Nepali Times
Free trade is Nepal’s passport to prosperity


Some 600 years ago, the city of Bhaktapur, straddling the trade route from Tibet, was the most important business centre in the valley of Kathmandu. Here caravans from Tibet found a bountiful welcome awaiting them at Bhote Bahal. The people of Bhaktapur treated the traders to feasts in which aila flowed like water, and put them in the right frame of mind for trade negotiations. Bhote Bahal still stands in Bhaktapur and there are other Bhote Bahals in Kathmandu and Patan which bespeak the trade origins of Nepal. Being landlocked, trade continued to flourish. By the middle of the 20th century there were "shutter" merchants who had one pull-down door to their shops displaying a variety of goods from Tibet, India and even Czechoslovakia, from where came the "pote" beads so loved by Nepali women. Until very recently Nepal was entirely trade-oriented, and it must get back to the days when trade was given the priority it deserved. The problem has been that it is illegal businesses that have been allowed to grow at the expense of manufacturing and legitimate trade.

Exports are the only way to pay for imports. And Nepal has to import just about everything: it is imported petrol which keeps Nepal's transport system running and imported planes provide domestic air transport. Imported computers allow us to take advantage of the Internet, imported cosmetics and electronic consumer goods allow us to enjoy the finer things in life. These imports cannot be financed unless there is money from exports to buy them with. For a small, landlocked country like Nepal, trade is everything. Bigger countries like India or the United States don't really have to be that dependant on trade, but Nepal must learn from city-states like Singapore which have transformed themselves have into hubs for global trade and prospered dramatically. Nepal has to, indeed Nepal must, specialise in manufacturing what it is best at, from handicrafts or pashmina shawls to software and microelectronics.

You then use the proceeds to buy anything else you need. Closed-door hermit policies will only turn Nepal into a North Korea. What we need is a trading system that builds on Nepal's natural advantages. Trade is essential for Nepal's survival. But Nepal must do more than survive, it needs to prosper. And to prosper quickly there is really no other way than to let trade flourish freely. To achieve this the government must remove all restrictions on trade. There could be a worry:

won't we run out of dollars if we keep on importing? What about foreign exchange requirements? But that is a problem only because the government micromanages foreign exchange. What it should do is leave the people to fend for themselves. Let all foreign currency transactions be freed from government control: let the market decide. If I want to import, let me arrange my own foreign exchange. Similarly, if I am an exporter let me dispose off of my exchange in the manner I like. Let the government step aside and let businessmen fill the void. If that happens, Nepal's trade will bloom: and everyone will benefit, not just those who benefit from keeping trade restricted. When people find that they can import anything they will also realise that this alone is not enough. They must possess the dollars, the yens, the hard currency required. This extra demand for foreign exchange will be an automatic incentive for people to earn it and trade both ways: exports as well as imports. This will lay the seeds of prosperity.

Indeed, Nepal has few other options. Come April 2001, the final phase of India's agreement with WTO will come into effect. With this, India will have no quantitative restriction left on imports: no items will be on the banned or restricted list. Also India's customs duties are now far below what they were a few years ago.

Under the circumstances Nepal can no longer import for export to India with its present import regime and duty structure. It must, therefore, remove restrictions and eliminate or substantially reduce all customs duties if it is not to be marginalised. To remain attractive to businessmen and foreign investors, and to generate employment, Nepal must be less restrictive and less taxed than India. After all India has the additional attraction of being a huge market, and this has to be compensated for somehow by Nepal. If Nepal plays its cards right, there is no cause for worry. It is up to Nepal to seize this opportunity knowing that it is in good company. Country after country has prospered from free trade, low duties and a liberal economic environment.

Whether it is Singapore,Hongkong, or the United States, the formula is the same. Remove restrictions, eliminate or reduce taxes and watch the country's businessmen do the rest. There is every reason to believe that Nepal will be no different. The moment is now. Free Nepal's trade, eliminate taxes and watch this \'kingdom of the gods' be blessed with unimaginable prosperity.

(11 JAN 2013 - 17 JAN 2013)