Nepal Trade Integration Strategy (2023-2028)

11. Strategic framework of NTIS 2023 and action matrix 57 iii Abbreviation AI Artificial Intelligence ANSI American National Standards Institute B2B Business to Business B2C Business to Consumers BIS Bureau of Indian Standards BIMSTEC Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation BPO Business Process Outsourcing C2B Consumers to Business C2C Consumers to Consumers CABI Centre for Agriculture and Bioscience International CEDAW Convention on the Elimination of all forms of Discrimination Against Women CNI Confederation of Nepalese Industries CTEVT Council for Technical Education and Vocational Training DDA Department of Drug Administration DFTQC Department of Food Technology and Quality Control DNA-P Designated National Authority for Pesticides DOA Department of Agriculture DOCSCP Department of Commerce, Supplies and Consumer Protection DOFSC Department of Forest and Soil Conservation DOLS Department of Livestock Services DOPR Department of Plant Resources EBA Everything But Arms ETA Electronics Transactions Act EU European Union FDI Foreign Direct Investment FECOFUN Federation of community Forestry Users Nepal FNCCI Federation of Nepalese Chambers of Commerce and Industries FTA Free Trade Agreement GACP Good Agriculture and Collection Practices GDP Gross Domestic Product GHP Good Handling Practices GON Government of Nepal GMP Good Manufacturing Practice GSP Generalised Scheme of Preferences GSP+ Generalised Scheme of Preferences Plus ICP Integrated Check Post IEC International Electomechanical Commission IOLM International Organization of Legal Metrology IPPC International Plant Protection Convention ISO International Organization for Standardization ITC International Trade Centre IEC International Electromechanical Commission ILO International Labour Organization IPPC International Plant Protection Convention v IT Information Technology ITE Information Technology Enabled LDCs Least Developed Countries MAPs Medicinal and Aromatic Plants MFN Most Favored Nation MOALD Ministry of Agriculture and Livestock Development MOCIT Ministry of Information and Communications MOCTCA Ministry of Culture, Tourism and Civil Aviation MOEST Ministry of Education, Science and Technology MOEWRI Ministry of Energy, Water Resources and Irrigation MOF Ministry of Finance MOFA Ministry of Foreign Affairs MOFAGA Ministry of Federal Affairs and General Administration MOFE Ministry of Forest and Environment MOICS Ministry of Industry, Commerce and Supplies MOLESS Ministry of Labour, Employment and Social Security MOLMCPA Ministry of Land Management, Cooperatives and Poverty Alleviation MSMEs Micro, Small and Medium Industries MT metric tons MTEF Medium Term Expenditure Framework MW megawatts NBSM Nepal Bureau of Standards & Metrology NCA Nepal Accreditation Center NCC Nepal Chamber of Commerce NIST National Institute of Standard and Technology NMI National Metrology Institute NRB Nepal Rastra Bank NSO National Statistics Office NTIS Nepal Trade Integration Strategy OECD Organization of Economic Cooperation and Development PRA Pests Risk Analysis PQPMC Plant Quarantine and Pesticide Management Centre RCEP Regional Comprehensive Economic Partnership RoO Root of Origin SAFTA South Asian Free Trade Area SDGs Sustainable Development Goals SEZs Special Economic Zones SMEs Small and Medium Enterprises SPS Sanitary and Phytosanitary SWAp Sectorwide Approach TEPC Trade and Export Promotion Centre TIA Tribhuvan International Airport TIFA Trade and Investment Framework Agreement VAT Value Added Tax WTO World Trade Organization vi (UNOFFICIAL TRANSLATION) Message Trade is an important contributor to a nation’s prosperity. Growth in trade can provide market access to local produce, create jobs, serve consumer interest, contribute towards increasing revenue and proverty reduction, and provide a strong foundation for socioeconomic development. Trade expansion can assist Nepal in attaining the Sustainable Development Goals and a smooth and irreversible graduation from the Least Developed Country (LDC) status in 2026 for prosperity. All periodic plans of Nepal have stressed trade policy. The country has been making efforts to comply with the World Trade Organisation policies, and in enhancing national trade capacity like all other LDCs. Nepal has been continuously assessing the national and international context for trade and investment for making making periodic updates in policies and action plans to support trade and investment. This five-year Nepal Trade Integration Strategy (NTIS) 2023 has been prepared as part of the process. It seeks to support enhancement of domestic productivity and competitiveness for expanding international trade. One objective of NTIS 2023 is to attain external sector stability through effective implementation of the recommended actions. Even though its implementation, monitoring and evaluation will be the primary responsibility of the Ministry of Industry, Commerce and Supplies, effective implementation will require support and meaningful collaboration and coordination with other government agencies, the private sector, development partners and other stakeholders. In the context of Nepal’s federated governance, I am confident that all provincial and local governments will prioritize NTIS implementation. Finally, I thank all individuals and organizations involved in the preparation of this strategy. June 2023 (Signature) Ramesh Rijal Minister (UNOFFICIAL TRANSLATION) Foreword Trade has a major influence on economic development. It is, therefore, extremely important to develop and expand this sector for poverty reduction and for attaining the national aspiration of prosperity. Nepal also needs to enhance competitiveness in order to derive maximum benefits from the increased international access resulted from membership in the World Trade Organization. These are reasons why Nepal has prioritized trade-related policies and trade-enabling interventions. I am extremely pleased to present the Nepal Trade Integration Strategy 2023, which is the fourth such plan. This strategy has been developed to respond to the developments in international markets, the country’s aoption of a federated governance structure, and Nepal’s planned graduation to a middle- income country in 2026. The strategy aims to support attainment of external sector stability, and has set the goal of attaining raising the export of goods and services ratio to 20 percent and the total trade to GDP ratio to 55 percent. Three strategic pillars have been determined for attaining these goals: Building a supportive environment for trade, improving trade-enabling infrastructures, logistics, processes, and regulatory environment, and developing competitive products and expanding the export market. These three pillars encompass 13 strategies and 183 activities interventions. Implementation of this strategy expected to assist in increasing Nepal’s exports, which in turn will make important contributions in developing the trade and investment sector. But effective implementation will require effective collaboration and coordination of all stakeholders, a process which the Ministry of Industry, Commerce and Supplies will facilitate to garner support all relevant ministries and government agencies, development partners, the private sector, civil society and other stakeholders. I am confident that the participation and collaboration of stakeholders observed during preparation will continue during the implementation. This strategy internalized collaborative participation of all relevant stakeholders during preparation. It sought inputs to the draft prepared by subject-matter experts from policy makers and practioners in all of Nepal’s seven provinces and a large number of local body representatives, businesses based in the provinces, including women and youth; and business associations, businesses, and industry leaders in Kathmandu. Feedback and suggestions were also sought from various Nepal Government agencies. The final draft incorporated the suggestions received during the consultations and those provided directly to the ministry. The final draft was reviewed by the ministry and forwarded to the Council of Ministers for approval. I thank everyone involved in the preparation of this strategy. June 2023 (Signature) Shankar Das Bairagi Chief Secretary (UNOFFICIAL TRANSLATION) Preface Along with becoming a member of the World Trade Organization in 2004, Nepal has committed to different regional and bilateral agreements and arrangements to improve access of Nepali products and services in international markets. The country has also been continuously reviewing and modifying its trade policies to prepare better for capturing the opportunities provided by multilateral, regional and bilateral agreements. This document is the fourth document towards that aim. This strategy has been formulated in the background of changes in the world trade system, the impact of Covid-19 on the business sector, the federal government system adopted by the country and Nepal’s planned graduation to a developing country in 2026. This is the context that makes external sector sustainability vital for building the best ecological system for goods and services development and trade, creating a supportive environment for enhancing competitiveness, adding business support infrastructure, enhance communication, and reform the processes involved and the regulatory environment and governance. The Nepal Trade Integration Strategy has three strategic pillars, 13 strategies and 183 activities. Mr. Rameshore Khanal, former secretary of the Government of Nepal, led an expert group that was involved in formulating a draft strategy. The team included Mr. Dilli Ram Sharma, PhD; Ms. Romi Manandhar, Mr. Pushpa Sharma, PhD; Mr. Navin Dahal, Mr. Akshit Paudel, Mr. Anup Upreti (Pioneer Law Associates), Ms. Mona Shrestha Adhikari, PhD; Mr. Rojan Bajracharya, Mr. Rabi Shanker Sainju, and Ms. Ines Escudero that prepared the different sectoral drafts. Mr. Shiv Raj Bhatt, Key Expert at the EU-Nepal Trade and Investment Program and other staff provided the necessary support. I thank you all. I also thank my former colleagues, secretaries Mr. Dinesh Bhattarai, Mr. Ganesh Prasad Pandey and Mr. Toyam Raya for their contributions. I am also grateful to Mr. Gobinda Bahadur Karkee, Joint Secretary, Multilateral Trade and Trade Assistance Division of this ministry and all staff of the division for participation in strategy formulation. We believe that the effective implementation of this strategy can increase Nepal's exports and play an important role in the overall development of the trade sector. The successful and effective implementation of the strategy depends on the cooperation and coordination of all stakeholders hence, my request for cooperation from relevant government agencies, private sector and development partners for rolling out this plan. (Signature) Madhu Kumar Marasini Secretary MOICS 1.0 Introduction Nepal’s international market access has improved over the years. As per the Global Enabling Trade Report 2016, Nepal’s international market access index was 1.0 out of 136 countries. Similarly, in the five years after 2011, the margin of preference in international markets increased from 67.9 to 89.9. Nepal’s trade-weighted customs rates have also decreased gradually. The factors behind improved international market access are favorable bilateral and multilateral agreements and the concessions available to Least Developed Countries (LDCs). However, Nepal’s export performance has not been satisfactory. Nepal’s Export Value index has remained largely steady compared with similar countries (Table: 1). The export volume index has declined while the same for Laos has increased by 10 folds. Openness in Trade measured as a ratio of total international trade and Gross Domestic Product (GDP) increased by 10 percent in a decade and reached 40.65 percent in 2020. Nepal’s International Market Access index was 3.03 in 2000, which reached 3.55 in 2017. This index is derived from the total number of products of Nepal exported to different countries divided by the number of countries that import such goods. This indicates Nepal’s low capacity for accessing potential export markets. Table 1: Export Value Index Country 2000 2005 2010 2015 2020 Bangladesh 100.00 145.52 300.43 506.79 525.59 Cambodia 100.00 222.50 370.16 614.80 1,238.98 Lao PDR 100.00 167.44 528.71 1,116.02 1,851.27 Nepal 100.00 107.37 106.44 89.64 1106.46 Rwanda 100.00 235.13 560.89 1,286.84 2,655.63 Sri Lanka 100.00 116.88 158.41 194.22 186.03 Vietnam 100.00 224.00 498.77 1,119.00 1,952.12 Source: World Development Indicators, 2020 Nepal’s export destinations have remained more or less unchanged for a long time. Eighty percent of total exports are destined to India, and in the past five years, this has increased by 34 percent. Before 1990, Nepal’s goods and services exports were below 10 percent of GDP and imports were also low. Still the current account deficit had reached about eight percent. Exports began growing following the economic liberalization that began in 1992 and had reached 2.63 percent of GDP in 1996. In recent years, export growth has remained negligible while imports have increased at high rates. Increasing exports have remained the major focus of trade policy ever since the start of periodic planning in Nepal. Until 1991, Nepal did not have a trade policy. The first Trade Policy 1992 adopted the economic liberalization policy and took initiatives to remove the barriers to trade. The Trade Policy of 2009, Nepal’s second, took more wider approach compared to the 1992 policy. The Trade Policy of 2009 had created a conducive environment to enable Nepali products to compete internationally, increase exports to reduce the trade deficit, increase income and employment opportunities, and establish an interrelationship between domestic and internal trade as its major strategies. Implementation of this strategy led to major reforms in trade facilitation, development and implementation of customs infrastructure and processes, and quality standards. For the first time ever, road projects were implemented for facilitating trade. However, not much was done towards building recognition for Nepali products in international markets, strengthening domestic supply chains, and building other trade-supportive 1 NTIS 2080 infrastructure. As result, even though some major initiatives had been undertaken, the overall goals remained unachieved and both the trade and current account deficits continued to widen. The third Trade Policy was formulated in 2015. The main objectives of this policy was to secure the concessions available to LDCs, harmonize sectoral policies to reduce the trade deficit, strengthen services trade, and to take necessary measures to safeguard and protect intellectual property. Alongside the trade policy and in preparation for joining the World Trade Organization (WTO), in 2003, Nepal undertook the Nepal Trade and Competitiveness Study, based on which the Nepal Trade Integration Strategy (NTIS) was prepared. However, an evaluation of this strategy in 2010 suggested that implementation had not been satisfactory, and the major reasons for that were: (1). Inadequate human and financial resources for implementation, (2). Non-inclusion of the proposed activities in the Periodic Plan and the Medium Term Expenditure Framework (MTEF), (3). Inability to get assistance for trade, and (4). Weak inter-agency coordination. The NTIS was formulated in 2010 immediately after the Trade Policy 2009. The strategy had added nine more goods and services to the list of exportable goods and services in the trade policy. NTIS 2010 was ambitious to some extent. There was visible progress primarily in improving trade and customs infrastructures, trade facilitation, and the formulation and implementation of quality standards. But the overall economic goals could not be achieved. NTIS 2010 was revised after six years and a new one was prepared in

2016. However, the export growth of goods identified by the strategy remained low compared to the overall growth of exports. Some of the important activities proposed by the strategy also remained incomplete, and some newer issues have also emerged. The introduction above provides a context for formulating the Nepal Trade Integration Strategy 2023 (NTIS 2023), which has also taken into consideration some new contextual issues: a. There has been continuous increase in the balance of payments deficit and the pace of depletion of foreign exchange reserves resulting in a current account deficit. b. The export growth rate of products and services identified by the NTIS has remained weak despite an increase in the overall export growth rate for the last two years. c. Nepal will lose international trade related facilities provided to LDCs after graduation to a developing country in 2026. d. Since the country is now under a federal system of governance, new opportunities have emerged for building domestic supply and value chains, and e. In light of adequate examples that trade contributes to poverty reduction and inclusive development, it has become necessary to update the strategy with gender empowerment and social inclusion lenses. Formulation of NTIS 2023 involved the different actions and analysis of various issues as listed below:

1. Review of macro economic and development policies for expanding international trade and its integration in global trade.

2. Federalism, graduation to a developing country, and measures for enhancing trade capacity on economic diplomacy.

3. Reforms required in labor, social inclusion and markets for building competitive capacity of marginalized groups in trade, and equitable distribution of the benefits of trade.

4. The current situation of trade infrastructure development, trade facilitation and reform measures.

5. Reforms required to make Nepali products competitive to enter the markets of trade partner countries in the context of their quality standards in food and agriculture. 2 NTIS 2080

6. Policies and institutional reforms for improving quality testing infrastracture of industrial products, and enforcement of quality standards.

7. Reforms required to make conducive regulatory environment for foreign investment promotion, investment facilitation, good governance and protection of intellectual property.

8. Preparations, recommendations and possibilities for adopting Industry 4.0 and 5.0 for reducing the costs of production and trade, ensuring quality products and regular supplies.

9. Identification of products able to compete in international markets and measures to develop emerging products.

10. Identification of services able to compete in international markets and measures to develop the service sector, and

11. Implementation mechanism and modality. A budget required to implement the strategy has also been estimated and a Trade Sectorwide Approach (SWAp) has been recommended for mobilizing foreign aid considering the low internal resources availability for strategy implementation. 3 2.0 Coherence of macroeconomic and development policies for trade integration All macroeconomic and development policies – particularly monetary policy, fiscal policy, agriculture, livestock, forest and environmental management policies – need to be supportive for trade promotion. Labor laws and regulations, industrial promotion, foreign investment promotion, protection of intellectual property and quality standards, and enforcement are also important. All of these policies and standards have been analyzed in the respective sections. This section has attempted to review and identify areas for reform in monetary, fiscal, agriculture and forest policies. Despite limitations, Nepal’s monetary policy has demonstrated flexibility in supporting the export sector. Salient features of the monetary policy are simplification of payments for raw materials import, facility to obtain loans in convertible currencies, foreign exchange facilities for business transactions abroad and special refinancing facilities for export industries. The policy also has provisions for issuance of advance payment certificates for two years, which can be extended by an additional year if export is delayed. Monetary policy can further incentivize export businesses by addressing a few additional issues. At present, there is a provision allowing exporters to retain five percent of the export income in foreign currency abroad for establishing showrooms and for business representation. Especially, companies involved in exporting information technology (IT) related services require additional funds for their offices abroad. There is a practice of booking service trade in foreign countries due to prohibitions on sending foreign currency out, once it has entered Nepal. There is a need for flexibility with conditions to resolve this matter. Export industries and service companies can import raw materials and machinery on credit and can make the payments later. But the time allowed is not sufficient. Evidence of neighboring countries shows that extending this period can be supportive for export businesses. Exporters of IT services need to establish a permanent units abroad for official purposes. But there is no provision for purchasing capital goods and equipment required in such foreign units through Letter of Credit issued in Nepal. IT service businesses can increase their exports if arrangements are made to allow payments from Nepal at the recommendation of the concerned regulatory agency for goods – required by foreign unit of a Nepali company – purchased abroad. There are no special export financing arrangements other than the regular banking system. An Exim Bank has not been established in Nepal even though the matter had been raised in the past. Even if an export-import bank cannot be established immediately, it is necessary to make a special arrangement for export financing utilizing the existing institutional mechanisms for promoting exports. Public expenditure and taxation arrangements in the fiscal policy support export promotion. With regard to public expenditure, implementation is the major problem. Further, the development of export-related trade infrastructure remains inadequate. The pace of establishment and operation of Special Economic Zones (SEZs) and export processing zones has been slow. It is necessary to enhance investment in trade supportive infrastructure and strengthen implementation capacity to reduce the costs of doing business. Scope and amount of cash incentivies provided for exports is also low compared to that in countries with high export growth rates. If the income tax rate is reduced, there is a possibility of IT companies based abroad to relocate their business 4 NTIS 2080 bases in Nepal. If the income tax rate on export earnings is maintained below 10 percent for the next five years, it will encourage exporters to increase exports. The loss in revenue resulting from the lowering of corporate income tax can be compensated by the income taxes received from increased employment created by expansion of business. Customs and all charges on raw materials used in export industries are refunded after export of finished goods. Therefore, the custom duties on raw materials are not a matter of concern for export industries. The cost of doing business can be reduced by simplifying the process for tax refunds. If the custom duties on raw materials for producing goods used in domestic consumption, and the custom duties on the imported finished goods using the similar raw materials are equal, or slightly lower on raw materials, it will become difficult for domestic producers to compete with imported goods on price. If domestic industries are competitive, they will gradually expand capacity and benefit from economies of scale on cost of production. Over time, goods produced by such industries can become competitive in international markets and exports can increase. Therefore, customs differences should be 10 percent between raw materials and finished goods. If the legal provision of tax refund on the flat rate given to small and medium sized industries comes into effect, it will support the reduction of the cost of doing business. In the course of tax reforms, policies were adopted by making the Value Added Tax (VAT) more effective and reducing the number of goods under the excise regime. The number of goods on which excise duty is levied has increased to about 1400 in recent years. Removing or reducing excise does not make any sense for exportable goods since the excise is refunded. This is a simplistic analysis. If the burden of excise duties is low, it can lower the prices in domestic market. The domestic market can expand and the industries can increase production capacity. There will be benefit of economies of scale, and the industry can expand the market of goods from domestic consumption to international markets over time. The share of excise revenue on goods produced for domestic consumption is not very large. By doing so, the government will not lose much revenue while this could be supportive for industrial expansion. Therefore, it is appropriate to adopt the policy of removing excise duties on domestic production. The reduced excise duties can be adjusted on customs of imported finished goods. Such a policy can support import substitution immediately and contribute towards increasing exports in the long run. The overall agriculture policy, product specific farming systems and marketing policy are aimed at promoting export. These policies need to be gradually reformed even though they have addressed export promotion. The policy is not a problem, it is the implementation that is problematic. Similarly, the forest policy stresses sustainable use of forest products and export promotion. But there are weaknesses in implementation. Development of export-oriented infrastructure and a supportive attitude on mining of mineral resources are lacking in forest policy. In many instances, implementation has stalled due to weak governance capability. 5 3.0 Federalism, graduation to developing country and measures for enhancing trade capacity in economic diplomacy This section analyzes three major issues: (1) Employing the federal governance system for enhancing trade capacity, (2) Minimizing losses of changed trade facilities and utilizing new opportunities after LDC graduation, and (3) Strengthening economic diplomacy for trade and investment promotion. Federal governance system for building trade-friendly environment State policy in Nepal’s Constitution states that coordination will be established between provinces, and provinces and federal government on industrial corridors, Special Economic Zones (SEZs), and projects with national and foreign investment for providing momentum to economic development. No significant initiatives were taken at provincial level for building a conducive environment for industry and trade during the first five years of federalism. But the performance of some local bodies was good. Some municipalities performed well on improving market infrastructures. Investment summits were organized not only by federal and provincial governments but also by municipalities to promote tourism and investment. The Constitution has given authority to provinces and local bodies to exercise sovereignty similar to that of the federal government.The Constitution has delinated both the scope and authorities of the provinces and local bodies. It has also mentioned the areas of cooperation and partnership. The Constitution has given both decision-making and implementation authorities on agriculture development, forest conservation and use, use of mines and mineral resources and the use of natural resources to sub-national governments. The local bodies are in a position for ensuring effectiveness in supply and value chains at the primary level and providing benefits of value chain to producers of primary products. The responsibility of building appropriate infrastructure and enforcing quality standards has been placed on local bodies, and they have no resource constraints as well. The annual grants – equalization grant, conditional grant, special grant and complementary (matching) grant from federal government to the provinces and local bodies have been increasing. Revenue base of the local bodies has also been expanding. Provinces and local bodies can collaborate to develop domestic supply and value chains, and they can ensure just and equitable benefits of the value chain to primary producers. The following activities can be carried out by provinces and local bodies based on their authorities and available financial resources for promoting trade and strengthening supply chains:

1. Product development and minimization of market price risks for goods produced by primary producers.

2. Enhancement of capacity of primary producers for compliance with quality and hygiene-related standards.

3. Development of road networks from the primary production points to first level markets.

4. Development of value chains.

5. Development and building trade-supportive infrastructure.

6. Development and building tourism infrastructure.

7. Regulating quality standards for food and services at hospitality businesses such as eateries, hotels and restaurants. 6 NTIS 2080

8. Enforcing and monitoring compliance of quality standards in agricultural goods and small food processing industries.

9. Disseminating necessary market information regularly through channels accessible to primary producers.

10. Enhancing productivity and developing skills of small entrepreneurs, businesses, farmers, laborers, and individuals working in the processing of forest resources, and

11. Product development of food and cash crops, livestock, forest resources and goods based on locally available raw materials and specialization in production of goods through implementation of programs such as “One Village One Product”.

