Transcript Dr Dilli Raj Khanal

Multilateral Trading System and
Nepal’s Development
Presentation
by
D. R. Khanal
Two Day Seminar on
Mainstreaming Trade Agreements into Development
Organized by Pro Public, SAWTEE and SEJON
13, January
Introduction
• WTO is a negotiating forum for promoting
global trade
• In the forum governments make trade
policy commitments:
– To improve access to each other’s market on
a MFN basis
– To establish rules governing world trade
Contd.
• Hence, despite itself not being a comprehensive
development institution, its role is considered
vital in promoting trade and thereby economic
development. This is regarded to be true, among
others, on the assumptions that:
– Rule based multilateral trading system protects small
players that have little ability to influence the policies
of developed (large) countries
• Rules, in turn, reduce uncertainty by placing mutually agreed
limits on the policies that governments may adopt –
potentially helping to increase investment and lower risks
• Trade openness, growth and poverty reduction
are mutually reinforcing
Contd.
• This again would occur through comparative advantages
as a result of:
– Factor productivity gains through higher specialization
– Scale of economies and expansion in markets for domestic firms
– Stronger interaction with foreign firms and markets with
technological innovations and improved managerial practices
– Lessening of anti-competitive practices and rent-seeking
activities leading to reallocation of resources away from
protected unproductive firms/sectors to more efficient activities
– Ultimately spill over effect on both factor and product markets
and creation of income and employment opportunities leading to
welfare gains and poverty reduction.
Contd.
• All these are expected on the assumptions that
multilateral trading system is fair and safeguards the
interest of poor countries
• However, it is irony that many rules adopted at the time
of WTO establishment were guided by protecting the
interest of the developed countries in general and TNCs
in particular
– Examples are: agriculture subsidy, discriminatory tariff rules,
protection of intellectual property rights requiring changes in the
developing country rules keeping old rules of developed
countries in tact. The lists are too long.
– Details are in OXFAM study ( 2002) and many others and they
reveal that even the discriminatory rules and provisions are
distorted and rigged by the developed countries.
Contd.
• Host of factors/developments amidst increased pressures from
developing countries including movements by many civil society
organizations led to the adoption of Doha development Round.
Which recognized the role of
i) enhanced market access, ii) balanced trade rules, and iii)
technical assistance
• Further a framework was agreed on 1st August 2004 called July Package. It
identified five priority areas;
–
–
–
–
–
Agriculture,
NAMA,
Services,
Trade Facilitation, and
Development Dimensions
• But the stalemate is continuing. The point to be made is that
the international rules and their treatments are crucial for
enhancing development in countries like Nepal through
multilateral trading system
Nepal’s WTO Obligations/Fulfillments
Commitments/Obligations
• Nepal’ commitments/obligations in the time of
accession to WTO include:
– In the agriculture binding rate of tariff 51 percent for
the transition and 42 percent thereafter 42 percent.
– In the non-agriculture manufactured products average
binding rate 39 percent in the transition to 24 percent
thereafter.
– Removal of all additional import duty like special duty
and local development tax within 10 years.
– Tariffs on ITC products to be completely eliminated
within 5 to 7 years from 5 percent at the time of
accession.
Contd.
–
–
More open up of services sector allowing up to 80 percent
foreign equity participation
Formulation, Revision and Implementation of Acts including
Dozens of new laws or revision in old ones required. Among
them, New Industrial Property Act by 1 Jan 2006,
Implementation of TRIPS by Jan 2007, Anti-dumping,
Countervailing and Safeguard Law within one year of
accession, Implementation of the Agreement on Sanitary and
Phytosanitary Measures by 1 Jan 2007, Legislation on the
Valuation of Imports for Customs and Taxation by 1 Jan 2004
and Full Implementation from 1 Jan 2007. Similarly, new laws
in the areas like competition, bankruptcy, cyber, access to
genetic resources, bank and finance institution, plant
resources, and health institution operation. In addition, custom,
industrial enterprises, labor, company, security exchange,
foreign investment and technology transfer, plant protection,
pharmaceutical laws be revised and enacted.
Contd.
•
•
•
Upon the date of accession establishment or
designation of tribunal for the prompt review of actions
to the implementation of laws, regulations, judicial
decisions and administrative rulings required.
Elimination or non-applicability of quantitative
restrictions on imports or other non-tariff measures
including licensing, quotas, bans, permits, prior
authorization requirements, and other restrictions.
From the date of accession execution of domestic
taxes like value added and excise duties in a nondiscriminatory manner.
Contd.
