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NEPAL: COMPANY PERSPECTIVE ON NON-TARIFF MEASURES

SUMMARY OF FINDINGS NTM BUSINESS SURVEY

Discussion paper for the national round table on NTMs Kathmandu, Nepal, 14 September 2016

NTM BUSINESS SURVEY IN NEPAL SUMMARY OF RESULTS

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Views expressed in this paper are those of consultants and do not necessarily coincide with those of ITC, UN or WTO. The designations employed and the presentation of material in this paper do not imply the expression of any opinion whatsoever on the part of the International Trade Centre concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries.

Mention of firms, products and product brands does not imply the endorsement of ITC.

This technical paper has not been formally edited by the International Trade Centre.


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Foreword

The following synthesis presents a preliminary summary of the report “Nepal: Company Perspectives – An ITC Series on Non-Tariff Measures”. The final version of the report is currently under preparation and will be finalized pending the results of the ITC stakeholders’ workshop on 14 September 2016 in Kathmandu, Nepal. The report is the outcome of a business survey on NTMs conducted by the International Trade Centre (ITC) in Nepal, following a methodology developed by ITC with the aim to identify regulatory and procedural barriers to trade stemming from non-tariff measures. This survey was implemented in partnership with Kathmandu University School of Management (KUSOM), with the support of the Ministry of Commerce of Nepal. The final report is being prepared in collarboration with local experts – KUSOM, Mr Rajan Sharma (ITC Consultant), and South Asia Watch on Trade, Economics and Environment (SAWTEE). The report aims to shed light on NTM issues faced by the private sector in Nepal, towards the improvement of the business sector in the country. The financial contribution of the United Kingdom Department for International Development (DFID) is gratefully acknowledged.


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Contents

Foreword iii

Introduction 1

1. Survey methodology and implementation in Nepal 1

1.1. Survey methodology 1

1.2. Survey implementation in Nepal 2

1.3. Characteristics of active exporting or importing companies 3

2. Challenges related to non-tariff measures 6

2.1. Companies’ perspectives of NTMs 6

2.2. Burdensome NTMs to export 7

2.2.1. Captured data and evaluation approach 7

2.2.2. Who applies the regulations? 8

2.2.3. What NTMs are burdensome? 9

2.2.4. Difficulties with Procedural Obstacles (POs) 11

2.2.5. Company perspectives on the trade-related business environment (TBE) 12

2.3. Snapshot of major issues faced by exporters 15

ABOUT THE NTM BUSINESS SURVEY IN NEPAL 19

ITC PROGRAMME ON NON-TARIFF MEASURES 20


1

Introduction

With the advent of the regionalization of supply chains and the widespread reduction of global tariff levels, non-tariff measures (NTMs) have emerged as growing obstacles to international trade for importers and exporters.

Although the sound use of NTMs to ensure consumer health, environmental protection or national security is legitimate, evidence suggests that countries are resorting to NTMs as alternative mechanisms to protect domestic industries. They are increasingly being dealt with when negotiating regional and bilateral trade agreements and many practitioners consider them as having surpassed tariffs in their trade-impeding effect.

NTMs particularly concern exporters and importers in developing and least developed countries (LDCs), who struggle with complex requirements. Firms in these countries often have inadequate domestic trade-related infrastructure and face administrative obstacles. Therefore, NTMs that would not normally be considered as very restrictive can represent major burdens in LDCs. In addition, the lack of export-support services and insufficient access to information on NTMs put pressure on the international competitiveness of firms. Hence, both NTMs applied by partner countries as well as domestic burdens have an impact on market access and keep firms from seizing the opportunities created by globalization.

The ITC survey reports present results from large-scale company surveys on NTMs and related procedural obstacles (POs). They provide detailed qualitative impact analysis to address key stakeholders’ concerns, evaluating all major export sectors and trading partners, and covering around 30 developing countries in scope.

The ITC survey allows companies to directly report the most burdensome NTMs and the way in which these impact their business. Exporters and importers deal with NTMs and other obstacles on a day-to-day basis. Therefore, they know best the challenges they face, rendering a business perspective on NTMs indispensable. At the government level, an understanding of companies’ key concerns with regard to NTMs and POs can help define national strategies geared to overcome obstacles to trade.

The NTM surveys conducted by ITC cover 40 developing countries and all 28 countries of the European Union. All ITC surveys are conducted in close cooperation with local partners – for survey implementation and analysis. In Asia, the survey has already been conducted in Sri Lanka, Cambodia, Kazakhstan, Indonesia, Thailand, Bangladesh, Jordan and Kyrgyzstan.

1. Survey methodology and implementation in Nepal

1.1. Survey methodology

The International Trade Centre (ITC), in collaboration with the Ministry of Commerce (MoC) of Nepal, implemented a survey from March 2016 to September 2016 in order to assess the Nepalese business community’s perspectives on NTMs. The aim of the survey is to provide a better understanding of the trade obstacles experienced by Nepalese companies and to identify potential bottlenecks related to trade procedures and cross-border operations. This information will assist both the private sector and government in creating an enabling environment for private sector development and improve export competitiveness for Nepal.

Prior to the survey, ITC compiled a list of active Nepalese exporters and their corresponding export sectors based on information received from various sources. Trade and Export Promotion Centre (TEPC) provided information on over 700 companies. Additional contact details were obtained from Federation of Nepalese Chambers of Commerce and Industry (FNCCI) and their regional bodies, Nepal Freight Forwarder's Association (NEFFA), Federation of Handicraft Association of Nepal (FHAN), and Federation of Women Entrepreneurs Associations of Nepal (FWEAN) among others. The compiled registry contains information, such as contact details, location and major export or import products, on over 1100 Nepalese companies participating in international trade. This registry is used to calculate the sample size and to contact the companies for an interview.