12. Even though it may not be possible for the provincial goverments and local bodies to undertake all of these activities in five years, they can prioritize and develop value and supply chains, develop product collection centres and wholesale markets, specialize in the production of goods and ensure food hygiene. Graduation from LDC status As recommended by the Committee for Development Policy of the United Nations in 2021, the UN General Assembly approved the proposal of Nepal’s graduation from a LDC to a developing country in 2026. Nepal has not met GNI per capita criterion among three criteria for graduation. But, Nepal has been selected for graduation as it had attained both the economic vulnerability index and human asset index criteria in two consecutive reviews, and also met these two critieria in the third review as well. With graduation, Nepal will lose concessions and special facilities it has been receiving as a LDC. Graduation is a milestone in developmental achievement and a matter of pride. But in addition to some matters related to financial concessions, preferential market access and trade facilities received by Nepal internationally will be eliminated. Similarly, Nepal will lose some opportunities. For example, the special and preferential treatment on service trade under agreements such as the WTO and the South Asia Free Trade Agreement (SAFTA) remain to be operationalized. These provisions will be operational after graduation and therefore Nepal will not be able to derive the possible benefits that could have been derived in services trade. The facilities regarding trade-related intellectual property will also come to an end after graduation. The zero customs facility for all exports in European markets under the Everything But Arms (EBA) and the flexible Rules of Origin (RoO) regime, will also come to an end. India, where over two-thirds of Nepal’s trade takes place, has provided special concessions under a bilateral agreement. India imports all goods produced in Nepal at zero customs based on the RoO definition. In reality, India’s market will remain open for Nepal. Such facilities received from India under the bilateral agrrement is based on the friendly relations with a neighbor and not because Nepal is a LDC. Some studies have concluded that LDC graduation will only have a nominal impact on Nepal’s export trade since the concessions available from one large market will continue. But the impact will definitely be significant in markets other than India where Nepal has used the facilities provided to LDCs for export of goods. Other than India, Nepal’s major export markets are the United States of America (USA), European Union (EU), the United Kingdom (UK) and Türkiye. Nepal’s exports to China are minimal. Still in terms of possibilities, China remains an important market for Nepal. Therefore, it is necessary to undertake in-depth studies in terms of the concessions received by Nepal as a LDC, the exports to these markets, utilization of facilities by Nepal, and the impact on exports after graduation. EU has three provisions for trade concessions: Standard Generalized System of Preference (GSP), GSP+ 7 NTIS 2080 and the EBA. Nepal has received the EBA facilities like other LDCs and the EU is the third largest export destination. Between 2015 and 2020, the average annual exports to the EU was about USD 60.9 million, which is 8.5 percent of the total exports. Over 80 percent of these exports took place under the EBA. EU will extend this facility for Nepal until 2029. It is estimated that the exports to the EU will decline by 19 percent in the absence of concessions thereafter. But, in the event Nepal is able to meet the requirements for GSP+, it is estimated that there will be no major decline in the exports to the EU. If Nepal is eligible only for the standard GSP there will be 5 to 7.9 percent customs on 40 percent of the goods, 8 to 9.9 percent customs on 35 percent of the goods, and 10 percent customs on some goods. The RoO under standard GSP and GSP+ will be more stringent than the EBA. About 4 percent of Nepal’s exports reach Türkiye under EBA-like facilities of the EU. To secure concessions similar to those under GSP+ from Türkiye, Nepal will have to ratify 27 international conventions. For exports to the UK after graduation, Nepal will face a situation similar to that in the EU. The U.K. is a destination for about four percent exports. After graduation, Nepal can become eligible for the GSP General Framework or the GSP Enhanced Framework and efforts need to be made toward that end. The USA has provided zero duty market access for 5,100 products from 44 countries, including Nepal. After the 2015 earthquake, under provisions of the Trade Facilitation and Trade Enforcement Act 2015, the USA has provided duty free market access to 77 products until 2025. For this, there should be at least 35 percent value addition under the RoO. The USA is Nepal’s second largest export market. But Nepal’s exports under both facilities are negligible. The main reason for this is the lack of duty concessions on garments and shoes in which Nepal has export capability, and also because Nepal has to compete with other countries for some other products as the regular customs duty is about zero. After graduation, Nepal could get concessions provided to beneficiary developing countries but those currently available will come to an end. It is estimated that this could impact about three percent of the exports to the USA. China has provided zero customs facilities to 97 percent products from LDCs with which it has diplomatic relations. For this, there is a requirement of 40 percent local value addition. Even though China is presently a small export market for Nepal and only 36 percent of goods exported have received the zero customs facility, the exports to China after graduation will be affected. China has not made any post-graduation arrangements like the EU and other large trade partners. Therefore, trade with China would have to be done under the Most Favored Nation (MFN) regime or a bilateral agreement should be signed with the negotiated concessions. SAFTA has made special provisions for LDCs, under which they receive concessions in the RoO and customs on goods they export. Nepal’s trade with SAFTA member countries other than India is minimal. India provides Nepal more facilities than SAFTA under the bilateral treaty, which is why Nepal has not made much use of SAFTA provisions. In addition to issues mentioned above, the benefits available under to WTO decisions and provisions will be lost. The WTO can also end the right to provide export grants and impose additional duties to control imports under the Agreement on Subsidies and Countervailing Measures. Cash incentives given to promote exports and concessions provided to exports of industries operating in SEZs can also be affected. Similarly, the facilities provided to LDCs on trade-related intellectual property rights could end after 2034. There will not be much effect on service trade because of the inability of Nepal to make use of the existing concessions. In this backdrop, Nepal mainly needs to make efforts to secure GSP or GSP+ facilities from the EU, Türkiye and the UK. For this, some conventions need to be ratified and some conventions, in which Nepal is a party, need to be effectively implemented. In the case of the USA, it would be appropriate to enter into a bilateral 8 NTIS 2080 trade agreement instead of the existing framework agreement. Nepal also needs to move towards bilateral trade agreements with China and other trade partners. The Maldives has been granted concessions provided to LDCs in SAFTA even after it graduated from a LDC. Nepal needs to work with Bangladesh and Bhutan to take initiatives for seeking similar post-graduation facilities. Nepal also needs to emphasize regional trade agreements. Economic diplomacy Nepal’s economic diplomacy has been accused of lacking a clear strategic vision. The major reasons for weakness in economic diplomacy are inadequate qualified human resources, low trade negotiation skills, lack of coordination between government agencies working on trade and investment, and the low knowledge and understanding of major issues. Ambassadors to major export destinations are politically appointed. These ambassadors may have information on political issues but their knowledge on trade and economic issues is inadequate. Nepal has established Consulate General offices in seven locations of four countries. The primary responsibility of these offices, except Saudi Arabia, is to facilitate trade. Nepal has officials responsible for economic matters at embassies in India, China and the USA. But there is a lack of coordination even among Embassies and the Consulate General offices that add up to the institutional weaknesses in economic diplomacy. Nepal has appointed 53 honorary counsul generals in 35 countries. But there is no clarity on the basis of their appointments and how they have been fulfilling their responsibilities. There is a lack of regular communication and dialogue between the Ministry of Foreign Affairs (MOFA) and the honorary consul generals. Many countries have also appointed honorary consul generals in Nepal, who have been accorded recognition and diplomatic identity by the Government of Nepal (GON). But it has been observed that they have not been mobilized for increasing Nepal’s exports or promoting Nepal’s economic interests. Nepal-based honorary consul generals have neither been providing information on trade and investment possibilities in countries they represent, nor have they been coordinating with the Ministry of Industry, Commerce and Supplies (MOICS) or other economic agencies on economic and trade-related matters. Bilateral and regional trade organizations exist in different countries. The role and responsibility of such organizations in terms of economic diplomacy are not clear. There is a lack of platforms and modalities for cooperation with bilateral trade organizations. Nepal’s foreign missions do not have adequate budgets for economic diplomacy. Therefore, besides national day celebrations, they have been unable to organize events to effectively promote trade and tourism and attract investment. There are a large number of Nepalis living abroad but there have been no programs to mobilize their support for promoting Nepal’s economic interests. The following activities are essential for making Nepal’s economic diplomacy effective.

1. It is neccessary to formulate a clear and objective-oriented economic diplomacy strategy. Country- specific strategies need to be formulated for major trade and economic partners based on the main strategy. Such a strategy had been prepared in the past but it was not made public.

2. There is a need for change in the institutional structure to conduct economic diplomacy. There is also a need for a permanent mechanism to establish contact and dialogues between MOICS and MOFA. 9 NTIS 2080 Similarly, it is necessary to develop a mechanism and modality for continuous dialogues between Nepal’s foreign missions, Consul Generals, Nepal’s honorary consuls, honorary consuls based abroad, the Nepali diaspora and exporters.

3. The major objective of all Nepali missions must be to promote Nepal’s economic and commerical interests. For this, there is a need for an arrangement for the collection and analysis of commerical and market-related information, and to make the information available to exporters.

4. MOFA must give attention to subjects such as investment, trade and economic interest as part of regular human resource development and management capacity development programs. It is necessary to not only master negotiation skills on trade and economic affairs but to also be knowledgeable on these subjects.

5. Foreign investment has a major role in increasing trade. Increase in foreign investment inflows contributes to an increase in international trade. It is necessary for Nepal to enter into agreements on bilateral investment promotion and protection, and the avoidance of double taxation with countries from which foreign investment is expected. Such agreements can bolster investor confidence and provide assurance of investment protection.

6. In addition to posting capable officials at Nepal’s missions and providing them adequate budgets, their work performance objectives also need to be determined; this has to be monitored regularly for establishing accountability.

7. The process and basis for appointing honorary consuls abroad must be clear and transparent. They must be provided terms of references with activities for promoting economic diplomacy and trade, and performance needs to be monitored regularly. Arrangement must be made to mandatorily seek recommendation from MOICS on the appointment of honorary consuls.

8. It is necessary to adopt a strategy to effectively engage Nepalis living abroad in programs on export promotion and attracting foreign investments. A mechanism should be made for effective coordination among Nepal’s foreign missions, the Nepali diaspora and Nepalis abroad. 10 4.0 Labor, women empowerment and social inclusion This section mainly analyzes two subjects: (1) Labor market in the context of international trade, and (2) Women in trade and social inclusion. Labor market in the context of international trade Labor issues are often raised in international trade diplomacy as negotiating instruments or for restricting imports and protecting domestic industry. Some countries stress human rights of workers as a major issue. The subject of labor is not included in the WTO agreements and therefore this issue is not debated at the organization. But some countries, particularly in the EU that provide trade concessions to LDCs include labor- related conditionalities. Private standards and consumer awareness groups in international markets make inquiries on whether or not labor has been employed appropriately to produce goods. For instance, Nepal’s carpet industry had been affected by such questions. Therefore, not just the capabilities and productivity of labor, the treatment of laborers and labor welfare are important issues that cannot be ignored for competing in international markets. Only about one-third of Nepal’s employment is in the formal sector. A large proportion of workers are engaged in the informal sector. Every year about 500,000 people enter the labor market, of which a large proportion leaves for foreign employment. Nepal’s labor productivity is among the weakest in the world. Skills need to be developed for enhancing productivity. The government has adopted policies for skills development, it also has laws and institutional arrangements, but there is a mismatch on the skills development programs and those required by the market. Nepal’s major export products are sourced from industry, agriculture and forests. Laborers working in producing agricultural and forest-based products are largely employed informally. The technologies they use are also traditional. Farmers receive very little technical assistance. They face major losses because they lack appropriate skills on crop harvesting, collection, transportation and storage. The labor productivity in cottage and small industries is weak. Some export-oriented industries have made significant improvements in productivity and have given attention to labor welfare and industrial relations. But this is not widespread. The services sector also has large informal employment and overall, the capabilities of labor is weak. This is reason why it is necessary to adopt 4th and 5th generation industrial technologies for enhancing labor productivity and competitive capacity, and to have attangements to retain qualified laborers, formalize informal employment, guarantee labor rights, and provide them adequate social security. These are mandatory conditions for becoming competitive in international markets. Nepal’s Constitution has guaranteed the Right to Employment as a fundamental right and has enacted a law to assure this right. There is a provision for an information service to ensure access to employment. The national employment policy has prioritized building a capable labor market by making the Nepali labor force productive, dignified, and secure. The Labor Act, 2017 has provisions on the rights of workers, their welfare, facilities, industrial relations, workplace safety and social security. There are also provisions for inspection, regulation and skills testing. Labor productivity must be continuously enhanced to remain competitive in the market and for producing 11 NTIS 2080 quality goods and services. Along with organizing programs for enhancing labor skills for improving productivity, it is also necessary to stress the use of technology. It is necessary to match the market demand and trainings on skills enhancement. Because social security is another major factor that influences labor productivity, it is necessary to either provide similar social security to workers in the informal sector as provided in formal employment, or the informal labor market needs to be gradually formalized. It is necessary to start thinking about ratification of major conventions of the International Labor Organization (ILO), particularly those that are considered important by countries providing concessional market access to ensure that there are no barriers to entry in those markets in the future. Women in trade and social inclusion Gender equality is an important human right. It has been proven that women empowerment and inclusion of people from marginalized communities can make it possible to attain sustainable economic growth and development. Trade can bring improvements in the lives of women, and the continuously changing nature of trade can create new opportunities for women. Various studies have shown that women entrepreneurship is an important component of inclusive economic growth in developing countries. Nepal’s trade policies appear gender neutral, but in reality, they affect women and men differently. Generally, macroeconomic and trade policies do not take into account that women are discriminated in terms of capability when entering the job market and in benefit sharing. There have been legal and policy reforms to increase women’s access to services and resources since the beginning of the 21st century. But, the barriers that prevent the full utilization of economic capabilities of women remain. Nepal ratified the Convention on the Elimination of all forms of Discrimination Against Women (CEDAW) in 1991 and has committed to attain the Sustainable Development Goals (SDGs) by 2030. The Women Development Indicator has improved, and the goal is to raise it from 0.897 to 0.99 in fiscal year 2023/24. Women’s share of institutional employment in Nepal stands at 37.3 percent. The largest proportion of women (56.8%) are engaged in human health and the social service sectors. Their share in the financial and insurance sector is 44.8 percent. But the presence of women in the formal sector is only 30 percent. Women own 36.8 percent businesses and have managerial leadership in 29.6 percent organizations. However, most organizations led by women are small. Even though the policies for women’s economic empowerment are sound, the implementation is weak. Their access to resources and services and representation in decision making are also weak. Similarly, the knowledge and capacities of women entrepreneurs in trade-related matters remain weak. Women have different roles in business, as workers, consumers and entrepreneurs. But their share of the benefits generated is low and when the businesses face problems, they encounter the negative impacts immediately. The proportion of women workers in labor-intensive export industries is high. Industries hire women because they can put them to work at comparatively lower wages in order to enhance competitive capacity. Therefore, capacity must be enhanced for ending gender-based discrimination and for making women capable of securing more benefits. The agreements of WTO have not mentioned women or gender-related matters. But this issue has emerged in Minister-level meetings from time to time. The issue was first discussed openly in the 11th Ministerial Meeting in Buenos Aires leading to the issuance of Buenos Aires Declaration on Women and Trade. Following this, the WTO established an informal task group on women and trade. A related action plan has also been prepared on gender-friendly policy making, the position of the WTO on gender, research and analysis, and 12 NTIS 2080 for assistance in trade. The outcome of the 12th Ministerial Meeting of the WTO mentions additional work needed in the area of women and trade. The effects on women can be observed if trade policy is analyzed through a gender lens. Studies done in Angola, Bhutan, Cape Verde, Gambia, Lesotho, Rwanda and Uruguay on trade and the gender impact of trade policies have provided important lessons for policy making. The Organisation of Economic Cooperation and Development (OECD) has prepared a framework for analyzing the impacts of trade and trade policies on women. The framework covers three areas: first is measuring women’s employment, wages and other matters related to employment. Second is the evaluation of existing barriers faced by women-owned businesses in access to women, and women entrepreneurship. The third is assessing the impact of trade policies on prices faced by consumers, particularly women. The framework has also determined a list of areas that need to be examined for making trade policies gender-friendly. The preparation of NTIS included exploration of issues raised by stakeholders on the extreme negative impacts of trade on small farmers, small traders, and women, which this strategy has attempted to address. Regional trade agreements have addressed the subject of gender indirectly by raising issues related to human rights, SDGs, and vulnerable groups. In 2020, trade-related ministers from Canada, Chile and New Zealand signed a trade and gender arrangement and have established an inclusive trade task group. This task group also includes Mexico, Colombia and Peru. The WTO has also begun monitoring gender-related provisions in regional trade agreements by developing a database. As business persons, women and men face different challenges and barriers, or even similar types of barriers affect women and men differently. Nepal has made progress towards eliminating gender inequality in the economy. Both the National Economic Census 2018 and the Nepal Labor Force Survey 2018 collected and analyzed data to ensure information on gender. Still much remains to be done to ensure generation of disaggregated data on women’s economic participation. In a move towards an inclusive trade policy, the Industrial Policy 2010 made special arrangements for women entrepreneurs. The Industrial Enterprises Act 2016 has provisioned concessions to women entrepreneurs in industry, property registration fees and income tax. NTIS 2023 assessed the gender impact while determining goods for prioritization. A high proportion of the benefits from medicinal herbs, tea, carpets and pashmina goes to women. The impact of tourism on women is moderate. Several studies have shown that there are many barriers to women in business. Low access to credit, unsupportive market networks, low ownership of land, and low access to technology and raw materials are the major issues. The low risk-taking capacity of women, no access to modern technology, lack of individual security, sexual violence, tough competition in both domestic and external markets are other issues. Lack of disaggregated data have made it difficult to identify businesses run by women, while the social and cultural barriers remain as additional problems. Many women are unaware of trade-related regulations. Owing to the small size of businesses, limited capacities and lack of information on export processes women are unable to export their products. There are a limited number of women exporters. The following activities need to be undertaken to increase women’s participation in trade and to raise the proportion of their share of benefits:

1. Ensure harmonization of policies on trade, investment, gender equality and social inclusion. 13 NTIS 2080

2. Research the problems and challenges faced by women and marginalized groups engaged in trade. Research-based solutions must be included in the federal and provincial budgets.

3. In collaboration with social organizations working on women empowerment, disseminate information to women and discriminated groups, and enhance capacity of information dissemination on trade policies, laws, directives and working procedures.

4. Make disaggregated data generation and dissemination on women empowerment for trade and social inclusion effective.

5. Evaluate women empowerment and social inclusion in at least two areas identified by this strategy every year, and prepare clear indicators to measure women empowerment and inclusion in the production and export of prioritized goods and services, and

6. Establish a women empowerment and social inclusion cell in the NTIS implementation unit formed for implementing this strategy and a mechanism for assessing all activities under the dimension of social inclusion. 14 5.0 Trade infrastructure development and trade facilitation Trade infrastructure encompasses all the activities in the supply chain such as transport, customer services, stock management, information dissemination, storage management, transfer of goods, purchases, and packaging related infrastructure. The trade infrastructure industry has flourished in recent years owing to the developments in Information Technology (IT), consolidation of services, globalization, and legal requirements. Trade infrastructure is important for establishing linkages with the production network. Previous NTIS implementation and export promotion policies were unable to achieve desired results due to lack of trade infrastructure. Owing to the topography, a large proportion of export cost in Nepal is attributed to transport and trade infrastructure-related costs. For this reason, the competitive capacity of Nepali products is weak. Further, owing to the weak trade infrastructure, the domestic supply chain is also very weak, as result of which, many domestic products have not been able to compete with imported goods. In recent years there has been progress in Nepal’s customs procedures, trade infrastructures, quality, transport tracking system and delivery of goods. Nepal has moved 10 places up in the Logistics Performance Index and ranks at 114 among 167 countries. However, the producers of agricultural and forest-based products have to face many problems in transporting goods. Even though logistics are costs for both producers and consumers, as a sector it also contributes to GDP. Improved transportation systems can assist in the development of logistics and attract investment. If the products do not reach the markets, it is not possible to utilize natural resources at low costs. Logistics contribute 7.2 percent of GDP in Nepal, which is 11.8 percent lower than the global average. Telecom services are included in this contribution and if these services are excluded, the contribution of other constituents of the logistics sector is only six percent. The contribution of logistics in the Asia-Pacific Region is 12.6 percent. If the contribution of Nepal’s logistics sector can be raised to 12 percent at par with the global and regional contributions, it can provide significant support for expanding manufacturing and other industries. In addition that can also support in creating semi-skilled and unskilled employment, and contribute towards poverty alleviation and women empowerment. The situation of Nepal’s logistics requires analysis of the following sub-sectors: In March 2022, Nepal had 33,871 k.m. of strategic and local roads, of which about 50 percent was black topped, 24 percent gravelled, and 26 percent earthen. Roads had reached all district headquarters except Humla. Nepal has 53 airports. Thirty-four of these are operational and 15 have regular commercial flights. The Tribhuwan International Airport (TIA) handled 1.46 million (m) international passengers and 3.77 m domestic travellers in 2021. It also handled 29,514 metric tons (MT) of international cargo and 2447 MT tons of domestic cargo. Twenty-six international air services connect 23 destinations in the Asia-Pacific region and Europe from TIA. The construction of international airports in Bhairahawa and Pokhara have been completed. Located near tourism destinations, these two airports are expected to ease the air traffic in Kathmandu. Large aircraft cannot be used for domestic cargo, which explains the low use of in-country air cargo services. Air services are largely used for transporting humanitarian supplies. The TIA’s share of export trade is 15.3 percent. Sixty percent of exports from TIA are carpets, readymade 15 NTIS 2080 © Samson Film Production Dry Port at Chobhar, Kirtipur. garments and pashmina. The Raxaul-Sirsiya railway is used for transporting goods. This six km track connects Raxaul with the dry port in Sirsiya near Birgunj. Two tracks connecting Jayanagar and Janakpur (28 km) for passenger transport, and Jogbani and Biratnagar (for both passengers and cargo) have been completed with the support of the Indian government. There are plans for a rail line to connect the dry port in Chobhar, Kirtipur with India’s support. A pre-feasibility study has been done for connecting Shigatse in China with Kerung, and for extending the track to Kathmandu. The track from Kerung to Kathmandu will be 72 km. Some work has begun on the 1056 km East-West Electric Railway, for which environmental impact assessments are underway in some sections. Upon completion, this railway will ease domestic cargo transport. In 2018, during the visit of Nepal’s prime minister to India, an agreement was reached to connect Nepal and India through domestic waterways. India has been developing the National Waterway-1 on the Ganges River. Nepal has requested India for using its waterway. Upon agreement, Nepal will be able to use the waterway for export to third countries from India’s Sahibjung or Kalughat to Kolkata/ Haldiya. There are seven dry ports and one integrated customs check point in Nepal. Integrated customs check points are under construction in Bhairahawa, Nepalgunj and Rasuwagadi. Logistics service providers move goods both domestically and also for export and import. Cargo and customs agents provide support to facilitate trade. According to the 28 federations of truckers, there are 60,000 trucks in Nepal. There are 50 cold storages across the country with average capacity of 3000 MT for storing perishables such as potatoes, fruits, spices and vegetables. The Government of Nepal provides cold storages set up as agriculture industries up to 70 percent of capital subsidy and that for electricity charges, is 50 percent. 16 NTIS 2080 Nepal has trade and transit agreements with 16 countries. Meetings are held with India, China, Bangladesh and the USA from time to time. However, treaties with other countries have not been implemented, monitored, reviewed and revised to account for the requirements of the changed times. Similarly, Nepal has been unable to expand trade making use of the regional trade and transit agreements. The transit treaty comes in force when Nepal uses Indian ports for trade with third countries. Nepal’s Finance Act makes arrangements for Indian trucks to bring goods destined for Nepal. Accordingly, Indian trucks can operate in Nepali territory without any charges provided they return empty within 48 hours of entry. Nepali trucks can enter Indian territory only with permission from the Indian Embassy in Nepal. The Kakarvitta-Panitanki-Phulbari-Banglabandh route can be used for trade with Bangladesh. In the north, Nepali trucks have access up to the Chinese customs point at both Rasuwagadhi and Tatopani. A protocol has been signed under which Nepal can use four seaports and three dryports for trade with third countries in accordance with the transit treaty with China. But so far both sides have been unable to hold necessary talks, and therefore the Chinese transit route has not been used. An electronic cargo tracking system is being tested for making arrangements for trains departing from Kolkata and Vishakapatnam ports with Nepali cargo to directly arrive Birgunj in Nepal. Since transhipment facilities have been provided by India only to rail transport, this needs to be made applicable also to trucks bringing cargo to Nepal from Indian ports. Bangladesh, Bhutan, India and Nepal also have a motor vehicle agreement. But it remains to be implemented because Bhutan has not ratified the agreement. Some standards in the WTO trade facilitation agreement have been implemented to facilitate trade by shortening the delay in transporting goods from the customs points. The proposed Customs Act has made arrangements for complying with other standards. The bill has been in Parliament for over two years as a result of which expected progress has not been possible in trade facilitation. Nepal has installed automated customs processing at all customs points and there has been progress in providing all services through the single window system. There have also been improvements in transport, customs and dry port infrastructure. However, both export and import are still disrupted because of the shortage of adequate storage and cold storage facilities. The following are the challenges in trade facilitation: • Paperwork required and time taken for preparation: A lot of paperwork is required for some exports, and as result, it takes a long time to prepare the required documentation. Even though it is possible to send documents using an Internet-based system between Nepal and India, in practice hardcopies of documents are still in use. • Payment of charges and taxes: It is still not possible to make payment of charges and taxes at customs points electronically. In some cases, banks are located at a distance from the customs points. • Delays in clearing goods: Even today 60 percent of cargo is verified physically. In the absence of appropriate laboratories at the customs points it takes time (for clearance) of agricultural goods and food products. Clearance is also delayed because the customs points, other than the Integrated Customs Point, do not have quality infrastructure. • Inadequate trade infrastructure (logistics): The customs points lack adequate storage and appropriate holding facilities. Logistics services are also not fully developed. Many products are produced in different locations and their collection, storage, grading, primary processing and the transport to markets remain weak. The costs have increased because transport services are not consolidated and function as small businesses. 17 NTIS 2080 The following main activities need to be undertaken to reform trade logistics:

1. A master plan has to be prepared for reforming and managing trade infrastructure.

2. Standards need to be prepared for trade infrastructure.

3. There is need for clarity on non-transport trade infrastructure because apart from transport, the situation of all other trade infrastructure is weak.