Fulfillments and Beyond
– Nepal’s trade liberalization has been more faster in many areas than WTO
commitments and now Nepal is one of the most liberalized countries in South
Asia
– Trade is completely deregulated and no trade and non-trade barriers including no
support measures are there in exports contradicting WTO rules
– Expect transportation and fertilizer subsidy in remote areas (now limited irrigation
subsidy also), no subsidy is there
– In large and medium industries up to 100 percent foreign equity participation is
allowed with repatriation facilities
– In banking three fourth and in insurance 100 percent foreign equity participation
has been already allowed even if in a selected basis
– Now the average tariff rate is in the neighborhood of 7.11 percent and estimates
reveal that the actual rate has reduced to 5.13 percent in 2007 from 6.1 percent
in 2003. Likewise, the imports tariff rate has gone down to 6.23 percent from 7.72
percent during the same period.
– Many laws have been already enacted and many are in the process of
enactment
Development Performances in the Post WTO Era
(Is trade liberalization a yard stick of development?)
Overall and Sectoral Growth
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2004/05
2005/06
2006/07
Agriculture
Non-agriculture
GDP Producer Price
2007/08
Sectoral Growth Rate
Agriculture
30.0
25.0
Manufacturing
20.0
Wholesale and retail trade
15.0
Hotels and restaurants
10.0
Financial intermediation
5.0
Real estate, renting and
business activities
0.0
2004/05
-5.0
-10.0
2005/06
2006/07
2007/08
Public administration and
defence
Others
Gross value added
Sectorwise Contribution in Total GDP
Non-agriculture
70.0
60.0
Share in Percentage
Agriculture, forestry and
fishing
Manufacturing
50.0
Wholesale and retail trade
40.0
Hotels and restaurants
30.0
20.0
Financial intermediation
10.0
Real estate, renting and
business activities
0.0
2004/05
2005/06
2006/07
Fiscal Year
2007/08
Public administration and
defence
Others
Share in Total Trade
30.000
25.000
20.000
15.000
10.000
5.000
0.000
2004
2005
2006
2007
Years
Export
Eport India
Export Other Countries
2008
Share of Trade in GDP
40.0
30.0
20.0
10.0
0.0
2004
2005
2006
2007
Years
Export
Import
Trade
2008
Share of India and Other Countries in Total Export
80.0
70.0
Share in %
60.0
50.0
40.0
30.0
20.0
10.0
0.0
2002/03
2003/04
2004/05
2005/06
2006/07
Years
India
Other Countries
2007/08
Exports of Major Commodities to India
45000.0
40000.0
35000.0
Rs in millions
30000.0
25000.0
20000.0
15000.0
10000.0
5000.0
0.0
2003/04
2004/05
2005/06
2006/07
2007/08
Years
Total India Export
Cardamom
Chemicals
Ghee (Vegetable)
Juice
Jute Goods
Polyster Yarn
Readymade garment
Textiles*
Thread
Wire
Zinc sheet
Others
Exports of Major Commodities to Other Countries
25000.0
Rs in millions
20000.0
15000.0
10000.0
5000.0
0.0
2003/04
2004/05
2005/06
2006/07
2007/08
Years
Others
Handicraft ( Metal and Wooden )
Nepalese Paper & Paper Products
Pashmina.*
Pulses
Readymade Garments
Silverware and Jewelleries
Tanned Skin
Woolen Carpet
Totals
Share of Domestic Saving and Total Investment in GDP
Share in Percentage
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
2003
2004
2005
2006
2007
2008
Years
Domestic Saving
Total Investment (Capital Formation)
Resource Gap
Some Spill Over Effects?
Remittances Inflows
NRs in millins
160000
140000
120000
100000
80000
Remittances (RRTN)
60000
40000
20000
0
2003 2004 2005 2006 2007 2008
Fiscal Year
Share of Remittance Inflows in GDP
20.0
15.0
10.0
Share
5.0
0.0
2003
2004 2005 2006
2007 2008
Share of Total Deposits and Loans and Advances in GDP
60.0
Rs is in million
50.0
40.0
30.0
20.0
10.0
0.0
2003
2004
2005
2006
2007
Fiscal Year
Total Deposits
Loans and Advances
2008
Foreign Direct Investment
Trends of Approved FDI
12000.0
Rs in mlns
10000.0
Total
8000.0
India
6000.0
China
4000.0
Others
2000.0
0.0
2003
2004
2005
2006
2007
2008
Years
• Some studies indicate that only 40 percent of approved FDI projects
come into operations.
Contd.
• Despite stagnating domestic saving
trends, the national saving has surpassed
total investment in recent years markedly (
except in 2006/07) as the current account
surplus exhibits indicating at the same
time low investment capacity
Employment, Poverty, Income
Distribution and Livelihood
Employment ( Manufacturing)
Comparison of Inter Census Persons Engaged and
Employees
Year
2007
Total number of
employees
Total number of
person engaged
2002
1992
0
100000 200000 300000
Number
•
NLSS data show a declining trend of real wages of unskilled in urban
areas and stagnating total wage income share of entire workers
• Although poverty data are not available for
the post WTO accession period, trade
liberalization partly may be indicative.
