NEPAL TRADE POLICY REVIEW: 2018 Government of Nepal Ministry of Industry, Commerce and Supplies Singha Durbar, Kathmandu, Nepal Message Nepal, as a member of World Trade Organization (WTO) since 23 April 2004, has full commitment on rule based, transparent and predictable multilateral trading system. As per the provision of WTO, Nepal's first Trade Policy Review was completed in 2012 . The second Trade Policy Review which covers the period between 2012 and 2018 was concluded in December, 2018. Since 2012, Nepal has undergone significant political transformation based on historical People’s Movement, ten year long people’s war and others. A new Constitution was promulgated in 2015 and Nepal became a federal democratic republic. After gaining the political stability, the Government of Nepal (GoN) has a long-term goal of ‘Prosperous Nepal, Happy Nepali’. To achieve this goal, the Government has set objectives of achieving high economic growth, balancing and strengthening the economy, and making Nepalese society more inclusive and just, in the interest of all Nepalis. Strengthening national economy through partnership and independent development of public, private and cooperative sector are the guiding policies of the Constitution. The Constitution envisages that Nepal shall pursue policies to maintain competition and fairness in the market. Based on the Constitution, Government is making necessary legal provisions to implement fundamental rights such as rights related to consumer protection, social security and employment. Significant legal reforms have been made to further mainstream the trade in national development process. It is an irony that, Nepal’s export import ratio at the time of accession(2004) was 1:2.5 which has plummeted to around 1:16. Various initiatives and reforms were carried out during the review period and further avenues for achieving socio-economic development of the country have been created. Among many Initiatives to address the rising trade gap, the GON has recently formulated and implemented National Action Plan Reducing Trade Deficit. All the national stakeholders are made responsible and active to improve this bleak condition. At this juncture, I hope WTO and other international organizations will join their hands to our endeavours. The present Trade Policy Review Report prepared by WTO Secretariat and Government of Nepal has covered most of the policies and programs implemented and initiated during the review period. This TPR Report broadly covers scenario on recent economic development and different dimensions of trade in goods, trade in services and reforms initiatives taken by the Government of Nepal. I would like to thank the concerned officials of WTO and its secretariat for their tireless efforts and support during the process. I would also like to thank the officials of the Ministry for their contribution in preparing the TPR Report, 2018. Thank you ! (Matrika Prasad Yadav) Minister Ministry of Industry, Commerce and Supplies Foreword Trade Policy Review Mechanism is one of the fundamental provisions of the World Trade Organization. This mechanism not only helps members ensure transparency and predictability in regard to their policies and practices affecting international trades but also helps members assess compatibility of their national trade policies and regulations with the WTO agreements and principles. Trade Policy Review is carried out periodically. Nepal’s Second Trade Policy Review (TPR) at the WTO. As provisioned in the Annex 3 of Marrakesh Agreement Establishing the World Trade Organization, Nepal’s Second Trade Policy Review, covering the period between 2012 and 2018, was successfully completed in December, 2018 in Geneva, Switzerland. TPR provides member's periodic insights to introspect and evaluate their trade related policies and programs of the multilateral trading system. Having successfully completed Nepal's Second Trade Policy Review, it was imperative for Nepal to bring all relevant information and documents associated with this whole process in a compiled form. With the publication of the report, officials of the government and private institutions, business community, development partners, researchers, journalists as well as students who are interested to acquaint themselves with this event may get authentic information. This compendium will also be an important document from the view of institutionalizing and keeping alive Nepal's Second Trade Policy Review related process in its trade history for future generation. I would like to extend my sincere thanks to the Chair of the Trade Policy Review meeting, H. E. Mr. Eloi Laourou, Ambassador of Benin and distinguished delegates of other member countries for their valuable comments and queries. Similarly, I would like to thank the WTO officials who prepared the Trade Policy Review Report on behalf of WTO and others who were involved in the process of organizing the meeting. I would like to thank the Ambassador and Permanent Representative of Nepal to the UN and other international organizations based in Switzerland. Officials from the Ministry deserve special thanks for preparing and finalizing the reports. Thank you ! (Baikuntha Aryal) Secretary Ministry of Industry, Commerce and Supplies Table of Contents PART: 0NE (COUNTRY REPORT) 1. INTRODUCTION ..................................................................................................... 1 2. RECENT ECONOMIC DEVELOPMENT ............................................................... 1 2.1 Main developments during the review period .............................................1 2.2 Investment and incentives for investors .........................................................4 2.3 Monetary policy management ............................................................................5 2.4 Remittance ...................................................................................................................5 2.5 Tax system - corporate ...........................................................................................6 2.6 Private sector development and privatization .............................................6 2.7 Competition policy ...................................................................................................7 2.8 Public procurement .................................................................................................7 3. TRADE IN GOODS ................................................................................................... 7 3.1 Industry – manufacturing ....................................................................................7 3.2 Energy ............................................................................................................................8 3.3 Mines and mineral resources ........................................................................... 10 3.4 Agriculture ................................................................................................................ 10 3.5 Sanitary and Phytosanitary (SPS) ................................................................... 11 3.6 Technical regulations and standards ............................................................ 11 4. TRADE IN SERVICES ............................................................................................12 4.1 Tourism ...................................................................................................................... 12 4.2 Transport ................................................................................................................... 13 4.3 Information and Communication Technology (ICT) .............................. 14 4.4 Financial services, banking and insurance ................................................. 15 5. POLICY FOR AN EFFECTIVE TRADE REGIME...............................................17 5.1 Trade Policy .............................................................................................................. 17 5.2 Nepal Trade Integration Strategy (NTIS), 2016 ....................................... 17 5.3 Industrial Policy ..................................................................................................... 18 5.4 Intellectual property rights ............................................................................... 18 5.5 Foreign Investment Policy ................................................................................. 19 5.6 Other major policies related to trade and investment ........................... 20 6. REFORMS AND IMPROVEMENTS ....................................................................20 6.1 Legal and policy reforms .................................................................................... 20 6.2 Structural reforms ................................................................................................. 21 6.3 Customs reforms .................................................................................................... 21 6.4 Reforms related to trade infrastructure ...................................................... 22 7. TRADING ARRANGEMENTS ..............................................................................23 7.1 Bilateral - Trade with India, China and Bangladesh................................ 23 7.2 Regional - SAFTA and BIMSTEC ....................................................................... 24 7.3 Multilateral Trading Arrangements ............................................................... 24 8. CONSTRAINTS .......................................................................................................25