4. Attention needs to be given to develop Postal Services for supporting digital trade, and for building capacity of logistics services providers. A Steel factory in ......... 18 6.0 Food quality standards and plant health, and quality infrastructure for industrial products, standards and implementation situation This section analyzes the quality infrastructure of food and agricultrual products, and industrial products, standards and the implementation situation. 6.1 Quality infrastracture, standards and implementation situation of food and agricultural products Agency for enforcing food hygiene and plant health The Department of Food Technology and Quality Control (DFTQC) is the agency tasked with enforcing standards on food and feed hygiene. In addition to the implementation of the Food Act 1966 and Feed Act 1976, the department also serves as the secretariat of the National CODEX Committee (NCC) and as the Sanitary and Phytosanitary (SPS) inquiry point. The NCC has formed four technical sub-committees and has, since 2013, been working in the harmonization of related standards and guidelines for meat and meat-based products, pesticide residues; inspection of export and import of tea, coffee, spices and food products. The Plant Quarantine and Pesticide Management Centre implements the Plant Quarantine and Protection Act, 2007; Plant Protection Act, 1972 (revised 2007) and Regulations 2010 and Pesticide Management Act,

2019. This Centre also serves as the Secretariat of the National Plant Protection Organization and as the contact point of the international organization. This Centre is the Designated National Authority for Pesticides (DNA-P) of the Rotterdam Convention. The Department of Livestock Services implements the Livestock Health and Livestock Services Act, 1988 and is the focal point for the World Livestock Health Organization. Nepal’s food hygiene and plant health system remains to be fully developed. Food control is primarily centred on quality standards and the attention on food hygiene has been lacking. The capacity for measuring all food hygiene parameters and certification have not been developed. Frequent transfer of staff from agencies and laboratories on food hygiene and plant health, inability to identify harmful pests on time, and inadequacy of technical capacity for controlling rampant use of harmful pesticides are some of the problems faced. Even though there has been no periodic assessment of the country’s food hygiene and plant health system, some international agencies have assisted in capacity enhancement through infrastructure development and trainings. Weaknesses of the hygiene and plant health system The following are the weaknesses associated with the inability to fully comply with the WTO standards on hygiene and plant health: • Incomplete enforcement of all standards on livestock health, harmful pesticides, pests and food hygiene. • Inadequate motivation of the private sector to participate in regulated formal trade. • Low capacity of government mechanisms and associated staff on the implementation and monitoring of hygiene and plant health standards. • Lack of a scientific system for information collection, analysis and information dissemination on high 19 NTIS 2080 risk diseases, pests and risks related to hygiene. • Inadequate attention on food hygiene and the disproportionate focus on quality standards. • Frequent transfer of staff from hygiene and plant health laboratories. • Lack of protocol for import inspection. • Inadequate laboratories for plant quarantine and quarantine after entry, and • Low capacity for testing harmful pesticide residues, residues of medicines used to treat livestock, metals and other pollutants. Review of implementation of hygiene and plant health related laws The Plant Protection Act, 1972 (revised 2007) and Plant Protection Regulations, 2010 came into implementation after Nepal’s entry in the WTO. Nepal has identified 254 pests that affect 18 crops. Thirty-three national standards and domestic quarantine directives have been prepared. Further, 18 national standards have been prepared based on 44 international standards. A survey and surveilliance program is underway to make areas under citrus fruit cultivation pest-free. The Food Act, 1966 and Food Regulations, 1970 provides the DFTQC authority for verification, inspection and surveillence. So far 135 standards for different food products have been prepared. These standards excessively focus on quality and there is inadequate attention on hygiene. The Central Food Laboratory has accreditation for testing 101 food quality parameters but does not have similar capacity for food hygiene. The policy and legal mechanisms for food hygiene remain weak. Animal Health and Livestock Service Act, 1998 and Rules 2000 have given authority for promoting and monitoring livestock health, and hygiene of meatbased-products to agencies under the Department of Livestock Services. Businesses producing livestock feed and, in food processing, can operate only with permission from this department. To prevent the spread of diseases while transporting livestock, there are four in-country checkposts, and another 25 checkposts at border entry points. Plant, livestock and food quarantine come under the jurisdiction of the federal government. But provinces and local governments can enact and enforce laws on livestock and food hygiene, standards, technology and nutrition in their jurisdications. In fact, classification of hotels and restaurants, inspection and public awareness programs on food hygiene will need to be done by local governments. The private sector has an important role in promoting food hygiene and plant health. The most affected are small farmers who lack information on food hygiene and plant health, and have poor access to technical support and laboratories. Many organic goods produced by small farmers can get good prices in both local and international markets. But, what is lacking is an institutional agency to provide them organic certification. Comparative situation of food hygiene and plant health of trade partner countries There is no harmonization in food hygiene and plant health standards between Nepal’s major trade partner countries India, China and Bangladesh. There are no bilateral or multilateral agreements for mutual acceptance of food hygiene, quality and pest-free certifications. The inability to demonstrate the capacity of quality infrastructure to win confidence is why such agreements have not been possible. Many Indian and Chinese companies make their own standards (private standards) the basis, and there have been problems exporting products because of the inability of Nepali exporters to meet such standards. It is not an easy task to collect agricultural and forest-based products in small quantities and assure consistent 20 NTIS 2080 quality. Because large volumes of goods are transacted in large markets, it is difficult for Nepali exporters to supply quality goods. Developed countries consider tracebility, hygiene certification, limits of pesticide residues, pest-free products, elimination of pests through acceptable processes, testing by certified laboratories and good agricultural practices and other matters, which is why it has become difficult for Nepali exporters to access markets. Not just products, the hygiene of packaging materials are also important. Nepal has not initiated the tracability system. This is why MOICS is building a traceability software for orthodox tea produced in Ilam. Even though some attention has been given to the hygiene of products, it has not been the case for packaging materials. Tasks that need to be done on food hygiene and plant health: • It is necessary to upgrade the hygiene and plant health quarantine facilities and laboratory in Kathmandu, and that at the integrated check point in Birgunj. • The quarantine and fumigation station at the dry port in Kirtipur needs to be brought into operation with facilities for fumigation using methyl bromide. • It is necessary to build post-entry quarantine and plant health testing facilities in Nepalgunj, Bhairahawa, Birgunj, Biratnagar and Kakarvitta. • Nepal’s laws and work procedures need to be amended because international standards, CODEX, the International Plant Protection Convention (IPPC) and livestock related standards of the international organisation on livestock health are regularly updated. • It is necessary to provide attention to systems, infrastructure and human resources development at agencies related to hygiene and plant health. • Many protocols on necessary hygiene and plant health required for international trade remain to be prepared, and development of these needs to be initiated. • Immediately expand the quarantine block at the integrated check post in Birgunj because the existing facility is inadequate for providing all three types of quarantine services. • It is necessary to expand capacity of plant and livestock health laboratories owing to their limited quality and standard, and because of the absence of certified labs in Nepal to expand capacity for quality certification of many types of products and hygiene. Further, the laboratories at the DFTQC need to be made capable of verifying all parameters. • It is necessary to make the survey and surveillance of prioritized crops effective and to prepare a national hygiene database; capacity to disseminate information electronically needs to be developed for assessing the risks associated with harmful pests. • Regular meetings must be held with national hygiene and plant health organizations in India and China on hygiene and plant health. • It is necessary to conduct laboratory tests of export goods, particularly tea, coffee, food products, cardamom, ginger, medicinal herbs, citrus fruits, and vegetables and to analyze harmful pests and traceability. • It is necessary to increase the confidence on the system by conducting conformity assessment as per international good practices. It is also necessary to accreditate labaratories by establishing internationally recognized Nepal Accreditation Center. • Even if the food standards developed by the DFTQC are said to be in accordance with CODEX, because some harmful chemicals and pollutants have not been included and they could be imported, those harmful materials need to be included in the standard. • It is necessary to organize programs to raise awareness on the process, importance, and agencies 21 NTIS 2080 related to hygiene and plant health because a majority of producers and exporters are unaware about the need for, and the quality standards, and have not been able to comply with the same. • It is necessary for provincial governments to identify their role in hygiene and plant health, and they need to be provided with authority to eliminate plant and livestock diseases, pests, and for testing. • Facilitate exports by entering into mutual recognition agreements. • Enhance capacity of farmers to produce quality exportable products. • Stress the full implementation of Slaughter House and Meat Inspection Act, 1999 (2055). 6.2 Infrastructure for quality industrial products, standards and implementation Infrastructure for quality industrial products has been stressed by all trade integration strategies. Previous efforts had resulted in enhanced capacity for testing products and chemicals. The chemical testing laboratory has been certified for testing 82 parameters of 11 products. The calibration laboratory has also been certified. The certification includes 13 areas of 11 products; the scope for process certification covers seven areas. A handicrafts testing laboratory has been established under public-private partnership; the Accreditation Act, 2022 has been approved and is being implemented. A draft bill has been preared for updating the Nepal Standard (Certification Mark) Act, 1980 (2037). The Industrial Policy 2011 has stressed the enhancement of quality infrastructure for increasing competitive capacity and promoting exports. It focuses on developing the Nepal Bureau of Standards and Metrology (NBSM) as an agency for quality certification and monitoring of all products other than medicines and food products. However, a quality policy and laboratory policy for addressing all aspects of quality of industrial activities remain to be formulated. Situation of quality related institutions and services The NBSM is the regulatory agency for assuring quality of industrial products. Its services cover three areas: Development of quality standards, uniformity evaluation and metrology. Since 2014 NBSM has been a member and National Metrology Institute (NMI) of the International Metrology Organization. Since 2001 it has been a member of the International Electromechanical Commission (IEC) and has been a member of the South Asian Regional Quality Organization since 2009. NBSM has been the national metrology agency, and since 1982, it has been a member of both the Asia-Pacific Metrology Program and the International Organization of Legal Metrology (IOLM). The NBSM has prepared about 100 national quality standards. It certifies products, production processes and a limited number of management-related issues. It does not certify the capacity of individuals and needs to develop and expand additional standards and certification. The NBSM is a participant or observer member in 10 technical committees of the International Metrology Organization and has been participating in the development of standards of the South Asian Regional Metrology Organization. The NBSM has nine testing laboratories for building and construction materials, chemicals and food products, microbiology, electrical, pipe testing, textile, leather testing, mechanical and metrology. Earlier the NBSM had been recognized for testing 82 parameters of products, which has now come down to 76. It also has recognition for certifying mass, volume and temperature. Since it is the NMI, it undertakes legal, industrial and scientific certification of weights and measures. But the NBSM does not have the necessary capacity for evaluating uniformity of industrial weights and measures required for international trade. The DFTQC monitors and controls the quality of food products. For three decades, the department has been the contact point for CODEX. The Department of Drug Administration (DDA) is the regulatory body for pharmaceutical drugs. It regulates pharmaceutical and the nutraceutical ingredients. The DDA laboratory 22 NTIS 2080 remains to be accredited. The Department of Plant Resources (DPR) laboratory has accreditation for identifying and certifying nine parameters of medicinal and aromatic plants (MAPs). Comparison of quality infrastructure with other countries At the international level, work related to weights and measures are responsibilities of two agencies. The International Weights and Measures Bureau has been established under the Metre Convention. The International Metrology Organization was set up in 1955 for establishing necessary legal weights and measures for international trade. Both India and the USA have policies on standards, and infrastructure has been built based on the policy. The American National Standards Institute (ANSI) is a non-governmental organization and it represents the US government in the International Organization for Standardization (ISO). The American Society for Testing and Materials sets standards for various materials, products, systems and services. The National Institute of Standard and Technology (NIST) under the US Commerce Department undertakes scientific metrology, legal metrology, accreditation and standards. The National Standards System Network develops technical standards, produces, and distributes them and organizes the users in an electronic network. The Bureau of Indian Standards (BIS) is a government agency. In addition, India has agencies under different ministries that develop standards. For weights and measures it has a National Physical Laboratory. India’s Atomic Research Centre works on matters related to radiation. The certification is done by the Indian Quality Council which has five independent boards. The Indian Standards Bureau does uniformity evaluation. Like India and the USA both the EU and China have policies on standards. They have regulatory bodies based on the policies. The review of international standards infrastructure suggest that the following are mandatory for effective quality infrastructure: • A National Standards Policy and its implementation • Establishment of a technical regulatory mechanism and its operationalization • Accreditation/ certification • Standardization • Metrology • Uniformity evaluation • Promotion and use of standards Nepal has not formulated a policy on standards. The NBSM, as member of the ISO, is the agency that does technical regulation. The NBSM has both functions, establishment of standards, and regulation. It is necessary to have separate agencies for setting standards and regulation. The law needs to be amended for building institutions under agreements on non-tariff barriers and hygiene and plant health. The Accreditation Act, 2022 has been enacted and it is necessary to establish the Accreditation Centre as provided in the law. The NBSM is responsible for standards for all weights and measures. Much remains to be done in the area of industrial weights and measures. Testing and uniformity evaluation of goods, procedures, systems, individuals or institutions under ISO/IEC 17000 is weak. Nepal has not been able to undertake work similar to that done by international organisations such as IEC. Many countries have institutional arrangements for promoting standards, awareness building and trainings. In Nepal, it is also necessary to organize a national campaign to raise awareness about standards among stakeholders. National committment to standards can assist in winning the trust of trade partners. 23 NTIS 2080 Analysis of capacity of quality infrastructure The strengths, weaknesses, opportunities and challenges of Nepal’s quality infrastracture is given below: SWOT analysis of quality infrastructure Strength Weakness ŒŒ Nepal Standards (Certification Mark) Act, 1980 (2037) ŒŒ Absence of Quality Policy and accreditation bodies ŒŒ Nepal Standard (Certification Mark) Regulation, 1983 ŒŒ Laws related to QI (Standard and Metrology acts) not up to (2040) date ŒŒ Accreditation Act, 2022 ŒŒ Limited number of national standards ŒŒ Good pool of technical professionals ŒŒ Limited metrology services and testing facilities ŒŒ Accredited chemical lab on 76 testing parameters and ŒŒ Limited accredited testing parameters’ management accredited product certification for 13 products system certification services ŒŒ Accredited QMS certification based on ISO 9001:2015 ŒŒ Poor awareness level about quality among stakeholders ŒŒ Accredited calibration services in mass, volume, (public, private and consumers) temperature ŒŒ Standards development as well as regulation activities ŒŒ Promotion of 52 voluntary standards for NS within same organization certification ŒŒ Lack of coordination and synchronization among different ŒŒ Regulation of 15 mandatory standards government agencies to support potential export products ŒŒ DFTQC’s lab accredited for 101 food testing parameters ŒŒ Insufficient human resources and physical infrastructure at ŒŒ DDA’s lab in process of accreditation government laboratories ŒŒ DPR’s lab is accredited for 9 MAPs testing parameters ŒŒ Government working hours not uniform for laboratory services ŒŒ Lack of sector specific infrastructure development (e.g., Eastern Nepal for tea, Bhairahawa for lentil, etc.) Opportunity Threat ŒŒ Strengthening of institution and QI services within the ŒŒ Nonfulfillment of commitments and obligation under framework of TBT for export promotion multilateral trade agreements ŒŒ Increased access to international markets ŒŒ Non-recognition of conformity assessment results ŒŒ Mutual recognition of conformity assessment services ŒŒ Frequent transfer of competent professionals with some trading partners ŒŒ Challenge to sustain the success made on conformity ŒŒ Use of standards and technical regulation of trading assessments (testing, inspection, certification, and partners in area of trade interest calibration) ŒŒ Value addition with national QI services in product ŒŒ Insufficient investment to upgrade national quality value chain infrastructure services Actions required in the area of industrial product quality, infrastructure and standards

1. Need for a national quality standards policy for enhancing public-private partnership on quality standards.

2. Need for amending the National Standards (Certification mark) Act, 1980 (2037) to ensure it supports international trade.

3. Need to review/ update the Standard Measurement and Weight Act, 1968 and enact a new law.

4. Establishment of Accredidation Centre in the context of the enactment of the Accreditation Act.

5. Need to initiate standardization and implementation of quality of products traded internationally to include labelling, packaging, storage and transport.

6. Need to include voluntary sustainability standards in the national quality infrastrucure for facilitating international trade.

7. Need to establish training centre for enhancing the capacity of the private and public sectors on and for increasing awareness of standards and quality management.

8. Establish information and facilitation centre for providing information and support to producers and 24 NTIS 2080 businesses on non-tariff barriers, and requirements for specific products.

9. Organize regular training and awareness programs for producers and businesses using means such as existing standard map, trade map, market intelligence process, Labnet, etc.

10. Undertake reforms based on international practices as the existing quality infrastructure is not up to the requirements for international trade, and also in the context of both standard setting and regulation by the same agency.

11. Need to make efforts for recognition of uniformity testing results in importing countries, and to work towards entering into mutual recognition agreements in the bilateral and regional levels.

12. The regulatory agencies and individuals in business have suggested the need for certification of persons; therefore make arrangements for skills/ capacity certification to make it equivalient to ISO 17024 for professions like auditors, environmental inspectors, food inspector, compliance manager, energy manager, health and safety engineer, welder, electrician, beautician, nurse, consultant, trainer, vehicle inspector and mechanic. 25 7.0 Supportive regulatory environment for investment Both foreign direct investment (FDI) and technology are required for accessing international markets. Studies in 66 countries, covering three decades, have confirmed that FDI and international trade are strongly interrelated. FDI flows increase when there is a sound macroeconomic policy and institutional stability, and the ability to bring investment can benefit the country over the long term. Nepal has recognized the importance of FDI and has made various reforms in efforts towards building an investment-friendly environment. Even though a study by a United Nations agency has suggested further room for reforms, it concluded that the review and updating of investment related laws, simplification of administration, strengthening of agency responsible for promoting investment, access to finance and foregin currency, simplification of taxation, and the establishment of SEZs have been positive developments. According to the World Investment Report 2021, in 2020 there was a 35 percent decline in FDI owing mainly to the COVID-19 pandemic. Investment increased in 2021. However, the investment in developing countries has remained low while that coming to LDCs has been minimal. The actual FDI that comes in is also much lower that the committments. In Nepal, much of the FDI has gone to industries, mining and hydroelectricity. Similarly, much of the FDI has been invested in Bagmati Province while it is the least for Karnali and Sudurpaschim provinces. Since concessions available to Nepal in international trade will be gradually phased out after LDC graduation, it is important to promote FDI. Foreign investment is also necessary for raising the required financial resources for attaining the SDGs. Reforms required for promoting foreign investment The reforms undertaken in the past are indeed praiseworthy. The additional reforms below can further improve the environment for foreign investment. Increased investment can help in reducing the dependence on remittances and make it possible to benefit not from concessions, but from international trade.

1. Minimum threshold for FDI: The past provision requiring a minimum FDI of NPR 50 million was reduced in fiscal year 2022/23 to NPR 20 million. But there are many important types of FDI where technology, management and the benefits that can be derived from international market networks are more important than financing. Therefore, there is need for openness in thinking about FDI and this threshold must be reviewed based on the needs.

2. Entry of investors: The Foreign Investment and Technology Transfer Act, 2019 has provisions for approving FDI within seven days of application. However, this is rarely complied. It is necessary for undertaking administrative reforms and use digital technology to ensure that approvals are done automatically, as provided in the law.

3. Exit of investors: Existing law has made it easier for investors to sell ownership and separate themselves from businesses. But it is not easy for foreign investors to exit. There is a long process not only for repatriating the sale proceeds but also the dividends. Even though it is important to account for the immediate pressure on foreign reserves, allowing repatriation of dividends up to a certain limit following presentation of reasonable documentation through the automatic process can improve the investment climate.

4. Automatic route: Existing laws require mandatory prior approval of FDI from the concerned agency in areas where investment is allowed. The law also has provisions for an automatic route for particular FDI, company and industry registration but these have not been implemented. It is necessary to 26 NTIS 2080 © Huwasin Cement A cement factory in Dhading district. A hydropower project in Okhadhunga district. amend the laws to remove the provision that requires prior approval to allow industry and company registration through the automatic route.

5. Lack of digitization: Some agencies have introduced online applications but the requirement to submit documentation physically also exists. Hence, it is necessary for all agencies related to investment to be fully digitized.

6. Requirement to bring FDI by specific time period: FITTA 2019 has provided a timeline for bringing in investment after it is approved. It has fixed installments based on the total investment volume. 27 NTIS 2080 This provision does not match with the timeline of the investors. Hence, it is appropriate to allow companies to bring in investment based on their capital needs and in the timelines they have prepared.

7. Reinvestment approval: FITTA 2019, section 15 (3) has provisions specifying that no re-approval is required for a FDI company to invest profits generated in the same industry, or to expand capacity, or to invest in a new business not on the prohibited list. But in practice, the Department of Industry (DOI) seeks the investment approval. Hence, it is necessary to ensure consistency in law and practice.

8. Applicability of multiple laws: There is no coherence between multiple laws on investment promotion. Even investment approval in some situations is done by the DOI and in other cases by the Investment Board Nepal. It is appropriate to provide investment-related government services through one agency through which all investor requirements are met, rather than scatter the services.

9. Investment by Non-resident Nepalis (NRNs): FITTA 2019 treats NRNs as foreign investors. It has provisions requiring NRNs to comply with the same provisions for bringing FDI. It is inappropriate to set an investment threshold for NRNs. There is also lack of clarity in the laws for NRNs to invest from the property they own in Nepal.

10. Limit on investment through foreign loans: There is some contradiction and lack of clarity in the FITTA and the regulations related to FDI of the Nepal Rastra Bank (NRB). The law mentions the foreign loans and projects loans of a company but there is no clarity. Hence, it is appropriate to keep all foreign loans, other than that obtained by approved projects and project loans under the jurisdiction of NRB regulations.

11. Repatriation of FDI: A foreign investor can repatriate funds only after paying all creditors in Nepal, and provided the investor is not on the black list. This eliminates the right of foreign creditors to be paid first. A good business environment can result by allowing investors to repay loans from foreign banks in accordance with the conditions in the loan agreement.

12. High collateral costs: The collatoral cost for registering foreign loans is much higher than the cost of registering loans obtained from local banks. Hence, it is appropriate to lower this cost.

13. Use of land above the ceiling as collateral: The Industrial Enterprise Act bars using land for collateral even if an industry had been provided approval for purchase or use of the land that is above the ceiling. Because of this it can become difficult for industry to generate the required finance. Therefore, it is necessary to devise an appropriate alternative for allowing the use of the land as collateral. Intellectual property for export promotion International trade will be affected if intellectual property is not protected. Because Nepal has not been able to adequately protect intellectual property, businesses based on such property have not been able to prosper. Nepal ranks 111 among 132 countries that use new technology for production. There are also grievances that the market has an abundance of counterfiet products. In many instances companies and organizations whose intellectual property has been misused have not even able to get justice. Nepal, as a LDC, receives some concessions on intellectual property, which will gradually be phased out after graduation. The Patent Design and Trademark Act, 1965 has been enforced for protecting industrial property. This law is very old and, even though there is a new Intellectual Property Bill, it remains to be enacted. The following actions need to be undertaken for building an environment where intellectual property is protected:

1. Include the following in the definition of intelletual property: a. Copyright b. Patent c. Trademark, service mark, collective mark d. Industrial design 28 NTIS 2080 e. Trade secret f. Business/ trade packaging (Specific cover to differentiate packaging or products) g. Traditional knowledge

2. Nepal needs to ratify the agreement related to the Madrid System for registration of trademarks internationally. Through this it will be possible to get protection for intellectual property with one application and a one-time fee in 123 countries.

