South Asia Watch on Trade, Economics & Environment (SAWTEE)

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The BIMSTEC fallacy
Published: The Kathmandu Post, 6 March 2004
By: Bhaskar Sharma

The government must be 'praised' (you decide) for its latest spate of reckless and irresponsible decisions and their subsequent retractions following huge domestic public outcry. Among such idiotic decisions was the temporary ban on the use of helmet visors citing security reasons, which the government was forced to withdraw following a Supreme Court notice. Likewise came the decision to segregate kerosene business from petrol pumps, which prompted petro-dealers to go on an indefinite strike. Here again, the government retracted the decision further pending solution to the problem of adulteration. Then came the thoughtless notice of Civil Aviation Authority of Nepal (CAAN) to the domestic airlines on the ramp bus row. Of course, the airlines threatened to ground their flights, forcing the CAAN to correct its decision. What significance do these examples hold? Obviously, they are indicative of the fact that the government takes decisions based on whims and fancies, and does not consider the ramifications that they may have.

All above government decisions had created considerable furore in their respective areas, but one recent incident goes largely unnoticed. The ones who will be gravely affected by the decision are mum, acting like sitting ducks, while even the media that has evolved to become a staunch critic of the government's misgivings is relatively quiet. That is the issue of Nepal's membership to a new free trade area (FTA). Readers may recall that Nepal recently not just obtained the membership of the BIMSTEC (Bangladesh, India, Myanmar, Sri Lanka and Thailand Economic Cooperation), but also spontaneously became a signatory to the framework agreement on BIMSTEC FTA. Praises to the government, one may say, citing reasons of economic expansion targets and the potential benefits that a free trade deal can usher. Mind it, only potential. But the ramifications of this decision are going to be serious. And more worrying are other factors. Let us discuss them.

The first and foremost relate to the private sector. The private sector is apparently beaming at the signing of the new FTA. Why? Obviously they think that zero-tariff for trading of goods under the BIMSTEC regime would mean more open markets, and hence more business. But the issue here for Nepali business community is not about market access. How can they expect to export more to Thailand (only Thailand, because trade potential with Myanmar is low given its backwardness, and trading with other BIMSTEC members can be carried out even under the South Asian FTA), when they are plagued by domestic limitations and supply side constraints. It has to be understood that Thailand is a relatively free economy, and competing in such a market environment for most, if not all, Nepali products will practically be impossible. If Nepal was really able to cater to the needs of open markets, it could have done well following the European Union's 'Everything but Arms' initiative. That certainly has not been the case. How can we expect otherwise now?

Now, let us look at the other side of the same coin to fillip this author's arguments. Understood that zero-tariff in the BIMSTEC would mean more market for Nepali products, but at the same time, it would also mean a more open Nepali market. And this can come as a bane for Nepal, unless of course all industrial and business firms - over 95 percent of which, among the industrial units, are small and medium enterprises - are cost competitive, innovative and open to regional and global competition. But look at the ground reality – 'Nepali firms are relatively technologically backward, incur higher costs of production and are not at all competitive'. Nepali firms deserve protection, and that is Nepal's right, being a least developed country (LDC), even under the World Trade Organisation (WTO) framework. There are no such protection clauses for firms of the LDCs in the BIMSTEC free trade accord. The Nepali private sector must be wary about it. Rise up!

The second issue here is what 'some' government officials are now advocating, and which is apparently aimed to counter the critiques of the BIMSTEC accord, including this writer. Government officials, at a recent forum organised by Nepal Chamber of Commerce (NCC), and amidst a happy looking NCC officials, viewed that negotiations are yet to begin under the BIMSTEC accord, and that there is no reason why any furore over the signing of the pact is now necessary. Certainly, negotiations on rules of origin, dispute settlement mechanism, services and investment are yet to begin. But zero-tariff on trading in goods has already been accepted. The only thing that remains to be done (as soon as BIMSTEC FTA comes into existence in 2006) is to begin scaling down the tariff levels from the current applied rate (which averages close to 12 percent) to zero, under a 'fast' and a 'normal' track, over a span of ten years. Now, does that really mean that negotiations are yet to begin, and only negotiations would determine what to give in or what to ask for? No way! Some prudent officials are estimating that South Asian FTA, signed in January this year, that has a tariff target of between zero and 5 percent, would cost Nepal over 20 percent in revenue. Prior to signing the BIMSTEC FTA that has zero-tariff target, was the cost computed? No. And if Bangladesh could stay out of the accord arguing that there should be a revenue compensatory mechanism, why didn't the Nepali officials take the cue and followed suit? Was there any diplomatic pressure?

Understandably, the signing of the FTA must have come at the frustration of officials who were engaged in negotiations for Nepal's WTO membership. These were the officials who toiled hard for years bargaining, begging, threatening, or consulting at the multilateral level for trade concessions. And the sudden outright signing of the BIMSTEC FTA last month has clearly diluted the whole essence of the multilateral level negotiations. Apparently, the Nepali WTO negotiators were not at all involved in the overall BIMSTEC (SAFTA as well) process. For if they had been involved, they would have never signed the BIMSTEC FTA in the first place. Perhaps, it would be wise not to be surprised if some kind of inter-ministerial row begins now, solely on the topic of the BIMSTEC FTA membership. Besides, if the government can explain the signing of the FTA by the then Ambassador-at-Large Bekh Bahadur Thapa, it should have been him attending the WTO's fifth Ministerial at Cancun last September as well. Why was the relatively weak Minister for Industry, Commerce and Supplies Hari Bahadur Basnet troubled?

And now, repeated statements by officials, involved in the process of Nepal's BIMSTEC membership, that Nepal can withdraw from the new FTA with a six-month notice can only be taken as an indication that the government has committed yet another blunder. Certainly, the government has to be 'praised'. But will the government have the guts to withdraw from the BIMSTEC FTA and prove that it can actually correct a wrong as it has been doing as of late?

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