Private Sector’s Perspective on Challenges to Trade in

South Asia

International Finance CorporationKathmandu, Nepal

17th July 2011

Presented ByKishor Agrawal

A word from Auther• This Paper is based on Feed back, Ideas and real time

experience of the stake holders of current Import-export chain , and insights received from exporters, importers, commodity associations and other stake holders and represents the essence of their views.

• A lot of work for trade facilitation, capacity building, procedure simplification and custom reforms has been done in past but still there is ample scope to do more to enhance the trading environment for sustainable economic growth.

• Previous studies like trade and investment report 2009 from UNESCAP, Doing business report of world bank etc clearly indicates about cost, time, paperwork, business environment and ease of doing business, about logistic performance index etc and we all know that the ranking of Nepal is very low and there is potential for Nepal to improve on it.

You have to be very rich or very poor to live without trade.

• Albert Camus

About Us

• Type of Organization : BSO -Chamber of commerce• Main Activities : Trade facilitation, business support• Established in : Year 1952• Membership Strength : More than1,600 ordinary members

and 8,000 registered firms. • Affiliated Members : 12 Bi-national Chamber of Commerce

61 National level commodity associations

• Main trade focus : India, Bangladesh, Bhutan, China, Hong Kong, Singapore, Korea, UAE,

Japan ,USA, EU Countries etc.

Barriers to Import/Export

• Lack of similarity of legal and regulatory framework across the region

• Excess Time and paperwork required to comply with foreign and domestic market regulation

• Lack of Regional Transit and Transshipment Protocol

• Procedural requirements imposed by agencies like banks, insurance companies, shipping / Transport organizations and Port Authorities

Barriers to import/export contd..

• More focus on manual processing of documents which is time consuming

• Lack of proper infrastructure in terms of logistics and energy

• Excess Government intervention• Unstable political climate resulting in short term

economic vision and frequent changes in policies • Labor and Security related issues• Fragile economy

Banking sector related issues

• Carteling by banks in self interest for L/C Margins , exchange rates and other terms

• Extra 10 percent of Transaction amount as security deposit for imports

• Non practical and less trader friendly banking norms in comparison to other countries

• Higher Interest spread rates and liquidity problems resulting in difficulties in taking business loans

Shipment issues• Nepal, being a landlocked country, the cost of Multi

Model Transportation (Sea/Land) is high.• High risk of damage /pilferage and high cost due to

multiple loading-unloading and transfer of Cargo.• Access to Limited sea ports i.e. India/Bangladesh.• Limited Direct Air / Ocean Connections from

International ports.• Absence of Nepalese Dry Ports in International

Shipping Maps. • Limited detention free period and burden of

returning of container to shipping company ‘s yard

Problems in Indian Ports and Customs

• Heavy Port Congestion and lack of transit area for containers resulting in heavy detention and demurrage

• Non preferential treatment for Nepalese trade• Provisions of Bilateral / Multilateral Trade treaties

– Recommendation letter from Nepalese Consulate– Requirement of Duty undertaking

• Judistriction of Central/ state Government

Problems in Indian Ports and Customs

• Exceptional delays and problems in Cargo movement by rail

• Centuries old congested border Check points with limited staff in Indo-Nepal Borders

• Non transparent charges payable at port and customs

• Different Working Days • Different Public holidays• Labor problems

Issues related to trade via Bangladesh

• Limited logistic support, ware housing, infrastructure in transit route of Kakarbhita – Panitanki – Phulbari -Banglabandh to Mongla port of Bangladesh

• Problems in cargo movement by rail from Radhikapur (India) to Biral (Bangladesh).

• 44 kms road corridor from Kakarbhita to Banglabandh via India is highly congested

• Poor coordination at Indo-Bangladesh Customs• Issue related to visa and vehicle movement at Zero

point

Issues related to trade via Bangladesh

• Multiple custom formalities, CTD processing in Indian customs, TDI (Transit Declaration Invoice) processing in Bangladesh Customs to be met by trader beside other Provisions of Bilateral / Multilateral Trade treaties .

• Need for more logistic service providers beside NTWCL• Low bilateral trade volume of limited items due to poor

trade facilitation e.g.; Fertilizers, Jute, Yellow lentils • Lack of knowledge and awareness among Nepalese

traders about this route and its potential benefit• Traders are habitual to conventional routing

mechanisms to avoid psychic cost.

Complexities in ICD/Customs

• Manual Handling of Cargo at customs• Lack of proper Warehouse facilities/ Storage

facilities• Revenue generations targets by Higher

authorities to Custom officers.• Following GATT Valuation method in

principal but not in practical.• Incomplete implementation of ASYCUDA

System (Automated System For Custom Data)

Complexities in ICD/Customs

• Shortage of subject specialized skilled man power

• Problems to combat under invoicing, illegal trade practices.

• Low salaries and incentives to officials resulting in higher rate of corruption.

• Involvement of Multiple revenue agencies.• Firms capabilities and constraints in terms of

financial ,technological and human resources

Recommendations to improve import/ export

• Simplification and harmonization of procedures and documentation along the supply chain

• Implementation of electronic processing and enhanced automation– Maintaining database of importers/ exporters/ clearing

agent’s with scanned copies of all the required documents and one time registration

– Introduction to Digital signatures and use of Online payment gateway

– Online custom declaration and custom clearance• Improvement in border inspection and clearance of

goods

Recommendations to improve import/export

• Mechanisms to support minimum direct contact of importers and Custom authorities

• Reducing custom duties to encourage genuine trade• Special vigilance and enforcement of acts• Reforming administrative system and procedures as

well as custom and clearance• Improvement in trade logistics to avoid delays, high

cost and damage

Recommendations• Trade diversification – Over 60% share of Total Nepalese trade is with

India– Around 96% share of total trade of SAFTA region

is limited to India only• Modalities for regional connectivity, transit

and transshipment.• Creation of a visionary group comprising of

members from public as well as private sector to lead the reform process.

• Timely revisions/amendments in related acts

Taking import and export to newer heights..

• Reducing official fees and government charges• Proper mechanism of Identifying importer and

commodities considered low risk for routing via the green lane with minimum number of intervention

• Eliminating the role of Revenue Investigation after the inspection and release of cargo from customs

• Improving the transparency of all the costs incurred during import/ export

It started from the Barter system, And it continues till dateProvide us the appropriate climate Then we would prosper in trade….Kishor AgrawalKanika Agrawal