3. It is necessary to participate in the Patent Cooperation. At present 156 countries are members of this treaty. Upon entering this treaty, companies can register patents in one country and obtain protection in 156 countries.

4. The government needs to make efforts to ensure that patents and intellectual property of exporters are protected.

5. The bill on intellectual property needs further updating to address the following issues: a. The bill is silent on building a digital storage of patents and designs; therefore, if such a database exists, including the provisions can make it easy to search for the same. b. It is appropriate to include “Use of existing product in different ways or presenting the products in new ways without increasing the product capacity with knowledge” will not be issued patent to further clarify the provision on situations where patents cannot be obtained. c. The provisions relating to the trademark rejection can be easy to implement if it is categorized into objective and subjective categories. d. The bill has provisions for compensation for violation of intellectual property by anyone; since repeat offenders can pay compensation and be absolved it is appropriate for including a provision for banning such violators. e. It is appropriate to remove the provision for a Intellectual Property Review Committee because the arrangement is not just. f. It is appropriate to shorten the time for the registration of intellectual property as a long process can discourage registrations. 29 8.0 Use of 4th and 5th generation industry concepts Networks, robots, artificial intelligence (AI) and data availability are increasingly used in production systems of the fourth generation. Such systems can lower production costs, increase efficiency and help towards ensuring consistent product quality, allowing goods to be delivered when demanded by buyers. As result, storage costs are almost zero and production losses can be reduced. A lot of data collection and analysis is done in this system. People and machines work together and production is flexible and need-based. The 4.0 generation system involves high use of intellectual property. It is necessary to provide attention to six main subjects for applying the fourth generation industry system (Industry 4.0): Internet of Things (IoT) must be capable of coordinating and cooperating with each other. A lot of things are virtual and make use of sensors and data. Main production decisions are decentralized and automated. Everything occurs in real time. The entire system is focused on service. The factories can also be immediately expanded or shrunk. The fifth generation system (Industry 5.0) is under development. Some industries have begun using Industry 5.0 technologies. Fifth generation industrial technology focuses on efficiency and productivity, for which AI, machines and humans collaborate. Nepal’s industry is still based on first and second generation technologies. Surveys show that some industries seek to move to fourth generation technologies. However, owing to inadequate capital and technical services for building infrastructure, many industries have been unable to move towards Industry 4.0. If start-ups are encouraged, they can bring novelty to industry systems and progress can be made towards Industry 4.0. and 5.0. There is a government policy to encourage enterpreneurship through a challenge fund for supporting start-ups. But for lack of effective implementation, start-ups have not flourished as they have in other countries. Both Industry 4.0 and 5.0 technologies require quality IT infrastructure and services. This is a prerequisite. Nepal has made progress in the area of IT. However, big data networks and interfacing, and mutual automated machine-to-machine communication remains to be developed. The most important requirement – a strong legal and institutional infrastructure – does not exist. Need for 4.0 and 5.0 generation industrialization It is mandatory to start working towards Industry 4.0 and 5.0 for competitively increasing exports in the international market. It is impossible for new products and services to be competitive in international markets without adopting new technology. In addition, it is necessary to stress Industry 4.0 and 5.0 mainly for the following reasons: • Promotion and development of digital trade: Digital trade is appropriate for making trade cost- effective and efficient between Business to Business (B2B), Business to Consumers (B2C), Consumers to Consumers (C2C) and Consumers to Business (C2B). It will be easy to take Nepali products to international markets through e-commerce, as the capacity to disseminate information in target markets develops before digital transactions. There has been some progress in digital trade in Nepal but problems and obstacles remain. A bill on e-commerce has been prepared but a law remains to be enacted. The main obstacles are those that occur before transactions, such as reliable Internet reach, IT infrastructures, capacity of IT, problems related to transactions, payment system, law on recognition 30 NTIS 2080 of digital transactions, and obstacles after transactions – delivery infrastructure and delivery services- related obstacles. • Supply chain management: The main basis of Industry 4.0 and 5.0 are supply chain management. Interconnectivity through sound IT systems lower overall costs of supply chains, and consumers can receive preferred products at the preferred time. Automated storage facilities with smart logistics and augumented reality are important components of the supply chain. Similarly, use of technologies such as the global positioning system, automated identification process, smart sensor, vehicle telematics system and radio frequency identification are requirements for modern supply chains. • Amendment in the Information Technlogy law: Embracing the new developments in IT, a new bill has been drafted and tabled in parliament for making IT-enabled transactions and services automated, trustworthy and reliable to replace the Electronics Transactions Act, 2008 (ETA) that is now in force. This bill has remained in parliament for a long time but remains to be enacted. This will be an important law for Industry 4.0 and 5.0. Analysis of Nepal’s efforts towards Industry 4.0 The following is a brief capacity analysis of Nepal in relation to Industry 4.0 and 5.0. Table 9.1: SWOT analysis: a step towards industry 4.0 Strength Weakness ŒŒ Proactive policy framework ŒŒ Poor Infrastructure and lack of standards ŒŒ Low labor costs, dedicated, and English-speaking human ŒŒ Lack of digital skills among workers resources ŒŒ Lack of clarity regarding economic benefit ŒŒ High speed data communication (HSDC) being planned ŒŒ Lack of internal digital culture and training in ŒŒ Appropriate climatic condition organizations ŒŒ Cyber law (ETA 2008) already enacted ŒŒ Issues with receiving payment in foreign currency ŒŒ Digital Nepal Framework, 2019 (2076) ŒŒ Lack of IT research ŒŒ National IT Policy, 2016 (2072) ŒŒ Weak cyber security and data management ŒŒ The National Strategy on Development and Use of ŒŒ Insufficient funding and weak partnerships E-commerce in Nepal, 2019 (2076) ŒŒ Satellite Policy, 2020 (2077) Opportunity Threat ŒŒ IoT-enabled features make it possible to monitor use, ŒŒ Ensuring data quality and after use ŒŒ Change management to address disruption in work ŒŒ Increase life of machinery based on monitoring and nature predictive maintenance ŒŒ Lack of established procedures to evaluate intellectual ŒŒ Informed fact-based design decisions to improve utility property of products ŒŒ Prospects of FDI in implementation of Industry 4.0 ŒŒ Possibility of smart and sustainable value-chain/ supply- chain development Actions required for promoting 4th and 5th generation industrialization

1. Updating laws: It is necessary to enact the IT law and before enactment, the ETA 2008 needs to be amended for more clarity. a. ETA Section 23 requires “consent” of concerned individual to collect information/ data; for clarity of consent it is necessary to provide the conditions for the consent. b. Need to fix time for informing the concerned individual in situations where data has been misused (breached). c. Localize data or make it mandatory for personal data collected to be stored in local servers, and to require permission from regulatory authority for situations where such information has to be 31 NTIS 2080 stored abroad. d. The law allows amendment in personal information with public agencies but there is no legal provision on making it possible for individuals to review, amend and remove their information from data with private agencies; this provision needs to be included. e. Need to make arrangements for a technology testing and information security officer in accordance with good practices for information security and regulation. f. The regulatory agency needs to differentiate and clarify between information controller and data processor because in certain situations joint control is also required. g. Because simple and reliable technologies are available, it is necessary to simplify existing legal procedures and also clarify the understanding of digital signature.

