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

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Budget and WTO commitments
Published: The Kathmandu Post, 23 July 2004
By: Ratnakar Adhikari

Budget is not a mere statement of expected income and expenditure of the government. It is also a policy announcement relating to overall socio-economic issues confronting the country in any given fiscal year. Since the budget for the fiscal year 2004/05 is the first budget after Nepal obtained full-fledged WTO membership, the entire process is also being observed closely by the international community.Against this backdrop, the objective of this column is to analyse to what extent the budget has been ‘WTO sensitive’. At the outset, it is necessary to clarify that the commitments made at the WTO are binding and any deviations from the WTO norms could invite trade disputes and even trade sanctions.

The single major contribution made by this budget to help mitigate the challenges posed by WTO membership is the allocation of resources for broadening the livelihood options of the rural farmers by reintroducing subsidies on shallow tube well and agricultural inputs.

Another laudable effort is to have created a fund to provide technical services, capacity building, market access to cottage and small-scale industries/businesses, and also to provide institutional support for other infrastructures in order to build their capacity to confront the challenges posed by WTO membership. The budget speech also makes a commitment to enact a law to promote the interests of small and cottage industries.

There has also been a commitment on the part of the government to initiate the task of reforming test laboratories from the current fiscal year by preparing trained and skilled groups, with a view to bringing national test laboratories at par with international standard. However, how is that going to be achieved is not yet clear.

Similarly, for the development of the agricultural sector, customs duty has been reduced to one percent on the import of goods such as harrow, cultivator, labeller and thresher, which are used for agronomy and horticulture purpose. This could provide a major boost to our agricultural sector.

Likewise, the customs reform measures, planned re-organisation of sub customs offices, acceleration of customs automation, rationalisation of export duty structure for select products and expediting the process of refunding Indian excise under Duty Refundable Procedure (DRP) could help enhance our trade potential.

Despite these positive aspects, there are a number of areas in which the budget looks ‘WTO insensitive’ exhibiting lack of understanding among the ‘budget makers’ about the WTO issues.

While paragraph 170 of the budget speech mentions about reviewing and revising various laws related to industry and commerce to make them compatible with the provisions of the WTO (which is incidentally a commitment made by us during Nepal’s accession to the WTO), by only marginally increasing the budget allocation to the Ministry of Industry, Commerce and Supplies (MoICS), the government has made its intention clear. Though the budget allocated represents an increase vis-à-vis the revised estimate of 2003/04 (from Rs. 902 million to 1.02 billion), it is lower than the actual expenditure of 1.15 billion for the year 2002/03.

When the former finance minister Dr Prakash Chandra Lohani says the budget lacks focus and full of rhetoric, I think he is partially correct. One example is the following rhetoric contained in paragraph 172: "Necessary efforts will be made to make garment export competitive." There is a dire need to enhance the competitiveness of this sector, especially in the context of ‘quota system’ phasing out at the end of this year. Failing to initiate a concrete measure means that around 60,000 people directly employed by this sector and their dependent family members will be thrown into the poverty trap, with attendant social risks. However, our policy markers should go beyond rhetoric to do that. Our neighbour, Bangladesh, which is also likely to encounter the similar problem, has already started the programme of providing training to garment workers to stitch high value garment products targeted to the Northern up-markets. There is no reason why the same could be replicated in Nepal, provided there is a political will to do so.

Further, paragraph 55 represents a classic example of lack of awareness on the part of the ‘budget makers’ about what they have included in the budget thinking that it would help the country. The unofficial translation of the budget says, "A law related to intellectual property rights will be formulated and implemented to ensure Nepal’s rights on biological endowment" (sic.). It means that the budget markers will do two things. First, they will help enact a law on intellectual property rights, hopefully in compliance with the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) of the WTO, which we are not obliged to enact before 1 January 2006, even as per our commitment to the WTO. This is possible but should not be the priority of the government at present.

Second, they will help protect our biological endowments through this law, which is impossible. They are not even aware of the fact that only means to protect biological endowments is through their registration and documentation so that outsiders cannot take away our resources, make minor modifications on them and patent them or patent some of the properties of those resources. At a time when TRIPS was being drafted, developing countries worked very hard to ensure that exception be provided on patenting of living organisms and therefore we do not talk about patenting of biological endowments. By including the above mentioned statement in the budget speech, our ‘budget makers’ have implicitly strengthened the hands of the United States Trade Representative (USTR), which has been demanding removal of all the exceptions on patentability contained in the TRIPS Agreement.

With a view to enhancing the competitiveness of the domestic enterprises so as to allow our private sector to take advantage of market access opportunities offered by WTO membership, the former finance minister had made a commitment in the last year’s budget to enact competition law by mid-January 2004. At the same time, Nepal has also made a commitment, at the time of WTO accession, to enact such legislation by July 2004. This is clearly mentioned in the Legislative Action Plan we submitted to the WTO. While the deadline provided by the former finance minister has already expired, we are also cent percent sure of missing the WTO deadline. While a delay of one or two months for the enactment of legislation is inevitable in the present context, by postponing this date further to mid-January 2005, the government has shown apathy towards commitment made at the WTO. This is a serious lapse. Given the style of functioning of the Nepalese system, there is no guarantee that competition law will be enacted even by mid-January 2005.

Since the budget seems to have been prepared without adequate consultation with the MoICS, the ministry responsible for WTO affairs, it has not been able to encompass commitments made at the time of WTO accession. They need to be rectified at the time of issuance of another ordinance six months later to provide continuity to the budget.

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