General Trends in US-Nepal Trade Relations

 

Nepal and the US have begun a new chapter in their relationship with the US government’s US $ 500 million aid (the MCC compact program) for infrastructure. Both sides have expressed their willingness to increase the bilateral trade value also. In this context, the author has examined general trends in the US-Nepal trade relations.

Nepal is not typically described as an important trade partner in the world economy. According to the World Trade Organization (WTO)[i] in 2016, Nepal was ranked 155th in world trade exports and 95th in world trade imports for merchandise and 127th in world trade exports and 127th in world trade imports for commercial services.[ii] This brief report focuses on general aspects of Nepal’s trade relations with the US over the past two decades, utilizing different sources[iii] to present general trends and conclusions for the future.

The broad strokes of the trade relation between Nepal and the US can be summed up in Chart 1[iv] below as per information from the Observatory of Economic Complexity (OEC). The peak of Nepal’s exports to the US was reached just before Nepal joined the WTO in 2004,[v] and while US exports to Nepal have generally slowly been on the rise since then, Nepal’s exports to the US have fluctuated greatly. With more detail on the trade exchange in the last five years, Chart 2 also clearly demonstrates the trade deficit in 2012, but also a slow rise of Nepal’s exports to the US as a consequence of the Trade and Investment Framework Agreement signed in 2011.

 

Chart 1: Nepal-USA Trade in $M (1995-2015)

chart1

Chart 2: Nepal-USA Trade in $M (2011-2015)

chart2

The fact that Nepal’s main import partner continues to be India (with US import share at 1.46% for 2015, according to globalEDGE) is reflected by this: of the top five imported products by Nepal the US only has a slight share in the trade value of the import of petroleum oils and no share in the other top imports. Interestingly, at the same time, about 62% of Nepal’s top export product (carpets and other textile floor coverings) in trade value goes to the US.[vi] According to the Department of Commerce, Nepal is currently the 157th most important goods trading partner for the US,[vii] while the US is Nepal’s second largest export market.

A closer look into the exported and imported goods reveals further information. While there has not been a single dominant export product from the US to Nepal (the main categories have been transport, machines, instruments and chemical products as per Chart 3) there has been a clear dominant export product from Nepal to the US – even if it is in decline as per Table 1. The chart and table below both show product categories as a percentage of all imports and exports in a given year.

 

Chart 3: US imports from Nepal (1995-2015)

chart3

Table 1: Nepal exports to US (1995-2015)

table1

Again, the biggest drop (in textiles) can be observed in the five years after Nepal joined the WTO when the US also phased out the multi-fibre agreement. However at the same time, the share of most other export products have significantly increased in Nepal’s exports in the same period. The data above also demonstrate the diversification of Nepal’s industry and exports to the US in the last two decades – growing from a “mono-export” to a wider variety of products, even if most of the products remain in lighter industry. Interestingly, although Nepal’s exports to the US have been on a slow increase over the last five years, it would seem that the value of exports has increased mainly through export of the Arts and Antiques category. As per Table 2 below, that is the only category with a clear increase of the export value share in the last five years.

Table 2: Nepal exports to US (2011-2015)

table2

It is important to note at this point that “in 2016, the US implemented the Nepal Preference Program, which provides duty-free treatment for 66 types of items from Nepal, including certain carpets, headgear, shawls, scarves, and travel goods. This program is authorized for ten years and is designed to improve export competitiveness and help Nepal’s economic recovery following the earthquakes.” Nepal will be receiving this treatment via the enforced Trade Preferences Act until 2025, and has already been making good export earnings from 60 out of the 66 specified goods.[viii]

According to the same 2017 Trade Policy Agenda and 2016 Annual Report of the President of the United States on the Trade Agreements Program,[ix] “in 2017, the US will continue to work with Nepal and provide technical assistance, aid its recovery, and deepen bilateral trade engagement.” So far, US exports to Nepal have encompassed a wide variety of products from different sectors, however the majority of products are of heavy industry with chemical products on a sharp rise, as presented in Chart 3 above.

Although it seems that business will go on as usual (i.e. the trends of trade between Nepal and the US will remain roughly the same with a slow increase on both sides with a relatively stable trade deficit), US diplomatic representatives[x] have warned that “Nepal traditionally runs large trade and current account deficits, which are offset by service, transfer, and capital account surpluses.” They also warn that “political instability, including 22 governments in the past 24 years, has created an uncertain environment for foreign and private investment” and that while the “Government of Nepal (GON) is open to foreign direct investment, [the] implementation of its policies is often distorted by bureaucratic delays and inefficiency.” Furthermore, “foreign investors must deal with a non-transparent legal system, where basic legal procedures are neither quick nor routine.” The major problems identified in the same report are: corruption, high customs tariffs imposed on most of manufactured products which increase the price of U.S. products, short supply of qualified workers, and the misfortune of the 2015 earthquake. The same source identifies infrastructure development as the most important market opportunity for the US, and suggests that “supplying government projects offers opportunities for large volume sales, but requires an authorized local representative or agent.” It would seem there is much more Nepal could be doing in order to secure and increase the import of US trade goods and other US investment.

Download version: General Trends in US-Nepal Trade Relations

Dr. J R Avgustin, 28 September, 2017

[i] For more information see: http://stat.wto.org/CountryProfiles/NP_e.htm

[ii] All ranks excluding intra-EU trade.

[iii] However, there appears to be some discrepancy in information regarding which products are the top imports and exports for Nepal, and their value. For example, according to the globalEDGE (Michigan State University) total exports from Nepal in 2015 were at $660M[iii] (for more information see: https://globaledge.msu.edu/countries/nepal/tradestats). Same information can also be found at WITS (http://wits.worldbank.org/CountrySnapshot/en/NPL/textview), The World Bank in collaboration with the United Nations Conference on Trade and Development (UNCTAD) and in consultation with organizations such as International Trade Center, United Nations Statistical Division (UNSD) and the World Trade Organization (WTO). However, for the same year, according to the data from the Observatory of Economic Complexity (OEC, MIT Media Lab), total exports from Nepal were at $910M (for more information see: http://atlas.media.mit.edu/en/visualize/tree_map/hs92/export/npl/all/show/ 2015/). Both sources however put Nepal’s imports for 2015 at $6.61B.

[iv] All charts and tables in this report were created by the author and based on information available on OEC webpages.

[v] It is important to note that this fall occurred because at this point US phased out the multi-fibre agreement (for more information see: http://kathmandupost.ekantipur.com/news/2017-04-18/nepal-us-trade-talks-to-focus-on-boosting-output.html).

[vi] For more information see: http://wits.worldbank.org/CountrySnapshot/en/NPL/textview

[vii] For more information see: https://ustr.gov/countries-regions/south-central-asia/nepal

[viii] According to Nepal’s Commerce Secretary Naindra Prasad Upadhyaya (http://kathmandupost.ekantipur.com/news/2017-04-18/nepal-us-trade-talks-to-focus-on-boosting-output.html).

[ix] For more information see: https://ustr.gov/sites/default/files/files/reports/2017/AnnualReport/ AnnualReport2017.pdf

[x] Export.gov is a product of collaboration between the US Department of Commerce and further 19 US Government agencies. For more information see: https://www.export.gov/search#/search?q=nepal&_k=lcvihi

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