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The interview process consists of two steps. The first step involves screening of exporting and importing companies through a basic telephone interview (phone screening). The aim of this interview is to confirm the main sector of activity, the direction of trade and whether the company experienced difficulties with NTMs. Companies interviewed in the phone screening phase are selected based on stratified random sampling. As per NTM survey sampling methodology, phone screen interviews are designed to cover a representative share of Nepalese export sectors (excluding arms and minerals).

The second step involves a detailed face-to-face interview with those companies that reported having experienced obstacles to trade and are willing to participate. In this more detailed interview session, these companies are questioned about the specific nature of the problems they faced. Typically, survey respondents are general managers or the company’s employee responsible for the export and import process. All responses from the companies are treated with utmost confidentiality, and only synthesized information on survey results is thus shared with the Ministry of Commerce.

The general methodology has been adjusted to the needs and requirements of Nepal in close collaboration with the MoC and other stakeholders. As per the request of MoC, the survey in Nepal covered more samples from four product sectors – tea, coffee, large cardamom and handmade paper. In addition to the the exporters, the survey also covered producers of these products who are currently not export ready. The MoC has prioritized the export development of these four products and has also requested ITC to develop export strategies for each of these products. The development of these strategies is also ongoing.

In addition, given the important role that cargo and logistics companies (CLCs) play in Nepalese trade, the survey also covered interviews with these companies. The primary objective was to get CLCs’ inputs on difficult border clearance procedures, transit issues, available customs and transportation infrastructure, and their views on the export preparedness of Nepalese exporters.

1.2. Survey implementation in Nepal

To promote local capacity building, the survey was implemented by Kathmandu University School of Management (KUSOM) on behalf of and under the guidance of ITC. Project managers and interviewers of KUSOM underwent in-depth 5-day training on the survey methodology, the questionnaires and the interview process in March 2016.

Overview of surveyed companies in Nepal

Source: ITC NTM Business Survey in Nepal, 2016.

Out of a registry of over approximately 1100 companies, 577 were interviewed for the first-stage telephone screening phase. A large portion of these companies (501) are active exporters or importers.

A further 34 non-exporting producers - either formally registered or informal farmers – of strategically important Nepali products – tea, coffee, large cardamom, ginger and handmade paper – were also interviewed to understand the production, supply and other constraints in addition to market access issues they are facing, and to understand why they are not export ready. These producers have not been able to export their products directly for a variety of reasons.

182

501

34

34

42

42

0 100 200 300 400 500 600 700

Stage 2:Face-to-Face

Stage 1:Phone Screening

Exporters and Importers Producers (non-exporters) Freight forwarders, cargo/logistics companies

577

258


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In addition, the survey also covered 42 Freight forwarders – Cargo and Logistics Companies (CLCs). Close to half of all companies interviewed relied on the services of CLCs for their export/import processing. Given the important role CLCs play in Nepalese trade, interviews with these companies were also deemed important. The primary objective was to get CLCs’ inputs on difficult border clearance procedures, transit issues, available customs and transportation infrastructure, and their views on the export preparedness of Nepalese exporters.

Companies that report to be facing difficulties with NTMs and related procedures were invited for a second stage – and a more detailed – face to face interviews. In total, 258 companies participated in this interview where they were asked to explain in detail the nature of their difficulties, why they are burdensome and where the difficulties originate from.

1.3. Characteristics of active exporting or importing companies

Given the varying nature of exporting companies, producers (non-exporters) and freight forwarders, the type of questions asked were different to some extent. Hence, the results of these three surveys will be discussed separately.

The next few figures detail the characteristics of interviewed active exporters or importers by company size, location, sector, and destination/origin markets. Sectors are divided into agri-food and manufacturing classifications.

Trade and production profile

The ITC survey targeted to interview active exporters. The survey results are representative by export sector. Companies were also asked about the import side of business (if any), but interviews with company that only import were restricted.

Most of the interviewed companies (86%) were involved only in the export business, while 11% of the exporters were also importing goods – either as inputs to production or to resell in the domestic market. Only 3% of the companies interviewed were involved solely in import business.

In terms of production of goods, 82% of the exporters produce the goods they export themselves or atleast add some value while the other 18% of exporters are involved only in trading business. They source/buy the goods from other Nepalese producers and subsequently export to foreign buyers.

Survey results show the important role freight forwarders / cargo and logistics companies play in the Nepalese export market. Close to 60% of the Nepalese exporters rely on the services of these freight forwarding companies. Among all the exporters, atleast 50% of them rely exclusively on the freight forwarders for the export process and related formalities of their products. Roughly 37% of the companies are able to take care of the export process by themselves, while for a small number of exporters (2%), the foreign buyers take responsibility forthe process.

86%

11% 3%

Company ExportsCompany Both Exports & ImportsCompany Imports

Trade profile

82%

18% Companyproduces

No: Companyonly tradeproducts

Production profile

37%

10%

50%

2% Company itself

Company itself + Specializedforwarding company

Specialized forwardingcompany

Partner company abroad

Unspecified

In charge of export process




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Size

According to company size, small enterprises (52%) made up most of the respondents, followed by medium-sized companies (34%) and large companies (12%).

The classification of companies according to size is based only on the number of employees in the company. The NTM business survey does not ask companies about the monetary value of their sales, revenue or profit. Companies with less than 20 employees are classified as small, companies with 20 – 100 employees are classified as medium size, and companies with more than 100 employees are classified as large.

Location

The survey has a wide geographic coverage of over 22 cities or towns and the surrounding region in Nepal. The majority (58%) of all surveyed companies were based in Kathmandu and the surrounding area. However, there were pockets of sectoral representation from key regional locations such as tea and cardamom in Ilam and Jhapa. ITC survey covered companies located in the following geographical regions: Bhairahawa, Bhaktapur, Biratnagar, Birgunj, Butwal, Chitwan, Dang, Dhankuta, Ilam, Jhapa, Kaski, Kathmandu, Lalitpur, Lumbini, Mahendranagar, Nepalgunj, Nuwakot, Pabat, Panchthar, Pokhara, and Sunsari.

