Release as received Country Note Presented to the ASIA-PACIFIC TRADE FACILITATION FORUM 2011: TRADE FACILITATION BEYOND BORDERS: INTERNATIONAL SUPPLY CHAIN EFFICIENCY 4-5 OCTOBER 2011 SEOUL, REPUBLIC OF KOREA. 1 Paper to Cluster 3: South Asia Status and Challenges of Trade Facilitation and Supply Chain Efficiency Improvements in Nepal: Regional Cooperation on Trade Facilitation - Way Forward JOINTLY PRESENTATION BY: Sarad Bikram Rana Executive Director Nepal Intermodal Transport Development Board Ministry of Commerce Nepal Shyam Prasad Dahal Director Customs Reform and Modernization Section Department of Customs Nepal This opinions, figures and estimates set forth in this publication are the responsibility of the author and should not necessarily be considered as reflecting the views or carrying the endorsement of the United Nations. 1
1. Introduction/Background Government of Nepal has accorded high priority to the trade facilitation in the overall development and trade strategy, which is reflected in the Three years Interim plan (2010/11-2012/13), Trade Policy 2009 and Four years Customs Reform and Modernization (CRM) Action Plan (2009/10-2012/13). Three Years Interim Plan recognizes the trade sector as the engine of growth of the national economy. The trade strategy identifies the policy to reduce the transaction cost through procedure simplification and institutional reform. The policy is further covers to improve trade and transit facilitation at the border points. Similarly, the Trade Policy 2009 aims to reduce transaction costs by facilitating export and imports through procedural simplification, facilitation and institution strengthening. CRM Action Plan recognizes the trade facilitation as the main strategy out of its 9 strategies and has set the objective of establishing Single window in Customs environment. Government of Nepal has prioritized improvement of transit corridors, harmonization of the documents in the SAARC regions, development of cross border infrastructures and customs reforms for trade facilitation. Improvement of road networks is underway with the financial support of ADB. Nepal is engage in agreement with India to operationalize the Visakapatnam port for overseas EXIM trade and Rohanpur Singabad train corridor for access to Bangladesh. Four Integrated Check Post and one Inland container deport are planned to be completed within 2 years period. Customs is planning to graduate to web based clearance system in 2 years period. Customs document harmonization among SAARC countries are under way. 2. Status and Challenges of Trade Facilitation and Supply Chain Efficiency Improvements A. Importance of flow of trade in South Asia: Nepal's foreign trade basically composed of trade with India, trade with Bangladesh transiting through India, Trade with china by land route, trade with third countries using Indian seaport Kolkata & Haldia and air freight. Treaty of Trade between Nepal and India has provided 27 trade routes for the mutual trade. Treaty of Transit between Indian and Nepal avails Kolkata/Haldia seaport as gateway ports for the movement of transit cargo. EXIM cargo moving through Kolkata/Haldia ports is transited either by the road transport as most of the trade routes are connected by road, or by rail up to the only one Indian Rail Head (Raxaul), or to rail linked Birgunj ICD. The transit treaty further provides land transit route for the trade between Bangladesh and Nepal through Phulbari (India) and Banglaband land route and for the goods transiting through Bangladesh. The total trade volume of Nepal accounted for US$ 5.86 billion in 2009/10 composed of export US$ 818 million (14%) and import US$ 5.04 billion (86%). The SAARC countries share is 74% of total export trade and 57% of the total imports trade. Trade with India dominates the total trade within SAARC region. India contributes 89% of the whole export to SAARC countries and 99% of the whole imports to SAARC. It is estimated that at least 90% of the overseas cargo is moved through the India. These trade statistics suggest that Nepal needs to expand its trade share with other SAARC countries and requires improved transit corridors for overseas cargo. 2
B. Barriers to Trade Facilitation and National initiatives. Barriers to Intra- regional Trade: The challenges faced by Nepal may be grouped into three categories. These are transit barriers, cross border management barriers, transportation barriers. Transit barriers to trade: Nepal is a landlocked country and has no option than to rely on the transit facilities provided by India for overseas cargo. Nepal is using Kolkata/Haldia ports for transit cargo. The inbound cargo requires to be cleared at Kolkata port and have to cover a distance of 700 kilometer by rail and around 1000 by road. Another transit route connects Nepal to Bangladesh using 35 kilometer route from Phulbari to Banglabang. Nepal has no options rather to face numerous hassles at Kolkatta Ports. Port deficiency, administrative and restrictive provisions, age old infrastructures, lack of proper equipments and the poor transport facilities are some of the factors. It is recorded that more than 27 steps are required to be followed by the importers