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National College

Centre for Development Studies


Submitted By: Submitted To:
Sumedha Khatiwada Man Dar
BDFin
Introduction:
The orld Trade !rgani"ation #T!$ is the only global international organi"ation dealing with
the rules of trade between nations% &t its heart are the T! agreements' negotiated and signed
by the bul( of the world)s trading nations and ratified in their parliaments% The goal is to help
produ*ers of goods and servi*es' e+porters' and importers *ondu*t their business%
There are a number of ways of loo(ing at the orld Trade !rgani"ation% ,t is an organi"ation for
trade opening% ,t is a forum for governments to negotiate trade agreements% ,t is a pla*e for them
to settle trade disputes% ,t operates a system of trade rules% -ssentially' the T! is a pla*e where
member governments try to sort out the trade problems they fa*e with ea*h other%
Nepal .oined the T! on &pril /0' /112' be*oming the first 3DC to .oin the trading blo*
through full wor(ing party negotiation pro*ess% 4otential benefits Nepal should have obtained
from .oining T! were rise in 5D4 along with e*onomi* growth of *ountry with in*rease of
foreign trade%The following nature and fun*tions of T! is the ground for potential benefits:
a. Nature of WTO:
Non-discrimination: & *ountry should not dis*riminate between its trading
partners and it should not dis*riminate between its own and foreign produ*ts'
servi*es or nationals%
More open: 3owering trade barriers is one of the most obvious ways of
en*ouraging trade6 these barriers in*lude *ustoms duties #or tariffs$ and measures
su*h as import bans or 7uotas that restri*t 7uantities sele*tively%
Predictable and transparent: Foreign *ompanies' investors and governments
should be *onfident that trade barriers should not be raised arbitrarily% ith
stability and predi*tability' investment is en*ouraged' .obs are *reated and
*onsumers *an fully en.oy the benefits of *ompetition 8 *hoi*e and lower pri*es%
More competitive: Dis*ouraging 9unfair) pra*ti*es' su*h as e+port subsidies and
dumping produ*ts at below *ost to gain mar(et share6 the issues are *omple+' and
the rules try to establish what is fair or unfair' and how governments *an respond'
in parti*ular by *harging additional import duties *al*ulated to *ompensate for
damage *aused by unfair trade%
More beneficial for less developed countries: 5iving them more time to ad.ust'
greater fle+ibility and spe*ial privileges6 over three:7uarters of T! members are
developing *ountries and *ountries in transition to mar(et e*onomies% The T!
agreements give them transition periods to ad.ust to the more unfamiliar and'
perhaps' diffi*ult T! provisions%
Protect the environment: The T!)s agreements permit members to ta(e
measures to prote*t not only the environment but also publi* health' animal health
and plant health% ;owever' these measures must be applied in the same way to
both national and foreign businesses% ,n other words' members must not use
environmental prote*tion measures as a means of disguising prote*tionist poli*ies%
b. Functions of WTO:
The T! shall fa*ilitate the implementation' administration and operation and
further the ob.e*tives of this &greement and of the Multilateral Trade
&greements' and shall also provide the frame wor( for the implementation'
administration and operation of the multilateral Trade &greements%
The T! shall provide the forum for negotiations among its members
*on*erning their multilateral trade relations in matters dealt with under the
&greement in the &nne+es to this &greement%
The T! shall administer the <nderstanding on =ules and 4ro*edures 5overning
the Settlement of Disputes%
The T! shall administer Trade 4oli*y =eview Me*hanism%
ith a view to a*hieving greater *oheren*e in global e*onomi* poli*y ma(ing'
the T! shall *ooperate' as appropriate' with the international Monetary Fund
#,MF$ and with the ,nternational Ban( for =e*onstru*tion and Development
#,B=D$ and its affiliated agen*ies%