Export sector

ITC categorizes the surveyed companies into two sectors (agriculture and manufacturing) and a further 13 sub-sectors – based on the main export product of each company. Agriculture sectors comprise a quarter (25%) of all exporters interviewed, while manufacturing sectors make up the remaining 75% of interviewees. Fresh agricultural exports such as tea, coffee, cardamom, etc. make up the bulk of interviewed agricultural companies (19%). The other 6% of the companies consist of processed and packaged food exporters.

Among the manufacturing sectors, most of the interviewed companies are from sub-sectors ‘Yarn, fabrics & textiles’ (20%) and ‘Clothing’ (22%) that cover companies’ exporting products such as pashmina, carpets and garments. Majority of Nepalese ‘handicraft’ products are covered although they are classified into different sub-sectors. For example, handmade paper products fall under sub-sector ‘wood, wood products and paper’; pashmina in ‘Yarn, fabrics and textiles’; and metal statues in ‘metal and other basic manufacturing’.

52%

34%

12% 2%

Small

Medium

Large

Unspecified

Size

19%

6%

5%

20% 2% 3% 4%

22%

18% 1% 01. Fresh food and raw agro-based products

02. Processed food and agro-based products

03. Wood, wood products and paper

04. Yarn, fabrics and textiles

05. Chemicals

06. Leather and leather products

07. Metal and other basic manufacturing

12. Clothing

13. Miscellaneous manufacturing

Others

Export Sector




5

31%

Small

Main export destination market

There is a clear distinction between the main destination market for Nepalese exporters of agricultural and manufactured products. For majority of the agricultural exporters (52%), the main desitnation market is in the SAARC region, followed by Asia (21%) and Europe (21%). In contrast, for exporters of manufactured products, the main destination is Europe (41% of the exporters), followed by North America (29%) and Asia (17%). Only 12% of the exporters of manufactured goods report SAARC region to be their main market.

Note: During the initial phone interviews, companies are asked to identify their main market (region) based on the value of their sales. In the subsequent face-to-face interviews (in case companies report to have faced difficulties with non-tariff measures), companies are asked to identify destination markets (country level) for each of their export product (at HS-6 digit level). In addition, they are also asked to identify if they have faced any regulatory or procedural obstacles to trade when exporting each of their product to their corresponding markets.


Women employment and leadership

On average, 40% of the workers employed by the exporting companies are female. 17% of the companies from the sector had no female employees, while 25% of the companies had less than one-tenth share of female employees. Likewise, 39% of the companies surveyed employed more women than men with 20% of the companies reporting more than 70% of their workforce being women.There are some variations across companies of different sizes. In general, medium and large companies employed a higher share of women in the workforce compared to smaller companies.

Share of female employees across companies of different sizes

53%

Medium

Men Women

47%

Large

40%

Total


52%

12%

21%

17%

21%

41%

6%

29%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Agro - food

Manufacturing

SAARC Asia (ex. SAARC) Europe North America Australia and the Oceanic Africa


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A vast majority of the companies that are active exporters are being led (managed or owned) by men. Only 27% of the companies are woman led. They are either being managed by a woman (13%), owned by a woman (12%) or both (2%).

2. Challenges related to non-tariff measures

The following section gives an aggregate overview of the results from the phone screen (PS) interviews, while the next sections narrow down the discussion to the results of the face-to-face (FTF) interviews for exporters. While PS interviews broadly indicate the presence or absence of NTMs-related obstacles to trade, FTF interviews discuss these issues in detail.

2.1. Companies’ perspectives of NTMs

The initial telephone interviews in Nepal were conducted with 501 exporters and importers. Among them, 51% of the exporters and 21% of the importers reported to facing regulatory (NTM) or procedural obstacles to trade when exporting - in Nepal, in transit or in the destination markets. These difficulties relate to their current experience or experiences in the past one year. According to the methodology, a company is considered to be affected by an NTM if at least one of its products is affected by a regulation applied by Nepal or one of its partner countries.

Among other countries ITC surveyed in the Asian region, Bangladesh reports the highest rate of exporters (91%) affected by burdensome regulations. The share of exporters experiencing burdensome regulations in other Asian countries such as Sri Lanka, Thailand and Indonesia is much lower at around 34%, 38% and 30%, respectively. The affected rate in other LDCs such as Guinea (93%), Cambodia (82%), Malawi (80%), Rwanda (71%) and Madagascar (67%) is higher. In Egypt and Mauritius, significantly fewer companies reported to be affected by burdensome NTMs (37% and 31%, respectively).

There are some large variations in the affectedness rate across different products and sectors. While 42% of exporters from manufacturing sector are affected, the rate is over 77% among agricultural exporters. Exporters of fresh and processed food products are in particular very affected. In general, these products are the most regulated for reasons of public health, making this sector highly sensitive and protected by both tariffs and NTMs. In contrast, affected rate among garment and textile exporters is relatively low (35%) compared to exporters of other sectors.

Note: Affectedness rate among companies is based on initial phone screen interviews. Companies are asked if they have faced any regulatory or procedural obstacles to trade when exporting any of their products either in Nepal or their destination markets in the past 12 months. Companies that do experience difficulties with regulations (NTMs) or procedures are invited to take part in a second – more detailed – face to face interview. During this interview, companies are asked in detail about all the difficulties they face for each of their product in each destination market as well as in Nepal.

13%

2%

12%

70%

3% Company managed by a woman

Company owned and managed by awomanCompany owned by a woman

No: Company owned or managed bya manUnspecified


Company ownership

51%

21% 0%

20%

40%

60%

80%

100%

Export Import

Share of companies facing difficulties with NTMs when exporting or importing



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Close to 80% of the exporters whose main destination market is in the SAARC region (mostly India) have reported to be facing difficulties with NTMs. In contrast, among exporters whose main market is Europe, Asia and North America, affectedness rate is 46%, 45% and 36% respectively.

