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At the ongoing 13th World Trade Organization (WTO) Ministe- rial Conference, representa tives from the Least Developed Countries(LDC) are demanding an increased role of the global trade body for their smooth and sustainable transition.

Since the 12th conference that took place in Geneva in 2022, there has been some notable progress when it comes to addressing the demands of least developed countries. LDC rep- resentatives expect that the current meeting will deliver something more substantial.

The draft of the Abu Dhabi ministerial declaration that is currently under discussion states: “Recalling that, at our Twelfth session, we recognized the role that certain measures in the WTO can play to facilitate the smooth and sustainable transition for members after their graduation from LDC category.”

In this regard, the General Coun- cil meeting in 2023 took a vital deci- sion which has been welcomed by the draft text of 13 conferences. The decision of General Council states: “To encourage those Members that graduate or remove countries from unilateral tariff or duty-free and quota free (DFQF) preference programmes reserved for least developed countries (LDCs) based on their being graduated from the UN list of LDCs, to provide a smooth and sustainable transition period for withdrawal of such preferences after the entry into force of a decision of the UN General Assembly to graduate a country from the LDC category.”

The draft text of the 13th conference further states that the General Council recognizes the particular vulnerability and special needs of the LDC, and that their interests should be given due priority for them to secure meaningful integration into the multilateral trading system.

Nepal which meets the two out of three criteria is all set to graduate in 2026. Nepal meets the criteria for human assets index and economic vulnerability index, but it is yet to meet the gross national per capita. Officials say Nepal’s graduation preparations are not satisfactory and that its economy could face the risks after the graduation. 

Although Nepal has been continuously asking the international community to continue duty-free and quota-free preferences even after the graduation, there has not been any notable progress to strengthen the trade capacity of the country.

“Many countries which are graduating are coming up with specific proposals to improve in certain areas, and we are providing support to them. But Nepal has not come up with any proposal for us to support,” said an official requesting anonymity.  

In this scenario, Nepal can also request the United Nations to provide additional years to make the necessary preparations. For instance, the deadline could be postponed for 2029 instead of 2026, but Nepal is apparently sticking to the 2026 deadline.

Nepal’s economy suffered from the 2015 earthquake and the Covid-19 pandemic. According to the figure provided by the WTO secretariat, Nepal’s merchandise export averaged $835m during 2011-2019. With the onset of the Covid-19, they decreased from $968m in 2019 to $856 in 2020, below 2011.  Commercial services exports of Nepal almost doubled from $775m in 2011 to $1.5bn in 2019, but decreased to $830m in 2020, mainly due to a collapse of travel services induced by the pandemic.

The LDCs are accorded special treatment by the international community, mainly in areas such as trade and development cooperation, which is broadly known as “international support measures”. Trade is one of the key areas where LDCs enjoy exclusive preferences, both in the context of market access as well as in the implementation of WTO rules and disciplines. 

Graduation from the LDC category will eventually result in the loss of this special treatment, although the degree to which this will impact individual countries graduating from the LDC category differs. Nepal is asking developed countries to continue the preferential facilities even after the graduation, but this is not sufficient. Nepal has to make a comprehensive strategy for LDC graduation. 

Nepal’s trade deficit is widening. Nepal’s top markets are India, China, the EU, the US, the UK, Japan, and Canada. Nepal has bilateral agreements with India and the US regarding duty-free and quota free market access. 

A report prepared by South Asia Watch on Trade, Economics and Environment in 2022 states that about two thirds of Nepal’s exports are absorbed by India, and preferential market access there is built into a bilateral trade treaty and is not tied to LDC status. 

However, the report says, Nepal’s exports will face tariff increases in other major and potential destinations that offer LDC-specific tariff preferences.  

“While the EU, the UK, and Turkey provide a transition period of three years after graduation, Nepal will face new tariff regimes in other preference-granting countries post-graduation, according to the report,” according to the report. 

It further states: “For some products, the next-best tariff regime offers the same tariffs as the LDC-specific tariff regime, while for others the new tariffs will be distinctly higher. We find that exporters, in general, are not aware of the likely tariff changes.” 

The Nepali private sector is worried about the possible increase in tariffs and fear a severe impact given that Nepal's cost of production is already much higher than that of neighboring and other competing countries. For instance, the cost of production in the apparel sector is about 26 percent higher than that of neighboring countries, as per the Garment Association of Nepal. 

Experts suggest that either Nepal should seek the extension of the deadline or make a comprehensive strategy to mitigate the negative effects of the graduation. Under the Agreement on South Asian Free Trade Area (SAFTA), Nepal will face a significant increase in tariffs for its top two current exports—refined soyabean oil and palm oil. It exports these products to India through the SAFTA route, says the SAWTEE report. 

