Trade policy and it’s in response to

COVID 19 in Nepal
The period covered by Nepal's Second Trade Policy Review (TPR) at the World Trade
Organization (WTO) is from 2012 to 2018. Nepal became the World Trade Organization's
(WTO) first least-developed country (LDC) member on April 23, 2004, after completing the
complete working party negotiation. Since 2012, Nepal has seen major transformations,
including changes in the political structure as a result of the adoption of the Constitution of
Nepal. The current Nepalese Constitution was promulgated on September 20, 2015, by the
Constituent Assembly. The Constitution of Nepal established a new basis for the country's
socioeconomic transition. Nepal's trade policy has been modified to align with other sectoral
policies, provide alignment between trade policy and NTIS, manage the growing trade
imbalance, and boost exports by strengthening supply-side capacity. The country's first Trade
Policy, 2009 was the country's first comprehensive trade policy after entering the WTO. Trade
Policy was revised in 1992. The 2009 Trade Policy adopted the ideals of a liberal, open, and
transparent economic system, with the major goals of increasing the trade sector's contribution
to the national economy and assisting in poverty reduction. Increase economic growth.
However, the Policy's outcomes remained uneven. As a result, Trade Policy, 2015 has taken its
place. The objective of Trade Policy, 2015 is to create economic prosperity by increasing the
contribution of the trade sector to the national economy through export promotion. The methods
include growing supply-side capacity and increasing exports of competitive value-added
products and services in the global market, increasing access to regional and global markets for
products, services, and intellectual property. The policy of 2015 also establishes a Board of
Trade, chaired by the Minister of Industry, Commerce, and Supplies. The Board of Directors
comprises members from the business sector and is responsible for aiding in the formulation of
policies. Trade promotion, trade facilitation, policy monitoring, and interagency cooperation are
all required.
Nepal Trade Integration Strategy (NTIS): Nepal has launched its third-generation trade
integration plan to improve the trade and export enabling environment, focus on product
development and increase supply capacity of key items, and build institutional capacity. Trade
negotiations and inter-agency cooperation, as well as the development and enhancement of
trade-related infrastructure infrastructures. Previously, Nepal started the Diagnostic Trade
Integration Study (DTIS) in 2004, which was unable to be properly conducted owing to a variety
of factors. DTIS was later renamed NTIS and launched in 2010 to supplement the 2009 Trade
Policy This was modified again in 2016 following the revised Trade Agreement 2015 Policy.
NTIS 2016 seeks to improve Nepal's export competitiveness by tackling seven cross-cutting
strategic areas: trade capacity, trade and investment environment, trade and transportation
facilitation, standards and technical regulations, SPS, intellectual property, and intellectual
property protection, property rights, and the exchange of services. NTIS 2016 focuses on the
development of value chains for key export items, which include four agro-based (big
cardamom, ginger, tea, and MAPs), five craft and manufacturing (all fabrics, textile, yarn &
ropes, leather, footwear, chyangra pashmina, and knotted carpets), and three services (skilled &
semi-skilled professionals at various categories, IT & BPO, and tourism). It has selected a total
of 190 activities to be executed over five years.
Industrial Policy: Nepal enacted the Industrial Businesses Act, 2016 to further simplify and
clarify processes for the entrance, operation, and departure of industrial enterprises, as part of
its ongoing efforts to make industrial policy-relevant and supportive of industrial growth as well
as enact much-needed improvements In, Nepal's first industrial policy was published 1957, with
updates and replacements in 1960, 1974, 1981, and 1989. It aims to increase industrial goods
exports, increase the contribution of the industrial sector to the economy by using local
resources, make industrial enterprises sustainable and dependable through the application of
innovative and environmentally friendly technology, make Nepal an attractive investment
destination in South Asia, and protect industrial intellectual property rights. The Industrial Policy
of 2010, which superseded the Industrial Enterprises Act of 1992, is backed by the Industrial
Enterprises Act of 2016. Tax advantages, concessions and benefits of VAT and customs taxes,
and acquisition facilities are only a few of the Act's highlights of land, restrictions against
nationalization of industries, and the establishment of a unified market. For international
investors, there is a window service. The Act gave numerous fiscal incentives to industries,
including a 16 percent effective tax rate for nearly all manufacturing businesses and a 25%
reduction on export income from goods exports.
Intellectual Property Rights: Nepal has had notable achievements in the policy arena of the
intellectual property (IP) rights regime. The inclusion of intellectual property rights in part of the
fundamental right of Nepal's Constitution ensures intellectual property rights. Article 25 of the
Constitution guarantees all Nepali citizens the right to “acquire, possess, sell, dispose of,
acquire commercial profits from, and otherwise deal with property,” where property includes
movable and immovable property as well as intellectual property. In addition, Nepal published
its first National Intellectual Property Policy in 2017. Nepal has implemented changes relating to
royalty collection from music industry consumers, whereby music artists earn royalties from
music transmitted on different media channels such as radio, FM, television, telecom,