Meanwhile, for imports, the affectedness rate is lower. Around 67 of the 501 interviewed companies are also importing. Most of these imports are used for processing rather than direct sales. Among these companies, roughly 20% have experienced regulatory or procedural obstacles when importing. It is important to keep note of the small sample size of the importing companies when interpreting the results. The survey is more focused on the concerns of exporting companies and is representative only by export sector.

2.2. Burdensome NTMs to export

This section presents the results of the FTF interviews done with Nepalese exporters and importers, summarizing their key NTM-related obstacles, the products and markets affected, the [technical and administrative] reasons why they are found to be burdensome, and the government agencies charged with their regulation [that can be tapped for policy recommendations].

2.2.1. Captured data and evaluation approach

In ITC NTM Surveys, interviewers collect information on the characteristics of firms, including size, operational age, foreign ownership and sector affiliation. Firms are classified as either ‘producing’ or ‘forwarding’ companies and as exporting or importing enterprises. Firms are also asked to provide information on their exports and imports at the product or Harmonized System (HS) 6-digit level, the destination country of exports or their imports’ country of origin. Each pair of product and partner country is referred to as ‘product-partner trade flow’.

For each product-partner trade flow, company representatives are asked to provide detailed information on the NTMs they encounter. Interviewers then capture the category of the NTM - based on the International Classification of NTMs, the country applying the measure and the authorities causing POs. The survey distinguishes between POs associated with a reported NTM and general inefficiencies in the Trade related Business Environment (TBE) that are posing challenges.

The final phase of data analysis consists in calculating frequency and coverage statistics along several dimensions, including product and sector, main NTM category (for example, technical measures or quantity control measures) and company characteristics (for example, size).

Most frequency and coverage statistics are based on ‘cases’. A case is the most disaggregated unit of analysis. Every company participating in the face-to-face interview reports at least one case of burdensome NTMs and, if relevant, POs and challenges associated with the TBE.

The type of NTM and the country applying it, the product affected and the company reporting the measure defines a ‘case’ of an NTM. For example, if one company reports that an NTM applied by a partner country affects three products, the results would include three NTM cases. If two different companies report the same problem for a given product and partner country, it would count as two cases.

However, the counting of cases differs depending on whether the NTM is applied by the exporting or importing country. The scenario where several importing partner countries apply the same type of measure to exports is recorded as several cases. The details of each case, including the actual name of government regulation and its strictness, may vary as regulations mandated by various countries are likely to differ.

When the exporting country applies an NTM to a product exported by one company to several countries, this is recorded as one NTM case because it is considered to be the result of one policy. Following the same logic, if a company imports the same product from several different countries and faces difficulties with NTMs imposed by Cambodian authorities, it would be counted as one case.

Cases of POs and problems with inefficiencies in the TBE are counted in the same way as NTMs. PO and TBE statistics are provided separately from those of NTMs, even though in certain instances they are


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closely related. For example, extended delays may result from pre-shipment inspection requirements. While POs are directly related to a given NTM, inefficiencies in the TBE occur irrespective of NTMs.

2.2.2. Who applies the regulations?

Very broadly, it can be seen that the majority (78%) of NTM-related obstacles for exporters are applied by partner countries. In contrast, around one in five NTM cases related to exports (21%) are applied by Nepal [as export-related measures].

Country applying the NTMs that Nepalese exporters find burdensome


More than one-third of all the difficulties companies face relate to regulations of the EU- 28 countries (36%), most of which are faced when exporting to Germany (11%) and France (5%). Difficulties with EU regulations are well documented in ITC survey in other countries. Exporters from developing countries find EU regulations, in particular, the SPS and quality requirements, too difficult to comply with and the accompanying conformity assessment procedures too strict. Asian countries apply 23% of the burdensome NTM cases, followed by 19% by the SAARC countries and 23% by rest of the world.

At the individual partner country level, the largest number of difficult NTM cases reported by exporters is of Indian regulations or procedures which account for 18% of the burdensome NTM cases. This comprises most of the difficulties faced in the SAARC region (19%). Among other partners, 10% of the difficult NTM cases are US and Japanese regulations each, while 6% of the cases relate to Chinese and Australian regulations, each.

Share of burdensome regulations applied by partner countries: by region and country.

21% 1% 78%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Nepal Transit Country Partner Country

19% 23% 36% 23% 0%

10%

20%

30%

40%

SAARC Asia Europe Rest of the world

18%

1% 1%

10%

6%

2% 2% 3%

11%

5% 5% 3%

2% 2%

7% 10%

6% 4%

1% 2%

0%

5%

10%

15%

20%


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It should be noted that while the NTM regulations themselves may originate in partner countries, the associated POs causing issues for them may either be domestic or foreign in origin.

According to the exporters, 27% of the reported NTM cases are deemed burdensome because of the regulations and the requirements being too strict or difficult to comply with. Like wise, 87% of the reported NTM cases are found to be burdensome due to the related procedural obstacles.

Around 14% of the reported NTM cases are deemed to be burdensome to the exporters both because of the regulations being too strict and because of the associated procedural obstacles.

Procedural obstacles concern any burdensome procedure that is related to the application of a specific NTM, for example the lack of local laboratories to test an exported product. An NTM-related trade obstacle is any regulatory or procedural obstacle that is faced by a firm when complying with a specific NTM.

Almost two-thirds of the POs that make complying to NTMs difficult occur in Nepal (64%) while the remaining occurs in transit, destination or third countries. The type of POs hindering Nepalese exports will be discussed in later sections.

2.2.3. What NTMs are burdensome?

In Nepal, the exporting companies reported 744 cases of burdensome regulations, the vast majority of which (78%) are applied by partner (importing) countries. Around one-fifth (22%) of the difficulties relate to export regulations imposed by Nepal in addition to a few cases concerning private standards.

