Nepal’s Participation in Regional Cooperation: Issues and Concerns Binod K. Karmacharya

Outline Desirability of Regional Cooperation & Integration (RCI) Nepal’s Participation to Various RCI Initiatives Status of RCI Initiatives Key Issues Way Forward

Desirability of RCI RCI can promote Nepal’s growth through several channels: –Increased trade (particularly service sector due to higher complementarities) –Increased investments as a result of enlarged markets and economics of scale, flow of information and technology and knowledge spillovers –Increased FDI

Desirability of RCI –Deeper and wider cooperation in various sectors Transport (improved connectivity with ROW other than India to overcome the disadvantage of being landlocked) Trade facilitation Energy trade Tourism

Nepal’s Participation to Various RCI Initiatives Sub-regional –SAGQ/SASEC (BBIN countries) Regional –SAARC Inter-regional –BIMSTEC

Status of RCI Initiatives SASEC –Six areas of cooperation :(i) Tourism; (ii) ICT; (iii) Transport; (iv) Trade, Investment and Private Sector; (v) Energy; and (vi) Environment –Relatively more progress on tourism and ICT –Implementation of cross-border regional projects on tourism and ICT is likely

SAARC SAFTA (goods) –Comes into operation in July 2006 –To be fully implemented by IND and PAK by 2013, SL by 2014 and LDCs by 2016

BIMSTEC Initial stage Member countries have signed BIMSTEC FTA BIMSTEC FTA is likely to be more iliberal than SAFTA

Key Issues SAFTA –Restrictive safeguard measures under SAFTA: ROO & Sensitive list –NTBs (increasingly important as tariff falls): Only lip service to remove it. No mechanism yet to reduce them. –Trade Facilitation (more beneficial than TL): Same. Extensive list of TF measures without any binding comments

Key Issues –Exclusion of services sector –Nepal-India BLTA more attractive –Loose relevance if BIMSTEC FTA comes into operation SAARC agenda is overloaded with non- economic matters Proliferation of FTAs: Spaghetti bowl effect (increases administrative, compliance and business costs)

Key Issues India is seeking new FTAs outside SA (look east policy) and preference margins are getting eroded Important country’s preference for bilateralism on selective basis Difference in priority of the member countries

Way Forward Implementation is the “key” word Deepening SAFTA within specific time frame –Reducing sensitive list –Removal of NTBs –Improved trade facilitation Widening SAFTA within specific time frame –Inclusion of services and investment

Way Forward Improved connectivity to overcome disadvantage of being landlocked –SRMTS endorsed: identified regional investment projects –BTILS completed –Needs to find ways to address difference in priority Regional Transit Agreement –Bilateral leading to regional

Way Forward Energy Trade –SRETS completed –Starting with bilateral (?) Needs to find sources of finance to implement regional investment projects –SDF (currently more on social windows) –MFIs –Others

Way Forward Measures should be taken for closer integration of track I and II. Near term regional strategy should focus on strengthening economic and transit relation with India –Broaden agreements to attract Indian investment –Extend economic diplomacy with the central government to the neighboring Indian states

Way Forward –Harmonize and simplify cross-border procedure, documentation, SEZ rules, product standard etc with India Improve domestic environment: –Politics –Security –Business –Capacity building –Coordination within GON on RCI

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