Nepal – Trade Policy

Macro Economic Situation-

The average GDP growth rate since Nepal acceded to WTO in 2004 is 3.8 percent during the period of 2004/05 to2010/11. Nepal is engaged in a transformation process moving its economy away from predominantly agricultural sector to services and industrial sectors though the desired changes have not been accomplished. The contribution of the services sector has been gradually increasing over the years. Its share reached 50.1 percent of GDP in 2010/11 which was 45.9 percent in 2004/05. The shares of Agriculture and Industry in GDP have been decreasing, reaching 34.9 percent and 15.0 percent in 2010/11from 37.4 percent and 16.6 percent respectively in 2004/05. During the same period, Nominal Per-capita GDP has increased from USD 328 to 642. The total volume of trade doubled in 2009/10 in comparison to that of 2004/05. In the total trade volume, export share decreased drastically from 28.2percent in 2004/05 to 14.1percent in 2010/11 and import share increased from 71.8 to 85.9 percent.

Some Major Macroeconomic Indicators of Nepal

Agriculture -

Traditionally Nepal is an agrarian country, agriculture contributing around 34.9 percent of total national GDP and more than 73 percent of total employment. Agriculture occupies around 18 percent of total land area of the country, of which less than 50 percent of cultivated area is irrigated. It is the backbone of rural livelihood. Major agricultural products include paddy, wheat, maize, barley, millet, potato, lentils, tea, sugarcane, coffee, ginger and large cardamom; and some of these are also exportable products. However, the sector grew at 2.81 percent, slightly more than the growth rate of the population, during 2004/05-2010/11. Agriculture in Nepal, despite six decades of development efforts, has remained underdeveloped. Except a few commercial farming, agriculture is suffering from low productivity, small and subsistence farming, land fragmentation, use of primitive technology, low investment, lack of R&D, and poor input output market structure. Besides, decreasing number of farm workers, inadequate irrigation and agricultural extension services coupled with limited agricultural financing have had adverse effect on agricultural productivity.

Agriculture is important for Nepalese economy not only for providing an end product but also for raw materials to industries and tradable items. Significant numbers of industries in Nepal are based on agricultural products. Similarly, agricultural products occupy a considerable share in Nepal’s export. Realizing the importance of agriculture for national livelihood, promoting employment and income generation, earning foreign exchange, ensuring food sufficiency and meeting the need for consumption and trade, the Government introduced a long term Agriculture Perspective Plan (APP) for 20 years in 1995. In continuation of the long term agriculture plan, the Government is currently formulating Agriculture Development Strategy (ADS). Especially after the recent global food crisis, it has put high emphasis on agriculture development. Accordingly, it is undertaking several measures to correct the past inefficiencies of this sector. In particular, it intends to commercialize the agriculture sector and enhance its production and productivity by expanding extension services and irrigation facilities, promoting the use of modern technology and R&D. It has also emphasized cooperative farming.

Trade Policy 2009 and the Nepal Trade Integration Strategy (NTIS) 2010 have identified several agricultural products such as lentils, tea, coffee, ginger, large cardamom, jute etc. as potential goods for export. The organic farming is emerging as a potential sector for generating income and export. The Government is planning to promote further the production and marketing of these products in order to increase agro and industrial production, income, employment and trade. In this regard, development of SPS laboratories in major customs points is highly essential. There is a need to create an internationally recognized accreditation mechanism to standardize such laboratories.