Overall, 66% of the burdensome NTM cases experienced by Nepalese exporters are technical measures. Technical measures include ‘technical requirements’, which are product specifications that exported products need to comply with (including sanitary and phytosanitary [SPS] measures) as well as ‘conformity assessment’ procedures such as certification which provide proof of compliance with the underlying technical requirements. Around 13% of the burdensome regulations are technical requirements while 53% relate to conformity assessment. This suggests that exporters face more problems proving their compliance to regulations than with the regulations itself.

Among technical requirements, regulations on ‘tolerance limits for residues of or contamination by certain substances’ is the main concern (7%) followed by ‘fumigation requirements’ (3%), and prohibition or restriction on SPS/TBT grounds (2%).

On conformity assessment related NTMs, difficulties related to product certification (23%) and testing requirements (23%) make up the bulk of the difficulties, followed by quarantine requirements (4%).

Other issues such as Rules of Origin (5%), pre-shipment & border clearance procedures of partner countries (3%), and quantitative restrictions (2%) are comparatively minor compared to the difficulties related to SPS/TBT technical requirements.

Why exporters find NTMs burdensome

13%

14%

73%

Regulatory obstacles: Regulations toostrict/difficult to comply withBoth Regulatory and Procedural obstacles

Procedural Obstacles



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Majority of the ‘export related measures’, i.e. Nepalese regulation and procedures on export, is related to export inspection (9%) and other border clearance procedures or formalities (10%).

Source: ITC NTM Survey in Nepal, 2016.

Interestingly, there are significant differences between the agricultural and the manufacturing sectors in the incidence of the different burdensome technical measures. SPS/TBT or technical regulations (technical requirements and conformity assessment) account for 58% of total NTMs in manufacturing sector but these issues are much more pressing in the agro-food sector accounting for 82% of the reported cases.

Complaints regarding rules of origin and the related certificate of origin account for 5% of all problems reported by the exporters. It is interesting to note that a vast majority of these difficulties are reported by exporters from the manufacturing sector (6%).

Exporters’ difficulties with Nepalese regulations and procedures are also more prominent when exporting manufactured goods (28%) compared to agricultural goods (11%). In addition, small-sized companies faced proportionally more difficulties with export related measures (34%) compared to medium (15%) and large (16%) companies.

13%

53%

3% 1% 2%

5%

22%

A - Technical requirements

B - Conformity assessment

C - Pre-shipment inspection and border clearance

D - Trade remedies

E - Quantity control measures

F - Charges, taxes and price contol measures

H - Anti-competitive measures

O - Rules/Certificate of origin

P - Export related measures.

12%

70%

2% 3%

11% 14%

44% 4%

2% 1% 1%

6%

28%

Types of NTMs exporters find burdensome

All Sectors

Agricultural Sector

Manufacturing Sector


11

Principal categories of NTM-related trade obstacles for exporters

NTM Chapter Measure Name and Code Share

A - Technical requirements

AB3 - Tolerance limits for residues of or contamination by certain substances

7%

AG3 - Fumigation 3%

AJ9/1 - Prohibitions or restrictions of products or substances

2%

A - Other (Labelling, characteristics) 1%

B - Conformity assessment

BA3 - Product certification 23%

BA2 - Testing 23%

BC0 - Quarantine 4%

BA4 - Inspection requirement 2% B - Others 1%

C - Pre-shipment inspection and border clearance

C - Pre-shipment inspection and border clearance 3%

D - Trade remedies D - Trade remedies 1% E - Quantity control measures

E - Quantity control measures 2%

F - Charges, taxes and price contol measures

F - Charges, taxes and price contol measures 1%

H - Anti-competitive measures

H - Anti-competitive measures 0%

O - Rules/Certificate of origin OA0 - Rules of origin and related certificate of origin 4%

P - Export related measures.

PA1 - Export inspection 9%

PA2 - Certification required by the exporting country 3%

P - Other 10%

Grand Total 100%


2.2.4. Difficulties with Procedural Obstacles (POs)

To have a better understanding of the nature of problems faced by exporters, the NTM survey methodology identifies both the measures that are burdensome to the exporters as well as the underlying reason for why they are burdensome. Very often exporters face difficulties with a given regulation not only because they are too strict and complex to comply with but also (and at times solely) because of the related procedural obstacles (POs). While NTMs are official regulations implemented by competent authorities in the exporting or importing country that traders must comply with, POs are hindrances that companies face due to the manner in which the regulation is applied or implemented.

In case of Nepal, only 13% of all problems faced by exporters seem to be problematic due to the given regulations being too strict or difficult to comply with. In contrast, 73% of NTMs are difficult to the exporters due to various procedural obstacles, most of which occur in Nepal itself. In the remaining 14% of the reported NTM cases, both the measure and the related procedural obstacles are regarded as problematic.

Overall, exporters report 900 incidents of procedural obstacles which make compliance with a given regulation difficult. 64% of these incidents (582 cases) occur in Nepalese agencies. The major types of procedural obstacles hindering export process in Nepal relate mostly to unavailability of testing/certification


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factilities. Limited or inappropriate facilities for tesing in Nepal account for 19% of the POs reported by Nepalese exporters, while another 9% relate to testing facilities in Nepal not being internationally accredited leading to certification issued by these agencies not being accepted in partner countries.

The second most reported PO relates to high fees and chages to obtain the required certification or testing (16%). Majority of these POs occur in foreign countries. This issue is related to the lack of appropriate facilities for testing/certification in Nepal – which leads to exporters having to send their products to other countries for necessary testing. The fees for such services in foreign countries are deemed expensive by the Nepalese companies.

Informal payments to get the necessary paper work issued, clear shipment or expedite the process account for 15% of the reported POs. Close to two-thirds of issues related to informal payment happen in Nepalese agencies while the other third occur in customs of destination markets or transit countries.

Complaints related to slow procedures make up 13% of the POs – half of which occur in Nepalese agencies.