&n in*rease in trade of goods and servi*es in the international mar(et has helped many *ountries
a*hieve rapid e*onomi* growth% Nepal .oined the T! on &pril /0' /112% So far' there have not
been dis*ernible benefits in terms of growth' employment' poverty redu*tion and industrial
produ*tion from .oining the T!% ,n fa*t' e+ports have de*lined' imports in*reased and the
manufa*turing se*tors' espe*ially the ones that weighted high in the e+ports bas(et' have been
going downward%
,t is surprising to note that trade #as a per*entage of 5D4$ has de*lined sin*e /112' 7uite *ontrary
to what is e+pe*ted after .oining trading blo*s% ,t was 2>%?2 per*ent in /112 but 2@%/A per*ent in
/11B% ,t is time to evaluate the progress made sin*e .oining the T! and the possible impa*t on
growth and employment due to planned redu*tion in tariffs in the *oming years% No study has
been done so far to figure out how mu*h would Nepal gain by .oining various trading blo*s and
under what trading s*enario #tariff and subsidy rates$ would Nepal lose and gain in what (ind of
se*torsC hat would be its impa*t on employment' whi*h should be one of the main barometers
for evaluating long:term su**ess of tradeC
,n the si+ years before .oining T!' on average' trade was @/ per*ent of 5D4% ,n post T!
period' on average' trade was 2> per*ent of 5D4% ,mports have been *onsistently rising sin*e
/112 but e+ports have been de*reasing% ,n FD /110E12' e+ports #as a per*entage of 5D4$ were
appro+imately ?>%B per*ent whereas it was ?/%? per*ent in FD /11BE1A% ;owever' imports in FD
/110E12 were /F%@ per*ent of 5D4 but it was 0/%B per*ent in FD /11BE1A% This means trade
defi*it is ballooning #in*reased by /0%0 per*ent last fis*al year$% ;ad it not been for in*reasing
remittan*es' balan*e of payments would have been negative% The investment situation also is not
that en*ouraging% ,n FD /11BE1A' gross investment #per*entage of 5D4$ was /F%B per*ent' down
from /2%@ in FD /110E12% Similarly' there has not been mu*h *hange in foreign dire*t
investment%
There has been no *hange in produ*tion stru*ture and a shift to new produ*tive a*tivities is not
happening% The top five e+port items G *arpets and rugs' garments' .ute goods' pulses and raw
.ute and .ute *uttings have not *hanged% &lmost A1 per*ent of the e+ported items are
manufa*tures and >1 per*ent of total e+port items go to ,ndia% The other top e+port destinations
are the <S' the -<' China and Bangladesh% Meanwhile' ma.or import destinations are ,ndia #@0
per*ent$' China' the -<' Singapore and Malaysia% !f the total imports' >@ per*ent is
manufa*tures' ?@ per*ent agri*ultural produ*ts and the remaining fuels and mining produ*ts%
The rate of in*rease in volume of trade is not mat*hed by the disappointing progress in e*onomi*
growth rate and employment generation% The average growth rate in the post T! period is 0%@
per*ent while the average growth rate in trade in the same period is 2> per*ent% orse' the
employment level has been miserable in the manufa*turing se*tor% 5enerally' low:s(illed
manufa*turing a*tivities are e+pe*ted to in*rease along with a surge in employment in these
se*tors after .oining the T!% This is true for developing *ountries where wage rate is low and
there is abundan*e supply of labor% ;owever' in Nepal' the main e+port industry #garment and
*arpet$ is *lose to being grounded now' whi*h has already shed almost F1 per*ent employment
and less than /1 firms are in operation%
Two main problems bedevil the e+ports se*tor: & la*( of pri*e and 7uality *ompetitiveness% The
former is a lin(ed to e+ogenous fa*tors su*h as road obstru*tions' high transportation *osts'
industrial stri(es by politi*ally:motivated trade unions and high *ost of pro*urement of
intermediate goods% &ll of these in*rease the *ost of produ*tion% The se*ond one is lin(ed to
endogenous fa*tors li(e unwillingness of the e+port:based firms to e+plore innovative means of
produ*tion and shift produ*tion to more produ*tive a*tivities with potential for *omparative
advantage% ,t is partly asso*iated to their habit of e+*essively relying on trade under preferential
agreements% & guaranteed low tariff and 7uota free a**ess to mar(ets abroad led to depression of
in*entives to innovate by the e+isting e+porters% &s per T! agreement' when the 7uota system
was phased out in /11@' the e+port:oriented firms went bust be*ause other international
*ompetitors started eating up previously guaranteed mar(et share%
The government has not been able to fa*ilitate lin(ages between produ*tive a*tivities by
redu*ing *oordination failures% There are virtually no produ*tion and *apital lin(ages between
the e+isting goods that Nepal e+ports with *omparative advantage and those that it *ould
potentially do in the future% The *apital and human resour*es of one industry are not readily
available or useful to other industries' leading to a la*( of syn*hroni"ation in innovation of new
goods and servi*es%
Conclusion:
This means that even after .oining the T!' the *ountry has failed to reap potential benefits6
instead' it is at a disadvantage in terms of e+port promotion' publi* investment to prop up (ey
industries and employment generation%
The stalemate in produ*tion stru*ture in the *ountry even after si+ years of .oining T! is
disappointing% No one (nows how mu*h will Nepal gain or lose if the Doha =ound is *ompleted%
The government and thin( tan(s need to analy"e gains and losses under different T! trading
s*enarios' espe*ially tariffs redu*tion and subsidies elimination% Sin*e more than half of the
trading a*tivities ta(e pla*e with ,ndia' it ma(es sense to fo*us on opening up mar(ets for more
goods and servi*es between ,ndia and Nepal' than with the rest of the world% &lso' given the
in*reasing volume of trade among the S&&=C members' it might be prudent to see( trading
opportunities under mu*h more liberal terms with S&FT& members than hoping to reap far:
fet*hed benefits under the T! regime%
References:
?% http:EEwww%wto%org retrived &pril /@' /1?2%
2. http:EEwww%wto%orgEthewtoEmembers retrived &pril /@' /1?2%
3. http:EEwww%moi*s%gov%npEwtoHIHnepal retrived &pril /A' /1?2%
2% T! and Nepal' Nepal =astra Ban( #&pril /11/$
@% http:EEen%wi(ipedia%orgEorldHTradeH!rgani"ation retrived &pril /A' /1?2%