The report suggests that Nepal must use international/multilateral forums to pursue its post-graduation interests, including continuation of the use of LDC-specific provisions for a specific period, particularly regarding the provisions related to preferential market access, use of export subsidies and the flexible implementation of the Agreement on Trade-Related Aspects of Intellectual Property Rights.

Our economy is not in the best of shapes as relevant indicators suggest. 

According to the macroeconomic report of ADB, the GDP growth rate was 1.9 percent in 2023, which is lower than the average growth rate of the current decade. Agriculture and manufacturing sectors are going from bad to worse, a far cry from the times when both sectors were booming. In 2023, the growth rate of the agriculture and the manufacturing sector was 2.7 percent and 0.6 percent, respectively.

The country is importing food and grains to meet a growing demand, in urban areas as well as in villages. This points at a large scope for growing crops for consumption in villages, mainly in the hills where farmlands have been lying barren for decades. Reviving the farm sector will require structural transformation through the use of modern methods, including enough investment and incentives.

Despite deepening dependencies, a mid-term evaluation of the budget and monetary policy for the fiscal year 2023-24 shows economic indicators on a positive trend. Among others, Nepal has reasonably healthy foreign currency reserves, providing some relief to the government. 

There will surely be differing views vis-a-vis comfortable forex reserves, but I think it will have stronger negative effects than positive ones. In all likelihood, excess forex reserves will raise both liquid and total debt, pull interest rates down, cause a decline in consumption and move labor to tradable sectors from non-tradable ones.

In this context, it will be relevant to put forth some of the findings of the fourth living standard survey. 

Per the survey, the last 12 years have seen a meager reduction in poverty. 

Estimated on the basis of threshold per capita per year income of Rs 19,261, a quarter of the population (25 percent) was under deprivation in 2011. On the contrary, the poverty rate is being calculated on the basis of the threshold per capita income of Rs 72,908 per year in 2023. This level of income was considered as the minimum income required to fulfill basic needs of the people such as food and non-food items. On the basis of this threshold income, the poverty rate has come down to 20 percent, a  paltry 0.16 percent reduction in 12 years. 

Per the survey, Far-Western and Gandaki provinces have the highest (34.16 percent) and lowest (11.88 percent) poverty rates, respectively. Also, poverty runs deeper in rural areas than in urban areas. The poverty rate in rural areas is 24.66 percent against 18.34 percent in urban areas, according to the findings of the survey. These data stress the need for serious efforts to reduce poverty, which is pervasive and deeply-rooted.

Notably, there is a significant change in consumption expenditures between the third and fourth living standard surveys.The average expenditure on consumption of nonfood and food items was 38 percent and 62 percent, respectively in the third survey. It stands at 47 percent for nonfood items and 53 percent for food items in the fourth survey, showing that people have increased consumption expenditure on nonfood items compared to food items over 12 years. The household consumption expenditure as percentage of GDP in 2023 was 88.2 percent while the same was 85 percent  in 2011, an increase of 3.7 percent. It reveals that Nepal has consumed all of its income rather than making long-run investments for achieving sustainable development goals.

In 2011, remittance inflow stood at $4.22bn while in 2023 it swelled to $9.3bn, marking an increase of a whopping 120 percent in 12 years. In 2011, remittance’s contribution to Nepal’s GDP was 19.54 percent, which soared to 22.7 percent (an increase of 16.1 percent) in 2023. During the 12-year reporting period, the poverty rate has come down to 20 percent from 25 percent. 

Apparently, remittance inflow is behind a marginal reduction in poverty and increased forex reserves. 

Without a doubt, a constant inflow of remittances over the past 2-3 decades has been keeping the Nepali economy afloat.

Nepal has emphasized the need for continuation of all international support measures after it graduates from LDC status to a developing country in 2026. Addressing the 13th World Trade Organization (WTO) Ministerial Conference in Abu Dhabi, Minister for Industry, Commerce and Supplies Ramesh Rijal said that LDC graduation is the outcome of common efforts, but the challenges that the graduated country might face should be facilitated through a creative resolution over the proposal submitted by LDC group.

“Nepal re-emphasizes the need for continuation of all international support measures, particularly Duty-Free Quota-Free Market Access, Special and Differential Treatments, preferential rules of origin, service waiver, Aid for Trade and Technical Assistance and Capacity Building supports and other important flexibilities in the implementation of multilateral trade agreements and commitments after graduation for a specified period of time,” Rijal said. 

Nepal welcomes the decision taken by WTO General Council on 23 Oct 2023 and urges all Members to support the LDC graduation-related proposal submitted by the LDC Group to facilitate the smooth and sustainable graduation, he said.

In recent years, the multilateral trading system has been undermined by growing protectionism and unilateral trade measures of the trade partners. “The system has been further weakened by ineffective implementation of WTO decisions, including Doha Development Agenda. Therefore, Nepal calls for collective commitment to the multilateral trading system,” Rijal added.