Types of Procedural Obstacles (POs) hindering Nepalese exports and location where they occur


2.2.5. Company perspectives on the trade-related business environment (TBE)

In addition to NTMs and related POs, surveyed companies identified challenges in the country’s TBE. Inefficiencies in the business environment are generic problems unrelated to specific regulations, but that affect companies’ ability to export or import. During the face-to-face interviews, companies were asked to identify factors that hindered their ability to conduct their business and how these conditions have changed in the last 5 years.

Inadequate electricity supply in the country is the main business environment concern expressed by the companies; 82% agreed that it has interfered with their ability to run their businesses. Similarly, corruption and lack of adequate testing facilities in the country is the second and third most problematic TBE hindering the companies’ ability to trade – according to 73% and 57% of respondents respectively. Furthermore, it must be noted that a big majority of respondents think that problems with electricity supply and corruption have deteriorated in the past five years.

Roughly half of the companies also find proper access to inputs for production to be a hinderance.

0 50 100 150 200

Other procedural obstacles

Problems with international recognition

Information not adequately published and disseminated

Administrative hurdles (many documents or windows…

Arbitrary behavior of officials

Other limited/inappropriate facilities

Facilities lacking international accreditation/recognition

Delay related to reported regulation

Informal payment

High fees and charges for reported certificate/regulation

Limited/inappropriate facilities for testing

Nepal 3. Transit country Partner country


13

The survey also shows some encouraging results. For example 66% agree that trade financing conditions have improved, 50% have found improvements in the computerized procedures and 52% in information sources.

Share of companies whose business operation is negatively affected by business environment conditions in Nepal (left) and their perception on changes in the last five years (right)

-9%

-10%

-10%

-13%

-15%

-15%

-21%

-22%

-28%

-29%

-32%

-33%

-41%

-48%

-50%

-50%

-57%

-73%

-82%

-100% -80% -60% -40% -20% 0%

50%

31%

66%

31%

52%

28%

41%

26%

14%

26%

26%

22%

25%

18%

27%

24%

6%

12%

3%

42%

56%

29%

61%

41%

54%

47%

62%

51%

57%

51%

48%

48%

49%

40%

32%

58%

27%

17%

8%

14%

6%

7%

8%

18%

13%

12%

35%

17%

24%

29%

28%

33%

32%

44%

36%

62%

79%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Lack of electronic/ computerized procedures

Lack of accessible business oriented legal support

Limited or lack of access to trade finance services

Need to hire a local customs agent to get shipment…

Lack of access to information, no enquiry point

Ineffective legal enforcement

Low security level for persons and goods

Lack of storage facilities, including cooling

Limited or extremely expensive airline transportation

Complex clearance mechanism

Limited transportation system

Road blocks and checkpoints

Inconsistent/ arbitrary behavior of officials

Time delays

Lack of access to inputs for production

Lack of human resources in the agencies/…

Lack of accredited testing laboratories

Corruption

Problems with electricity supply

Improved Remained the same Deteriorated


2.3. Snapshot of major issues faced by exporters

The following issues reflect the concerns of Nepalese exporters as captured during the NTM Business Survey, between April and August 2016. ITC wishes to verify all these concerns prior to the publication of the final country report on NTMs. Additional research on these issues will be conducted by the study team. ITC shall appreciate inputs from relevant stakeholders on any factual errors, recommendations and any other related issues.

The concerns of the exporters are categorized by the product type. It includes all 8 products the Ministry of Commerce has requested to prioritize as well as the 4 products covered by ITC’s Sector Export Strategy (SES) – parallel ITC project currently being implemented in collaboration with the MoC. Inputs from the NTM Business Survey will also be taken into consideration for the individual sector strategies for tea, coffe, large cardamom and handmade paper.

Tea

- Compliance with EU MRL of Anthraquinone: In adequate testing facilities, no clarity on the cause of the problem or how to resolve it.

- High cost associated with various certification requirements (both mandatory and private standards).

- Burdensome MRL testing requirements in India: Multiple testing requirement for each shipment and buyer, long waiting time, large quantity taken as “sample”, long waiting times for the test results.

- Harassment at the CFL and Indian border – required to pay informal payments to resolve disputes

Honey

- Exporters bemoan not being able to export honey to the lucrative EU markets such as Germany. Nepal is not in the EU Third Country List permitted to export honey to the EU.

- Nepali exporters stuggling to supply honey of uniform quality / taste – as demanded by buyers. Exporters collect honey from many small producers and there are quality variations due to location and season. In addition, exports do not have adequate storage facilities for large quantities.

- Some buyers demand that the exact type of honey be specified in the quality certificates – allegedly this is not currently possible.

- Testing facilities in Nepal not adequately equipped and certificates issued by them are not recognized in some countries.

Ginger

- Ginger shipments are required to undergo testing in CFL in Kolkotta as tests done in Nepal is not recognized by India.

- Strict testing done by CFL: 5 random sample tests conducted and failure in once can lead to shipment being rejected. In addition, testing at CFL can take a long time

- Shipments with value in excess of Rs 10,00,000 must have the customs bill signed by the Indian Assistant Commissioner. Exporters have to travel to Siliguri just for the signature


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- Concerns over next year’s export as India will not allow shipments of unwashed ginger. Washing plants in Nepal remain under utilized.

- Producers’ concerns: Diseases hindering production. Small number of buyers in each region.

Cardamom

- Difficulties while exporting from the West Bengal border of India: Customs requires each consignment to be tested against harmful contaminations. Samples are sent to Kolkotta and test results can take more than 14 days to arrive.

- Difficult to pass the shipment without making unofficial payments to the Indian officials – even when test results show no problems

Herbal & Medicianal Products

- Some countries such as Japan and those in the EU require Good Agriculture Practice (GAP), Good Manufacturing Practice (GMP) and organic certificates. However, there are no agencies in Nepal that can issue such certificates.

- Overall lack of adequate standards and certification system in Nepal for herbal products.

