TCS Daily

Is Nepal a Victim?

By Rakesh Wadhwa - September 9, 2003 12:00 AM

There are daily reports in the media about Nepal's travails in dealing with its neighbors.  China forces Nepal to hand over Tibetan refugees.  The U.S. gets upset and retaliates by withdrawing a bill that would have given duty-free access in its markets to made-in-Nepal garments.  India slaps duties on Nepali beer, vegetable ghee ... and again Nepal is at the receiving end or so it seems.

Is Nepal truly a victim?  Let us analyze.  America, by refusing duty-free access to garment exporters, does cause harm to local Nepali businessmen. Further, employment opportunities in Nepal in the garment industry do grow fewer. However, the real losers are the American consumers.  Quotas, restrictions, and taxes make goods more expensive for ordinary American people.

Likewise, whenever India restricts imports, harm is caused - immense harm - to its own people.  It harms its citizens by making goods more expensive for them.  It harms by narrowing the Indian consumer's choice.  It harms Indians by denying them the best the world has to offer at the most competitive rates.  It harms India's people by making India a high-cost economy, uncompetitive for exports. Great importing nations are great exporting ones as well.  Imports and exports go hand in hand.

It weakens the moral fiber of the country.  Consumers increasingly look for toward less expensive smuggled goods to satisfy their urgent demands.  The result is a blossoming of smuggling activity and ultimately respect for laws - all laws - is lost.

But all this is scant comfort to the Nepali exporter who loses out because the American and Indian governments are hell-bent on penalising their own consumers.  Yes, it is hard on the exporter. However, every country is entitled to its own policies, even absurd ones, and Nepal can do precious little to affect the laws in the U.S. or India. Moreover, pleading and appealing to other countries does not behoove this proud nation.

Well, then, is there a way out for Nepal or is it forever bound to be a victim of powers much bigger than it is?  Fortunately, Nepal's future is in its own hands; it does not have to be a victim any longer.

This is what I would tell China, India and other countries if I had the authority: "Nepal is open for trade.  We will not charge any duty or place restrictions on imports.  If you want to penalize your consumers by tariffs and quotas well that is your business.  We have nothing to say."  After pronouncing this, I would open up the Nepali economy to unrestricted, duty-free imports.  Let India guard its borders against goods moving in from Nepal. Let China and every other country do likewise.

Nepal would certainly be in good company. It would do what nations like Singapore, Hong Kong, and the U.A.E. have done.  Indians became their biggest buyers of goods, and today all of these countries woo shoppers from India. Per capita spending on shopping by Indians is the highest in places like Singapore, Dubai, and parts of Europe, and it is all a function of a wall of protection against free trade that the Indian government built around its borders.

Dubai became the biggest point for the smuggling of gold into India. The activity was perfectly legal in Dubai and a heinous crime in India. It did not matter what the law in India was, India failed (and failed abysmally) in stopping the flow of the yellow metal - golden, shining, and illegitimate - into its markets. In fact, restrictions seemed to enhance its attractiveness for the Indians.

Ultimately India bowed to pressure, and Dubai kept its policies. India had to buckle under; the only way it was able to stem this illegal inflow was to legalize gold imports.

Nepal too should behave like these small nations that took advantage of the unwise Indian policies. Nepal does not have to ask any country for a change in policy.  Make Nepal duty-free and it will be other countries' officials making a beeline to Nepal's ministries to seek help to halt the flow of goods out of Nepal and into their countries.

The writer is an economist, and Executive Director of Casino Everest in Kathmandu, Nepal. He contributes to leading international dailies.


TCS Daily Archives