When the United States announced duty-free access for 66 Nepali goods including readymade garment products such as headgear, shawls, scarves and travel goods, and certain types of carpets in 2016 to help Nepal in the recovery from the impacts of the 2015 earthquake, it was considered a new dawn for the ailing garment industry of the Himalayan country. However, eight years down the line, the country’s garment industry is yet to make any substantial progress in boosting exports to the US market. After then US President Barack Obama signed the US Trade Facilitation and Trade Enforcement Act that included Nepal Trade Preference Program (NTPP) in February 2016, Nepal’s 66 items officially got duty-free market access for 10 years. The number of products eligible for preferential treatment was later expanded to 77. NTPP was designed to help Nepal’s economic recovery from the earthquakes that struck the country in 2015. It also authorizes a trade capacity-building program, focused on helping Nepal implement the World Trade Organization’s Trade Facilitation Agreement.

RMG producers say that Nepal’s garment industry has failed to take advantage of the preferential trade treatment by the US due to several reasons.

According to the Garment Association of Nepal (GAN), the umbrella organization of Nepali readymade garment producers, Nepal’s garment exports to the US in the fiscal year 2016/17 were worth Rs 1.05bn which grew to Rs 1.83bn in FY 2021/22. According to them the sharp appreciation of the US dollar against the Nepali rupee and skyrocketing inflation also played a part in this growth. In terms of quantity, Nepal exported 2.69m units of readymade garments which came down to 1.31 million in FY 2021/22. GAN data show the country’s overall exports of garments grew to Rs 7.29 billion in FY 2021/22 from Rs 5.30bn in 2016/17. “Even though the US government granted duty-free market access to our products, we failed to receive demand from major US buyers,” said Pashupati Dev Pandey, president of GAN. “We have been able to sell limited types of products receiving the duty and quota-free facility in the US market. We have not been able to sell products like suitcases, animal hair, and travel equipment, among many other items.” Over the last eight years since Nepal was granted the duty and quota-free facility, Nepal’s garment industry also failed to enhance its competitiveness. “Almost all the items on which duty and quota-free facilities are available have an applied tariff rate of 4-9 percent by the US government,” said Pandey. “As our cost of production is higher, we have not been able to take advantage of tariff advantage.” During the sixth meeting of the US-Nepal Trade and Investment Framework Agreement (TIFA) Council last week in Kathmandu, Nepal sought its interest in expanding the list of products eligible to receive tariff-free treatment under the program. Nepal and the US also deliberated on the impact of NTPP’s upcoming expiration on December 31, 2025. “Both governments affirmed the importance of the NTPP to the bilateral relationship and acknowledged the potential of the program to enhance trade between the two countries,” reads a statement issued by the US embassy. During a meeting between Nepal’s private sector representatives and the US delegation, Nepali garment exporters sought duty-free and quota-free (DFQF) market access for products like shirts, pants, and ladies’ dresses which are also known as fast-moving garment items. “US tariff on such items stands between 14-34 percent and Nepali garment industry can take advantage of it,” said Pandey. “Because of the lack of demand, we also failed to invest in the modernization of our factories over the years.” During the sixth TIFA meeting, Nepal emphasized its need for additional support for productivity enhancement and capacity building to ensure sustainable and smooth graduation from the Least Developed Country status. The Nepal side also requested DFQF market access beyond 2026 to sustain the country's graduation from the least developed country to a middle-income nation. Minister for Industry, Commerce, and Supply Ramesh Rijal sought US assistance, especially in the continuation of LDC-specific trade preferences such as DFQF market access, flexible rules of origin, and LDC-specific technical assistance for a few more years after graduation. The 40th plenary of the 76th Session of the United Nations General Assembly (UNGA) in November 2021 unanimously adopted a resolution, endorsing Nepal’s graduation from the LDC category to a developing country with a preparatory period of five years. Following graduation, Nepal will lose the facilities that the country has been enjoying as an LDC. The US is Nepal’s sixth largest trading partner after India, China, Indonesia, the United Arab Emirates, and Argentina but the second largest export market for Nepal. Nepal exported goods worth Rs 17.99bn to the US in fiscal 2021/22 while imports from the US stood at Rs 50bn, according to the Trade and Export Promotion Centre. During the meeting, Nepali officials said that its IT-related services have significant export potential and expressed interest in expanding bilateral trade in these sectors. Both delegations expressed their interest in ensuring that workers in both countries are able to take advantage of the opportunities in the digital economy.