- To get safety certification of Essential oil products lab tests in Nepal are conducted on mice. European countries do not accept certification based on animal testing. Companies usually resort to sending their products abroad for necessary tests.

- Nepal has thousands of herbs that can be exported but the “Forest Act” has only 160 of them listed. This is the same list used by the customs. Herbs that are not listed are usually exported under a false name. Sometimes, this has been a problem as some countries recognize that the product is being exported with the wrong name and hence the shipment rejected.

Coffee

- Main concern related to obtaining of various organic certifications for different importing countries. High costs of these certification which have to be obtained from foreign agencies is the main concern.

- Strict fumigation requirements in Australia: Exporters are not able to export coffee in wooden crates as Australia require wooden crates to be fumigated – but there is lack of such facilities in Nepal.

- Quarantine requirments in Australia is also burdensome for the exporters. They do not accept quarantine certificates issued by the Nepalese Quarantine agency.

Other food products:

- Exporting food items (noodles) require a Halal certification. This is not available in Nepal.

- Exporters express unhappiness on having to pay 1% export duty on exports of Lentil.


17

Handmade paper and paper products

- Issues relating to grading / quality certifications: Buyers demand pure lokta papers. Lack of proper certification body to show the contents leads to exporters selling in cheaper price.

- SPS requirements of some countries has hindered trade. Eg: Australia does not allow paper products with dried flowers without fumigation. Additional certification required for paper products with leather contents.

- Difficulties with Indian authorities when transiting through India: Indian officials demand bank guarantees issued by Indian Banks, but Indian Banks don’t issue such to Nepali exports.

Carpets

- Australia and New Zealand require Foot and Mouth Disease (FMD) free certification. The committed to issue such certification meet only once every six months.

- Big buyers in importing countries demand azo and acrylic free felt products, but In Nepal there is no laboratories to test whether the products are azo and acrylic free or not.

- Some exporters lack the capacity to meet requirements to get social compliance certificate – which is demanded by some big buyers.

- Some complaints about the paper work hassel in order to export to India. Exporters are required to prove atleast 30% value addition has taken place in Nepal.

Garments, Pashmina and woollen products

- Main concern relates to obtaining necessary certification, eg: for content or to prove it is Azo free. Inadequate testing facilities in Nepal.

- Zippers used in cotton bags and garments also have to undergo testing for Lead and nickel content. Testing done in Nepal has sometimes proved to be unreliable.

- Additional duties imposed by Turkey on Nepalese carpets has restricted exports there.

- Nepal prohibits the export of raw wool. Exporters of processed wool complain that occasionally Nepal customs officers halt their shipment claiming they cannot determine whether the wool is raw or processed. Exporters are of the opinion that raw and processed wool can be very easily identified (visually).

Leather Products

- Indian custom at Raxaul demand “Animal Quarantine Certificate” but do not accept certificates issued by veterinary doctor of Nepal.

- While Indian officials demands Animal Quarantine certificate issued by Kolkota Quarantine Office: the Kolkota Quarantine Office do not accept Animal Quarantine certificate request from Nepal claiming that there is no provision to provide such certificate to Nepali exporters.


18

Metal, wood and other handicraft items

- Most countries reject the silver jewelry items if they find cadmium content higher than 0.01%. There is no proper accredited testing lab in Nepal for such testing.

- Exporter must obtain clearance from the Archaelogical Department, stating that the products (statues) being exported is not antique or stolen, and is new. However, exports report of slow services and demand for informal payments to expedite the process.

- European Union demands nickel and cadmium free test in all copper items and lead free tests on ceramic products. Since there is no such agency in Nepal, test is done in India and Hong Kong.

- To export stone carvings, exporters need a certificate from the Department of Archaelogy but stone carving product is not listed in the Export list of Archaelogy Department. Hence, they are not being able to export through formal channels.

- Difficulties in exporting wooden products to Australia due to moisture level in Nepali woods being higher than allowed in Australia.

General difficulties at Nepal Customs

- Advance Payment Requirement (100%) has been widely reported, especially by the handicraft exporters, to be a big hinderance:

o Many buyers are not willing to pay the full amount before the delivery of goods. As a result exporters are losing some business.

o Very strict implementation of this measure by Nepal customs, e.g. if the amount do not match between the invoices and the confirmation from the bank on received amount (usually bank deduct some amount as fees), or if the name of the buyer is not exactly the same (occasionally the order comes from one company and the payment via its sister or subsidiary company).

- Exporters bemoan the fact that they have to pay duties on re-import of their products – usually due to being rejected by buyers

- Some complaints of reckless handling of handicraft and delicate goods (eg. Pashmina) by customs officers which have led to product damage.

- Some complaints on having to pay informal payments to unblock the shipment or expedite the process.


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ABOUT THE NTM BUSINESS SURVEY IN NEPAL

NTM Business Survey in Nepal was implemented by Kathmandu University School of Management (KUSOM) between March and August 2016. A total of 577 Nepalese companies including active exporters, producers and freight forwarding companies were interviewed on their experiences with non-tariff measures and related procedures.

This document presents the first results of the survey for the purpose of dissussion in the NTM Stakeholder meeting on 14 September 2016 in Kathmandu, Nepal.

Based on this data and additional interviews and consultation with other stakeholders, ITC will conduct additional research and draft a report highlighting the core issues hindering Nepalese trade. ITC will also prepare a set of recommendations and action plan to alleviate these difficulties. This work will be done by ITC in close collaboration with Nepalese trade experts.

Confidentiality

The NTM Survey is confidential. Confidentiality of the data is paramount to ensure the greatest degree of participation, integrity and confidence in the quality of the data. The paper-based and electronically captured data is transmitted to ITC at the end of the survey.

Caveats

The utmost effort is made to ensure the representativeness and the high quality of the survey results, yet several caveats must be kept in mind.

