Deependra B. Kshetri, senior economist, Former VC, Nepal Planning Commission Gunanidhi Sharma.

1. THE COUNTRY AND ITS INTERACTION WJTH THE OUTSIDEWORLD- Part one.
   

Nepal has been enjoying political independence since long, but the same may not be true about its economics. Sandwiched between two Asian giants, namely, India and the People’s Republic of China, with different socio economic and political environments. Nepal has been constantly endeavouring to enhance her economic relations with the outside world. At a point in time of history, Nepal used to serve as a transit point between British India and Tibet; but it did not last long. Although Nepal’s economic and cultural ties with China have witnessed a growth in mutual trust, respect and benefits over time, nevertheless, attempts have been made to further its economic relationship more with the south than with the north. This has been made convenient by the long open border with India, cultural and social proximity, the treaties of 1950 between Nepal and India and the India-centric behaviour of leaderships in Nepal. These have become the dominating factors determining the long term political and economic relations of Nepal with others (Sharma, 1998 b).

The treaties, though they envisaged mutual benefits, because of the asymmetry in the size of population, physical area and the level of infrastructure development between Nepal and India, have not been able to articulate Nepal’s national interests. For example, as per treaty provisions, the unrestricted movement of people opened opportunities to work in either country, but backward conditions in Nepal naturally provided incentives to Nepal’s membership in the UN and her growing diplomatic relations with countries in different continents widened the base for global economic and political relationships. When she joined the Bretton Woods institutions, Nepal, albeit a non-player in the world economy, maintained its separate identity among member countries. At the regional level, Nepal reserves the credit of being the founder member of South Asian Association for Regional Cooperation (SAARC) which, though not advancing speedily, has successfully been convening summits at regular intervals. As part of regional economic cooperation, SAARC is locked into preferential trading arrangements (SAPTA) among the seven member nations which are envisaged to eventually converge into a free trade area (SAFTA). Nepal to her credit became the first member country to approve the idea of SAPTA.

With limited employment opportunities in the country and an increasing workforce, thanks to the high population growth rate (2.5 percent), Nepal is being overwhelmed by unskilled labour. According to an estimate, Qatar, a newly opened labour absorbing country, alone has accommodated about 40,000 Nepali workers (Manandhar, 1998). Similarly, Nepali workers are scattered all over the Republic of Korea, the Taiwan island and Japan, not to mention different countries of the European continent. As a part of the regular armies of Britain and India, several hundred thousand Nepali male youths have been serving others since long. Thus, labour supply to different parts of the globe by Nepal has opened new opportunities for her to interact with the world communities, apart from trade, investment and various other economic endeavors, including foreign aid, and political relations.

The aim of this paper is to examine the recent developments in the world trade regime and their implications for the Nepalese economy and Indians to be engaged in economic activities in Nepal. As a result, the industrial and business enterprises have been mostly owned by people of Indian origin, or their agents. Similarly, agreements in the use of water from Koshi and Gandaki have provided unilateral advantage to the Indian side. Likewise, Nepal’s trade was exclusively confined to India. Until 1958-59, the share of Nepalese foreign trade with India was around 98.1 percent of the total. Until November 1960, the foreign currency earnings of Nepal used to be deposited at the Indian coffers with no separate accounts maintained. Nepal’s foreign currency needs were being supplied by the Indian side (NRB, 1962). Nepal benefited by utilizing its unskilled labour force in India, but it constituted an insignificant part of the total economic turnover between the two countries.

2. INTERNATIONAL TRADING ARRANGEMENTS; A HISTORICAL PERSPECTIVE

The post World War II global economic scenario demanded an order in areas like monetary and financial policies, including international trade. The Bretten Woods institutions were devised to plan the future of international monetary systems, and for the rehabilitation of the development programmes, especially in Western Europe. On similar lines, for monitoring and regulating international trade, General Agreements on Tariff and Trade (GATT) was conceived in 1948 to provide a multilateral trading framework that envisaged free but fair trade all over the world. The first round of GATT negotiations was held in Geneva for tariff concessions. In 1949, the second round held in Annecy, France with just ten members taking part. The third round of talks took place in 1950 in Turkey, England, where four additional members joined the negotiations. The United States of America indicated that it would not support an International Trade Organisation (ITO). Again, in 1956, the fourth round of trade negotiations was held in Geneva.

The fifth round popularly known as the ‘Dillon Round’ took place between 1960=6 1, in which reduction in tariffs by trading nations was discussed extensively. From 1962 to 1967, the ‘Kennedy Round’, the sixth one, was held. This round saw 50 members participating who focused mainly on non-tariff barriers (NTBs). The negotiations in this round were not very frequent and a sort of lull prevailed during the late ‘60s and ‘70s, possibly due to the oil crisis, particularly in the oil importing countries, which led to fluctuations in international trade. From 1973 to 1979, the seventh round held in which non- tariff barrier issues were raised even more seriously. The number of participants in the negotiations was ever increasing. By the time of the Tokyo round, that is the seventh round, which began in 1979, there were representatives from 99 countries participating in the trade talks. Till the Tokyo round, a loose and informal group of ten developing countries – Argentina, Brazil, Egypt, India, Yugoslavia (former), Chile, Jamaica, Pakistan, Peru and Uruguay – were working for the cause of developing countries by introducing the ‘services trade’ issues into the negotiation. But the big five developed countries opposed the idea of including ‘services’ in GATT negotiations.

