US provides special trade preferences for Nepal for ten years

By NLRC Staff, February 28, 2016, Category: General

The United States provides special trade preferences for Nepali for the next ten years, mainly benefiting Nepal's garment industry as the new provision allows certain items from Nepal, mainly textiles and apparels, enter the US duty-free.

The trade preferences also includes a trade facilitation and capacity building program. The preferential treatment under the trade preferences will end at the end of 2025[1].

Nepal's garment industry has seen a sharp decline in its exports since the expiration of Multi Fibre Arrangement (MFA) in 2005, which had imposed quotas on how much developing countries could export textiles and garments to developed countries. That had indirectly created an opening for small developing countries to raise its exports. With the expiration of the MFA and countries like India and China benefiting from the elimination of the quotas, Nepal is at a disadvantage at the global competition because of high export costs in Nepal, mainly due to its geography, political instability and higher costs to create products (import costs and shortage of energy.)

Because the United States is the biggest importer of Nepali garments, Nepal had been lobbying to get a duty-free status to Nepali garments. The 2015 earthquake caused the efforts to gain momentum which resulted in a couple of notable events, an amendment from Senator Dianne Feinstein (mainly the duty-free aspect) and an amendment from Representative Ander Crenshaw, Co-Chair of the Congressional Nepal Caucus (mainly the trade facilitation and capacity building aspect) as part of a trade bill.

The U.S. Embassy in Nepal notes that up to sixty-six types of items, including certain carpets, headgear, shawls, scarves, and travel good will qualify under the trade preferences, and that it will take several months to complete the administrative steps for the new program to go into effect. Nepali media have reported the news with both optimism about new opportunities for the garment industry and caution, especially about whether the items that benefited before the expiration of the MFA could enjoy the same benefits under the new trade preferences. The provision in the new trade preferences that requires Nepal to meet various guidelines, including the guidelines for African Growth and Opportunity Act legislation, which have various trade related eligibility requirements, has contributed to such caution.

Regardless of whether Nepal may get the same benefits as it did before the expiration of the MFA, Nepali stakeholders in the industry have found some hopes to believe that the garment industry in Nepal could get revitalized to some extent, even if it may not return to its previous strengths. Their hope will also rely directly on the infrastructure improvements for the industry; they will be hoping that the power cuts would decrease, transit issues with India would become smooth, and the political stability would get better.

The duty-free status will bring some relief to the garment industry and will provide the industry some time to figure out how it wants to position itself in the post MFA textile and garment market. Together with the infrastructure improvements, the trade facilitation and capacity building program will assist Nepal in taking its trade infrastructure to the next level. This will be welcome news to Nepal's economy that is trying to recover from the devastating earthquake last year.

References:
[1] Trade Facilitation and Trade Enforcement Act of 2015. Pub. L. 114-125. 24 Feb. 2016. Web. 8 Sep. 2016.

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