First, the NTM Surveys generate perception data, as the respondents are asked to report burdensome regulations representing a serious impediment to their exports or imports. The respondents may have different scales for judging what constitutes an impediment. The differences may further intensify when the results of the surveys are compared across countries, stemming from cultural, political, social, economic and linguistic differences. Some inconsistency may be possible among interviewers (e.g. related to matching reported measures against the codes of the NTM classification) due to the complex and idiosyncratic nature of NTMs.

Second, in many countries a systematic business register covering all sectors is not available or is incomplete. As a result, it may be difficult to ensure random sampling within each sector, and a sufficient rate of participation in smaller sectors. Whenever this is the case, the survey limitations are explicitly provided in the corresponding report.

Finally, certain NTM issues are not likely to be known by the exporting and importing companies. For example, exporters may not know the demand-side constraints behind the borders, for example ‘buy domestic’ campaigns. The scope of the survey is limited to legally operating companies and does not include unrecorded trade, for example shuttle traders.

Following up the ITC Non-Tariff Measure Survey

The findings of each ITC NTM Survey are presented and discussed at a stakeholder workshop. The workshop brings together government officials, experts, companies, donors, non-governmental organizations and academics. It fosters a dialogue on NTM issues and helps identify possible solutions to the problems experienced by exporting and importing companies.

The NTM Survey results serve as a diagnostic tool for identifying and solving predominant problems. This can be realized at the national or international level. The survey findings can also serve as a basis for designing projects to address the problems identified and for supporting fundraising activities.

Contact

For more information on the ITC programme on NTMs and the NTM Business Survey in Nepal please contact us at [email protected] or visit us at www.ntmsurvey.org/nepal.

mailto:[email protected]

http://www.ntmsurvey.org/nepal


20

ITC PROGRAMME ON NON-TARIFF MEASURES

The ITC Non-tariff Measures (NTMs) Programme aims at increasing transparency and help countries better understand the non-tariff obstacles to trade faced by their business sectors. It ensures that the concerns of small and medium-sized enterprises (SMEs) about regulatory and procedural trade obstacles are brought to the attention of policymakers and other stakeholders at the national, regional and multilateral level, enabling them to take concrete actions to address these. In close collaboration with national and regional stakeholders, ITC is engaged in a multi-agency initiative that assists countries in finding solutions tailored to meet their specific needs.

Components of the NTM programme

The NTM programme comprises of three main components

Regulatory Mapping Providing SMEs with improved access to information on NTMs. This component of the program consists of collection, review and classification of national trade-related regulations. A database of NTM for 90 countries, categorized by type of measure and in relation to each specific product (at HS-6 digit level) is available at ITC’c Market Access Map (www.macmap.org)

NTM Business Surveys Large-scale surveys of businesses on their experiences with government regulations when exporting or importing. The survey identifies at the product and partner country level the prominent obstacles companies face with NTMs and why they find it burdensome. Results of the surveys are available at www.ntmsurvey.org.

Solution Packages Design and implementation of solution packages to address regulatory and procedural obstacles to trade. This includes tailored solutions reflecting SME priorities and high-impact afeas regarding NTMs, for example, in quality management, trade facilitation and trade information.

NTM Business Surveys

A sound understanding of the business perspective of NTMs is critical to successfully identifying and defining national strategies and policies that help overcome barriers to trade. Businesses are best placed to inform decision-makers on developing policies as they have first-hand experience of dealing with the key challenges. ITC’s NTM surveys identifies at the product and partner country level the prominent obstacles companies face with NTMs and why they find it burdensome. The NTM surveys stands at the start of ITC’s wider intervention logic. Programme activities and results serve as comprehensive needs assessment and building block for other ITC programmes, including trade strategies and ITC’s solution packages for addressing regulatory and procedural trade obstacles.

http://www.macmap.org/

http://www.ntmsurvey.org/


21

Beneficiary countries

The NTM survey has been successfully implemented in over 30 developing countries, including least developed countries, landlocked countries, countries in Sub-Saharan Africa and small island development states. In addition, the survey has also covered all 28 countries of the European Union.

OUTCOME

Survey results suggest that a large proportion of companies are affected by NTM-related problems, most of which are technical measures. The impact is greater for companies exporting from landlocked least developed countries (LLDCs). There is a wide variation in NTMs depending on the export sector and importing market. Surprisingly many difficulties are related to NTMs applied by partner countries within regional trade agreements. Likewise, across countries, domestic impediments constitute a large share of reported obstacles. Upon completion of a national survey, ITC, in close collaboration with national partners, provides an in-depth analysis of survey results. Local economists and specialists are engaged in the preparation of the country report, bringing in their expertise on country specificities and drawing attention to local particularities. The survey results are discussed in a national workshop, which initiates and fosters a continual dialogue among different stakeholders, including the private sector, trade support institutions, government agencies and academics. This dialogue helps identifying the needs for concrete action by policymakers in different export sectors. Trade support institutions and business associations better understand sector-specific challenges, enabling targeted support for businesses and the fostering of more transparent and dynamic commercial activity.

NTMSURVEY.ORG

Detail information on the ITC program on NTMs including NTM survey results, publications as part of ITC Series on NTMs, courses on NTMs and related materials are available online.

NTM data for 90 countries publicly

available on ITC Market Access Map

Documented experiences of over 22,500 exporters and importers with

non-tariff measures

NTM surveys in 63 countries including more than 30 developing countries and all 28 EU countries

Complete Ongoing

www.ntmsurvey.org

Scan to visit

Key Results

Registered 21,000 trade obstacles as reported by exporters and importers,

concerning trade with 185 destinations

27 publications as part of ITC

Series on NTMs, with over

8,500 downloads

Surveys results for 25 countries available online at www.ntmsurvey.org, with over 47,000 page views.



Documents

NEPAL: COMPANY PERSPECTIVE ON NON-TARIFF MEASURESntmsurvey.intracen.org/media/2727/itc_ntm-survey-in-nepal_results... · NEPAL: COMPANY PERSPECTIVE ON NON-TARIFF MEASURES ... Burdensome