transportation, and others. This demonstrates the government's commitment to safeguarding
inventors' and investors' intellectual property rights.
Foreign Investment Policy: Nepal has made great progress in modernizing its investment
system to facilitate commerce. The Foreign Investment and One-Window Policy of 1992 was
superseded by the Foreign Investment Policy of 2015. The Policy's goals are to mobilize foreign
capital, technology, skill, and knowledge in priority sectors for broad-based economic growth,
job creation, and utilization of local resources, to allow entry of modern technologies,
managerial and technical skills, and foreign capital for increasing domestic production and
productivity, and to establish Nepal as an appealing investment destination. The Policy seeks to
achieve these objectives through 19 policy instruments and 36 working policies. Some
significant provisions for foreign investors are repatriation of dividend, profits and salary of
employees, national treatment in respect of incentives and facilities, facilities in terms of
deductible income in income taxes, accelerated depreciation, options to raise financial
resources within and outside the country, visa facilitation, additional security measures and
facilitation in land acquisition, among others (TPR, 2018).
Other Trade and Investment Policies: The IBN's operationalization has been a significant
breakthrough. The Investment Board Act, 2011 and Regulations, 2012 were adopted in Nepal
with the goals of mobilizing local and external private resources, encouraging PPP, assisting in
the construction of physical infrastructure, and boosting the industrialization process. The Act
established a high-powered investment board, which is chaired by Prime Minister. The Board is
empowered to formulate policy on investment, select priority areas for investment seek
proposals from potential investors, decide terms and conditions of investment, facilitate
investment, provide financial and non-financial services and incentives, promote coordination
among various government agencies, and provide fast-track problem-solving services and
market Nepal as an investment destination, among others. IBN has been mandated for
approval, management, and facilitation of wide-ranging projects, including hydroelectricity
projects with more than 500 MW generating capacity, and infrastructure and services industries
worth more than NRs 10 billion (TPR, 2018). IBN has already assisted in the facilitation of
export-oriented projects in the hydropower and industrial sectors. Going forward, the
government intends to stimulate foreign investment even further to make Nepal an appealing
destination for international investment by treating it as a complement to domestic capital
formation. Recently, a bill has been presented that attempts to modernize and harmonize
legislation concerning forgery. As a result, the proposed act is much more far-reaching.
Furthermore, in the most recent budget, plans were made to enhance the IBN even further by
expanding it as an organization for awarding investment. Approval is obtained through a one-
door procedure, which includes PPPs.
Reforms in the policy over time
Policy and legal reforms: The publication of the Constitution, which serves as the Mega
Policy, is a significant achievement. Based on the Constitution, the government is enacting the
necessary legislative measures to implement fundamental rights such as consumer protection,
social security, and employment rights. The Constitution adequately reflects the trade and
manufacturing sectors. The Muluki Ain (Civil Code) Act, 2017, which superseded the Civil Code
(Muluki Ain), 1853, was a significant change (revised in 1962). The Act contains significant
reform elements that result in a paradigm change in social practices. Other relevant legal
reforms include policies and acts such as Trade Policy, 2015. Foreign Development
Cooperation Policy, 2014; Foreign Investment Policy, 2015; Intellectual Property Policy, 2017;
Industrial Enterprise Act, 2016; Special Economic Zone Act, 2016; Labor Act, 2017; and BAFIA,
2017. Reforms have been made in the areas of procurement with amendments to the Public
Procurement Act in 2016 and amendments to Public Procurement Rules in 2017. The Export-
Import Management Act is being amended and the Safeguard, Antidumping & Countervailing
bill has been drafted (TPI, 2018). Similarly, 2017 has been introduced to assist export promotion
and Special Economic Zone Rules. Sectoral changes have been implemented through the
adoption of the 2015 Agricultural Development Strategy, the 2017 National Mining Policy, and
the 2015 Information and Communication Technology Policy. The establishment of the Power
Regulatory Commission has brought about a change in the electricity sector.
Reforms in Structure: With the adoption of the Constitution and the expansion of development
diplomacy, Nepal has implemented transformational structural changes. A significant focus has
been on transit and connectivity, including the signature of a Transit Transport Agreement with
China, a Memorandum of Understanding on the Belt and Road Initiative, a PTA with India, and
the addition of an Indian transit port. The issue of power deficit has been resolved, and the
situation is currently stable. The Public Procurement Monitoring Office's operationalization of the
computerized e-GP system was a significant development (PPMO). Similarly, the government
has implemented an internet system for registering commercial firms. Nepal's trade information
portal is also operational. The Trade Facilitation Agreement (TFA) and the Revised Kyoto
Convention have been ratified by Nepal's parliament (RKC). As a result of its numerous
initiatives, Nepal has demonstrated its commitment to the Multilateral Trading System and
proceeded in the direction of structurally reforming its economy.
Reforms in Custom: Various customs regulations and institutional reforms have been