– Poverty reduced from 42 in 1996 to 31
percent in 2004
– At the same time, income distribution
worsened markedly. Gini rose to 41.4 in 2004
from 34.2 in 1996.
• Share of poorest in consumption decreased amidst
stagnation in income share during the period 1996 to
2004
Share in per capita Share in per capita
consumption
income
1996
2004
1996
2004
Poorest 20 percent population
7.6
6.2
5.3
5.3
Richest 20 percent population
44.9
53.3
50.3
53.4
• Informal sector employment is as high as 94 percent
• Labor productivity in manufacturing and services is
declining
• Food security and people’s livelihood is now a major
problem-35 districts in acute food deficit
• More than 1 million households are landless, comprising
more than 23 percent of total households
• Gender based exclusion is high in terms of access to
economic (low income, absence of opportunity), human
(education, health) and physical assets (land, livestock
etc). Same is true in case of poor and disadvantaged.
• Highly uneven development in rural/urban/remote and
relatively accessible areas is manifesting overtime.
Major Issues (Domestic)
• Urban centered consumption induced economic activities
and hence no productive investment enhancing
sustainable/equitable growth
• Widening income disparity in an unprecedented way amidst
deepening structural and institutional impediments
• Job loss among unskilled workers, growing informalisation
of the labor market and reduction in labor productivity
• Gradual collapsing of cottage and small scale industries
• Too much dependency on trade based revenue and
accompanying policy distortions
• Cascading tariff structure discouraging high value added
and resource based industries
• Problem of market and trade enhancing institutions
• Absence of country and commodity diversification amidst
low backward and forward linkages
• Serious food security and people’s livelihood problem
• Serious supply bottlenecks and absence of enabling
environment to the investors
• Absence of institutionalizing wider consultation and
policy coordination led policy formulation and execution
taking political economy into special consideration
• Above all encouragement to defective economic policy
regime dictated by liberalization, deregulation and open
up centered policies and even the absence of
comprehensiveness amidst captured
policies/trade/resources etc
International
• Failures to implement Doha Development Agenda in all
three-fronts – i) enhance market access, ii) balance
trade rules and iii) well targeted technical assistance and
other components under July Packages
• Discriminatory/ineffective global financial architecture
and ill suited global policy regime to the countries like
Nepal
• Increased vulnerability in the economy due to global
uncertainty and big unanticipated shocks-based example
today’s global financial crisis and its contagion
• Ignorance to Food security and farmer’s livelihood
issues ignored
Required Initiatives/ Measures
Domestic
– Re-structuring and rationalization of tariff structure
– Special incentive to small enterprises with focus on domestic
resource based and labor incentive industries through wider
policy consultation processes
– Strengthening of market institutions and dismantling of syndicate
and cartelling practices
– A comprehensive approach in reforms with focus on removing
structural and institutional impediments for ensuring better
access to financial and physical resources of the small
enterprises
– Special treatment to food security and livelihood issues
– Strengthening of trade capacity and trade related institutions
– Stabilization Fund
– Macro policy synchronization
– Massive skill development program for raising productivity of
workers
Contd.
– Development paradigm shift for equity led
development with accompanying policy changes by
giving equal priority on import competing and export
promoting industrialization. This will require:
• Massive investment in infrastructure and other related
activities for expanding internal market
• Priority on easing supply bottlenecks and encouraging
production through small producers
• High priority on cooperative modules of production,
distribution and exchange
• Emphasis on developing production clusters and export
processing zone in viable rural and semi-urban areas
• Massive investment in health and education
• Poverty reduction and rural development programs at the
grass roots for raising purchasing capacity of the people
Contd.
International
•
Implementation of Doha Commitments in all three-fronts – i) enhance
market access, ii) balanced trade rules and iii) well targeted technical
assistances and other components under July Packages
– From LDC perspectives:
-Duty Free and Quota Free Market Access-the Hong Kong Ministerial Declaration
vague despite commitment of facility to 97 percent products -Address other
problems simultaneously
-rules of origin
-Non-tariff barriers ( UNTAD estimates show 40 percent of LDC
exports are affected by non-tariff barrier such as technical standards,
sanitary and phytosanitary measures, custom rules and procedures,
competition related restrictions etc.)
-TRIPS
-Preference erosion
Contd.
-Aid for trade with focus on technical capacity enhancing and
removing supply bottlenecks etc
-Improved and real market access with certain degree of
flexibilities to pursues appropriate domestic policies especially in
the areas of food security, farmer’s livelihood and safeguarding
of small enterprises
-Strong debt relief measures and stabilization fund for
addressing unanticipated trade shocks of the LDCs
-Removal of increased ambiguity between the multilateral and
regional trading arrangements
-New agenda: new global financial architecture and development
paradigm shift at the global level for making international trade
as a vehicle of development
Thank You