2. Formulate and implement Industry 4.0 related strategy.

3. Formulate and implement plan on Industry 4.0. in all provinces.

4. Develop and implement program for Industry 4.0 technology innovation management.

5. Build national and local data depositories and reporting/ recording centres.

6. Develop research and development centre for Industry 4.0.

7. Develop systems related to Industry 4.0 and ensure interfacing with the central system.

8. Develop digital modelling.

9. Purchase necessary equipment and systems for Industry 4.0

10. Develop national payment gateway.

11. Develop national and international information exchange system.

12. Provide industry administration-related services through automated system.

13. Develop IT solutions centre and systems, and strengthen the IT Department.

14. Develop system for analysis and use of Industry 4.0 related data.

15. Organize trainings and capacity building programs on Industry 4.0 and 5.0.

16. Reform policies and laws for building a sound business environment, and for easing development of start-ups. 32 9.0 Development of priority products for export Nepal’s total trade has been growing, owing largely to the increase in imports. But Nepal’s competitive strength has been continuously deteoriorating. Before 1980, Nepal mainly exported primary products. After economic liberalization, industrial products have also been exported. These exports went mainly to India and some South Asian countries. In recent years, export of processed agricultural and forest resources as industrial goods to Western countries has been increasing. Most medicinal herbs are exported to India in the primary state. Readymade garments were a major export while the multifibre agreement remained in force, and carpet exports had increased. But owing to certain weaknesses, the increased exports of carpets could not be sustained. Sometimes, export of products that can result in benefits from duty differentials have increased at high rates and have shrunk when duty benefits were removed. The table below provides the 45-year trend in export: Table 10.2 Merchandise exports of Nepal (in NPR million) Fiscal Years 1974/75 1984/85 1994/95 2004/05 2014/15 2019/20 2020/21 517.5 992.1 1562.7 6993.5 20209.04 16878.76 24208.59 Food and Live Animal (58.17) (36.2) (8.86) (11.91) (23.69) (17.27) (17.15) 0.4 5.0 11.3 31.6 2346.7 184.83 248.31 Tobacco and Beverages (0.04) (0.18) (0.06) (0.05) (2.75) (0.19) (0.18) Crude Materials, Inedible Except 213.3 486.8 485.5 881.6 3274.19 3459.58 4447.71 Fuels (23.98) (17.76) (2.75) (1.5) (3.84) (3.54) (3.15) 1.5 1 0 4.2 0.14 0 0 Mineral, Fuels and Lubricants (0.17) (0.04) (0) (0.01) (0) (0) (0) 2.4 57.1 214.1 5070.3 111.23 31196.88 55959.12 Animal and Vegetable Oil and Fats (0.27) (2.08) (1.21) (8.64) (0.13) (31.93) (39.65) 0.9 1.2 302.3 3677.6 4872.62 4018.66 5880.91 Chemicals and Drugs (0.1) (0.04) (1.71) (6.26) (5.71) (4.11) (4.17) Manufactured Goods Classified 28.1 649.1 9260.3 28590.6 41078.4 31025.93 37258.87 Mainly by Materials (3.16) (23.68) (52.5) (48.7) (48.15) (31.75) (26.4) 2.1 33.7 37.1 207.6 386.19 937.16 842.35 Machinery and Transport Equipment (0.24) (1.23) (0.21) (0.35) (0.45) (0.96) (0.6) 111.3 513.4 5765.8 13239.6 13040.52 10007.31 12276.85 Miscellaneous Manufactured Articles (12.51) (18.73) (32.69) (22.55) (15.28) (10.24) (8.7) Commodity and Transaction not 12.1 1.2 (0.04) 0.1 (0) 9.1 (0.02) 0 (0) 0 (0) 1.36 (0) Classified According to Kind (1.36) 889.6 2740.6 17639.2 58705.7 85319.08 97709.11 141124.08 Total (100) (100) (100) (100) (100) (100) (100) Source: Nepal Rastra Bank, 2022) (Numbers in the parenthesis are percent share) Main trade partners Nepal’s main partners in international trade, and the changes that have occured in their share is provided in the table below. In the 5-6 years after economic liberalization, the share of India had decreased to 20.4 percent and now it is 69 percent and the share of trade with developed countries has decreased. The main reason for this is the gradual loss of developed markets for the inability to use new technology, and the ease of doing business with India under the trade treaty. 33 NTIS 2080 Table 10.3: Change in share of Nepal’s exports to major trading partners Major Trading Partners 1996 2020 India 20.40% 68.73% US 29.08% 10.25% Germany 34.61% 2.95% UK 1.48% 2.31% France 0.90% 1.26% Japan 0.40% 0.97% China 0.00% 1.89% Others 13.12% 11.64% Total 100.00% 100.00% Export Concentration Index 0.26 0.50 Source: Trade Map, ITC Export Concentration Index of some products Agricultural products have high density in the index. The destinations for these products are India and Bangladesh. Table 10.4: Export Concentration Index of selected exports of Nepal HS-4 Product Details Export Concentration Index 5509 Yarn of synthetic staple fibers (excluding sewing thread and yarn put up for retail sale) 0.64 5701 Carpets and other textile floor coverings, of textile materials, knotted, whether or not 0.32 made 0908 Nutmeg, mace, and cardamoms 0.99 0902 Tea, whether or not flavored 0.83 5310 Woven fabrics of jute or of other textile based fibers of heading 5303 1 2009 Fruit juices, incl. grape must, and vegetable juices, unfermented, not containing added 1 spirit, 1404 Vegetable Products 0.84 5702 Carpets and other textile floor coverings, woven, not tufted, or flocked, whether or 0.54 not made. All products 0.54 Source: Trade Map, ITC 9.1 Identification of products with export potential The Export Potential Index has been used to identify products with potential. The basis for calculating the index is the export situation of products under the six-digit HS Code of the International Trade Centre (ITC). The World Demand Index has been provided a weightage of 0.35 and Export Performance Index has been assigned 0.65. The assignment of the weightage is as follows: 34 NTIS 2080 Table 10.5: Weightage of export potential index Weightage to Calculate World Demand Weightage to Calculate Export Details Index and Export Performance Index Potential Index World Demand Index 0.35 Share in World Demand 0.5 Change in Share of World Demand 0.5 Export Performance Index 0.65 Export Size 0.16 Export Growth 0.16 Trade Balance 0.16 Change in Trade Balance 0.16 Revealed Comparative Advantage (RCA) 0.16 Growth of RCA 0.16 Products with export potential The list of products with potential, emerging products and those with future potential have been listed in the tables below after excluding metal scraps, oil cakes and byproducts from food processing industries from the 50 products that were able to obtain high scores based on the index. The six-digit HS Code was used for preparing the list and the products have been listed in four categories for providing policy and program based recommendations. Table 10.6: Existing products with export potential Items HS-6 Agriculture Cardamom 090831 Ginger 091011 Lentils 071340 Jute 531090, 630510 Tea 090220, 090240 Forestry Medicinal and aromatic plants (MAPs) 121190 Handmade paper products of Lokta 480210 Rosin and Turpentine 380610, 380510 Large Industry Iron and steel* 72, 73 Synthetic textile and yarn 540720, 550921, 550932, 550951, 551012 Footwear 640419 Readymade garments 620432, 620442, 62042, 630790 SMEs Carpets 570190, 570490 Jewelry 7113 Pashmina, sweater, and shawl 611012, 621420 Pasta 190219, 190230 Woolen products (including felt products) 611011, 611610, 620432, 620442, 620462, 630790, 5602 * HS-2 in Iron and Steel. 35 NTIS 2080 The analysis of demand for existing and emerging products in the global market, the production situation in Nepal, trend in export growth, the possible impact they could have on Nepal’s trade balance, availibility of natural resources for sustainable supply, availability of skilled human resources and use of new technology, and necessary investment has resulted in the following situation: Table 10.8: Assessment of existing and emerging export products Skill World Nepal’s Nepal’s Production Natural Manpower Items Demand Export Trade Investment of Nepal Endowment and Technical Condition Growth Balance Innovation Existing Agriculture Cardamom High Medium Medium Positive High Medium Low Ginger High High Medium Positive High Medium Low Lentil High Medium Medium Negative High Medium Low Jute High Medium Medium Positive High Medium Low Tea High High Low Positive High Medium Low Forestry MAPs High Medium High Positive High Medium Low Handmade Medium Medium Medium Positive High Medium Low paper products of Lokta Rosin and High Medium Medium Positive High Medium Low Turpentine Large industry Iron and steel Medium Medium Low Negative Low High High (with many in pipeline) Yarn and textile Medium Medium Medium Negative Low Low Medium Footwear Medium Medium Low Negative Low Medium Medium Readymade High Medium Low Negative Medium Medium Medium garments SMEs Carpets Medium Medium Medium Positive Medium Medium High Jewelry Medium Medium High Negative Low Medium Medium Pashmina Medium Medium High Positive Medium Medium High Pasta Medium Medium High Negative Medium Medium High Woolen High Medium High Positive Medium Medium Medium products (including felt) Emerging Agriculture Vegetable and Medium Medium Not Negative High Medium Medium fruits, and Relevant processed products Spices High Low Not Negative High Medium Low Relevant Coffee Medium High Not Negative High Medium Medium Relevant 36 NTIS 2080 Skill World Nepal’s Nepal’s Production Natural Manpower Items Demand Export Trade Investment of Nepal Endowment and Technical Condition Growth Balance Innovation Forestry Essential oils Medium Low Not Positive High Low Low Relevant Forest based High Low Not Negative High Low Low fabrics Relevant Large Industry PPC Cements High Medium Not Negative High Medium Medium Relevant SMEs Himalayan High Low Not Positive High Medium Low Spring Water Relevant Honey High Low Medium Positive Medium Medium Low Hard cheese High Medium Medium Positive High Medium Low (Chhurpi) 9.2 Capacity assessment of product clusters Existing products in the export portfolio, and the capacity of emerging products for increasing export, overall trade promotion based on product clusters have been analyzed and presented as follows: Capacity assessment of agricultural products Primary agricultural products have historically been Nepal’s main export. The portfolio of these goods have changed over time. There was a time when foodgrains were the main export, which in recent years have been cash crops. Some cash crops are among those with special qualities globally owing to the country’s climatic conditions. But owing to low hygiene, inconsistency in quality, and lack of accredited testing facilities, agricultural products are mainly exported to India. In recent years, products like vegetables, fruits, spices, and coffee have been exported to international markets with some value addition. Dog-chew (churpi). 37 NTIS 2080 Table 10.11: SWOT Analysis of existing export potential agricultural products Strength Weakness Opportunities Threats Cardamom ŒŒ Major exporting ŒŒ Limited skilled human ŒŒ Possibility of increasing ŒŒ Lack of research on country resources production by plant diseases ŒŒ Growing global ŒŒ Dependent on a single expanding beyond ŒŒ Drought and demand country for export (as Koshi Province environmental ŒŒ High-value cash crop much as 90 percent) ŒŒ Possibility of increased degradation causing ŒŒ Good source of income ŒŒ Degradation of land production with fungal infections for small farmers and lowering yield improved irrigation, ŒŒ Price volatility in world and marginalized due to fungal and viral use of improved seeds market communities diseases and fertilizers ŒŒ Lack of cooperation ŒŒ Appropriate for Hill ŒŒ Low value addition ŒŒ Possibilities of value among farmers for districts beyond farm addition by expanding commercial farming ŒŒ Benefits women, as production due to lack processing facilities ŒŒ Poor transport facilities roughly half the labor of modern processing ŒŒ Export market exists ŒŒ Lack of technical force is female. and storage beyond India human resources ŒŒ Contributes to soil ŒŒ Inadequate supply of ŒŒ Lack of processing erosion prevention imported seeds and units and market seedlings infrastructure ŒŒ Poor farm management leading to diminishing yield Ginger ŒŒ Good source of income ŒŒ Inadequate quality ŒŒ Increasing global ŒŒ Attacks by pests like and employment for seeds demand rhizome rot and small farming families ŒŒ High crop loss due to ŒŒ Potential of raising rhizome fly ŒŒ Fourth largest diseases productivity and area ŒŒ High price fluctuation producer of ginger ŒŒ Limited storage and expansion ŒŒ Risk of market globally processing facilities ŒŒ Due to richness in oil share loss owing to ŒŒ Possibility of inter- ŒŒ Lack of internationally and oleoresin, high production of cheaper cropping with other accredited laboratories potential for value ginger in neighborhood agricultural crops for testing all addition ŒŒ Favorable geo- parameters ŒŒ Rising demand in climatic conditions for ŒŒ Shortage of skilled Ayurvedic medicines cultivation in the hills human resources and other uses ŒŒ Nepali ginger regarded as high quality in world market Lentil ŒŒ Good reputation of ŒŒ Shortage of skilled ŒŒ Geographical proximity ŒŒ High labor costs Nepali lentils in South technicians to emerging and large ŒŒ High susceptibility to Asia and the Gulf ŒŒ Shortage of labor markets pests and diseases countries ŒŒ Shortage of quality ŒŒ Productivity can be ŒŒ Low quantity available ŒŒ Use of modern seeds raised by using simple for export after technology (color ŒŒ Weak road access technology meeting domestic sensing, de-stoner, ŒŒ Poor condition of roads demand etc.) to farming areas ŒŒ Competition with ŒŒ Long experience in ŒŒ Lack of easy and Australian and export reasonable availability Canadian produce in ŒŒ Eighty percent of of containers for South Asian markets national production shipment ŒŒ Requirement of in 10 districts, ease of ŒŒ Lack of well-organized meeting standards in collection domestic market destination markets ŒŒ Higher productivity compared to India ŒŒ Low cost in tillage, fertilizer, and irrigation as it can be grown after harvesting rice ŒŒ Beneficial for small farmers 38 © Prabhakar Ghimire © International Trade Center NTIS 2080 39 NTIS 2080 Strength Weakness Opportunities Threats Jute ŒŒ Terai climatic condition ŒŒ Limited supply of ŒŒ Increasing demand in ŒŒ Risk of market appropriate for jute agricultural inputs India and South Asian shrinking after India cultivation ŒŒ Limited skilled countries raises production under ŒŒ Historical commodity workers and technical ŒŒ Possibility of use in is “Self-Reliant India” because Jute development other countries as ŒŒ Possibility of decrease processing is the first ŒŒ Limited irrigation eco-friendly packaging in food crops is modern industry of ŒŒ Low productivity material cultivation increases Nepal compared to ŒŒ Good source of income ŒŒ Environment-friendly neighboring countries for Terai farmers packaging material ŒŒ Low attention to ŒŒ Favorable access to international market processed products in other than India Indian market ŒŒ Low attention to marketing despite being the oldest cash crop Tea ŒŒ Geography and ŒŒ No brand identity in ŒŒ Scope to expand ŒŒ Competition with climate suitable for tea global market production area major tea producers, cultivation ŒŒ Ineffective marketing ŒŒ High employment e.g., China, India, ŒŒ Active farmer groups and publicity generation Bangladesh, and Sri and cooperatives ŒŒ Lack of internationally- ŒŒ Increasing global Lanka ŒŒ Stress on organic tea accredited laboratories demand for Nepali tea ŒŒ Price volatility production and on ŒŒ Limited technical ŒŒ Expansion of organic- ŒŒ Difficulties in meeting value addition schools, training certified areas requirements of quality ŒŒ Organized agency centers and R&D ŒŒ Attractive price for and maximum residue exists for tea ŒŒ Lack of transparency organic tea in global limits of destination development in green tea price market markets, and supply ŒŒ Separate government determination ŒŒ Scope for product ŒŒ Labor issues policy and agency for ŒŒ Inconsistent quality diversification and ŒŒ Risks arising from India- tea development of product to meet selling in specific centered exports ŒŒ Reliable source of buyers’ demand markets in premium employment for Koshi prices Province and women Capacity assessment of emerging products Table 10.12: SWOT Analysis of emerging export potential agricultural products Strength Weakness Opportunities Threats Vegetables ŒŒ Low initial investment ŒŒ Limited and ŒŒ Increase in vegetable ŒŒ Shift to vegetable ŒŒ Commercial farming interrupted supply of consumption in South farming might have also possible in small agricultural inputs Asia due to improved adverse impact on land parcels ŒŒ Limited skills of farm living standards cereal production ŒŒ Climatic condition fit labor and technical ŒŒ Increase in income of ŒŒ Competition with for seasonal as well as innovation small farmers cheap Indian off-season vegetables ŒŒ Limited irrigation ŒŒ Possibility of vegetables due to its ŒŒ Farmers more aware ŒŒ High seasonality of forward linkage subsidies, and high of benefits from prices with hospitality and productivity vegetable cultivation ŒŒ Lack of appropriate processing industries ŒŒ Grading is being storage ŒŒ Potential of export to gradually introduced ŒŒ Poor quality control neighboring and Gulf ŒŒ Engagement of farmer countries cooperatives in marketing 40 NTIS 2080 Fruits ŒŒ Climatic condition fit ŒŒ Lack of adequate cold ŒŒ Improved living ŒŒ Shift to fruit farming for seasonal as well as storages in Himalayan standards in Nepal as might have adverse off-season fruits region well as South Asia impact on cereal ŒŒ Farmers aware of ŒŒ Expensive and ŒŒ People more production benefits of fruit unreliable domestic conscious of health ŒŒ Difficulties in farming transport leading to more competing with fruits ŒŒ Road expansion and ŒŒ Limited skills and consumption from neighboring storage development technical knowledge ŒŒ Source of rural countries has eased marketing among farmers employment and ŒŒ Cooperative marketing ŒŒ Limited irrigation livelihoods is gradually being ŒŒ Poor quality control ŒŒ Possibility of developed forward linkages with hospitality and processing industries (like juice, jam, confectionary, and others) Coffee ŒŒ Favorable climatic ŒŒ Lack of technical ŒŒ Increasing demand in ŒŒ High possibility of conditions for capacity among international markets adverse effect on specialty coffee along farmers and trainings ŒŒ Generates cereal crops the mid-hills for motivating farmers employment and ŒŒ Risk of reputation loss ŒŒ Brand reputation of ŒŒ Limited quality control livelihood options in due to adulteration of Nepali coffee ŒŒ Lack of certification rural areas low-grade imported ŒŒ Producer cooperatives required for accessing coffee actively engaged in European and marketing American markets in country ŒŒ High production cost Spices ŒŒ Suitable ecology ŒŒ Constraints of ŒŒ Possibility to expand ŒŒ Limited knowhow on ŒŒ Increasing global improved seeds and market beyond India commercial farming demand for spices fertilizer, and year- and South Asia and market promotion ŒŒ Possibility of using round irrigation ŒŒ Opportunity for ŒŒ Limited technical both private farms ŒŒ Post harvesting, creating alternative knowhow on quality and forest land constraints of storage, employment standards commercial farming packaging, and opportunities through ŒŒ Limited Government grading commercial spice focus on spices other ŒŒ Limited processing farming than ginger and industries, and need cardamom to compete with India Capacity assessment of existing and emerging forest-based products Forest-based products have remained Nepal’s major export for a long time. India was the main destination for Himalayan medicinal herbs used for medicinal and aromatic products. Generally, medicinal herbs were exported without processing. Even today, a large share of medicinal herbs are exported without processing. In recent years, small and medium scale industries have begun processing medicinal herbs. Nepali entrepreneurship making traditional paper and handwoven textiles using forest resources have in recent years begun producing new designs and using modern technology to produce quality products. The analysis of existing and potential forest resources based-products is provided below. { 41 NTIS 2080 SWOT Analysis of existing and emerging export potential forestry products Strength Weakness Opportunities Threats MAPs ŒŒ Organic and unique, ŒŒ Inadequate legal ŒŒ Expanding world ŒŒ Limited knowledge of as most of them are and institutional market for MAPs sustainable collection collected from the frameworks to ŒŒ High potential for practices wild protect Nepal’s expansion ŒŒ Unsustainable ŒŒ Most species unique genetic resources ŒŒ Potential to capture harvesting to the Himalayan ŒŒ Lack of policy and greater share of threatening the region and valuable system to implement value in the global existence of some ŒŒ Diversity of MAPs Good Agriculture value chain through species unique to ŒŒ Opportunity for and Collection improved collection, Nepal employment Practices (GACP) storage, and ŒŒ Risk of losing rights creation in remote ŒŒ Few products processing facilities over local knowledge regions currently being due to weak ŒŒ Substantial studies cultivated compared Intellectual Property available on benefits to potential protection and value chain ŒŒ Lack of storage and processing facilities ŒŒ High dependency on exports to neighboring countries ŒŒ Lack of accredited quarantine facilities at customs points ŒŒ Inadequate pest risk analysis, and insufficient fumigation facilities Hand Made Lokta ŒŒ Nepali high-altitude ŒŒ Capacity constraints ŒŒ High domestic ŒŒ Price competition paper products Lokta has distinct to meet large orders market demand for with similar products identity due to ŒŒ Low attention on Lokta paper from China PRC, strength of the fiber design and product ŒŒ Demand for value India, and Thailand ŒŒ Unique indigenous development for added paper ŒŒ Risk of counterfeit paper production new markets products in foreign products due to lack technology is an ŒŒ Lack of training in markets of product design important selling design and product protection point development ŒŒ Value added through ŒŒ Lack of proper unique artworks marketing and ŒŒ Availability of promotion efforts, skilled artisans and market information, entrepreneurs and market contacts ŒŒ Lack of management skills in MSMEs Paper made from a shrub found in the hill regions. 42 NTIS 2080 Strength Weakness Opportunities Threats Essential Oil ŒŒ Availability of a ŒŒ Difficulty in sourcing ŒŒ Increasing interest ŒŒ Need to meet SPS diversity of herbs good quality seeds in foreign markets standards to access and medicinal plants for cultivable herbs on the significance advanced markets in Nepal ŒŒ Shortage of skilled of essential oils in ŒŒ Difficulties for Nepali ŒŒ The MAPs collected workers Nepali tradition and companies due to in the high ŒŒ Inability to develop culture Indian companies Himalayas have overseas market ŒŒ Rising potential marketing of strong therapeutic linkages in China due to essential oils with the properties and 100% ŒŒ Early stages in increasing cosmetics Himalayan tag purity. export due to quality use among its ŒŒ Need to compete ŒŒ Customer appeal due inconsistency and middleclass with countries to use of traditional other reasons ŒŒ Sustainable source like India, China, technology for ŒŒ Excessive brokers in of employment for Indonesia, Sri Lanka, production of the supply chain women and persons Vietnam, etc. in essential oil with different advanced markets ŒŒ Possibility of abilities in rural areas ŒŒ Need to compete price advantage ŒŒ Increasing with cheap synthetic in international information of Nepali fragrances due to markets herbs and essential depletion of natural oil in the West and resources China ŒŒ Use of domestic essential oils in Nepali beauty products Rosin and ŒŒ Available in Nepal’s ŒŒ No export beyond ŒŒ Possibility of ŒŒ Low market Turpentine forests India, discontinuance increasing expansion despite ŒŒ Increasing industrial of exports to China production owing 50 years of industrial use of Rosin and ŒŒ Unable to establish to increased forest history Turpentine in Nepal’s identity density ŒŒ Need to use modern production of paper, in international ŒŒ Potential to increase borehole technology paint, and chemicals markets as a greater share in ŒŒ Challenges resulting ŒŒ Pine resin collection producer of natural global value chain from increasing is good source Rosin and Turpentine through market production, and of employment ŒŒ Difficulty in quality promotion competition from and livelihood for control of finished ŒŒ Product eligible other Asian countries people in hill and products for carbon market that use new mountainous areas payments technology 43 NTIS 2080 Strength Weakness Opportunities Threats Forest Based ŒŒ Indigenous ŒŒ Mostly produced for ŒŒ Possibility of ŒŒ Lack of technology Fibers knowledge and consumption in rural expanding cultivation development traditional skills on areas, lacking market in community and for commercial weaving forest-based information private forests cultivation fibers ŒŒ Local producers ŒŒ Possibility to expand ŒŒ Inadequate publicity ŒŒ Abundant raw lack modern skills market by enhancing ŒŒ Adopted technology material for fiber for value-added quality and designs is reason for high cost extraction production ŒŒ Niche market of production ŒŒ Environment friendly ŒŒ Difficulties for quality opportunities due to fibers. control and cost unique quality ŒŒ Possibility of rural reduction owing to employment use of traditional creation methods ŒŒ Lack of knowledge on product diversification ŒŒ Fixed season for harvesting raw materials ŒŒ Inadequate raw materials for large scale production © International Trade Center Yarn produced in Nepal. 44 NTIS 2080 Capacity assessment of existing and emerging large industries The main products of large industries are threads and textiles, and iron and steel. Shoes are manufactured by large and medium-scale industries and the larger industries lead in terms of export. New products have yet to demonstrate the ability to be competitive in international markets. In recent years, many cement industries have been established and the main raw material is readily available domestically. There have been improvements in access to mines, and because of improvements in electricity supply, the production capacity has increased. The production capacity is higher than required for domestic consumption and there is possibility of exporting cement to north India and Bangladesh due to proximity benefits. Therefore, cement is an emerging product among large industries. The capacity assessment of various products is given below: SWOT Analysis of existing and emerging export potential large industries’ products Strength Weakness Opportunities Threats Yarn and textiles ŒŒ Low labor cost ŒŒ High cost and ŒŒ Expanding ŒŒ Possibility of decline ŒŒ Use of high-quality low efficiency of international market in exports due to loss machines production process of Nepali yarn due to of preference after ŒŒ Good relationship ŒŒ Export to limited tariff advantage LDC graduation with importing countries ŒŒ Possibility of countries diversification through third- country exports Iron and steel ŒŒ Substantial ŒŒ Dependency on ŒŒ Nepal-India Trade ŒŒ Problem of regular investment from the transport provided Treaty provides duty- supply of energy and private sector by Indian companies free access to Indian high cost ŒŒ Up-to-date ŒŒ Weak industrial markets ŒŒ Competing with technology for relations ŒŒ Bhutan and Indian companies producing quality ŒŒ Low labor Bangladesh gradually becoming difficult products that meet productivity reducing import due to industrial market requirements tariffs incentives and ŒŒ Long experience ŒŒ High demand subsidies provided in production and in India, Bhutan by some state export and other South governments ŒŒ Strategic location for Asian countries trade with India and due to large-scale Bhutan infrastructure ŒŒ Several factories expansion certified by the ŒŒ Possibility to improve Indian Institute of labor productivity Standards (ISI) ŒŒ Several factories approved for quality standards by Power Grid Corporation of India ŒŒ Cooperation by Indian zinc companies for supply ŒŒ Capacity available for timely supply of required quantity ŒŒ Product costs slightly lower than in India 45 NTIS 2080 Strength Weakness Opportunities Threats Footwear ŒŒ Significant number ŒŒ Higher import ŒŒ Increasing demand ŒŒ Competition with of footwear tariffs on some raw in global market China and India on manufacturers materials compared ŒŒ Growing use of price, quality, and ŒŒ Labor intensive, to finished goods diversified footwear volume high employment ŒŒ Low investment in ŒŒ Expanding domestic ŒŒ Control of imported creation high-tech machinery market counterfeit brands ŒŒ Low labor cost ŒŒ Lack of common ŒŒ Increased confidence ŒŒ Shortage of trained ŒŒ Female worker- facility center in quality and workers friendly for quality and awareness of Nepali ŒŒ High dependency ŒŒ Skill development laboratory footwear among on imported raw and training domestic consumers materials opportunities for ŒŒ Easy access to raw youth material (approx. 20% domestic and 80% from India and China). Portland ŒŒ High and growing ŒŒ Weak quality control ŒŒ Possibility of ŒŒ Price undercutting Pozzolana Cement demand in country ŒŒ Difficulty of pre-fabricated ŒŒ Interference of labor (PPC) ŒŒ High availability of maintaining construction associations inexpensive skilled sustainable materials ŒŒ Large customers and un-skilled production bargain for low price workers ŒŒ Poor transportation ŒŒ Unreliable energy ŒŒ Opening up access to infrastructure supply Indian markets ŒŒ Shortage of highly skilled workers ŒŒ Problems in energy supply Readymade ŒŒ Important place in ŒŒ Low use of new ŒŒ Year-round market ŒŒ High competition garments Nepal’s export for a technology and increasing with large exporters long time ŒŒ Inadequate industrial demand due to such as Bangladesh ŒŒ Sector of high incentives fashion preference and India potential due to ŒŒ Reliance on imported ŒŒ Confidence of ŒŒ Possibility of exports labor intensive raw materials consumers on Nepali to decline due nature and products preference loss and comparatively ŒŒ LDC preferences stringent RoO for low investment market entry after requirement LDC graduation ŒŒ Major share of export to countries other than those in neighborhood Capacity assessment of existing and emerging small and medium-scale industries The products of micro, small and medium industries (MSMEs) such as carpet and pashmina have differentiated themselves in international markets. In recent years, export of pasta and goods made of wool have also begun increasing. Besides this, MSMEs have begun producing and exporting pure drinking water, Himalayan spring water and jewelry of gold and silver. The capacity assessment of these products are given below: 46 SWOT Analysis of existing and emerging export potential MSMEs’ products Strength Weakness Opportunities Threats Carpet ŒŒ Strong socio- ŒŒ Nepali carpets ŒŒ Possibility of ŒŒ Declining global economic impact relatively costlier expansion in new demand in existing ŒŒ Strong brand image compared to markets of the Gulf markets of Nepali in international competitors countries and Asia carpets owing to market ŒŒ Lack of quality ŒŒ Establishment of a slowdown in world ŒŒ The quality of Nepali testing and collective trademark economy carpet is considered certification can ensure ŒŒ Emergence of to be higher ŒŒ Long lead time for protection against cheaper alternatives than that of its delivery compared to misuse of Nepali ŒŒ Misuse of Nepali competitors (carpets competitors brand brand name by above 150 knots ŒŒ Low labor ŒŒ Significant room manufacturers of are rarely produced productivity for improvement in other countries elsewhere) ŒŒ Insufficient market labor productivity ŒŒ Possibility of exports ŒŒ Nepali designs diversification ŒŒ Possibility of to decline due to are appreciated ŒŒ Price fluctuation of producing unique preference loss after worldwide imported inputs carpets due to LDC graduation ŒŒ Availability of carpet availability of fibers design software in like Allo and hemp the country ŒŒ Preferential market ŒŒ Ease of customized access as an LDC production to orders Pashmina ŒŒ Branding in ŒŒ Lack of modern ŒŒ Significant spare ŒŒ Increasing price destination yarn dyeing capacity to increase competition with markets with the facilities for product production and India and China introduction of diversification export to new ŒŒ Threat of counterfeit collective “Chyangra ŒŒ Difficulties to adapt regions goods Pashmina” to changing market ŒŒ Potential to increase trademark demand due to Himalayan goat ŒŒ Traditional use of traditional farming and invest manufacturing technology in domestic yarn methods, quality and ŒŒ Import of wool at production designs are unique higher price due ŒŒ Demand for selling points for to lack of yarn diversified Pashmina Nepali products in processing plants in products (beyond niche markets the country shawls and stoles) is ŒŒ Possibility of ŒŒ Weak networking in increasing domestic yarn international market production by for entering new increasing Himalayan markets goat farming ŒŒ Ability to handle high value orders ŒŒ Beneficial to farmers in Himalayan region, processing industries, producers, exporters, etc. 47 Strength Weakness Opportunities Threats Pasta ŒŒ Availability of skilled ŒŒ Capacity to ŒŒ Expanding market ŒŒ High competition in human resources penetrate new in Indian border and domestic market ŒŒ Adequate production markets third countries ŒŒ Difficulty controlling capacity owing to ŒŒ Requirement of ŒŒ Increasing domestic food adulteration high investment in quality certificates market the latest technology in each consignment ŒŒ Well-developed by India domestic supply ŒŒ Difficulty in sourcing chain ŒŒ wheat flour, palm oil, and seasonings ŒŒ Lack of Halal certification for exporting to some Muslim and Arab countries Woolen products ŒŒ Production of fine ŒŒ Lack of information ŒŒ Prospective new ŒŒ Continuously designs and quality on modern buyers in the US and changing fashion goods owing to good technology the Netherlands, and products require infrastructure and ŒŒ Seasonal business possibility in Japan continuous sufficient investment ŒŒ High dependence on ŒŒ Promising market investment in ŒŒ Capacity for timely wool importers for for natural fiber product design and delivery quality and grade products development ŒŒ Established assurance ŒŒ Competition with consumers and ŒŒ Weak knowledge of China, Ecuador, world market, marketing, IT-based Colombia, and Peru particularly good market information in the US market prospect in the USA and business ŒŒ Protection of IPR of networking design ŒŒ High transportation costs ŒŒ Lack of high-breed sheep farming in country Himalayan Spring ŒŒ Abundance of pure ŒŒ Low technical ŒŒ Increasing water ŒŒ Possibility of Water natural springs capacity of scarcity in several environmental ŒŒ Environmentally safe freshwater countries imbalances in some sources processing ŒŒ Gulf countries areas ŒŒ Limited knowledge interested in fresh ŒŒ Availability of sea about freshwater water of Nepal water and other trade sources as cheaper alternatives Honey ŒŒ Extensive grazing ŒŒ Lack of ŒŒ Increasing demand ŒŒ Lack of quality area for bees commercialization of in global market infrastructure to ŒŒ Possibility of bee farming ŒŒ Increased interest meet requirement of production and ŒŒ Expansion of modern of some European importing countries branding of unique technologies in rural countries in Nepali ŒŒ High competition honey products areas honey with prominent ŒŒ Promotional policies ŒŒ Lack of reliable data exporting countries of government for on honey production of the neighborhood honeybee farming in global markets 48 Strength Weakness Opportunities Threats Dog-chew ŒŒ Indigenous product ŒŒ Limited production ŒŒ High demand from ŒŒ Supply management produced for a long ŒŒ Lack of modern US, Canada and EU to match market time production process markets demand ŒŒ Entirely based ŒŒ Consistent high ŒŒ Meeting standards of on domestic raw export growth importing countries materials ŒŒ Low competition by maintaining ŒŒ High quality asit is compared to other quality a cold climate dairy exports product ŒŒ High possibility of identification as Nepali brand Jewelry ŒŒ Easy access to ŒŒ Lack of sophisticated ŒŒ High potential in ŒŒ Rising metal prices imported gold, silver modern technology EU market for new ŒŒ Competition with and precious stones. such as laser designs India, Thailand, ŒŒ Availability of skilled machine for ŒŒ Potential of Indonesia, and and efficient artisans soldering and expanding market in Mexico ŒŒ Expertise for unique computer-aided Russia, South Korea ŒŒ Risk of imitation of design design and South Africa Nepali designs by ŒŒ High value addition ŒŒ Lack of support for ŒŒ Promising Japanese foreign companies (40-50 percent) design and product market with new ŒŒ Trade volumes do ŒŒ Extensive exposure development customers and not support high to international ŒŒ High costs of demand for new costs of market markets imported raw products penetration ŒŒ Joint efforts to materials and ŒŒ Possibility of ŒŒ Incidents of mixing develop designs with packaging materials increasing skilled cadmium in silver buyers ŒŒ High cost in workers by providing has affected Nepal’s ŒŒ Well-established developing market training reputation markets, e.g., silver linkages products for Japan ŒŒ Lack of policy and ŒŒ Product institutional support specialization and to build competitive regular design strength development ŒŒ No institution to certify product authenticity .. ,- © International Trade Center ,i ; t""; ~ 'f r ' (',.,, <~·C: " C ~ I ~ ~ 4" , J .i f ,: ,. :s-.. ' ' I•• : ~. r ~. ' f , ' -~ " I , ( r ••• •• • •: I Q' .. ,,' •• • 'f I ~~ 3 •• ' ,. i~· I/A •• Jewelries. J.."• • ;: & -~r Woolen products. 49 9.3. Trade in services Major services exports Services trade has an important role in Nepal’s export. Since fiscal year 2012/13 export volume of services has remained higher than that of goods. However, owing to the COVID-19 pandemic, in 2020/21 foreign exchange received from tourism declined and the export volume dereased. Export (US$ Million) 2000.0 1500.0 1000.0 ► 500.0 0.0 • - Goods - Services - Travel Source: Nepal Rastra Bank Based on analysis of the contribution of the services sector to export in the past three years the main services are tourism, IT and construction services. Export (US$ Million) 800.0 600.0 400.0 200.0 0.0 18/19 19/20 20/21 - Travel - Telecummunications - Transport - Construction - Other Business Services Source: Nepal Rastra Bank The size of Nepal’s tourism industry is small compared to its potential. Still tourism’s contribution to foreign currency earnings is substantial. Tourism arrivals that had been increasing until 2019 were affected the following year by the COVID-19 pandemic. Two years later there has been some improvement. It is expected that tourist arrivals will increase substantially in the next five years because two new international airports are now operational in Bhairahawa and Pokhara, there has been increased private investment in tourism infrastructure, and tourist destinations and attractions have been added. Both IT and Internet-based services and Business Process Outsourcing (BPO) are established exports. But 50 GDP Percentage 30.00 25.50 25.50 25.00 24.30 22.60 22.80 22.30 22.50 22.50 21.22 21.85 20.80 20.40 20.00 19.43 17.49 16.20 14.94 15.00 13.76 11.01 11.12 10.69 10.92 10.00 10.35 5.00 3.02 2.31 3.34 1.90 2.02 2.09 1.82 1.77 1.75 1.99 2.32 1.33 1.55 1.53 1.63 1.56 1.45 1.16 1.74 1.72 1.38 1.55 1.23 1.11 - 0.15 1,970 1,975 1,980 1,985 1,990 1,995 2,000 2,005 2,010 2,015 2,020 2,025 Source: Nepal Rastra Bank 51 for various obstacles, payments for services provided from Nepal takes place abroad; and many organizations perform the service form Nepal but they issue bills in the name of the centre located abroad as result of which funds received from exports appear to be low. If a conducive environment is built, and some financial incentives are provided, it is possible to develop IT-based services to become the most exported service. Because export of electric energy to India is becoming easier, capacity of crossborder transmission lines have been increased, and more electricity production than that used domestically has begun to take place, Nepal has begun to transform from a net importer of electricity to a net exporter. The present installed capacity of hydroelectricity projects is 2410 megawatts (MW). There are 227 projects of about 8500 MW in different stages of construction. In the next five years, the electicity generation capacity will be many times the internal demand. This is why electricity exports can be at par with that of IT based services in the next five years. In the past two decades, construction businesses have grown at a rapid pace. This is evidenced by the contribution of this sector to the GDP. Taking into consideration projects under construction in-country can lead to conclusions about the weak capacity of the sector. But it is evident that Nepali construction businesses have been enhancing specialization and institutional capacity. Nepali construction companies – a few of them – are being selected through international competition and are already working abroad. The availability of skilled workers and technology is sound. Construction services export can be promoted to take advantage of the situation. Remittances have been historically important to the Nepali economy. Remittances that were around 1.5 percent of GDP in fiscal year 1999/2000 (2056/57) increased in the years that followed, and reached 25.5 percent of GDP in fiscal year 2020/21 (2077/78). Previous trade integration strategies had listed labor as a service export to be prioritized. The country’s long-term strategy would need to reduce labor export and use the youth workforce for expanding the national economy. The number of people heading for employment abroad, and remittances, will decrease as economic activities increase in-country, and the employment rate grows. The trend has been demonstrated in recent years where as the GDP began growing, the rate of growth of people heading abroad for employment began decreasing. Remittances have continued to increase but have been decreasing in terms of the percentage contribution to GDP. Remittance flows are likely to continue for some more years because of the inabilities to develop industry in-country and to increase investment in commercialization of agriculture and other productive sectors. Therefore, the approach adopted during preparation of this strategy has been to encourage seeking work in-country and enhancing skills and capacity through trainings, and searching for high-income destinations for making remittances more effective. 9.4. Services with export potential Based on the analysis above, the following services need to be prioritized for export. a. Tourism b. IT and Internet-based services c. Water resources d. Construction services e. Skilled and semi-skilled labor services (Remittance generating services) 52