to clear goods at port besides numbers of hard copies of documents requires to be submitted to different agencies at Kolkata. It is interesting to note that Nepalese Importer has to approve Customs Transit Documents at Kolkata, which along requires 6 copies and more than 17 signatures for approval from port and customs authorities. The cargo has to move through the congested town at border post in almost all the major border crossing points. The use of Phulbari (India) Banglabanda, (Bangladesh) corridor is characterized by administrative and procedural hassle to move cargo in both directions. As one of the prominent writer noted that the 54 kilometers route between Phulbari in Bangladesh to Panitanki in Nepal is one of the most difficult territories which even require army support for protection purposes. Infrastructure Barrier to Trade Poor transport facilities within the country has posed challenges to the smooth movement of cargo. Most of the roads connecting major border points are narrow and not appropriate to cater the movement of heavy vehicles. The road from Kathmandu to Birgunj faces landslides frequently and not suitable for express cargo. Cross border barriers to Trade Nepal has 30 customs points for the mutual trade to neighboring countries and overseas trade. The border crossing points are below standards and lacks integrated services. Birgunj Customs points which accounts almost half of the trade of Nepal lacks physical facilities in both sides connected by congested roads. The problem is aggravated by the physical submission of multiple documents in both sides. 3
National Initiatives to improve TF: Government of Nepal has initiated different trade facilitation measures. The Three Years Interim Plan has set a framework to enhance trade facilitation measures, which is further reinforced by the Trade Policy. Customs Reform and Modernization plan is under implementation from 2009 to 2013. Customs automation has been completed in major 10 customs offices allowing customs agents to lodge their declaration and applying risk management in Customs Clearance. These Customs offices cover almost 83 percent of the trade transaction. New Customs Act and regulation are enacted in line with international standards. Government of Nepal has started construction of road linking Kathmandu and Nijgadh in the southern plain area expanding a length of 76 km. GoN has framed legal base and declared Special Economic Zone to increase the competitive edge of the exportable products. GoN is conducting feasibility study of potential border points to develop with international standards. In an another policy move, GON has concluded Nepal Trade Integration Study and identified following major trade facilitation areas to focus on; Pursuing recently launched Customs Modernization Program 2009-13; Improving Customs valuation; Developing post-clearance audit capability; Developing a risk management plan, including recognition of Third Party Recognition, instead of batch testing of agro-food consignments; Strengthening of National Trade Facilitation Committee to improve inter-agency cooperation and coordination of border inspection;; Establishing and strengthening food testing laboratories; Harmonizing computerized systems with India; Reviewing with India improvement in movement of rail wagons at Raxaul and improving access to Indian ports (under the Rail Services Agreement-RSA), Increasing transparency and allowing new entrants through review of the customs broker licensing. C. Bilateral, regional and Multilateral arrangements and assistance in TF: Under the bilateral framework, Nepal has bilateral trade agreement with 17 countries, including four countries from South Asia, namely, India, Bangladesh, Pakistan and Sri Lanka. Bilateral agreement with India provides non reciprocal preferential market access to Nepalese manufactured products. Besides, Nepal has signed Treaty of Transit agreement with India and Bangladesh and an agreement with India to control unauthorized trade with India. Treaty of Trade and Agreement to Control Unauthorized Trade provides mechanism to hold regular meeting at national and field level among the agencies involved in international trade. The same mechanism is in place with China. Under the Regional setting, South Asian Free Trade Area (SAFTA) and Bay of Bengal Initiative for Multi Sectoral Technical and Economic Cooperation (BIMSTEC). BIMSTEC initiatives are yet to be effective. SAFTA emphasize the need of trade facilitation across the border, tariff elimination, streamlining procedures for test and certification of products, simplification and harmonization of Customs, enhancing transit facilities for efficient intra- 4
