If our bilateral trading experiences, mainly with India, are any indication, handling the World Trade Organisation's (WTO) multilateral system will be a big mess.
The prevailing Nepali perceptions of the WTO swings between two wide extremes: optimists paint a rosy picture of a dramatic surge in Nepali exports once the country joins the international trading regime-we haven't looked beyond carpets and garments when it comes to perceived WTO benefits. Pessimists, on the other hand, predict a reverse flow of goods with foreign products flooding the Nepali market and giant multinational companies dwarfing small-scale national producers. Then there is the huge silent majority who either doesn't know or doesn't care.
Both sides would have had some merit were the WTO exclusively about free trade. It is not. Disputes have besieged the international trading system and despite the mechanisms designed to tackle those contentions since the General Agreement on Tariffs and Trade (GATT) in 1989, not all the naysayers have been won over.
Nepal has to test the waters for itself. There is an awful lot of wading to do, with 26,000 pages of its agreement book for the 146 member countries. As a least- developed country (LDC), we may get away without reading each statute, but it might be advisable that we do so regardless. Since we do not stand on a level-playing field, we could cash in on the WTO's provision of a generalised system of preference (GSP) under which developed countries have promised markets for industrial products from least developed countries.
International trade experts believe that the First World will make concrete commitments under GSP at Cancun this month, when Nepal too is expected to join the WTO. The GSP "free lunch" does not come with a warranty: members can withdraw the provision unilaterally without any justification. And we could end up with a situation similar to that of the garment industry. The quota facility enjoyed by LDCs like us, especially in the apparel industry, will be phased out completely by 2005. Add to that the uncertainty of the GSP. At any time the rug could be whisked out from under our feet.
This is exactly why we need to know the rules, even if the WTO revises it faster than you can say "free trade benefits". Take, for instance, the issue of tariffs. Freshly back from Geneva, our officials have confirmed that the tariff rates for imports of agricultural products will be 51 percent in the beginning and will be brought down to 42 percent later. For non agro-products, the initial tariff will be 39 percent and will be brought down to 23 percent in a few years time.
That said, they are confident Nepali industrialists will not be outsmarted by foreign manufacturers. But this is cold comfort when there is a powerful lobby, spearheaded by the US, for no tariff at all. How do we make sense of all these intrigues? Officials know that by 2015 all WTO members will have to bring their tariff down to zero. That could well be a target even for us, whether or not we can afford it.
Veterans and shrewd players know how to create non-tariff barriers. Sample this possibility: if ever Nepal becomes a competitive exporter of, say, carpets, it will not just be the quality and the price it will have to take care of. Any of its competitors could accuse Nepal of dumping products-defined as the sales or exports below the normal price-which will prompt importers to impose anti-dumping customs. Or for that matter, the importing government could come under pressure from its local manufacturers.
A senior Foreign Ministry official says Nepal had a tough time convincing US senators to reintroduce the bill for quota free and customs free market access for Nepali garments. "The lobby of their textile industrialists against import is so strong," he told us.
In the WTO arena, the Dispute Settlement Body (DSB) is where a member country can raise issues or defend itself. Again, we have to become familiar with the process. Can we defend ourselves if we are accused of dumping? Who defines the normal price, especially when normal in one country may not hold the same for another? "There are too many loopholes and we have to know what to do," says Bijendra Man Shakya, chief of the WTO Cell in Garment Association Nepal.
As Joseph E Stiglitz, the 2001 Nobel Laureate in Econmics wrote in this paper (#158): "If the standards of domestic laws were applied internationally, perhaps a majority of firms within the US would be guilty of dumping. Yet America's supreme court has set standards so high for American firms to be found guilty of predation that few cases are successfully prosecuted domestically."
Hygiene, sanitation, environment, ecology: all these tags are handy tools to create non-tariff barriers. Any importer could speak out at the DSB against Nepal's carpet industry, saying we did not abide with international labour laws.
Are we ready to defend ourselves? No, say WTO experts. There is a shortage of technical experts, and the business community talks about the free trade without mentioning any of these hurdles. While the private sector is vaguely aware of the implications, they are not in-charge of representing Nepal in the WTO. The government is, and if it's at all possible, they are less clued in than anyone else.
Funds will be yet another problem. A World Bank study showed that the implementation of three WTO agreements, Trade Related Intellectual Property Rights, Agreement on Sanitary and Phytosanitary (SPS) Measures and Agreement Customs, will cost $130 million.
"Allowing that Nepal is a much smaller country in terms of size as well as economy, it may have to incur 10 times less than that, which is still a substantial amount," says Ratanakar Adhikary, a Nepali WTO expert. The government will have to bear the burden of the processing bill.
Then there are longterm fights like the $300 billion farm subsidies the developed countries provide to their farmers, and the patenting of our traditional knowledge and rare plant species by multinational companies. Will we be able to bring up both short and long term issues at the WTO ? Not if we are unable to solve our internal wrangling and continue blindly forth.