10. NTIS implementation, monitoring and evaluation 10.1. Institutional mechanism for implementation There is no need to make major changes in the institutional mechanism for implementing this strategy. Major changes take time to institutionalize and can delay implemention raising the risk of failure, which is why focus has been on effective changes while proposing the institutional mechanism. There are two divisions at the MOICS for overseeing trade-related matters, (a) Multilateral Trade and International Trade Cooperation, and (b). Bilateral Trade and Regional Trade Division. Under the existing arrangement, NTIS implementation responsibility rests with the Multilateral Trade and International Trade Cooperation Division. This Division is centred around trade policy and strategy formulation and implementation, WTO-related activities and multilateral trade, and mobilization of aid for trade. What stands out is that there is no arrangement for service export promotion in the existing arrangement at the MOICS. Sectorally tourism, water resources, communication and IT, and labor, employment and social services need to undertake export functions at the concerned ministries. Since services exports are matters related to economic diplomacy, the Ministry of Foreign Affairs (MOFA) also seems to be doing some related work. It is necessary to build a mechanism capable of promoting services export because the growth rate of service exports is likely to be higher than goods, and services exports are comparatively likely to be more sustainable. In addition, for effective implementation of activities in NTIS 2023, a proposal has been made for adopting a sectorwide approach (Trade SWAp). The human resources already working at the two Divisions at MOICS will be adequate for the purpose. In this context, staying within existing positions at the MOICS it is appropriate to add a new unit for effective implementation of NTIS, promotion of goods and services export, and trade facilitation by making general changes in the existing organizational set up. It would be appropriate to name the unit Market Intelligence and Export Promotion. This unit would need to have positions for one person from the administrative group, one Under Secretary, two section officers and one statistical officer. After the Market Intelligence and Export Promotion unit is formed under the Multilateral Trade and International Cooperation Division, it would appropriate to add the following activities to the existing tasks performed by the Division. a. Policy coordination for export promotion. b. Supporting development of new products and services with export potential. c. Assisting exporters to comply with RoO, standards, quality and hygiene. d. Standardization and simplification of export procedures. e. Developing domestic value chains for goods and services export. f. Facilitate goods and services export. g. Implementation of the WTO Trade Facilitation Agreement, and trade facilitation and coordination. h. Conduct studies and assessments of bilateral, regional and multilateral trade, transit and double taxation agreements and provide recommendations to the ministry, as required. i. Study customs rates, non-tariff charges and technical barriers to trade and provide recommendations and comments for talks related to trade. j. Regularly collect, study, and analyze information/ data on goods and services imports and exports and 53 NTIS 2080 undertake trade and market intelligence related tasks for import management and export promotion. k. Coordinate and facilitate with Nepali missions and honorary consuls abroad, and foreign honorary consuls based in Nepal. l. Coordinate with commodity trade organizations, national level industries, and commerce and trade associations. m. Implement activities or get implemented export promotion policies and the NTIS. National Steering Committee A National Steering Committee has been recommended for effective implementation of NTIS, monitoring and evaluation, coordination and direction. The major responsibilities of this committee will be as follows. a. Approve the annual program and budget for NTIS implementation. b. Amend the approved annual program and budget. c. Review, monitor and evaluate NTIS implementation and provide directions. d. Undertake any other task as required by the Government of Nepal. The National Steering Committee will be formed as follows: a. Minister, MOICS, Chairperson b. State or Assistant Minister, MOICS, Member c. Chief Secretary, GON, Member d. Secretary, Ministry of Finance, Member e. Secretary, Ministry of Foreign Affairs, Member f. Secretary, Agriculture and Livestock Ministry, Member g. Secretary, Communication and Information Technology Ministry, Member h. Secretary, Energy, Water Resources and Irrigation Ministry, Member i. Secretary, Culture, Tourism and Civil Aviation Ministry, Member j. Secretary, Forest and Environment Ministry, Member k. Secretary (Industry), MOICS, Member l. Secretary, (Commerce and Supply), MOICS, Member m. Secretary, National Planning Commission, Member n. Deputy Governor, Nepal Rastra Bank, Member o. President, Federation of Nepalese Chambers of Commerce and Industries, Member p. President, Confederation of Nepali Industries, Member q. President, Nepal Chamber of Commerce, Member r. President, Nepal Cottage and Small Scale Industries, Member s. President, Federation of Women Entrepreneurs, Member t. Representative of Development Partners, Member u. Joint Secretary, Multilateral Trade and International Cooperation Division, Member secretary The National Steering Committee will meet twice every year and as required. The Member secretary will call the meeting in accordance with the direction of the Chairperson. Development partners participating in the Trade SWAp will nominate a representative to the Committee. The Committee may invite any official or expert to its meetings. The Multilateral Trade and International Trade Cooperation Division will serve as the secretariat of the Committee. 54 NTIS 2080 National Program Implementation Unit It is proposed that a National Program Implementation Unit be formed at the MOICS for implementing and coordinating NTIS implementation. The Coordinator will be the Joint Secretary at the ministry’s Multilateral Trade and International Trade Cooperation Division. The Unit will meet as required and will have the following functions. a. Prepare annual program and budget based on the budget ceiling received. b. Prepare annual workplan and decide the fund for which authority needs to be delegated to the implementation agency. c. Monitor strategy implementation and prepare quarterly and annual progress reports. d. Discuss problems faced in the work, seek resolutions and assist the implementing agency. e. Coordinate with development partners. f. Undertake other tasks as required by the Steering Committee. One Under Secretary level staff from concerned government agencies mentioned with the activities in the strategy will be the contact person and member of the Unit. Program budget and implementation approach This strategy will be implemented under a sectoral SWAp. It is proposed that a separate budget sub-heading be arranged for NTIS implementation. This sub-heading will provision the budget received from the Government of Nepal and development partners. It is proposed that the annual program prepared based on the strategy be managed through this sub-heading and that arrangements be made for delegating spending authority to the implementing unit. The Unit will delegate spending authority to the agency responsible for implementing the approved activities. The National Program Implementation Unit will request concerned agencies to propose activities based on the budget ceiling while preparing the budget for the implementation of the strategy. Based on proposals received, the Unit will prepare an annual program and budget and obtain approval from the Steering Committee before sending the proposal to the Ministry of Finance. The National Program Implementation Unit will participate in discussions on the program and budget for strategy implementation. Monitoring and evaluation All agencies implementing programs under the NTIS will monitor and evaluate activities undertaken by their agencies. Further, all agencies will need to prepare budget implementation progress reports in the required format within seven days after the end of every quarter, and the annual progress report within 10 days after the end of the fiscal year and send it to the Program Implementation Unit. The National Steering Committee and the Program Implementation Unit will review the progress, as necessary. The National Planning Commission and the Office of the Prime Minister and Council of Ministers may, as required, monitor and evaluate NTIS implementation. A mid-term review will be undertaken three years after the implementation of the strategy. The conclusions 55 NTIS 2080 and recommendations from the evaluation can be adjusted in the strategy. An independent expert will undertake the final evaluation of NTIS implementation after the end of five years. Role of supportive agencies to be made effective For implementation of this strategy, the collaboration, support and coordination needs to be made effective among autonomous agencies under the MOICS, umbrella organizations of the private sector and associated organizations, Nepali missions abroad, honorary consuls and Nepal-based honorary consuls of foreign countries, and development partners. It is necessary to focus attention on the following issues. a. It is necessary to define the roles of agencies under the MOICS such as Trade and Export Promotion Centre (TEPC), National Productivity and Economic Development Centre, Industrial District Management Limited, Nepal Transit and Warehousing Management Company Limited, Nepal Intermodal Transport Development Committee, and the Special Economic Zone Authority in relation to export promotion, domestic value chain development and trade facilitation. It is necessary to enhance the institutional capacity of the TEPC for close monitoring of developments in international markets and providing quality market information to companies exporting goods and services. b. It is necessary for the National Productivity and Economic Development Centre to identify obstacles in productivity enhancement, continuously research resolution measures, and disseminate the knowledge acquired for enhancing capacity in trade. Other agencies need to enhance efficiency to undertake actions to support not just goods, but also services export. c. It is necessary to remain in continuous dialogue with different private sector commodity associations and organizations, such as Federation of Nepalese Chambers of Commerce and Industries (FNCCI), Confederation of Nepalese Industries (CNI) and Nepal Chamber of Commerce (NCC) to establish a mechanism to immediately seek resolutions and resolve problems as they emerge. d. It is necessary to organize consultations with Nepal’s Consulate General and honorary consuls abroad on export promotion opportunities and situation in the countries they represent at least twice every year. e. It is necessary to organize consultations with Consulate Generals and honorary consuls of other countries in Nepal on export promotion opportunities and situation in the countries they represent at least twice every year. f. Organize consultations and meetings with Development Partners working on trade in Nepal to mobilize additional financial and technical support for the implementation of the strategy. This initiative would need to be taken by the MOICS. 56

11. Strategic Framework of the Nepal Trade Integration Strategy (NTIS) 2023 Vision ŒŒ Robust external sector The vision is to build a successful and competitive export stability base for economic growth, job creation and foreign exchange reserves. A stronger and resilient export base can certainly strengthen domestic production and productivity. Current account deficit beyond a manageable level and associated exchange rate risks generally cause deterioration in trade and investment environment. Therefore, external sector stability, mainly represented by optimum current account balance and stable foreign exchange rate, is important for a sound trade and investment environment. This can then be the basis for higher and sustainable production. Mission ŒŒ Creating sound ecosystem Trade is in fact a cross-cutting issue. For a stronger trade for product development performance, all development policies and programs must be and trade. aligned, and agencies should work in tandem. Countries that achieved export-led growth could do so by using monetary, fiscal, labor, infrastructure, natural resources, agriculture, and a host of other policies as enablers for increasing productivity and competitive strength. ŒŒ Continuously improving Competitive strength is not a position permanently achieved. competitive strength. Technological advancements, changing market preferences, regulatory environment and various other factors can erode competitive strength. It is for this reason, there should be a system of continuous assessment of competitive strength and improvement. ŒŒ Diversifying markets Periodic external shocks are a reality of global trade. In order and products capable to ensure stability and minimize the negativities arising from of sustaining economic external shocks, there should be a diversified portfolio of shocks. products and destination markets. Core Values All institutions and partners involved in production and trade will comply the following values in their policies and actions. These values have been taken into account while formulating the Nepal Trade Integration Strategy (NTIS). ŒŒ Quality Quality refers to maintain the total quality at every stage in product development, design, production, distribution, presentation and entire trade ecosystem. ŒŒ Cost-effectiveness Cost-effectiveness refers to achieving higher value for money as compared to cost in external market during implementing the strategic actions. ŒŒ Consistency Consistency refers to continuity of good policies and programs. It also refers to consistency in the quality, quantity and timeliness of products and services delivered in the market. ŒŒ Innovation Innovation is essential for maintaining competitive strength in production and trade. ŒŒ Timeliness Timeliness is a capability to promptly address market demand and emerging situation. ŒŒ Commitment to Commitment to environment protection requires attention not environment protection only at every stage of production and distribution of goods and services but also while implementing strategic activities. 57 NTIS 2080 ŒŒ Gender and social It covers addressing issues on gender and social inclusion inclusion while formulating and implementing the trade related policies, strategies and programs. Strategic Pillars 1. Building a supportive environment for trade

2. Improving trade-enabling infrastructures, logistics, processes, and regulatory environment

3. Developing competitive products and expanding export market Strategies 1. Building a supportive 1. Supportive macroeconomic and development policies with environment for trade consistency and predictability

2. Engaging subnational governments in trade ecosystem development

3. Maximizing opportunities and minimizing threats after LDC graduation

4. Strengthening economic diplomacy and expanding trade-enabling bilateral/multilateral treaties and agree- ments

5. Improving labor motivation and productivity

6. Ensuring meaningful gender empowerment and social inclusion in sharing the benefits of trade

2. Improving trade-enabling 7. Developing integrated trade logistics and improving trade infrastructures, logistics, facilitation processes, and regulato- 8. Strengthening food quality enforcement and plant health ry environment standards

9. Improving quality infrastructures and enforcement of industrial standards

10. Improving investment environment 11 Integrating advance concepts of Industry 4.0 and 5.0 in production process

3. Developing competitive 12. Building strength in goods export products and services 13. Strengthening service sector export and expanding export market Major Targets Trade to GDP ratio is 48.1 The ratio will be reached to 55 percent in FY 2027/28 from 48.1 percent in FY 2021/22. Export of goods and services The ratio will be reached to 20 percent in FY 2027/28 from 6.3 to GDP ratio is 6.61 percent in FY 2021/22. 58 S.N. Key Actions Baseline Indicators Performance Indicators Responsi- Estimated (2021/22) (2027/28) bility Cost (NPR mil.) Strategic Pillar I: Building a supportive environment for trade Strategy 1: Formulating trade supportive macroeconomic and development policies with predictability and consistency 1 Formulate and adopt SWAp does not exist in Trade SWAp implemented MOICS None sector-wide approach trade sector. MOF (SWAp) for international trade promotion and development 2 Introduce special Limited arrangement New instruments for export NRB None arrangement for export through commercial financing introduced financing banks 3 Introduce special Limited arrangement New instruments for export NRB None arrangement for export through commercial financing introduced financing. banks 4 Promote production ŒŒ SEZs at Simara and ŒŒ Industries producing MOICS 2,000 and exports of potential Bhairahawa are exportable goods made MOF exportable goods by partially operating operational in Industrial developing trade related ŒŒ 15 Industrial Zones are Zones, SEZs and Industrial infrastructures in operation and 135 Villages Industrial Villages are in ŒŒ Two additional ICPs process of operation and four ICDs made ŒŒ ICP at Biratnagar and operational to facilitate Birgunj and six ICDs are international trade in operation 5 Provide cash incentives for Cash incentives schemes Cash incentives for major MOICS 4,000 major exportable products, exist for goods but not for exportable products along MOF IT based goods and services, service exports with IT based goods and and construction services services, and construction services provided 6 Provide deferred payment Arrangement does not Deferred payment facility to NRB None facilities for the import exist export-oriented businesses of bulk raw materials and made available machinery items by ITE/ BPO, tourism and export- oriented businesses 7 Provide foreign exchange Arrangement does not The unified foreign NRB None facility to businesses exist exchange guidelines of exporting ITE/BPO services NRB to provide payment for the import of equipment for offshore installation of and software to be installed equipment and software in third countries on the amended recommendation of relevant regulatory authority 8 Provide cash incentives Provision of cash The list of goods for cash MOICS As for emerging exportable incentives up to 8percent incentives reviewed and MOF mentioned products using domestic raw for 36 agricultural and new items included every in SN 5 materials industrial goods year 9 Differentiate at least one Exists in policy At least one level of tariffs MOF None level of tariffs between understanding but not differentiation between import of industrial raw fully implemented import of industrial raw materials and finished goods materials and finished goods fully implemented 10 Implement flat rate duty Policy exists, but not Flat rate duty drawback MOF None drawback system and implemented system fully implemented simplify the mechanism of claiming drawback from the exporter’s bank 59 NTIS 2080 S.N. Key Actions Baseline Indicators Performance Indicators Responsi- Estimated (2021/22) (2027/28) bility Cost (NPR mil.) 11 Remove excise duty on 1,393 excise duty lines Number of excise duty lines MOF None manufactured items other exist reduced than alcohol and tobacco 12 Strengthen border security ŒŒ Under-invoicing ŒŒ Domestic industries MOHA None and improve scrutiny at the and smuggling have producing shoes, textiles, MOF customs checkpoints negatively affected and other consumable MOICS domestic production goods operated over 70 MOALD of shoes, textiles, and percent of capacity consumable goods ŒŒ The competitiveness of ŒŒ Some agriculture, food local products improved and livestock products and market access being imported without ensured complying legal ŒŒ Office hours among procedures border agencies made ŒŒ No uniformity in office uniform hours among offices at ŒŒ The presence of border points concerned regulatory agencies at customs points ensured Strategy 2: Engaging subnational governments in creating trade-friendly ecosystem 13 Build necessary infrastruc- ŒŒ Supply/value chain ŒŒ Study on identifying MOICS 100 tures and facilitate develop- for major commercial necessary infrastructures MOALD ment of supply/value chain products such as tea, and procedures for Province of main products in every cardamom, ginger, efficient value chain Governments province. MAPs, vegetables, development connecting coffee, fruits, milk and production pockets to milk products, meat market or export points and meat products, for major products of fish, egg, hard cheese, each province conducted etc. does not exist ŒŒ At least two dedicated ŒŒ Well-managed and packing houses dedicated packing compatible with houses for these international standards commodities does not for phytosanitary (plant exist health) established ŒŒ Based on the study of SPS at the initial phase of production, infrastructures development and procedural reforms made 14 Construct and operate Existing wholesale mar- ŒŒ Existing markets MOALD and 250 wholesale market for kets are inadequate well managed and Provincial agricultural and forest strengthened Governments products in each province ŒŒ Wholesale market of agricultural and forest products in each province established 15 Incentivize ‘One local level, Some local levels have ‘One local level, One MOICS 500 One product’ program for announced such programs product’ program MOALD product specialization at but they are less effective implemented in at least 10 Province local levels local levels of each province Governments Local levels 60 NTIS 2080 S.N. Key Actions Baseline Indicators Performance Indicators Responsi- Estimated (2021/22) (2027/28) bility Cost (NPR mil.) 16 Adopt good production NEPAL GAP accreditation Hygiene quality and GMP MOALD 500 practices (GAP, GHP and is in operation under practiced 150 industries Province GMP at food processing DFTQC 50 commercial agricultural Governments industries) at the primary farms practiced NEPALGAP/ Local levels stages of quality production GHP of agricultural goods, live- stock, and food products 17 Strengthen capacity and reg- ŒŒ DFTQC and its offices, ŒŒ Restaurants and food MOALD 10 ulate food safety standards provinces and local processing industries/ MOICS in restaurants and food levels have been business capacitated DFTQC and processing businesses monitoring food safety through trainings, subordinate but it is not adequate awareness programs and offices ŒŒ Inadequacy of workshops Province knowledge and skills ŒŒ Effective monitoring Governments in food safety at ensured through Local levels restaurants and food regulatory agencies processing businesses 18 Make necessary PRA is being performed Sustainable access to MOALD – arrangements for through temporary access online PRA tools secured by sustainable access to Mega made available by CABI obtaining membership of data digital library for CABI accessing PRA software that has universal data of harmful pests Strategy 3: Maximizing opportunities and minimizing possible threats of graduation from LDC status 19 ŒŒ Sign and ratify ILO ŒŒ Nepal has signed and After negotiations with MOFE 1.8 Convention No. 87. ratified 25conventions EU, Türkiye, and the UK for MOLESS ŒŒ Ratify the Cartagena and signed but not inclusion in the GSP+ and MOICS Protocol on Biosafety. ratified one convention GSP Enhanced Framework MOFA ŒŒ Undertake a detailed out of the existing schemes, necessary assessment on the requirements of conventions signed and possibility of ratifying the 27 conventions for ratified ILO Convention No. 81 preferential access to and ratify it if appropriate. EU ŒŒ Regarding the 32 conventions in the proposed new GSP+ for 2024-2034, Nepal has yet to sign and ratify one more convention besides the two in the current GSP+ scheme 20 ŒŒ Conclude bilateral FTAs ŒŒ Nepal has TIFA with ŒŒ Bilateral FTAs with the US MOICS 1.8 with major destination the US and countries concluded MOFA countries including the ŒŒ Bilateral trade for securing trade MOF US, China, Australia and negotiations with some preferences and facilities Japan countries including ŒŒ Based on the ŒŒ Undertake a detailed Bhutan, Bangladesh and recommendations of study to assess the Australia are underway study, membership appropriateness of joining of RCEP obtained, if Regional Comprehensive appropriate Economic Partnership (RCEP) 61 NTIS 2080 S.N. Key Actions Baseline Indicators Performance Indicators Responsi- Estimated (2021/22) (2027/28) bility Cost (NPR mil.) 21 Take initiatives, together SAFTA and BIMSTEC FTA Necessary amendment in MOICS None with Bangladesh and do not have provisions SAFTA and BIMSTEC FTA MOFA Bhutan, for continuation for continuation of trade made for continuation of LDC-specific trade preferences for recently of trade preferences for preferences to graduated graduated LDCs. However, graduated LDCs for a LDCs in the Agreement on Maldives is enjoying such specified time. SAFTA and BIMSTEC FTA preferences under SAFTA. 22 ŒŒ Continue to proactively ŒŒ Nepal has been Negotiations concluded with MOICS None engage with the LDC engaging with the LDC the EU, Türkiye, and the UK group in the WTO to group in the WTO and on reviewing the domestic secure interests of some proposals have value addition criterion in graduating LDCs as been submitted in this GSP+ and GSP Enhanced reflected in the different regard. Framework requests made in the ŒŒ No significant initiatives WTO have been made ŒŒ Together with the LDC to review the value group, persuade the addition criterion EU, Türkiye, and the in GSP+ and GSP UK to apply increased Enhanced Framework domestic value addition provided by the EU, requirement gradually in Türkiye, and the UK GSP+ and GSP Enhanced Framework 23 Organize regular Most of the exporters, ŒŒ Impacts of LDC graduation MOICS 1.5 interactions with exporters especially SMEs, are not such as Loss of Trade and concerned stakeholders aware of the implications Preferences, Increased at sectoral levels for raising and necessary preparation tariffs, stringent RoO awareness on specific issues of Nepal’s LDC graduation made aware of LDCs ŒŒ Competitiveness of exportable goods enhanced Strategy 4: Strengthening economic diplomacy, and reviewing and expanding multilateral and bilateral treaties and agreements for trade promotion 24 Formulate a separate No economic diplomacyEconomic diplomacy MOFA 9 document on economic strategy exists strategy formulated, diplomacy strategy and regularly updated and update it periodically implemented by all diplomatic missions 25 Revise/rewrite country- Country-specific economic Country-specific economic MOFA 5 specific economic diplomacy diplomacy strategies diplomacy strategies MOICS strategy as required, and are outdated, brief, updated and implemented MOCTCA share with concerned and shallow; and not stakeholders implemented 26 Establish a monitoring and In the absence of an A monitoring and evaluation MOFA 1 evaluation mechanism economic diplomacy mechanism to assess to ensure that respective strategy, no evaluation the performance of diplomatic missions are mechanism exists diplomatic missions as per implementing the economic the economic diplomacy diplomacy strategy strategy established 62 NTIS 2080 S.N. Key Actions Baseline Indicators Performance Indicators Responsi- Estimated (2021/22) (2027/28) bility Cost (NPR mil.) 27 Set up a permanent Coordination among Economic diplomacy MOFA 5 mechanism involving the agencies related to strategies and activities concerned agencies for economic diplomacy carried out by public and regular discussions and remains insufficient private sector agencies monitoring on matters coordinated related to economic diplomacy 28 Make it mandatory for A simultaneous reporting Trade and tourism-related MOFA 2 diplomatic missions to mechanism does not exist matters simultaneously simultaneously report to reported to MOICS and MOICS and MoCTCA along MOCTCA by diplomatic with MoFA in trade and missions tourism-related matters that need to be brought to their attention 29 Organize interactions, at There is no such provision ŒŒ Regular interactions with MOICS 2.5 least twice a year, with and practice the honorary consuls MOCTCA honorary consuls of other organized MOFA countries based in Nepal ŒŒ Trade- and tourism- and Nepal’s honorary related issues of countries consuls based in other having diplomatic countries relations with Nepal informed 30 Establish a dedicated Officials at diplomatic ŒŒ Export-potential Nepali MOFA 2.2 investment, trade and missions have weak products and tourist MOICS tourism desk at diplomatic responsibility and attractions displayed at MOCTCA missions that are important accountability on the diplomatic missions for investment, trade, and investment, trade, and ŒŒ Nepali business person tourism tourism-related matters and related organizations received support for investment, trade and tourism 31 Depute officials with Knowledge and MOICS officials retained for MOFAGA None relatively better knowledge experience on trade at least five years of trade and economic and economic issues is issues at MOICS and ensure not considered while that they are not transferred transferring officials to for at least five years MOICS and officials are frequently transferred 32 Undertake detailed study on Nepal is a party of Detailed study on Nepal’s MOICS 9.0 the possibility of joining new bilateral treaties such participation in new FTAs FTAs such as RCEP to better as Nepal-India Trade undertaken and FTAs with engage with world players in Treaty, Transit Treaty, new and emerging countries today’s multi-polar world regional agreements and regions signed, if such as SAFTA, BIMSTEC appropriate and multilateral trade agreements under the WTO 33 Extend the duration of Training courses for MoFA Trade and economic matters MOFA 5 training and orientation, officials are less focused receive more weightage in especially on trade and on trade and economic training courses for MoFA economic issues for MoFA matters compared to officials officials international relations 63 NTIS 2080 S.N. Key Actions Baseline Indicators Performance Indicators Responsi- Estimated (2021/22) (2027/28) bility Cost (NPR mil.) 34 Impart country-specific, Most officials deputed Officials deputed at MOFA 10 comprehensive knowledge at Nepali diplomatic diplomatic missions abroad on trade and economic missions abroad lack demonstrated thorough matters to officials before sufficient knowledge on understanding of trade and assignment at Nepali the host country’s trade economic affairs of host diplomatic missions abroad and economic affairs country, and prospects of enhancing Nepal’s exports 35 Develop and implement A format for reporting Promoting Nepal’s exports MOFA 1 a system of performance by ambassadors to included in performance evaluation of all diplomats, MoFA exists but not evaluation criteria of including ambassadors, implemented diplomats consul generals and honorary consuls, in relation to Nepal’s export promotion 36 Provide additional budget Performance evaluation Additional budget for MOFA 3,500 for economic diplomacy system including reward economic diplomacy to dip-lomatic missions and punishment of provided to each diplomatic based on export growth diplomats based on mission contingent on in the country concerned efforts and regular inputs export growth to the resulting from the mission’s on export promotion does particular country resulting promotional activi-ties not exist from the mis-sion’s promotional activities 37 Establish stronger economic Nepal has BIPPA with Negotiation and signing of MOICS 12 ties with major trading part- Finland, France, Ger- BIPPA with major trading ners by signing BIPPA for many, India, Mauritius partners such as Australia, investment promotion and the UK Bangladesh, Canada, China, Japan, Norway, Russian Feder-ation, South Korea, Switzerland, Thailand, UAE, the USA conclud-ed 38 Sign DTAAs with different Nepal has DTAA with Negotiation and signing MOICS 12 countries based on the Norway, Thailand, Sri of DTAA with Australia, inten-sity of investment and Lanka, Mauritius, Austria, Canada, France, Finland, trade relations Pakistan, China, South Germany, Japan, Russian Korea, Qatar, India and Federa-tion, Switzerland, Bangladesh UAE, the UK and the USA concluded 39 Conduct export promotion MOICS and TEPC Promotional activities MOICS 100 programs including partici- are participating in including trade expos pation in international trade international trade expos and fairs, conferences, expos and fairs in collabora- and fairs in collaboration etc. in collaboration with tion with the private sector with the private sectors to diplomatic missions, NRNA some extent and bilat-eral private sector chambers carried out Strategy 5: Enhancing labor motivation and productivity 40 Redesign courses on voca- There is a mismatch ŒŒ Vocational education CTEVT 2 tional education, training, between the demand and and training courses and skills in accordance with supply of workers with redesigned in consultation market demand required skills with prospective employers ŒŒ Supply of skills as per the market demand ensured 41 Strengthen the skills testing The testing system of The NSTB accredited with CTEVT 1.5 system and obtain the NSTB NSTB lacks third party ISO 17024 ISO certification conformity assessment 64 NTIS 2080 S.N. Key Actions Baseline Indicators Performance Indicators Responsi- Estimated (2021/22) (2027/28) bility Cost (NPR mil.) 42 ŒŒ Expedite the task of ŒŒ EMIS is partially ŒŒ Fully functional EMIS in DOL 2 mak-ing the EMIS fully functional place functional ŒŒ The labor requirement ŒŒ EMIS served as an ŒŒ Regularly update the portal is under effective means of data-base on market construction in-formation exchange demand of labor with between employers, requisite skills training providers, employees, and rele-vant stakeholders 43 Facilitate and provide Some incentives are Incentives in the form MOF 500 incen-tives for adoption provided to promote of subsidies, matching of modern technologies in the use of technologies, grant, tax rebate in place agriculture, non-agriculture, such as cash grant in the for purchase and use of and services sectors establishment of cold appropriate mod-ern storage for agricultural technologies and adoption prod-ucts, and rebates of Industry 4.0 technologies in customs duties in such as Blockchain, IoT and the import of industrial 3D printing machineries 44 Increase the proportion of Proportion of informal Proportion of formal DOL 5 formal employment in total employment is employment increased by employment by gradually substantially high 20 percent formalizing informal jobs 45 Study the possibility of Nepal has not signed A detailed study undertaken MOLESS 1.8 sign-ing and ratifying the the ILO Convention on to examine the costs and MOICS ILO conventions necessary freedom of associa-tion benefits of signing the for the eligibility in the GSP+ and right to or-ganize (No conven-tions, and a decision schemes of the EU and 87) and Convention on taken accordingly Türkiye and GSP Enhanced labor inspection (No 81) Framework scheme of the UK Strategy 6: Ensuring meaningful women empowerment and social inclusion in benefit sharing 46 Conduct a study on inter- Lack of broader ŒŒ An in-depth study on the MOICS 13.4 linkages between socio- understanding of the interlinkages between MoOWCSC economic policies (those socio-economic policy socio-economic policies Private sector related to trade and invest- interlinkages (related to trade and ment) and their impact on investment) and their disadvantaged communities impact on disadvantaged communities conducted ŒŒ Trade and investment activities ensuring women empowerment and social inclusion implemented 47 Make trade-related infor- Poor access to trade-re- Information made available MOICS 3.5 mation widely available to lated information due to in trade portal and local me- MOCIT women and marginalized weak dissemination of dia (print, audio/visual) with Province communities through trade such information sim-plified text, graphics Governments portal as well as capacity- and images TEPC building programs Orientation on trade- MOICS 13.6 related information for FNCCI around 2,100 MSMEs in all CNI provinces conducted NCC FNCSI FWEAN 65 NTIS 2080 S.N. Key Actions Baseline Indicators Performance Indicators Responsi- Estimated (2021/22) (2027/28) bility Cost (NPR mil.) 48 Motivate all government Trade statistics are GESI disaggregated data MOICS 2.5 agencies and research available up to MSMEs on exports, customs, DOC centers for publishing GESI only ecommerce be available NSO disaggregated data on trade Research Institute Trade related national and international organizations 49 Undertake GESI auditing in Inadequate GESI lens on 10 GESI assessment studies MOICS 5 at least two priority sectors NTIS identified priority conducted and action plans Sector- identified by the NTIS 2023 sectors covering different aspects related each year of business development, agencies trade and capacity building Research activities for women and institutions marginalized communities in Development 10 priority sectors identified partners by the NTIS 2023 formulated and implemented Yearly 100 MSMEs from 5.1 marginalized communities involved in the 5 priority sectors trained Mobilize development Capacity of export ori- None assistance to enhance the ented MSMEs in entre- capacity of women and preneurship develop-ment, marginalized communities technology trans-fer, market involved in trade of goods information and value chain and services integration enhanced 50 Establish and operationalize No provision A specific Trade GESI desk MOICS 3.1 GESI desk in the NTIS established to ensure GESI implementation unit on NTIS implementation Strategic Pillar 2: Improving trade-enabling infrastructures, logistics, processes, and regulatory environment Strategy 7: Developing integrated trade logistics and improving trade facilitation