Meanwhile, WTO enshrined new rules facilitating trade in services between more than 70 member states despite initial objections from India and South Africa.

According to AP, the set of rules will streamline authorization requirements and ease procedural hurdles faced by businesses. It will help reduce the costs of global services trade by more than $119bn every year, it added. Its integration into the WTO implies all 164 members have been approved as per the body’s rules, which require full consensus.

“Reaching this outcome...and integrating it into the WTO has not been an easy pass,” EU trade commissioner Valdis Dombrovskis said. “We faced opposition from two WTO members, but a ‘spirit of compromise’ eventually cleared hurdles.” 

WTO chief Ngozi Okonjo-Iweala, meanwhile, thanked “India and South Africa for finding a way forward,” calling services the “future of trade.” Global services exports are valued at more than $6.5trn, representing 23 percent of total world trade, according to the EU.

In March 2019, Nepal and Japan signed a memorandum of cooperation on sending Nepali workers to Japan under the government-to-government modality. Under the deal, specified skilled workers (SSW) from Nepal would get hired in various job sectors of Japan, ranging from nursing care to manufacturing to hospitality.

But the agreement, signed by then officiating labor secretary Ram Prasad Ghimire and former Japanese ambassador Masamichi Saigo, did not make any progress of note. It took more than a year for Japan to announce 60 job openings for caregivers. Thousands of Nepali youths who had taken up Japanese language classes, one of the prerequisites for employment in Japan, were left disappointed. They had paid thousands of rupees to private institutes to learn to read and write Japanese. 

Meanwhile, educational consultancies, the so-called training centers, and foreign job employment agencies (or manpowers as they are called in Nepal) started making claims that they offer the relevant skill and language training to send workers to Japan. It was the start of the government-to-government (G2G) labor agreement getting hijacked by unscrupulous manpowers.

Now it appears that their plan has come to fruition. The Ministry of Labor, Employment and Social Security recently came up with a new work procedure allowing manpowers to send workers to Japan. The document states that the work procedure has been introduced to make the process of sending workers to Japan more transparent, fast, and systematic. The government has essentially thrown out the G2G agreement signed with Japan and brought in privately-run manpowers. 

The government’s move also goes against the notion that G2G labor agreements could be far more transparent, safe and cost-effective for laborers. After all, Nepal has adopted South Korea’s Employment Permit System as part of the G2G deal to send Nepali workers to South Korea. 

Remittance sent by foreign job holders is a key driver of Nepal’s economy. So naturally, there are hundreds manpowers in the country. The largest share of their business comes from supplying unskilled labor forces primarily to Malaysia and the six states of the Gulf Cooperation Council, namely Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. Exploitation of Nepali workers at the hands of manpowers at home and employers in these labor destinations is no secret. It is also not unheard of that many foreign employment agencies enjoy political protection, allowing them to operate in such a manner that they make the maximum profit without a care for the safety, welfare, and rights of the workers.    

Under the new work procedure, Nepali organizations or companies which meet the standards of the SSW system and have taken permission from the ministry will be eligible to send Nepali workers to Japan. Such organizations can facilitate all the process, from conducting language and skill tests examination to sending workers to Japan.  

The document also states that the companies willing to send Nepali workers to Japan should have their training center and there should be at least two language instructors who have official certificates related to Japanese language. They  should also forge an agreement with the Registered Support Organization (RSP) of Japan which is responsible for handling specified skilled workers from foreign countries. 

RSP cannot take any fees from Nepali workers and companies. The companies  providing employment in Japan can come to Nepal to conduct the language and other tests, but there should be a prior agreement with concerned agencies.

The companies that want to take Nepali workers must issue a vacancy issuing all the details such as position, numbers and the working areas. Similarly, it should be clearly stated about the details of work, security and possible health risks it entails. The issues such as provision of social security, allowances, salary, recruitment process among others should be made transparent. 

However, there are several concerns and gaps regarding the government’s decision to hand over the responsibility of sending workers to Japan. The major one is that of transparency.  According to the ministry, those organizations who take the responsibility of sending workers should maintain a transparent way of selecting workers on merit-basis and that the ministry will oversee all the process.

This leaves a lot of wiggle room for manpowers to dictate their conduct. 

Nepali workers are going to Japan under various provisions. Even those who go under the student visas work part-time jobs there. According to the Kyodo news agency, there has been a dramatic increase in the number of people from Nepal working in Japan over the past decade, owing in part to labor shortages in the service industry caused by Japan’s aging society. 

Many in the Nepali labor force, which had surged 13-fold to 120,000 nationwide in 2022, work as rafting guides, hotel employees, airport staff and other behind-the scenes workers in bustling holiday destinations. 

According to Japan’s Ministry of Health, Labor and Welfare, Nepalis were set to become the fifth largest group of foreign workers in 2022.