The decisive Uruguay round, the eighth in the series, took a relatively longer time- seven years- beginning in 1986. Negotiations in the GATT framework were sometimes suspended to introduce newer areas into the discussions. New areas like trade in services, Trade Related Intellectual Property Rights (TRIPs), and Trade Related Investment Measures (TRIMs) were brought into the scene and finalized during this round. Suspension and resumption of negotiations under the Uruguay Round were common features, especially at the initiatives of tl big players. In 1987, fifteen negotiating groups began to work. In the following year, the ministerial conference held in Montreal completed the mid term review of the Uruguay Round. Arthur Dunkel presented a Draft of Final Act without due provisions of market access commitments. The European Union refused to accept the package on agriculture at first but came to an agreement with the US in Blair House, Washington. Considering the importance of agriculture in its economy, France ventilated reservations over the so called Blair House Accord. It was only in April 1994 that the outcome of the Uruguay Round negotiations was ratified in Marrakesh, Morocco during the ministerial meeting. It was this meeting that set the date for launching the World Trade Organisation (WTO)- 1 January 1995.

The multilateral negotiations, for the facilitation of rule based trade, often met with rough roads and took a relatively longer period than originally thought. Though the bargaining for suitable terms in international trade was mostly between North America and European countries, the slowness in convening negotiations was partly due to the bifurcated world dampened by the ‘cold war’. The fall of the Berlin Wall gave a ray of hope for the GATT negotiations to speed up resulting in the establishment of the WTO. This body could be a strong forum to monitor world trade and investments which were going to be the focus of global economic activities. A shift from political exercises towards trade, to establish harmonious relationship among nations, was distinctly observed while the state of cold war was diminishing. It was to institutionalize this renewed emphasis on economics that close co operation among the Bretton Woods institutions and the WTO was sought. ‘The Fund (and the World Bank) and the WTO will be considering the institutional mechanism formal and informal – that might be necessary to further strengthen their co-operative relationships’ (Calika etal 1994).

In order to liberalize world trade, and to promote a rule based trading system where nations practice the principles of the Most Favored Nation (MFN) with their trading partners. and also for the elimination of Non-Tariff Barriers (NTBs), the negotiations envisioned an eventual borderless trade regime. Multilateralism is WTO’s goal. but bilateralism and trading blocks are also considered as long as they do not violate the basic tenets of free trade. At present, different economic and trading blocks exist in the world. Free trade zones foresee a no-tariff regime among member States, while, each member may pursue an independent tariff policy to govern its trade with non-member countries. European Free Trade Area (EFTA), North American Free Trade Agreement (NAFTA), Asian and Pacific Economic Association (APEC) and Latin American Free Trade Association (LAFTA) are some of the ‘examples of the free trade zones. A custom’s union, on the other hand, practices free trade among members while it pursues a common commercial policy with non- members. The European Union is the appropriate example of a customs union.

A common market presumes free mobility of capital and labour. Central American Common Market (CACM). Caribbean Common Market (CARICOM), etc., constitute ideal examples of a common market. An economic union intends to harmonize macro-economic policies, exchange rates, tax rates and monetary policy. Loose economic co-operation among member countries, eventually leading to economic integration, is also found to have grown in different regions of the globe. Economic Community of West African States (ECOWAS), Gulf Co-operation Council (GCC), Association of South East Asian Nations (ASEAN) South Asian Association of Regional Co-operation (SAARC) and Asia-Pacific Economic Co Operation (APEC) are economic and trading blocs which are marching ahead in order to integrate economies in their respective regions.

Accordingly, the Bretton Woods institutions and the WTO are represented at each other’s annual meetings and exchange and share information among them. Thus, belatedly, came into existence the organisation envisioned immediately after the Second World War, With the trinity – the IMF, the World Bank and the WTO – the successor of the GATT, a complete set of global economic governance institutions were finally iii place.

On the surface, trading blocs seem to be impediments for multilateralism. This can be true if the agreements of the block are product specific that will ultimately culminate into a cartel. As long as trading blocs do not raise barriers against the rest of the world, they create the following conditions for multilateral agreements (Sutherland, 1996); first, Blocks bring their trade in order and, secondly, create a conducive atmosphere for multilateralism, thereby facilitating a rule based trading system internationally.

From the LDC viewpoint, the debatable dimension of the newly created multilateral trading arrangements under WTO is the inclusion of trade in services. Service exports, an important component of socio-economic transactions, are traditionally considered to be the stronghold of industrial countries. During the period of 1973-90, the market share of developing countries in world export of non-factor services almost behaved like an inverted ‘U’. It showed that the performance of the developing countries in service exports may be undermined for various reasons including their competitive position in the world market (Mukherjee. 1995).To be continues: Ed.  Photo used only of GN Sharma.