While the country is busy with the preparations of the Constituent Assembly Elections, which finally seems to be materializing after being postponed twice, here is something quite unrelated to it. Many a times I wonder if we have been too carried away by the political agendas of the country, maintaining a blind eye to any other issue. It’s a matter of debate if it is actually a economic revolution this country needs rather than a political upheaval every once in a while…Leaving the question for you to ponder on, here is Shristi Khadka’s take on whether Nepal made a right choice by adopting free trade or not.

Did Nepal made a wrong choice by embracing the policy of free trade as a strategy for trade integration and economic development?

by Shristi Khadka

Democracy has been regarded as the best practice by almost all countries of the world and democracy also incorporates economic democracy. Therefore restricting people to consume or produce any goods or services provided they are not harmful to an individual or society is against democratic norm. On the other globalisation makes it almost impossible to impose strict restrictions on the free flow of goods, services and human beings. The advancement of science and technology has even accelerated the pace of flow breaking the national boundaries. Hence, free trade is the demand of time but not an end in itself for economic development. It will surely provide a larger market for goods, services and works but only if they are competitive.

Although, Nepal formally adopted the concept of free trade after the restoration of democracy in 1990 the Structural Adjustment Policy (SAP) introduced by the World Bank in 1985 can be traced as the first step being taken by the country for introducing free trade. Then after there was no looking back and Nepal fully adopted the concept of free trade by entering into various bi-lateral (like Indo-Nepal Trade Treaty), regional (like SAFTA) and multilateral treaties (like WTO).

The main drawback of embracing free trade as a strategy for trade integration and economic development is the loss in government revenue as it leads to reduction in tariff rates. However, it is equally important to understand the fact that free trade is not a “one way traffic”. As we are opening our markets to other countries others will also do the same. Besides, Nepal has been a country who imports more than it exports, thus reduction in import tariff will surely lead to reduction of prices for the consumers or the citizens. Free trade is preferred over protectionism also because import substitution has been proved to be an uneconomic strategy. For example, it is better to import Chinese clothes, electronics and other goods if it is easily affordable by the poor then to manufacture them at higher cost which ultimately will be unaffordable by the poor (other factors like environment and human rights are not considered).

Although Nepal is an agricultural country it imports food, therefore, unlike the fact that most developing countries loose from the trade-distorting domestic farm support of the developed countries Nepal profits from it. Besides, the decisions to exempt LDCs from commitments to liberalise agriculture by reducing export subsidies and government support has given an opportunity for Nepal to enhance its agricultural output. However, a lot needs to be done at every stage like production, storage, processing, labeling and packaging of the agricultural product if they are to be made globally competitive. As, the world is becoming very concerned with the environmental and consumers’ rights issue there are higher chances of disqualifying Nepalese exports under SPS and TBT Agreements of the WTO. Hence, Nepalese producers have to conduct good research and the country needs well equipped laboratories and skilled manpower for checking and controlling the products before exporting them.

Cartoon by Abin, published in the latest edition( Vol 1, No 1, 2064) of “Byapar Ra Bikas” (Trade and Development) by SAWTEE

Nepal can expect increased flow of foreign investment, technology transfer, increase in employment level and ultimately increase in the per capita income. While anticipating these benefits we should also analyse this with social, political, environmental and other aspects. Because if we fail to ensure our national interest or ignore the poor and marginalised sections of the society it will again lead to problems like loss of national integrity, culture, social disharmony, increased gap between the rich and poor, exploitation of natural resources and so on.

Free trade will be beneficial to those who can fare well in the competitive global market and there is no denying that the greatest beneficiaries will be the developed countries as they can dominate, both the agreements and the markets, with power vested in them be it political, economic, technological or informational. It is a well known fact that Nepal does not have much power to influence at international level, but will surely be influenced by the rules and principles made at various agreements. Similarly Nepal does not benefit much from the regional bargaining as there is huge diversity in their economic interests and level of development among the South Asian countries. For example India being a food exporter is lobbying against trade-distorting subsidies which if achieved will not benefit Nepal as mentioned above.

Thus, there are many challenges for Nepal in the free trade regime at every level be it global or regional, however free trade is more of a fact than a choice in today’s globalised world. Hence it is better to fight the challenge and extract benefits rather than make the situation worse by simply ignoring the abstract move of globalisation. The first thing to do if Nepal really wants to benefit from free trade is by creating a sense of national ownership among all the stakeholders like parliamentarians, local farmers, businessmen, journalists and all others. We thus need a lot of preparation at the national level to identify our interests, comparative advantages and then only lobby, demand and negotiate accordingly. Secondly, it is equally important to add value to our product so that they can compete and capture the global market ultimately creating their own demand.