SAARC trade and development of ICT system and transport infrastructure. Different intergovernmental group are formed and under consultation to move forward to realize the objective of SAFTA in TF. South Asia Sub-regional Economic Cooperation (SASEC) consisting of four countries Bangladesh, Bhutan, India and Nepal is one of the concrete steps to focus on trade and transportation improvement. SASEC working group has been formed in 6 priority sectors, where the trade is major component and the ADB is supporting the program since 2001. Multilateral assistance in TF World Bank is assisting Government of Nepal to develop and operate three Inland Container Depot (ICD) in Birgunj (Sirsiya), Bhairahawa, Biratnagar. Asian Development Bank under Sub Regional Transport Enhancement Project financed for the development of one ICD in Mechi, improvement of road networks and customs automation. ADB has further extended its support and planned to improve road infrastructure and customs automation under STEP II. UN ESCAP support in conducting studies in the establishment of paperless environment is also important endeavor to enhance Trade Facilitation in the region. UNESCAP supported by funding institution including ADB and other advanced countries is promoting a project which aims to allow the highway to cross the continent and also reach to Europe. Nepal is connected by two Asian Highways. They are Asian Highway 2 and Asian Highway 42. The total length of these two sectors within the country is 1324 km. Effects of the Mechanism/Agreements: One way of measuring the trade facilitation is the ranking of the country in the Trading across borders in Doing Business Report 2011 and Logistic Performance Index (LPI). Doing Business shows that Nepal ranks 164 out of 183 in trading across border indicators. Similarly, the Logistics Performance Index (LPI) report 2010 ranks Nepal one of the lowest, i.e., 147 out of the 155 countries. These studies suggest that efforts are not adequate and there is an acute need to take a long march to improve trade facilitation measures for better performance. Way to make them more effective Short term 1. Up gradation of Customs System and full automation to prepare Customs for the paperless environment. 2. Establishment of ICDs/ICPs of international importance (and the use of through bill of lading), 3. Computerization of other trade related agencies 4. Use of Multimodal Transport Document (MTD) as freight movement 5. Use of EDI between agreed gateway port of India and Customs points. 6. Study of the process, procedures, time and cost of the transit corridor to evaluate the business process, 7. Assessment of each and every documents requirement for the import, export and transit at national level and start elimination of redundant documents, 8. Harmonization and simplification of documents and procedures in the South Asian Region trade for the readiness to establish Single window in long term. 5
Long term: 1. Development of express highways to connect Border Points and ICDs, 2. Review of bilateral trade treaties and transit treaties to allow for the paperless movement of documents, 3. Development of ICDs with improved connectivity to the neighboring countries, 4. Operational the additional Vishakhapatnam seaport and train corridors through India to Bangladesh, 5. Speed up the development of Asian Highways and Asian Trans Railways Network, 6. Establishment of single window at national and regional level. D. Support from ADB, UNESCAP and UNECE Multilateral and bilateral development partner support is imperative to make the trade facilitation work in Nepal. Asian development Bank is engaged in different trade facilitation measures in Nepal since the ADB supported Department of Customs automation program in 1996. The UNESCAP initiatives to improve trade regime in the national and regional level through studies and encouraging members towards development of paperless environment for international trade is also added value to countries, particularly for Land Locked Countries like Nepal. Similarly, the contribution made by UNECE in harmonization of trade documents and development of standards in international trade regime is well documented. In this perspective, the support from ADB, UNESCAP and UNECE in the following areas may create tangible benefits for Nepal. Potential projects for ADB support: Transport facilities enhancement and improvement of physical facilities in cross border management, support in ICD infrastructure development in the south Asian region, technical support for the development of ICT master plan commensurate with single window establishment, Financial support for the single window establishment at national level and regional level, Potential projects for UNESCAP Support: Technical support for the training on Business Process Analysis, Technical support for conducting Business Process Analysis of transit corridors, Capacity building of Trade related agencies in Trade Facilitation measures, Management and coordinating of national and regional initiatives on paperless environment development, Management and coordination for development of dry ports of international importance and its connectivity within the region. Potential projects for UNECE Technical support for the standardization of document in International Trade particularly in the SAARC region, Technical support for the data harmonization, 6