implemented to facilitate commerce. Since 2003, the government has been implementing
Customs Reform and Modernization Strategies and Action Plans (CRMSAP) through the
Department of Customs (DOC). The 5th CRMSAP implementation began in 2017 and will
continue till 2021. The 5th CRMSAP anticipates critical reform initiatives such as accelerated
legal trade facilitation, improved customs automation, and data management, streamlined
coordinated border management, and organizational reorganization to promote risk-based
clearance, among other things. The master plan for e-customs has been executed. The
ASYCUDA global system, which is web-based, has been implemented at 15 customs offices,
accounting for approximately 98 percent of all commerce. The technology is being implemented
at the remaining five customs offices. The Nepal National Single Window (NNSW) is being
developed and is anticipated to be finished in 2019. A selectivity module based on risk (green,
yellow, and red channels) has been implemented. Furthermore, the DOC and Customs Offices
have established a Trade Facilitation Committee and a Client Service Center. Following the
approval of the TFA in January 2017, Nepal acceded to the RKC in February 2017, and the
RKC was confirmed by the parliament. This demonstrates Nepal's commitment to establishing
contemporary and effective Customs processes that are tailored to the international trade
environment, as well as its efforts to facilitate commerce.
Trade infrastructure reforms: Nepal has made great strides in improving its commercial
infrastructure. Integrated Check Posts (ICPs) are being developed in the key border-crossing
sites between India and Nepal, notably Bhairahawa, Nepalgunj, and Biratnagar, to streamline
customs clearing procedures and make trade facilitation more effective. During the review
period, the ICP Birgunj went into operation. While Nepal has four Inland Container Depots
(ICDs) in operation, namely Bhairahawa, Birgunj, Biratnagar, and Kakarbhitta, three are under
construction at Chobhar, Timure, and Tatopani, and a feasibility study for an additional port in
Dodhara Chandani is being done. While Birgunj has a railway connection to Indian seaports, the
other ICDs are only accessible by road. Furthermore, the Electronic Cargo Tracking System
(ECTS) has been implemented in Nepali transit traffic traveling through India. The movement of
Nepal-bound freight may be traced using this method, increasing the time efficiency. Nepal and
India have agreed to examine the Trade Treaty, Transit Treaty, and Railway Service
Agreement, which will aid in addressing transit and trade concerns. Nepal has also implemented
measures to enhance the most vital commercial routes. The construction of the Fast Track
(Nijgadh-Kathmandu) has commenced. Nepal has undertaken reform measures in the inland
waterways sector. Nepal and India signed a major agreement to develop interior waterways for
cost-effective and efficient freight movement within the framework of commerce and transit
arrangements, giving Nepal additional sea access. Work has already begun on both sides to do
the necessary research.
Response to COVID -19
On 13 January, a 31-year-old Nepali student of Wuhan University, who had returned home on 5
January, was admitted with mild symptoms (Bastola et al., 2020). There were no additional
cases reported in February, however, the second case of COVID-19 was observed on March
23. Despite a sluggish start, the total number of confirmed cases reached 57 by April. Until this
article was written (10 December), Nepal was ranked 40th in the world, with around 248,423
total instances resulting in various medical, economical, and psychological effects. GDP growth
is a key indicator of the macroeconomic impact of any sort of economic or other repercussions.
In our situation, the COVID-19 pandemic is a severe health shock with implications for
government resource allocation. This is due to the government's need to focus healthcare
resources to properly respond to the spread of COVID-19. On the other hand, the government
must implement a variety of economic packages to meet the needs of the sectors affected by
the shutdown. According to the Nepal Labour Force Survey (2017/18), 85 percent of the labor
force is informally employed in the nation, which includes all workers in the informal sector as
well as those in the official sector who do not get minimal basic benefits (CBS, 2017). As a
result, persons in informal employment and business groups, notably cottage and small-scale
businesses and tourism, are disproportionately affected. This consequence of resource
allocation and the halting of economic operations as a result of the country's lockdown would
harm economic growth and other important macroeconomic factors. According to government
data, the country's trade imbalance has surpassed Rs 1 trillion by mid-April 2021. According to
the Department of Customs, the number of imports, which had decreased at the peak of the
Covid-19 restrictions, has returned to normalcy, while exports have remained as weak as ever,
resulting in an increasing trade deficit. Both import and export volumes rose in the first nine
months of the current fiscal year as compared to the first nine months of the previous fiscal
year. As of the end of the first nine months of the current fiscal year, the trade deficit stands at
Rs 1.016 trillion, which is 12.49 percent more than the figure reported precisely one year ago,
according to the Ministry. The below data shows the impact due to COVID-19 in trade:
1. Import: Rs 1.111 trillion (13.12% more than last year’s figure)
2. Export: Rs 94.76 billion (20.23% more than last year’s figure)
3. Trade deficit: Rs 1.016 trillion (12.49% more than last year’s figure)
4. Total foreign trade amount: Rs 1.206 trillion (13.64% more than last year’s figure)
5. Share of import in the foreign trade: 92.14%
6. Share of export in the foreign trade: 7.86%