51. Prepare Trade Logistics Trade Logistics Master National trade related MOICS 20 Master Plan to facilitate Plan does not exist transport network seamless movement of cargo for export promotion

52. Develop trade infrastructure Standard does not exist Trade infrastructure MOICS 3 standard standard developed MOALD

53. Harmonize and consolidate There is no harmonization Non-transport trade MOICS 5 the provisions of infrastructure harmonized MOF non- transport trade MOCIT infrastructure NRB 54. ŒŒ Develop dedicated There are no such ŒŒ Dedicated corridor MOICS 10,000 corridors and other provisions for cargo storage DOC necessary infrastructure and transportation CAAN NITDB for cargo storage and constructed and transportation at custom operated to comply points and international with SPS measures for airports to comply plants, animals and food with SPS measures for products (perishable) plants, animals and food products (perishable) 66 NTIS 2080 S.N. Key Actions Baseline Indicators Performance Indicators Responsi- Estimated (2021/22) (2027/28) bility Cost (NPR mil.) ŒŒ Make compulsory ŒŒ Onboard self-declaration provision of quarantine for passengers at related onboard self- international airports declaration for passengers made operational at international airports

55. Develop trade related Trade related Infrastructure for MOICS 1,500 consolidation facilities consolidation facilities and consolidation facilities Private sector and formulate directives directives do not exist developed and directives for products of small and formulated cottage industries to access international market and enhance export of quality products within specified time

56. Develop postal services An initial study on the ŒŒ Postal regulation MoCIT 1,000 for e-commerce to ensure feasibility of use of postal amended to operate MOICS smooth supply of products service for e-commerce e-commerce DOPS of small and cottage has been conducted by ŒŒ Infrastructure for DOCSCP industries to domestic and DoPS e-commerce developed international markets at DoPS ŒŒ e-commerce activities performed by DoPS

57. Develop Trade Information Trade information portal Trade Information Portal MOICS 500 Portal also by incorporating has limited information on updated and made TEPC information about trade trade logistics operational related infrastructure

58. Develop paperless clearance Paperless clearance Electronic clearance system DOC 200 system at customs points system has started at made operational at all major customs points customs points

59. Enhance capacity and skills Trainings for logistics Capacity of trade logistics MOICS 20 of trade logistics service service providers and service providers and providers and regulatory regulatory bodies do not regulatory bodies enhanced bodies exist

60. Amend trade related Trade related regulations Trade related regulations MOICS 30 regulations and guidelines and guidelines are not and guidelines harmonized MoALD for facilitating export harmonized MOFE MOF

61. Establish international Annual budget and trade ŒŒ Construction of MOICS 6,000 exhibition centers for deficit reduction strategy international exhibition TEPC supporting trade promotion have mentioned the center at Chovar, and development development of such Kathmandu and the infrastructure but not yet Koshi and Far Western implemented provinces started ŒŒ International trade exhibitions in different parts of the country organized after the establishment of international exhibition centers 67 NTIS 2080 S.N. Key Actions Baseline Indicators Performance Indicators Responsi- Estimated (2021/22) (2027/28) bility Cost (NPR mil.)

62. Develop common facility Such common facility 6 common facility centers MOICS 180 centers for different centers do not exist established and made TEPC products in different parts of operational for promoting the country through public exportable products of private partnership by micro, cottage and small involving micro, cottage, and industries based on small industries producing domestic raw materials exportable goods and collectors of producing raw materials

63. Sign MOUs with private The digitization, transfer ŒŒ Export and employment MOICS 100 sector associations for and generation shifting of enhanced through 5 skills TEPC providing skill development skills related to traditional development trainings CTEVT trainings and export handicraft products ŒŒ Digitization, transfer and promotion on cost sharing (precious metal jewelry, generation shifting of basis by digitization, transfer wood, metal, stone, clay, skills institutionalized and generation shifting of fine arts, etc.) is limited traditional skills related to handicrafts products as per the demand of international market 64. ŒŒ Provide high security with Export could not be Exports continued during MOHA None priority for the transport continued during disasters disasters MOICS of exportable goods and due to lack of such TEPC their raw materials even arrangements during the period of disasters ŒŒ Make necessary arrangement for customs clearance of such products with high priority Strategy 8: Strengthening food quality and plant health standards

65. Amend and formulate Plant Quarantine ŒŒ Animal Health and MOALD 4 laws related to plant and Protection (First Animal Services Act, quarantine and protection, Amendment) Act, 2007, Animal Feed Act, Animal pesticides management, Seeds Act, 1988, Animal Slaughterhouse and Meat animal health, animal feed, Health and Animal Inspection Act enacted slaughterhouse, foods and Services Act, 1998, with amendment seeds Animal Slaughterhouses ŒŒ Plan Quarantine and and Meat Inspection Protection Rules and Act, 1999, Pesticides Seeds Rules amended Management Act, 2019 ŒŒ Pests Analysis Directives have been enacted formulated 68 NTIS 2080 S.N. Key Actions Baseline Indicators Performance Indicators Responsi- Estimated (2021/22) (2027/28) bility Cost (NPR mil.) a. Formulate new laws for Import of such species ŒŒ Import management and MOALD food safety and animal is restricted except protection of biodiversity welfare for research by Plant assured through Quarantine and formulating laws Protection Act, no other ŒŒ Necessary provisions to legal provisions exist recruit personnel in the positions created in Crop Treatment and Pesticides Management Sub-cluster, Plant Quarantine Sub- Cluster, and Laboratory service Sub-Cluster under Crops Protection Cluster of Nepal Agriculture Service for prompt and effective crop protection and plant quarantine services arranged b. Impart trainings to No such provision exists Trainings on dedicated MOALD security agencies to pro- security services for SPS vide dedicated security border control for security services for SPS border agencies organized and control dedicated security services made operational c. Ensure uniformity in It is difficult to work out SPS services at border points MOALD office hours, holidays of office hours due to SPS enlisted as essential services MOF and other facilities of service not listed as an and office hours, holiday concerned regulatory essential service and others provisions agencies with customs uniformed among agencies offices for providing 24 hours SPS services for serving at border points international trade d. Prepare performance No such provision exists Performance standards for MOALD standards of survey survey surveillance and surveillance and PRA PRA services to integrate services to integrate it in it in performance-based the performance-based incentive system prepared incentive system e. Based on the export ŒŒ 175 entry points under Presence of necessary MOF data from border DoC exist but export number of relevant offices MOICS crossings, make nec- trade is possible only ensured after reviewing MOALD essary arrangement of from 7 border posts the border points; border administrative structure with plant quarantine points having only imports of customs and quar- antine offices at border services reduced, and only border check-posts where ŒŒ Goods are only points having both export mirror check-posts exist imported due to the and import remained in neighboring India and lack of counterpart operational China, and gradually offices at the border remove the check-posts points through which only import exists 69 NTIS 2080 S.N. Key Actions Baseline Indicators Performance Indicators Responsi- Estimated (2021/22) (2027/28) bility Cost (NPR mil.) f. Designate specific No such provisions exist Specified goods imported MOF customs points for im- only from designated MOICS ports of specific goods customs points MOALD regulate the specified standards and quality Seasonal tax system started Introduce seasonal tax system based on the im- port data and domestic demand

66. Operate Central Laboratory is not fully Organogram with new MOALD 0.5 Phytosanitary and operational because positions of the Central MOFAGA Diagnostics Laboratory of insufficient human Phytosanitary and after getting approval resources in relation to Diagnostics Laboratory of organogram and workload approved and laboratory recruitment to positions at made fully operational the laboratory

67. Formulate laws on food Food Act, 1966 is in force Food Safety and Quality laws MOALD 2 safety and quality formulated and enacted

68. Formulate rules for NTFPs, Rules do not exist Rules on NTFPs including MOFE 1 including medicinal plants medicinal plants formulated

69. Strengthen, designate and National Food and Feed At least four international MOALD 15 accreditate SPS related food Reference Laboratory standard laboratories DFTQC safety, plant and animal (NFFRL) exists at DFTQC established under DFTQC hygiene for reference and for testing exportable other laboratories agricultural products

70. Conduct capacity building Few short-term trainings ŒŒ Trainings to implement MOALD 14.7 programs on SPS measures are conducted Nepal GAP, GMP, HACCP, DFTQC and standards such as Risk assessment and and other good practices Codex standards (Codex inspection process is weak to obtain certification MRLs/MCLs and national for exported products standards) and ensure domestic Disseminate information on compliance to safety Code of Conduct and GAP standards conducted for tea, coffee, vegetables, ŒŒ Training and guidance and fruits (Citrus) on implementing a ŒŒ Training for farmers, food traceability system, processors and packagers particularly for export- ŒŒ Training on traceability for oriented businesses value chain stakeholders conducted ŒŒ Training on risk ŒŒ Support to farmers assessment, and for development and management inspection implementation of Code ŒŒ Pest risk analysis, of Conduct/GAP extended including risk analysis of for food safety practices weeds species and GMOs in high value cash crops ŒŒ Training for staffs and inspectors at border- points conducted

71. Implement Nepal GAP Nepal GAP has been Nepal GAP for at least 21 MOALD 10 after its promotion and developed and its commercial agriculture DFTQC accreditation accreditation is assigned firms in seven provinces to DFTQC accredited 70 NTIS 2080 S.N. Key Actions Baseline Indicators Performance Indicators Responsi- Estimated (2021/22) (2027/28) bility Cost (NPR mil.)

72. Develop and implement Traceability system does Traceability system for MOALD 2.5 traceability system on not exist. However, at least 5 crops/food DFTQC exportable agricultural and it is mandatory while and animal products PQPMC animal products exporting agriculture implemented DOLS products to the EU, China, USA and other developed countries

73. Conduct awareness Lack of knowledge on SPS Trainings, workshops, study MoALD 1.5 programmes among measures among farmers visits organized DOA different stakeholders on and traders DFTQC availability and use of SPS PQPMC information DoLS

74. Provide trainings for SPS specific trainings A training center to provide MoALD 10 producers/ businesspersons divisions and centers trainings on SPS matters for DoA involved in export oriented exist under respective government officials and DFTQC agricultural products on SPS departments private business persons PQPMC issues by enhancing capacity established DOLS of concerned training centers

75. Formulate National Sanitary Thirty-one NSPMs and Additional 24 NSPMs MOALD 5 and Phytosanitary Measures internal guidelines have directives developed DOA (NSPMs) Directives been formulated DFTQC PQPMC DOLS

76. Adopt good production Separate good production ŒŒ Directives and manuals MOALD 1 practice systems in practices systems for capacity building DOA production and processing (GAP, GVP, GMP) do of entrepreneurs of DFTQC of exportable agricultural not exist for enhancing exportable agricultural DOLS and livestock products competitiveness of and livestock products for enhancing their exportable agricultural prepared, approved, and competitiveness and livestock products implemented ŒŒ Accreditation system developed and implemented ŒŒ Risk based regulation provisioned for inspection and monitoring through capacity enhancement and resources mobilization ŒŒ Internationally accredited services provided by enhancing capacity of food safety and quality testing laboratories

77. Strengthen survey, ŒŒ Surveillance system Programs on information MOALD 30 surveillance and inspection exists for few crops surveys of pests and MOFE programs ŒŒ Surveillance conducted diseases for all priority crops PQPMC for 5 MAPs conducted annually 71 NTIS 2080 S.N. Key Actions Baseline Indicators Performance Indicators Responsi- Estimated (2021/22) (2027/28) bility Cost (NPR mil.)

78. Develop and update Food standards are in Regular participation MOALD 0.5 standards for exportable practice in according to in Codex meetings to DFTQC food products in line with food act and rules determine international international standards food standards ensured Standards for exportable food products in line with international standards developed and updated

79. Develop diagnostic No diagnostic protocol for At least 10 diagnostic MOALD 0.5 protocols for pests pests exists protocols for pests PQPMC developed

80. Develop methodology and ŒŒ Existing procedure is Methodology and MOALD 0.5 procedures to coordinate very old procedures to coordinate stakeholder agencies related ŒŒ Guidelines for SPS agencies concerned to SPS to SPS coordination committee developed does not exist

81. Strengthen e-Phyto system The system is in operation e-Phyto system MOALD 1.5 through Nepal National strengthened and fully PQPMC Single Window system implemented but some issues yet to be addressed

82. Establish post entry Such facilities do not exist Post entry facilities MOALD 5 quarantine facilities at 5 established at Nepalgunj, PQPMC customs points Bhairahawa, Birgunj, Biratnagar and Kakarvitta

83. Produce hygienic crops by Surveillance conducted Orange fruits in Syangja MOALD 2.5 managing pests through for controlling Fruit Fly and Sindhuli districts and Systems Approach in in orange orchards of Hellige and meat produced selected areas producing Syangja and Sindhuli in Chitwan, and other exportable goods districts places adopting Systems Approach exported and same procedure adopted for other species

84. Develop SPS Compliance Strategic plan formulation Strategic Model for SPS MOALD 1 Strategic Model process has been initiated compliance implemented DFTQC PQPMC DOLS

85. Manage transboundary Risk-based system does Risk-based system MOALD 1 diseases by establishing risk- not exist established to implement DFTQC based inspection system SPS activities PQPMC DOLS

86. Formulate information System does not exist Information management DoLS 0.5 management system on system developed and animal health implemented

87. Construct holding yard There are no physical 5 holding yards constructed DOLS 0.7 facilities for livestock facilities available quarantine 72 NTIS 2080 S.N. Key Actions Baseline Indicators Performance Indicators Responsi- Estimated (2021/22) (2027/28) bility Cost (NPR mil.)

88. Formulate agricultural Despite the policy to Study on agricultural MOALD – biodiversity related laws control and restrict GMO biodiversity conducted MOLJPA for protection and proper and products that have utilization of agricultural negative impacts in Laws for regulating biodiversity biodiversity, environment, GMO and its products and human health, it is with probable effects on not implemented fully agricultural biodiversity because of absence of formulated proper laws Strategy 9: Improving quality infrastructures and enforcement of industrial standards

89. Formulate quality policy Concerned policies and Quality and laboratory MOICS 12.5 and laboratory policy and bodies do not exist policies formulated establish accreditation body Accreditation body established

90. Establish information Information services Information center estab- MOICS 2.5 center to help exporters partially available at TEPC lished NBSM in identification and and NBSM TEPC understanding the market access requirements of export destination markets

91. Prepare database on Lack of database of Database on NTBs such TEPC 7.5 NTBs such as voluntary voluntary sustainability as voluntary sustainability sustainability standards standards at national level standards developed specific to products, group of products, geography and generic nature that have been continuously asking from the private sector in the importing countries

92. Explore NTBs caused by A few standards for Organic and Halal standards MOICS/ 10 sustainability and private market access of organic developed NBSM standards and formulate and Halal products are national standards to being developed address such NTBs

93. Standardize production, Few standards exist and Standards for all export NBSM 12.5 storage, transportation, few are being developed potential products packaging and labeling of developed export potential products

94. Conduct trainings for Lack of knowledge to 70 trainings organized TEPC 35 producers, traders and use online access tools, exporters to use tools specifically tailored for like ITC's standards map, different actors along the trade map, market access value chain for enabling map, market analysis them to make informed tools, and UNIDO's decisions, have better LABNET, and to understand understanding the processing, packaging and sustainability initiatives transportation requirements landscapes, and to for ensuring safe and quality connect with like-minded products business partners 73 NTIS 2080 S.N. Key Actions Baseline Indicators Performance Indicators Responsi- Estimated (2021/22) (2027/28) bility Cost (NPR mil.)

95. Conduct awareness training No planned and organized 70 trainings organized MOICS 35 programs for producers, training provision exists NBSM traders and exporters about certification processes for different voluntary standards of product, geographical identification, sustainability standard and their implementation mechanism

96. Organize awareness ŒŒ About 35 trainings were ŒŒ 70 Training / workshops/ MOICS 85 programs for SMEs, cottage conducted by then seminar organized NBSM industries and handicrafts DoCSI and this activity ŒŒ Incentives for DFTQC producers to motivate for has been transferred to implementing quality Province quality enhancement the provinces, where it enhancing measures Governments has yet to start provided to 175 industries ŒŒ Some trainings are being conducted by private consulting firms

97. Make necessary ŒŒ Some understandings ŒŒ Accreditation of All QI 50 arrangements for have been made with testing, inspection and institutions accreditation for recognition BIS and BSTI certification completed (NBSM of conformity assessment ŒŒ Initiatives have been for at least 10 products DFTQC results carried out locally in taken for multilateral ŒŒ At least six G2G MRAs DPPR export destinations and sign arrangements at concluded DDA G2G MRA regional level Public and ŒŒ Few products and few private testing parameters have laboratories) been accredited ŒŒ G2G MRAs are not concluded yet

98. Strengthen NBSM as the Insufficient level of human Adequate laboratories, NBSM 1,500 primary QI service provider and physical resources to equipment and human by upgrading physical and provide QI services resources related to quality human resources ensured

99. Develop testing and There is parameters of Testing equipment installed NBSM 1,000 accreditation facilities for limited products, but MoALD export potential products they do not fully cover all Testing parameters export potential products accredited

100. Commence certification for Skilled and semi-skilled System for accreditation of NBSM / 20 persons as per ISO 17024 human resources in the persons on the basis of skills CTEVT service and industrial established sectors are not receiving appropriate compensation and recognition Strategy 10: Improving investment environment

101. Review the FDI limit on the The thresholds of FDI The minimum threshold of MOICS 0.5 basis of sectoral analysis in all sectors is NPR 20 FDI reviewed on sectoral MOF million basis

102. Make arrangement for FDI The DoI commenced All FDI approvals granted MOICS 2 approval within the defined online services on June within 7 days from the NRB timeline through simplified 2022 application date documents and digitization of procedures 74 NTIS 2080 S.N. Key Actions Baseline Indicators Performance Indicators Responsi- Estimated (2021/22) (2027/28) bility Cost (NPR mil.)

