Abstract

India and Nepal signed a foreign trade agreement (FTA) in 1971 which has been renewed many times over—latest in 2009. Tariff concessions lie at the core of Indo-Nepal trade arrangements and these concessions have been administered through the ROO criteria.

The Indo–Nepal trade treaty of 1996 was a landmark as India provided duty-free access to all (except three) products manufactured in Nepal. In the period between 1996 and 2002, there was a surge in Nepal’s exports to India, mainly in vegetable ghee, copper products, acrylic yarn and zinc oxide, due to large tariff differentials between India and Nepal in the raw materials used in these items. The 2002 treaty imposed a tariff rate quota these four (the tariff rate quota (TRQ) products). Between 2001 and 2002 and 2008 and 2009, India reduced its tariffs on all products whereby Nepal lost its advantage in the TRQ products and the quota utilization has been very low.

Since the benefits of the offered by India under the trade treaties have been transitory, it is important for the two countries to devise a more comprehensive economic agreement sectors. In this direction, India can help Nepal in developing services, especially hydropower and tourism. For this, Nepal needs to develop a more effective regulatory structure and policy framework and India must invest more in the development of Nepal’s infrastructure.

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