Foreign Trade and Export Management in Nepal

Foreign Trade: The exchange of goods, services, and capital across international borders between two or more sovereign nations.

Concept: When a country’s merchandise imports exceed its merchandise exports. Nepal suffers from a chronic trade deficit where imports exceed exports by nearly tenfold.

Concept: A systematic accounting record of all economic and financial transactions conducted between the residents of a country and the rest of the world during a specific period (Current, Capital, Financial accounts).

Concept: A designated duty-free enclave treated as foreign territory for trade operations, offering tax holidays, streamlined customs, and infrastructure to promote export manufacturing (e.g. Bhairahawa SEZ in Nepal).

Concept: An official trade document issued by an authorized agency (e.g. FNCCI in Nepal) certifying that the exported goods were entirely produced, manufactured, or processed in Nepal.

Concept: Working capital loan granted by a commercial bank to an exporter to purchase raw materials, manufacture, and package goods prior to shipping against a confirmed L/C.

Major Exports: Refined soybean/palm oil, orthodox tea, large cardamom (Alainchi), handmade woollen carpets, and readymade pashmina shawls.

Concept: International Commercial Terms published by the ICC standardizing buyer-seller cost and risk responsibilities in global transport. Example: FOB (Free on Board), CIF (Cost, Insurance and Freight).

Role: Government agency under Ministry of Industry, Commerce and Supplies responsible for trade intelligence, market research, trade fair participation, and export development in Nepal.

Concept: The South Asian Free Trade Area (SAFTA) agreement among SAARC member nations providing concessional tariff treatment and duty reductions to expand intra-regional trade.

1. Causes of Trade Deficit:

• Narrow export basket dominated by low-value agricultural and primary products.
• Heavy dependence on imported petroleum, construction materials, and manufactured goods.
• Inadequate industrial infrastructure, high power costs, and landlocked transit bottlenecks.
• High remittance inflow driving import-driven consumer consumption.

2. Remedial Measures:

• Promote Nepal Trade Integration Strategy (NTIS) priority products (tea, cardamom, ginger, pashmina).
• Develop domestic hydroelectricity and electric transport to substitute petroleum imports.
• Operationalize Special Economic Zones (SEZs) with genuine one-stop clearance.
• Enhance agricultural productivity and promote import substitution in food grains.

Export Procedure Steps:

1. Business Registration & Exim Code: Register enterprise, obtain PAN/VAT, and get mandatory 13-digit Exim Code from Customs Department.
2. Receiving Order & L/C: Receive buyer’s purchase order and confirmed irrevocable Letter of Credit.
3. Production & Inspection: Manufacture goods adhering to international quality standards.
4. Export Documentation: Prepare Commercial Invoice, Packing List, Certificate of Origin, Phyto-sanitary certificate.
5. Customs Clearance: Submit online declaration via ASYCUDA World at border customs (Birgunj, Tatopani).
6. Transit & Shipment: Transport to sea port (Kolkata/Haldia) under Nepal-India Transit Treaty and ocean shipment.

1. Role of SEZ: Attracts Foreign Direct Investment (FDI), provides uninterrupted electricity and water, offers income tax exemptions (100% for first 5 years), duty-free raw material imports. 2. Challenges: High mandatory export thresholds (initially 60%), bureaucratic delays in one-stop service, high factory lease rents, inadequate logistics connectivity.

1. Pre-shipment Finance (Packing Credit): Working capital loan to finance raw material purchase, processing, and packaging before dispatch. 2. Post-shipment Finance: Credit granted after goods are shipped against shipping documents (bill of lading, airway bill) while awaiting payment from foreign buyer (negotiation of export bills, discounting, factoring).

Transit Arrangements: Landlocked Nepal uses designated Indian transit corridors and ports (Kolkata, Haldia, Visakhapatnam) to reach international sea routes. Problems: Port congestion at Kolkata, container turnaround delays, high demurrage and detention charges, excessive road checkpoints, non-tariff customs delays.

WTO: Nepal joined in 2004 as an LDC member; gains Most Favored Nation (MFN) non-discriminatory market access and rules-based dispute settlement. BIMSTEC: Connects landlocked Nepal with Bay of Bengal littoral states (India, Bangladesh, Myanmar, Thailand), expanding regional supply chain integration.

1. Structure of Foreign Trade:

• Export Basket: Low-value processed agricultural goods (soybean oil, cardamom, tea), handicrafts, carpets, pashmina.
• Import Basket: Petroleum products (constituting ~18% of total imports), iron/steel, electronics, machinery, vehicles, food grains.

2. Concentration with India:

• Over 65% of Nepal’s total trade is with India due to open border, geographical proximity, historical cultural ties, pegged exchange rate (INR 1 = NPR 1.6), and free transit access.

3. Strategies for Trade Diversification:

• Commodity Diversification: Value-addition in herbal/ayurvedic products, organic tea/coffee, IT software exports, handicraft branding.
• Geographic Diversification: Expand trade with China via Northern border points (Tatopani, Rasuwagadhi, Korala) under Transit Protocol; expand exports to GCC countries, USA, and EU under GSP duty-free schemes.

1. Commercial Invoice: Primary accounting document stating seller/buyer details, description of goods, unit price, Incoterms, total value, and payment terms; used for customs duty valuation. 2. Bill of Lading (B/L): Document issued by ocean carrier acknowledging receipt of cargo on board; acts as: (i) Receipt of goods, (ii) Contract of carriage, and (iii) Document of title to the goods. 3. Letter of Credit (L/C): Bank undertaking guaranteeing payment to seller upon presenting complying documents; protects buyer against non-shipment and seller against buyer default. 4. Certificate of Origin: Official document certifying country where goods were manufactured; enables importing customs to determine eligibility for preferential tariff concessions under SAFTA/WTO.

1. Concept: NTIS is the Government of Nepal’s national blueprint to enhance export competitiveness, overcome supply-side constraints, and integrate Nepal into regional and global trade.

2. Priority Export Sectors:

• Goods: Large cardamom (Alainchi), Ginger, Orthodox Tea, Medicinal and Aromatic Plants (MAPs), Fabrics/Pashmina, Leather, Footwear, Handmade Paper.
• Services: Tourism, Information Technology (IT & BPO services), Skilled/Professional labor.

3. Bottlenecks: Lack of international testing/certification laboratories in Nepal, inadequate cold chain storage, fragmented smallholder supply chains, high logistics costs, and lack of aggressive international brand marketing.