Existing Trade Policy and Level of FDI

Question: Discuss about the Existing Trade Policy and Level of FDI. Answer: Introduction: Nepal introduced its first Trade Policy in 1983. Following the wave of economic liberalization, it was replaced with a more liberal Trade Policy in 1992. This policy was again updated with a more comprehensive policy in 2009 in consistence with the principles of World Trade Organization. The Government of Nepal introduced the latest Trade Policy in 2015 to address ballooning trade deficit (Bastola and Sapkota 2015). Trade Policy, 2009 were not properly implemented and hence, failed to produce desired outcome. In 2015, The Ministry of Commerce and Supplies (MoCS) introduced a new Trade Policy with the objective to protect domestic industries and intellectual property rights, promote service trade, manage export and import and focus on priority areas to reduce the trade deficit and boost economic development of the country (Bastola and Sapkota 2015). This policy addressed all the major issues that the domestic market and aimed at increasing the competitiveness of the domestic product in changing global trade (The Himalayan Times, 2016). To promote export of goods, the amended Trade Policy aims to increase the capacity of export- oriented industries and has the provision of tax refund on raw materials used (Kathmandupost.ekantipur.com, 2016). There are additional benefits on the use of domestic raw materials. If some domestically produced goods are outsourced for export, the value added tax and excise duty imposed thereon shall also be refunded. The policy provides for reduction of transaction cost through facilitation. The policy aims to manage growing import and focus on domestic industries. The policy also states that international investors shall be treated at par with domestic investors (Spotlightnepal.com, 2016). The new Trade Policy has addressed most of the trade barriers of Nepal; there are still some issues that need attention. A few of them are: Lack of funding facilities: The funding and facilities required for research and development of trade are not adequate. They are conducted mostly by the government-aided agencies and there are hardly any private researchers and scientists. This hinders promotion of trade to match with global requirement (Export.gov, 2016). Although the Foreign Investment Policy, 2015 was expected to reduce the challenges faced by foreign investors in obtaining visas, there is still no condition on permission to invest by Government of Nepal (Export.gov, 2016). Failure to implement Policies: Almost all the Trade Policies introduces in Nepal fail to achieve the expected outcome. There is no Act to safeguard anti-dumping, countervailing and storage of data for law enforcement (The Himalayan Times, 2016). Trade Incentives: Nepal has following trade incentives (Nepalembassy-germany.de, 2016): The location of Nepal offers preferential access to two large economies: India and china. It also acts as a transit nation between them. Nepal has flexible rules and regulations with regard to trade and investment. They are in tune with the spirit of globalization, which makes Nepal an attractive destination for investment. Nepal is a land of rivers and streams and thus investment in hydropower projects is lucrative here. Nepal has duty free access to European Nations (Nepal, 2016). The existing level of Foreign Direct Investment: Nepal had been one of the least developed countries and there was huge resource gap. This required attracting foreign investment in Nepal. Thus, the Government of Nepal created an investment friendly environment and liberalized its Foreign Direct Investment Policy (FDI) to provide niche opportunities to foreign investors (Pokharel et al. 2013). FDI in Nepal is governed and monitored by Foreign Investment and Technology Transfer Act and Industrial Enterprises Act. Department of Industry (DOI) administers this Act. The Foreign Investment and Technology Transfer Act allows FDI in private limited companies and in registered public limited companies. The investors have to make an application to obtain approval for FDI. Once the approval is obtained, within 35 days an application is required to be submitted to Department of Industry for registration of the industry (Pokharel et al. 2013). The validity period for application for registration can be made on an application made on behalf of industry. However, the Investment Board directly deals with the investors if the amount of FDI is more than Nepalese Rupee 10 billion (Investnepal.gov.np, 2016). In Nepal, Foreign Direct Investment can be made in the form of investment and reinvestment in equity, investment as loan facilities and investment in kinds. FDI is mainly done in labor-intensive industries. In 2012, the Government of Nepal has increased the minimum amount of FDI to Nepalese Rupees 5 million for each investor. Any investment below this is not allowed for investment. Earlier, this limit was NPR 1.6 million, i.e. USD 20000 approx Ghimire, 2016). The regulatory Act permits ownership and control up to 100 percent of equity of industries except some defined sectors (Investnepal.gov.np, 2016). Some of the industries where 100% FDI is not permitted are cotton industry where less than 5 KW power is used, film industries in national and domestic languages, rural tourism, local catering, arms and ammunitions industries, security printing industries, industries producing gunpowder, atomic energy, internal courier services, businesses engaged in personal services, industries of r adioactive materials, accounting and book keeping, food processing industries, printing of bank notes and coins businesses, fishing and poultry businesses (Investnepal.gov.np, 2016). In management, financial, engineering and other legal consultancy services maximum of 51% FDI can be obtained (Ghimire, 2016). Except for construction of industries, 100% FDI cannot be made real estate business. Businesses engaged in international chain retail and operating in at least two countries can obtain 100% FDI but no other retail businesses. In case of tobacco industries, 100% FDI is allowed if more than 90% of total production is exportable (Ghimire, 2016). References: Bastola, U. and Sapkota, P., 2015. Relationships among energy consumption, pollution emission, and economic growth in Nepal.Energy,80, pp.254-262. Export.gov. (2016). Nepal - Performance Requirements and Investment Incentives | export.gov. [online] Available at: https://www.export.gov/article?id=Nepal-Performance-Requirements [Accessed 21 Dec. 2016]. Ghimire, R. (2016). Foreign Direct Investments in Nepal. [online] Academia.edu. Available at: https://www.academia.edu/5589561/Foreign_Direct_Investments_in_Nepal [Accessed 21 Dec. 2016]. Investnepal.gov.np. (2016). InvestNepal - Investment Procedures. [online] Available at: https://www.investnepal.gov.np/portal/index.php?p1=contentp2=9#.WFosNdJ97IW [Accessed 21 Dec. 2016]. Kathmandupost.ekantipur.com. (2016). Trade Policy 2015: Export-oriented industries to get tax refund. [online] Available at: https://kathmandupost.ekantipur.com/news/2015-09-02/trade-policy-2015-export-oriented-industries-to-get-tax-refund.html [Accessed 21 Dec. 2016]. Nepal, I. (2016). Strategic Advantages Of Nepal. [online] Ibn.gov.np. Available at: https://ibn.gov.np/strategic-advantages-of-nepal [Accessed 21 Dec. 2016]. Nepalembassy-germany.de. (2016). Cite a Website - Cite This For Me. [online] Available at: https://www.nepalembassy-germany.de/tradeandinvestment.htm [Accessed 21 Dec. 2016]. Pokharel, S.R., Sang-Lae, L.E.E. and Pokharel, B.P., 2013. Foreign Direct Investment and Its Impact of Economic Growth: Nepal Case.Asia-Pacific Journal of Business Commerce ,5(1), pp.21-39. Spotlightnepal.com. (2016). NEW TRADE POLICY: Competitive Focus | NewSpotLight Nepal News Magazine. [online] Available at: https://www.spotlightnepal.com/News/Article/NEW-TRADE-POLICY-Competitive-Focus [Accessed 21 Dec. 2016]. The Himalayan Times. (2016). MoCS launches new Trade Policy - The Himalayan Times. [online] Available at: https://thehimalayantimes.com/business/mocs-launches-new-trade-policy/ [Accessed 21 Dec. 2016].