International trade for Nepal, like any other country, is always favorable. Consumers get choices and lower prices, and firms get introduced to better technologies, and cheaper and better factors of production; altogether it is a win-win for all. The freer the trade regime, the more the participating countries can benefit from trade.
However, the math does not seem to be resonating with too many countries. Countries, even those that have ratified free trade conventions and agreements, have been seen favoring one form or another of non-tariff measures. Sometimes, the argument is protection and promotion of domestic industries, at other times, it is minimization of risks to human health, national security; sometimes it is prevention of deceptive trade practices. In recent times, the agenda of protection of human, plant and animal lives has seen itself rise as one of the most politically sound arguments for these non-tariff measures – some tools include standardization and quality control. However, they can still equally hurt trade competitiveness and lead to rise in cost of goods and services – something that nobody wants.
Situation in Nepal — Problem while Exporting
Border compliances include obtaining, preparing and submitting documents during port or border handling, customs clearance and inspection procedures. Nepal majorly exports agricultural products to India. But these sets of exports require standardized tests and certification mechanism, in which there is absence of Mutual Recognition Agreement (MRA) between India and Nepal. In other words the Bureau of Indian Standards (BIS) does not accredit the tests done by the Nepal Bureau of Standards and Metrology (NBSM) and Department of Food Technology and Quality Control (DFTQC). A major burden to exporters therefore is more time and higher cost since samples have to be sent to Kolkata, Delhi or Lucknow for certification.
What about South Asia?
A study done by CUTS (Consumer Unity & Trust Society) International India in 2012 found out the most cited non-tariff barriers in South Asia are lack of transit arrangements, poor trade infrastructure at border and ports, procedural delays on security measures and costs (both monetary and time) associated with documentation for import and export and rules of origin criteria.
Research studies have also shown that a 50% reduction in time of export can generate benefits equal to 4% of GDP of South Asia’s Least Developed Countries.
After economic integration was launched in Europe in the 1960s, and since the introduction of the Euro (currency) in 1999, how well has Europe performed in pursuing free trade? A study done by Warwick Research Institute, which examined 166 manufacturing industries in 11 member states over the period 1999-2003, found out that significant trade barriers still remains, and apart from the inevitable transport costs, the most substantial costs are technical barriers— pre-shipment inspection, sanitary and phyto-sanitary among others.
What do we learn?
Arguments for non-tariff measure might be politically sound, but in the end of the day, these measures can tantamount to rise in costs of goods and services and hurt trade competitiveness. One way forward for Nepal is sorting out the MRA with India. The government can upgrade its standardization facilities so that the Indian side accredits it. In addition, Nepal also needs to invest in ports, and infrastructures needed for international trade; improve on procedural delays and re-evaluate its document compliances. Example of Nepal – problems while exporting (standardization); South Asia’s procedural delays, poor infrastructures, etc; difficulty in trade in Europe despite having free trade agreements; shows just how it is important to limit such non-tariff measures in international trade.