A fraying trade - Nepali Times

FOO CHEE CHANG

PRESSING ISSUES: A worker at Heritage Fashions, Balkumari, Lalitpur.

US-Nepal trade talks ended on a bittersweet note on Thursday. The two countries signed a Trade and Investment Framework Agreement (TIFA), which will help streamline US-Nepal trade, but nonetheless failed to agree to a duty-free facility on Nepal-made garments. A bill proposing preferential access for Nepali garments was first tabled in the US senate a decade ago, but has since collected dust. The disagreement is a blow to Nepali garment exporters, who have seen business plummet since the termination of the Multi Fibre Agreement in 2005.

TIFA, which was signed after two days of deliberations, will offer some consolation at least. It will set up a joint council to oversee US-Nepal trade issues, promises to improve market access for Nepal-made goods into the US market, and offers Nepali businesses technical assistance to boost their export potential. Joint Secretary of Commerce and Industries and member of the Nepali delegation visiting the US Surya Silwal says, "TIFA will offer a framework within which US-Nepal trade discussions can be furthered. It will help us to gain technical assistance."

The absence of any special concessions to the garment industry will sting, but usefully redirects attention to local supply constraints that improved market access would not have erased. Garment exporters have struggled with power cuts, labour problems, the distance from a viable seaport, and the absence of large-scale domestic fabric makers. Most exporters simply rework imported fabric, and at high cost.

Sanjai Agrawal of Heritage Fashions, one of a few garment exporters that have done well amidst the slump, explains: "Some of the major problems are homemade. We have to use a generator for half the day, many exporters face labour problems, and Nepal lacks the infrastructure for the mass production of fabric. Obviously, all of this raises costs."

While the value of garment exports to the US was a whopping $50 million in 2005, that can in large part be attributed to our being in the right place at the right time: foreign garment makers flooded into Nepal in the 1970s when the US spared us the import quotas it had imposed across the region. When that arrangement was terminated in 2005, garment exports to the US came crashing down, arguably to levels commensurate with the fundamental strength of the domestic industry. Last year, the export industry was valued at just under $5 million, and this has already dropped 60 per cent from January to February this year.

There are lessons to be learnt from Bangladesh, which, unlike Nepal, has seen US-bound garment exports grow briskly following the elimination of quotas. "In Bangladesh, there are garment-exporting zones in which all garment-related government offices are concentrated and strikes are forbidden. The garment makers also enjoy tax breaks," says Ashok Koirala, chief exective officer of Garment Association Nepal. The government has shown some sensitivity to such concerns. The Department of Industry and Commerce has forwarded a plan of action to spur industrial activity to the government, and an interest subsidy for exporters is on the cards. However, experts doubt if these measures will be sufficient to recreate the industry's heyday. "We're probably better off focusing on small orders," admits Agrawal.

READ ALSO:
Nepal's garment slump - From issue #284, 03 Feb - 09 Feb 2006
"We need trade, not aid" - From issue #84, 08 March -14 March 2002

1. NGS

Let's face it. The Garment Industy in Nepal is dead or comatose at best. The roots of this go way back to the eighties and is just another pitiful example of how ignorance and apathy on the part of the government machinery and a by and large myopic mindset can ruin the very best efforts put forth by entrepreneurs. If this business did thrive ( and that too is debatable because for a nation to boast of annual exports of $ 50 million as "whopping" shows up our own limitations ) for a while, its only because owners of garment factories, went ahead and invested during the early nineties in better production technology. The few that did this , not only survived the quota free regime but even learnt to compete for major retain chain business on a direct level. That took courage and foresight and investments in technology, equipment to improve productivity. There was a top tier of factories that competed with the best in the region and they did this not because our very generous political leadership were able to get off their cushions to promote the industry, but in spite of the unfavorable and inherent challenges facing the business. They faced it all- load shedding, shipping hassles via Calcutta et al.. What killed the goose was not lack of duty free priveleges or the advent of a quota free era ( Europe/Canada/Australia were all already providing duty free status .so where's the business ? ) but your plain home spun militant labor unions, backed by usurious political groups. Nothing kills the spirit of business owners more than having to face the extortion of goons in the guise of union leaders, death threats and lightning gheraos, rampant indiscipline and a lack of law and order. Forget duty free...that's a pipe dream. The day, Nepali politicians are able to develop a vision for their nation that is not based on their petty self serviing interest, the day we have the economy as the driving agenda for our country's goals, the day we have law and order and accountablity , is the day that industry and investment will once again have a chance to succeed. When and if that day does comes, and the US senate willing, duty free priveleges are granted in a perfect world, the China RMB is revalued making them costlier, then we will need to jump at the chance. Let's also accept the fact that we are never going to be able to compete with Bangladesh and Vietnam or China for mass production items. We've lost too much ground there. So we concentrate then on high value added items, use our skills for flexible manufacturing systems. But all of this moot in the current scenario. As far as I am concerned the entire trip was a smoke screen and a wasted exercise. Some people got a free ride at the expense of the tax payer. If any body had the gumption to understand US Politics, they'd know that the bill to promote Duty free imports for Nepal is probably buried deep in the senate deliberations committee and will never see the light of day.

Posted on: 09 APRIL 2010 | 4:35 AM NST