103. Grant automatic route of Budget of FY 2022/23 has ŒŒ FDI in permitted sectors MOICS 0.5 entry for FDI in permitted the provision of foreign granted through sectors after introducing investment up to NPR automatic route operational guidelines 100 million to be granted ŒŒ Procedures for automatic entry through automatic route made clear through route an amendment in the FITTA

104. Allow repatriation of Dividend repatriation Automatic repatriation for MOICS 0.5 dividend through an is subject to the prior dividend implemented by NRB automatic route without approval of the DoI and issuing appropriate notice prior approval on the basis the NRB under FITTA and NRB bylaws of comply with the Company Act and the Income Tax Act

105. Digitize the company and The DoI commenced Company and industry MOICS 2 industry administration piloting of online services administration services fully MOCIT services with adequate on 29 June 2022 but the delivered online infrastructure and screening submission of physical by replacing the provision documents is still required of submiting physical documents and manual screening with introducing online filing and screening process

106. Remove timeline FITTR has provisioned Foreign investors allowed MOICS 0.5 requirements for bringing investment timeline for to bring foreign investment in FDI bringing in FDI after its as per the project’s capital approval requirement

107. Harmonize FITTA, PPPIA, These acts have different FITTA, PPPIA, IEA, and FERA MOICS 1.5 IEA, FERA and other relevant contradicting provisions amended IBN acts to eliminate legal NRB controversies on FDI

108. Harmonize NRN Act and Budget for FY 2022/23 No investment threshold MOICS 0.12 FITTA for attracting NRN’s has provision for legal required for NRNs MOFA investment in Nepal and procedural reforms, and open security market for NRN, and reservation of 10 percent of IPO to Nepali involved in foreign employment

109. Make arrangements for Foreign Investment All foreign loans related NRB 0.5 receiving all foreign loans Bylaws of NRB has matters administered by the of private sector under the categorized foreign loan Bylaws of NRB Foreign Investment Bylaws including project finance of NRB into different categories

110. Reduce mortgage fees Arrangement does not Mortgage fees applicable for MOF 1.4 applicable to foreign lenders exist foreign lenders reduced Province for the registration of Governments mortgage security of fixed property 75 NTIS 2080 S.N. Key Actions Baseline Indicators Performance Indicators Responsi- Estimated (2021/22) (2027/28) bility Cost (NPR mil.)

111. Remove the provision Budget of FY 2022/23 Restriction on collateral MOICS 0.5 of restricting collateral has provisioned to allow against land above the MOLMCPA against land above the borrowing against land as ceiling removed land ceiling for project collateral for industries financing purpose through holding more than amendment of Section 32(6) specified limit, and to of IEA repay the government revenue and loans of banks and financial institutions by selling such lands

112. Ratify the following Nepal is a signatory Madrid Treaty and PCT MOICS 3 international treaties on to various intellectual ratified MoFA intellectual property to property treaties such make intellectual property as the Paris Convention registration process in for the Protection of several jurisdictions cost- Industrial Property, effective and hassle-free: 1883, the Agreement on ŒŒ Madrid System for the Trade-Related Aspects International Registration of Intellectual Property of Marks (Madrid Treaty) Rights, 1995 and the ŒŒ Patent Cooperation Treaty Berne Convention for the (PCT) Protection of Literary and Artistic Works, 1886. Nepal is also a member country of WIPO

113. Enact new IP Act with IP Bill is in formulation IP Act enacted MOICS 1.2 following features: process ŒŒ Ensure strict timeline for the swift adjudication of IP disputes ŒŒ Reduce the IP registration time ŒŒ Remove the provision of IP Review Committee ŒŒ Make provision for compensation mechanism to discourage habitual offenders ŒŒ Maintain a digital repository of IPs for easy accessibility

114. Formulate necessary Arrangement does not Necessary guidelines MOICS 0.5 guidelines for the exist regarding registration and implementation of new maintenance procedures forms of IP such as Trade for all forms of new IPs Secret, Geographical formulated Indication provisioned in the IP Bill

115. Strengthen the OSSC to Services provided by the Investment promotion and MOICS 100 provide integrated services agencies represented in business environment made All other to industries and businesses the OSSC at DoI is not conducive through efficient concerned without hassles effective and effective services from agencies the OSSC 76 NTIS 2080 S.N. Key Actions Baseline Indicators Performance Indicators Responsi- Estimated (2021/22) (2027/28) bility Cost (NPR mil.) Strategy 11: Integrating advance concepts of Industry 4.0 and 5.0 in production process

116. Formulate and implement No provision exists ŒŒ Industry 4.0 Strategy MOICS 450 Industry 4.0 Strategy formulated and MOCIT implemented ŒŒ High bandwidth internet services made available at cheaper rates for companies

117. Develop and implement No investment plan exists Investment in Industry 4.0 MOICS 1,400 investment plan on Industry in certain sectors in each Province 4.0 in all provinces province ensured Governments

118. Develop and implement No program exists Industry 4.0 technology and MOICS 140 Industry 4.0 technology and exploration management exploration management program implemented program

119. Establish National and No provision exists Community data centers MOICS 200 Local Data Depository and established across the MOCIT Reporting Centers country NSO

120. Establish research and No provision exists National research and MOICS 200 development center for development center MOCIT Industry 4.0 and 5.0 on Industry 4.0 and 5.0 established

121. Develop systems related to Standalone systems exist Systems with mutual MOCIT 17 Industry 4.0 and establish but interface does not interface developed interface with the central exist or is weak system

122. Develop digital modelling Provision does not existDigital modelling system MOICS 130 system developed and operated MOCIT

123. Purchase necessary Existing equipments and System drivers, MOICS 10 equipments and functionalities are not procurement of MOCIT functionalities related to sufficient equipments for Industry 4.0 communication and interoperability developed

124. Develop national payment Payment gateway system International payment MOICS – gateway does not exist gateways (e.g., PayPal) MOCIT services to Nepal in use MoF NRB

125. Develop national as well as The system does not exist Internal and external MOICS 100 cross border information integrated information MOCIT sharing system sharing system developed MoHA MOF MOFA

126. Provide services on industry Automated system has Industry administration MOICS 10 administration through been developed at DoI services provided through MOCIT automated system and is in the pilot phase automated system DOI Province Governments

127. Strengthen DoIT through IT No provision exists IT solution center operated MOCIT – solution center and system at DoIT development

128. Develop data analysis and National system does not Data analysis and usage MOICS 5 usage system for Industry 4.0 exist system developed MOCIT NSO 77 NTIS 2080 S.N. Key Actions Baseline Indicators Performance Indicators Responsi- Estimated (2021/22) (2027/28) bility Cost (NPR mil.)

129. Conduct capacity building Such programs do not Capacity building trainings MOCIT 100 trainings on Industry 4.0 and exist on Industry 4.0 and 5.0 MOICS 5.0 conducted

130. Carry out legal and policy There is no provision ŒŒ Appropriate legal MOICS 500 reforms for development of startup business in arrangements for startup of startup business and for Industrial Enerprises Act business made creating conducive business ŒŒ Supportive institutions environment such as incubator centers and accelerator centers established ŒŒ New financial service mechanism such as Challenge Fund, Venture Capital and Private Equity Fund made operational Strategic Pillar III: Developing competitive goods and services and expanding export market Strategy 12: Expanding the capacity in exports of goods Market access

131. Negotiate with the US to Nepal Preference Program Nepal Preference Program MOICS None extend time period of Nepal started in 2017 but with the US extended for MOFA Preference Program expiring Nepal couldn’t utilize it next five years and ready- in 2025 and include Nepal’s optimally due to Covid-19 made garments included in exportable product ready- pandemic the list made garments

132. Negotiate with India India levies 4 percent Import restrication and MOICS None and other countries on additional duty on additional duty imposed by additional duty being levied primary imports from India removed on primary products, import Nepal control and other restriction imposed by India

133. Strengthen institutional Weak institutional Institutional capacity MOICS 50 capacity in trade and market capacity to provide to provide necessary TEPC intelligence to provide information on market information for export information on market entry entry requirements promotion of Nepali goods requirements of potential enhanced export destination countries Cross-cutting areas

134. Increase participation in Insufficient participation Export promoted by partic- MOICS 200 international trade fairs and in international trade fairs ipating in 40 international TEPC exhibitions in order to pro- and exhibitions trade fairs and exhibitions mote international markets of export potential products

135. Provide price support to Excise duties of emerging Price support received by MOF 2,650 export potential products export potential products exporters MOICS that have faced increase in like citrus fruits, tomato, excise duty cucumber, and mineral water have been in- creased

136. Conclude Comprehensive Nepal has trade agree- Export-based foreign invest- MOICS None Economic Partnership ments only with few ment increased Agreements with major major trade partner trade partner countries countries

137. Implement safeguards, anti- Safeguards, Anti-dumping Major anti-dumping cases MOICS None dumping and countervailing and Countervailing reported and investigated DOCSCP law Act, 2019 has not been effectively implemented 78 NTIS 2080 S.N. Key Actions Baseline Indicators Performance Indicators Responsi- Estimated (2021/22) (2027/28) bility Cost (NPR mil.) Agriculture sector

138. Make necessary Only 40 percent of Institutional capacity MOALD 4.8 amendments in required quantity of strengthened and MOF procurement act, strengthen fertilizer is being imported Procurement Act amended institutional capacity and and the procurement by policy reforms carry out policy reforms to process is cumbersome ensure regular supply of fertilizer 139. ŒŒ Develop capacity of ŒŒ 100,000 MT organic ŒŒ 200,000 MT organic MOALD 10,000 producing chemical and fertilizer is being fertilizer produced MOICS organic fertilizers within produced annually annually IBN the country ŒŒ Chemical fertilizer ŒŒ Chemical fertilizer DOA ŒŒ Establish and operate industry does not exist industry established Province chemical fertilizer and smooth supply Governments industries of chemical fertilizers ensured

140. Expand irrigated area 1.531million-hectare land Irrigation facility in 1.766 MOEWRI 172,000 (40 percent of arable million-hectare land (50 land) has irrigation facility percent of arable land) achieved

141. Strengthen capacity of Most of the local ŒŒ At least 50 percent of MOALD 19,000 local levels in agricultural governments have agricultural budget at Province market development, and allocated budget for local level allocated for Governments minimizing losses in post- agricultural roads controlling post-harvest Local levels harvest handling, storage losses and market and transport promotion ŒŒ At least one harvest collection center and one storage facility established in each local level

142. Enhance post-harvest Post-harvest handling, Post-harvest losses reduced MOALD 1,500 handling, storage and storage and transport by half through storage, Province transport capacity technology is weak transportation, grading, Governments cleaning and proper packaging

143. Provide incentives to Growth rate of agricultural Growth rate of agricultural MOICS 1,500 agricultural processing processing industries is processing industries MOALD industries only 19 percent increased to 25 percent

144. Enact Agriculture Market Legal provision to regulate Agriculture Market Act MOALD 2 Act agriculture market is weak enacted

145. Adopt and monitor plant Regulation of pesticides Plant health strategy MOALD 1,500 health strategy to maintain and other chemicals in adopted and use of food safety by reducing agriculture is in practice agricultural chemicals in the use of chemicals in based on Pesticide crops and livestock reduced agriculture Management Act, Food Act, Phytosanitary Act and GAP, Regulation of pesticides/veterinary drugs in foods is in practice based on Food Act, and regulation of livestock drugs is in practice based on Drug Act 79 NTIS 2080 S.N. Key Actions Baseline Indicators Performance Indicators Responsi- Estimated (2021/22) (2027/28) bility Cost (NPR mil.)

146. Establish cardamom Most farmers are using At least two modern MOALD 20 drying plants with modern traditional Bhatti (kilns) cardamom drying plants technology for drying cardamom established

147. Incentivize commercial ŒŒ Export of spices except ŒŒ Production of spices, MOALD MOF 500 farming of spices, fruits, cardamom and ginger is fruits, vegetables and jute vegetables and jute for their negligible increased in double digits export promotion ŒŒ 90 percent export of ŒŒ Export of these products cardamom and ginger to third countries and 85 percent export increased by 30 percent of jute and its products annually is concentrated to India ŒŒ Only 5 percent export of fruits and vegetables is in non-SAARC countries

148. Enhance capacity along with There are no Internationally accredited MOALD 500 export infrastructure of internationally accredited laboratories operated for vegetables, fruits, jute, tea, laboratories special agricultural products coffee, dog-chew, pashmina, leather, etc. to comply with necessary requirements for entering international markets Forest sector

149. Adopt necessary measures ŒŒ MAPs are generally ŒŒ Commercial production of MOFE 1,000 to enhance commercial collected from forest MAPs increased in double DOFSC farming of MAPs and and exported primarily digits DOPR expand their markets to India without ŒŒ Export of these products FECOFUN processing to third countries ŒŒ Commercial farming increased by 30 percent of MAPs has not materialized yet

150. Strengthen DoPR to issue ŒŒ DoPR has been Internationally accredited MOFE 1,000 internationally recognized capacitated with high- laboratories established for MOALD certificates of MAPs quality equipment all forest products DOFSC and their products, and ŒŒ DoPR is accredited by DOPR enhance capacity of MAPs National Reference producers and exporters Laboratory of India for on entry requirements of six parameters international markets ŒŒ Chromatography Mass Spectrometry machine has been installed in Banke

151. Strengthen institutional ŒŒ MAPs collection ŒŒ Modern technology DOPR 1,000 capacity on collection and method from forest is adopted in MAPs primary storage of MAPs traditional collection ŒŒ Lack of adequate ŒŒ Storage losses reduced storage facilities from by half production areas to ŒŒ Transport time reduced, major export points and grading, cleaning and packaging improved 80 NTIS 2080 S.N. Key Actions Baseline Indicators Performance Indicators Responsi- Estimated (2021/22) (2027/28) bility Cost (NPR mil.)

152. Expand MAPs and essential Only 5 percent aromatic Investment in MAPs MOFE 1,000 oils processing capacity plants are processed for processing industries essential oils and rest doubled and at least 30 are exported in raw form percent of annual collection without processing of MAPs used by processing industries

153. Enhance capacity for There is no proper Lokta and forest-based MOFE 1,000 expanding production of management of Lokta fiber production increased handmade Lokta paper and paper and forest-based in double digits, and their forest-based fabrics and fabrics export to third countries meeting entry requirements increased by 40 percent in international markets annually Industrial sector

154. Provide opportunity for Low productivity of indus- Labor productivity of Nepal MOICS 1,250 formal education and voca- trial workers exists due increased at par with the MOLESS tional training to workers of to their weak access to average of South Asia export potential industries technical education and vocational training

155. Encourage competitive wage Current minimum wage is Minimum wage reached MOICS None rate above the minimum NPR 15,000 per month at par with the average of wage South Asia

156. Minimize existing barriers ŒŒ Average industrial Industrial investment MOICS 1,500 and facilitate for optimal use capacity utilization is increased by 25 percent of industrial production ca- only 57 percent annually, capacity utilization pacity and market expansion ŒŒ There are obstacles reached to 80 percent and in mineral extraction 40 percent of industrial and natural resources products exported to third collection, and various countries problems in importing raw materials ŒŒ Export of industrial products except carpet and hand- knitted woolen products is below 30 percent

157. Incentivize to attract techno- Share of medium and Number of enterprises using MOICS 1,500 logical innovation high-technology activities medium and high-technolo- in manufactured exports gy increased in double digits is 19.6 percent only and the share of such enter- prises reached 50 percent

158. Make necessary arrange- Technical capacity is Internationally accredited MOICS 1,000 ments to issue international- limited laboratories operated for NBSM ly recognized certificates of quality testing of exportable industrial products and build products capacity of exporters for meeting entry requirements of international markets

159. Adopt strong antipiracy There is piracy in different Number of piracy cases MOICS 5 measures against counter- industrial products such decreased by 50 percent DFTQC feit products as footwear products but control mechanism is not effective

160. Ensure effective monitoring Monitoring mechanism is Number of cases of product NBSM 5 of quality of imported raw limited to food, agricul- adulteration decreased by DFTQC materials ture, and livestock related 50 percent goods 81 NTIS 2080 S.N. Key Actions Baseline Indicators Performance Indicators Responsi- Estimated (2021/22) (2027/28) bility Cost (NPR mil.) Small and Medium Enterprises (SMEs)

161. Strengthen institutional 66 percent of exporting Number of SMEs exporting MOICS 1,500 capacity for direct export SMEs use indirect directly increased in double market linkages of SMEs channels to export digits, and their share reached to 60 percent

162. Provide concessional loan 60 percent of micro and At least 60 percent of MOICS 65,000 to SMEs small enterprises and MSMEs got access to MOF 47 percent of medium concessional loan NRB sized enterprises have no access to credit

163. Amend laws to allow Industrial Enterprises Law amended to allow MOICS None contract manufacturing of Act allows Industries to any industry to contract/ industrial goods manufacture products subcontract even for the except its main product by main product of the industry contract/subcontract Strategy 13: Strengthening service exports

164. Simplify the procedures for ŒŒ There is no automatic ŒŒ FITTA amended to allow MOICS 2 foreign investment approval system automatic approval of FDI ŒŒ FDI process in ITE/BPO except for service sectors services is same as in which FDI is restricted other sectors ŒŒ FDI threshold for IT sector ŒŒ NRNs do not have reduced special privileges for investment

165. Support innovations and There are no support pro- Strategy to support inno- MOICS 3,500 start-up businesses vations and start-ups in the visions for service sector Province start-ups at the federalservice sector implemented Governments and provincial levels at the federal and provincial levels

166. Improve the quality of TEVT Institutional mechanism ŒŒ TVET Act enacted MOEST 2 and develop human resourc- of TEVT is not aligned with ŒŒ NVQF Act enacted Province es as per market demand the federal structure and ŒŒ Roles of the three tiers Governments is not market-oriented of government on skills Local levels development defined and Federal Government’s support to provincial and local levels provided

167. Develop cooperation and There is minimal inter- ŒŒ Sectoral skills councils MOEST None coordination among voca- action and cooperation established for key sectors MOICS tional training institutions between the training insti- with the participation of CTEVT and industries tutions and industries private sector Private sector ŒŒ ToRs for the sectoral skills councils developed 82 NTIS 2080 S.N. Key Actions Baseline Indicators Performance Indicators Responsi- Estimated (2021/22) (2027/28) bility Cost (NPR mil.)

168. Increase the earnings of Nepali migrant work- ŒŒ Destinations with MOLESS 1 Nepali migrant workers ers are predominantly high-income potential working in low-income identified and bilateral destinations and jobs MoU signed with 5 such destinations ŒŒ Skills training made mandatory for the workers migrating first time ŒŒ Agreements for the recognition of Nepali skills certificate signed with Gulf countries, Malaysia, Korea etc.

169. Enhance skills of migrant The skills level of migrant ŒŒ Skills levels of migrant MOLESS 2 workers workers is low workers defined and aligned with the skills levels of CTEVT/ NSTB ŒŒ An integrated Education and Skill Strategy for migrant workers developed and implemented

170. Develop human resources ITE/ BPO sector related ŒŒ ITE/BPO Sector Skills MOEST 2 for ITE/BPO sector human resources are not Council formed with MoCIT developed the participation of the private sector and market- based trainings provided ŒŒ Integrated Education and Training Strategy for IT/IT- enabled services and BPO sector developed

171. Improve the efficiency and There is little information ŒŒ Regular surveys of the MOCIT 10 competitiveness of the in the public domain ITE/BPO sector carried Nepali ITE/ BPO sector regarding the Nepali ITE/ out BPO sector ŒŒ Digital Nepal Framework, 2019 implemented

172. Provide cash incentives to Only a small portion of Cash incentives based on MOF Proposed companies and freelancers actual earnings of the export earnings by ITE/ BPO on SN 5 based on export earnings ITE/ BPO companies is companies and freelancers through formal channels received through formal provided channel

173. Improve the resilience of Nepali tourism sector has ŒŒ Strategy for recovery MOCTCA 3 the Nepali tourism sector been affected by Covid-19 of tourism sector from and external shocks the impact of Covid-19 developed ŒŒ A robust plan to promote domestic tourism implemented 83 NTIS 2080 S.N. Key Actions Baseline Indicators Performance Indicators Responsi- Estimated (2021/22) (2027/28) bility Cost (NPR mil.)

174. Improve the efficiency of Tourism marketing efforts ŒŒ Strategies targeted to MOCTCA 10 tourism marketing are not effective the Indian, Chinese, and Nepal Bangladeshi markets Tourism implemented Board ŒŒ Regional tourism promoted in coordination with regional forums such as SAARC and BIMSTEC

175. Enhance coordination and Inadequate coordination Tourist arrival increased MOCTCA 10 partnership among govern- and partnership among through expansion Diplomatic ment agencies, diplomatic institutions engaged in of coordination and missions missions, NRNA and private tourism promotion partnership among tourism- NTB sector for tourism promo- related government NRNA tion agencies and private sector Private sector

176. Improve tourism infrastruc-Tourism related infrastruc- ŒŒ Management of Pokhara MOCTCA 100,000 ture ture are weak and public and Bhairahawa airports MOPIT investment is insufficient contracted to private sector ŒŒ At least four-lane highways constructed to connect key tourism destinations (Kathmandu- Chitwan, Kathmandu -Pokhara, Pokhara- Lumbini, Chitwan- Lumbini, Bhairahawa- Bardiya) ŒŒ Airports in tourism potential hill areas improved ŒŒ Cleanliness, safety, and hygiene maintained in domestic and international airports ŒŒ Cartelling in public transport sector ended

177. Identify, develop and pro- Tourism destinations are ŒŒ Investment of Local levels MOCTCA 5 mote new tourism destina- not well developed including PPP in tourism Province tions infrastructure expanded Governments ŒŒ New tourism destinations Local level identified and tourism promoted

178. Improve the quality of The quality of human re- ŒŒ Integrated tourism and MOCTCA 2 human resources in tourism sources in tourism sector hospitality education sector is weak and training strategy developed ŒŒ Tourism Sector Skills Council established with the participation of private sector for market-oriented skill development in the tourism sector 84 NTIS 2080 S.N. Key Actions Baseline Indicators Performance Indicators Responsi- Estimated (2021/22) (2027/28) bility Cost (NPR mil.)

179. Improve health and hygiene The health and hygiene Health and hygiene MOCTCA 50 standards in tourism sector standards in the tourism standards in tourism sector DFTQC sector are weak implemented

180. Formulate necessary ŒŒ Institutional ŒŒ Institutional roles MOEWRI 30 policy, and negotiate and infrastructures for (including creation of new sign agreements with international power institutions if needed) neighboring countries for trade with cross-border for cross-border and power trade and third countries trans-border power trade does not exist defined ŒŒ There is no legal ŒŒ 400 kVA Butwal- provision of Gorakhpur cross-border international power transmission line trade by NGOs constructed ŒŒ 400 kVA Inaruwa-Purniya and Naya Lumki - Bareli cross-border transmission lines constructed ŒŒ Sale of hydropower produced by the Nepali projects to India on the same terms and conditions as Indian hydropower projects ensured ŒŒ Long-term power purchase agreement with India, Bangladesh and other countries to ensure market for surplus electricity concluded ŒŒ Electricity Act amended and Manual/Directives for international power trade formulated

181. Ensure regular and quality Electricity service is not In order to develope MOF 3 supply of electricity qualitative reservoir-based projects by MOEWRI the private sectors, Manual for Viability Gap Funding prepared and implemented

182. Ease rules for sending It is not easy for construc- ŒŒ Construction companies MOF None foreign currency out of tion companies to send winning contracts outside NRB Nepal to start construction foreign currency outside Nepal allowed to send services for construction Nepal foreign currency upto 10% companies that are awarded of the contract amount contracts outside Nepal ŒŒ Bank guarantee provided to Nepali construction companies while borrowing loans related to their contracts abroad 85 NTIS 2080 S.N. Key Actions Baseline Indicators Performance Indicators Responsi- Estimated (2021/22) (2027/28) bility Cost (NPR mil.)

183. Simplify the process for There is difficulty in taking Amendments in relevant MOF None allowing Nepali construction construction machinery/ acts and regulations MOFA companies to take construc- equipment to countries made to ease the process tion machinery/ equipment where they are awarded for Nepali construction to countries where they are contracts companies for taking awarded contracts construction machinery/ equipment to countries where they are awarded contracts Note: Total estimated cost of NTIS 2023 implementation is NPR 463.25 billion. 86 Government of Nepal Ministry of Industry, Commerce and Supplies Singha Durbar, Kathmandu Tel: +977 01 4211455 | Email: info@moics.gov.np | Website: www.moics.gov.np