Remedies to recover from the Trade deficit

 To obtain vital medical supplies and food goods, eliminating tariffs and minimizing the
impact of present limitations should be a top focus.
 To operate without inventories, retailers often rely on a just-in-time strategy and the cost-
cutting effect of value chains. This has been a problem during the crisis, particularly in
terms of needs. While manufacturing can still rely on value chains, it will be required to
establish stockpiles as part of these networks to ensure the supply of requirements in
the event of an interruption to production.
 Monetary and fiscal stimulus to help individuals and businesses are the best way to deal
with this problem. However, the certain stimulus may be unjust and may harm other
nations' recovery efforts.
 In the pandemic response, e-commerce is a potent weapon. In many situations,
consumers rely on delivery to obtain necessary items. Many, however, should not only
decrease the cost of acquiring these items but should also expedite the procurement
process. Countries should avoid utilizing tariffs and restrictions to create protected zones
for local sectors to recover during the recovery period.
  Governments are playing an important role in managing the emergency and will be
crucial in the recovery. Their economic participation will increase and as a result, their
activities like purchases will have a significant economic impact.
 The majority of the world's governments cannot afford to provide fiscal stimulus and
intervention packages. Firms' productivity and competitiveness in these nations are likely
to suffer, and further measures will be needed to help them return to pre-crisis levels. In
this regard, it is necessary to consider providing help to product development to
accelerate recovery.

Nepal has always met its international commitments and has been an active participant in the
WTO. It is devoted to leveraging foreign trade to achieve its long-term development goals. Since
the previous TPR in 2012, the Nepali economy has faced several obstacles, not the least of
which were the earthquakes in 2015 and the resulting trade interruption. Nepal was severely
damaged in the early aftermath but has already recovered significantly. With the adoption of the
Constitution in 2015 and the election of stable administrations at all three levels: federal,
provincial, and municipal, Nepal has committed to structurally changing its economy to make it
more production-focused, job-generating, self-sufficient, and export-oriented. Again, the issue of
COVID-19 is concerning. According to the World Bank's latest South Asia Economic Focus,
Nepal's economy would increase by just 0.6 percent in 2021, up from an expected 0.2 percent
in 2020, as COVID-19 lockdowns hamper economic activity, particularly tourism. Although we
have yet to see the full extent of the coronavirus's effect and consequences, this global danger
has already generated economic instability for all of us. People are concerned since we still
don't know much about this lethal virus or how severe and broad the economic repercussions
will be.

References:

Government of Nepal Ministry of Industry, Commerce and Supplies. (2018). NEPAL TRADE POLICY
REVIEW: 2018. https://moics.gov.np/uploads/shares/policy/Trade%20Policy%20Review%202018-
Nepal.pdf

COVID-19 impact on Nepal’s economy hits hardest informal sector. (2020, October 8). World Bank.
https://www.worldbank.org/en/news/press-release/2020/10/08/covid-19-impact-on-nepals-economy-
hits-hardest-informal-sector

M. (2020, May 13). The role of trade in recovering from the COVID-19 crisis. SET. https://set.odi.org/the-
role-of-trade-in-recovering-from-the-covid-19-crisis/

Nepal’s trade deficit crosses Rs 1 trillion mark. (2021, April 22). OnlineKhabar English News.
https://english.onlinekhabar.com/nepals-trade-deficit-crosses-rs-1-trillion-mark.html

Government of Nepal Ministry of Foreign Affairs. (2020, August). Report on Nepal’s Foreign Affairs.
Ministry of Foreign Affairs Government of Nepal. https://mofa.gov.np/wp-
content/uploads/2020/12/Report-on-Nepals-Foreign-Affairs_MOFA_2019-2020.pdf

Hipsher, S. A. (in press). The role of trade narratives in poverty reduction after the COVID-19
crisis. Review of Economics and Political Science.