E. Benefits, Challenges and modality to evolve SW: One can see numerous benefits from the paperless environment on international trade. Studies suggest that the land locked countries have to bear more on transaction cost due to rely on the transit country for its movement of cargo. Any move towards the paperless environment directly reduces the transaction cost by reducing documents, time and physical contacts. But, the implementation of single window basically depends on the south Asian countries eagerness to adopt the single window. Different level of automation, procedures and national requirements may pose challenge to move forward in single window direction. There is virtually non-existence of exchange of electronic trade document of Nepal to other South Asian Countries, which reflects a need for big steps to realize the single window in South Asian region. In addition, the success of the single window in regional level is not only the technical issue but a political will from the south Asian countries. Initial steps to be taken at sub regional level: The prerequisite for the single window initiation at sub regional level is to move for the establishment of single window at nation level first. The following steps can be adopted at national level in Nepal for the development of single window. Step I: Business Process Analysis for studying current situation, identification and prioritization of problematic areas and recommend measures by using BPA model. Step II: Master plan Development for the step by step planning for Single window. Step II: Document Simplification and Alignment. Step III: Data Harmonization Step IV: Single Window and Paperless Trade at national level. Proposed Institutional Modality for Nepal There are at least 8 government agencies and 4 private sector agencies involved in Nepal s foreign trade. These are Department of Customs, Inland Revenue Department, Department of Commerce, Central Bank, Plant Quarantine of Department of Agriculture, Department of Archeology, Department of Forest, Department of Drug Administration, Department of Mines and Geology, Trade and Export Promotion Centre, Federation of Nepal Chamber of Commerce- District Chambers, Federation of Nepal Handicrafts Association, Confederation of Nepalese Industries, Visa Cell of NPEDC. Besides, there are intermediaries such as Customs brokers, freight forwarders, Commercial Banks, Airline, Transporters and Port authority. A successful implementation of Single window requires coordinated efforts of different government agencies, intermediaries and private organizations. This may require policy directives and commitment from the higher level of Government, coordinated approach among stakeholders, and a committed technical team to carry out BPA and to draw Master plan further down the road to implementation. The following framework may be recommended for the implementation of the Single window in Nepal; 1. Advisory Committee: A committee is proposed to establish in the Prime Minister office under the Secretary. The role of this committee would be to design policy directives and 7
coordinate activities of different government agencies and to ensure full commitment for the highest level of Government. 2. National Trade and Transport Facilitation Committee (NTTFC): There is a need to revitalise the NTTFC under Ministry of Commerce and Supplies to steer the Single Window Implementation. This committee will refer to the Advisory committee for any policy directives, coordination and activism that may be required from the different government agencies. 3. Technical Team: There may be a need to establish a proactive technical team composed of maximum 7 people from the major agencies particular from trade facilitation units of Ministry of Commerce and Supplies and Department of Customs, Freight Forwarders, Nepal Intermodal Transport Development Board and others. It would be advisable to recruit one national expert on Trade Facilitation. This technical team will assist to carry out BPA and draw a Master plan with the assistance of UNESCAP. UNNExT may be used to train core team, conduct BPA and draw master plan. Once the Master plan is drawn, this team will work as a project team to implement the Single Window system under NTTFC with the support of development partners. F- Way Forward and Key Recommendations Nepal as well as south Asian region records low rank in trade facilitation indicators. There are different government agencies involved in the development of trade facilitation measures in Nepal. It is very important to integrate all the activities and direct through the PM Office at National level as highlighted in the above proposed institutional modality. Business Process Analysis and master plan development for the single window might be the right way to streamline all activities in right direction. Readiness for the single window at National level would be prerequisite for the single window at regional level. Regional projects in a cohesive and integrated fashion are required to move for single window at regional level. The wealth of expertise available under UNESCAP can be utilized to conduct training on BPA, Document simplification, data harmonization and conducting BPA including drawing master plan for single window. The notion and necessity of single window is not perceived at the desired level in Nepal and UNNExT experts have a great role to play to make the country ready for single window. ---------------------------------------------------------------------------------------------------- 8