Dr. Suman Kumar Regmi

For many years, Nepalese industry and commerce operated under substantial protection, giving rise to a mindset that businesses could thrive within the domestic market without exploring external opportunities. This sense of security fostered complacency. However, with economic liberalization and reforms over the past few decades, the situation has drastically changed. Integration into the global economy is no longer optional; it has become a necessity for Nepalese businesses.

Narrow Export Base and Declining Agro Exports

Nepal suffers from a narrow export base. In the 1990s, there was a sharp decline in the export of traditional primary goods such as rice, raw jute, pulses, and other agricultural and forest-based products. As of 2025, Nepal no longer has a surplus of these primary goods for export. Previously, such items formed the backbone of Nepal’s trade.

In more recent years, major export items have included carpets, vegetable ghee, garments, jute goods, polyester yarn, cardamom, toothpaste, rosin, catechu, toilet soap, lentils, handicrafts, and pashmina. These goods have consistently accounted for about 55–60% of Nepal's overseas export earnings.

Between FY 2071/72 and 2073/74 BS, iron and steel products along with yarn led Nepal’s export charts. From 2074/75 to 2080/81 BS, products such as sunflower oil, soybean oil, palm oil, yarn, and iron products dominated. In FY 2081/82 BS, soybean oil topped the export list again, while carpets and garments remained significant contributors.

Erosion of Preferential Markets

Nepal’s garment industry suffered a significant blow following the expiration of the Most Favored Nation Arrangement (MFA) and the U.S. quota system in 2004. This led to increased global competition, reducing Nepal’s share in the American garment market. Similarly, carpets have lost their assured markets. Stringent environmental and social standards imposed by countries like Germany have further complicated exports. Economic recessions in Europe and the U.S. continue to create uncertainty for Nepal’s traditional exports.

Despite some growth in exports such as vegetable ghee, lentils, pashmina, ginger, jute goods, cardamom, and personal care products, the overall export performance remains weak. Minor disruptions in the export of key items like carpets or garments can significantly affect the national trade scenario.

Structural and Competitive Challenges

One of Nepal's most pressing trade challenges is its low production capacity, poor product quality, and higher prices, which make it difficult to compete in international markets. India's trade policy also heavily influences Nepal’s foreign trade. Over the years, India has imposed numerous non-tariff barriers, such as freight charges and cumbersome customs procedures, which undermine Nepal’s export competitiveness.

Nepal has made efforts to diversify its trade and reduce dependence on India, but progress has been modest. While policy reforms have included lowering tariffs, abolishing import licenses, simplifying export procedures, and establishing bonded warehouses, the gap between imports and exports continues to widen.

Even though lower tariffs are often believed to encourage trade, in Nepal’s case, this has not resulted in a significant boost to exports. Non-tariff barriers and administrative hurdles still remain significant obstacles.

Burdensome Documentation and Transit Barriers

Trade documentation and transaction procedures in Nepal are still overly complex and time-consuming. Even when product quality and pricing are competitive, such bureaucratic inefficiencies reduce their appeal. Therefore, streamlining trade facilitation processes is critical for improving competitiveness.

Transit remains a long-standing challenge for landlocked Nepal. Though it has signed transit agreements with India, China, and Bangladesh, the country still relies heavily on India’s Kolkata Port, which is geographically closest and most accessible. Nepal has access to three Chinese seaports, but using them is more costly and logistically difficult.

Transit Infrastructure and Alternatives

To facilitate trade through India, Nepal has established the Nepal Transit and Warehousing Company in Kolkata. The introduction of a "One-Time Lock" system for containerized cargo has also helped simplify transit procedures. India has further extended transit access through ports such as Kandla and Mumbai. Bangladesh and Pakistan have also offered transit support, including warehousing in Karachi and port access through Khulna and Chittagong. However, due to logistical hurdles such as visa restrictions and high costs, these alternatives are not widely used except during disruptions at Kolkata.

Transport and transit costs for Nepalese exports remain high—estimated at 15–20% of the commodity value—due to inefficiencies, delays, theft, and bureaucratic bottlenecks. One potential solution is the development of inland dry ports. Inland container depots (ICDs) have been established at Birgunj, Bhairahawa, and Nepalgunj. However, the private sector believes these facilities should be upgraded into full-fledged dry ports with rail connectivity, and more such depots should be developed across the country.

Meeting Global Standards and Future Challenges

Nepal’s exports still largely depend on trade concessions offered by friendly countries. However, with Nepal’s membership in the World Trade Organization (WTO), the country must build true competitive capacity.

International trade is increasingly being linked to social and environmental issues. Labor standards, human rights, and environmental regulations—such as eco-labeling—are becoming prerequisites in global markets. For example, the export of hides and skins has been affected by concerns over animal cruelty. Nepal must be prepared to meet these evolving international standards, including those imposed under WTO regulations, to remain competitive.

Conclusion

Nepal’s trade and transit problems are deeply rooted in structural inefficiencies, over-dependence on limited markets, and inadequate infrastructure. Overcoming these challenges requires not only policy reforms but also long-term investments in infrastructure, diversification of markets, and enhancement of export competitiveness. While some progress has been made, sustained efforts are needed to position Nepal favorably in the global trading system.

The writer is the ex-deputy executive director of the Trade and Export Promotion Centre

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