should be noted here that especially among primary agricultural products, our tariffs have been very low. This limits our field of negotiations.
The opening of the service sector is as much a concern as goods in the WTO negotiations. As more and more of the GDP is generated from services, they become increasingly important in international trade negotiations. Developed countries are particularly interested in opening up service sectors as they have a bigger competitive advantage.
The crucial consideration for our country is the protection of the livelihood of service operators and protecting employment in an under employed country. Unlike goods, it is not possible to protect services by tariffs. While opening services may lead to greater efficiency and productivity of resources in all sectors, it means we have to strengthen and protect domestic service providers.
Nepal also faces the challenge of making our laws and policies compatible with the WTO. Forty-two new legislations and amendments are needed to comply with existing trade standards. We need to act fast to create and pass these laws to protect biodiversity, intellectual property, government procurement, etc. Once we're in the WTO, we must be able to deliver.
Nepal has been negotiating under tremendous pressure to adhere to other non-compulsory, often called plurilateral, agreements. Although it is left to the contracting custom territory, for a small economy like ours, the pressure to join such is immense. This is not to say we need to isolate ourselves from such agreements, but we must locate where our interests and benefits lie.
In order to become more competitive, our challenge lies in capital injection, advanced technologies and development of human resources. The trade competitiveness study under the integrated framework (IF), supported by the World Bank and DfID, will help us identify areas of yield. In any case, we have to build our capacity to produce competitive and quality products for the international market.
Rajendra K Khetan is the president of Nepal-Britain Chambers of Commerce and Industries.