REPLIES TO QUESTIONS[1] POSED BY CHINA
REGARDING THE NOTIFICATION OF NEPAL[2]

The following communication, dated and received on 27 October 2025, is being circulated at the request of the delegation of Nepal.

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Question 1

Article 3 stipulates that "Power to Apply Safeguard Measure: (1) The Ministry may cause to have investigation through the Department if material injury is caused or adequate ground is present for causing material injury to the domestic industry producing identical or similar or directly competitive goods as a result of high increase in quantity in an unexpected and unnatural manner in importation of any goods." Please explain how to understand the term "material injury" as specified in this article, considering Art. 2.1 of the Agreement of Safeguards clearly stipulates that a safeguard measure can only be applied when "serious" injury or threat of injury exists.

Reply:

Nepal expresses its appreciation for China's observation regarding the terminology used in Article 3 of the Safeguards, Anti-dumping and Countervailing Act, 2076 (2019). In this regard, Nepal clarifies that the term "material injury" in this context should be understood as legally equivalent to "serious injury" within the meaning of Article 2.1 of the WTO Agreement on Safeguards given the fact that the Act consolidates three trade-remedy instruments i.e safeguards, anti-dumping, and countervailing measure into a single statute. Therefore, a common reference term was used for legal coherence in Nepal's national context.

Moreover, Section 27 of the Act requires the investigating authority to examine the same economic indicators listed in Article 4.2 (a) of the Agreement on Safeguards, such as import volume, market share, production, productivity, sales, and employment, ensuring that safeguard measures are applied only when there is a significant overall impairment to the domestic industry.

In implementing this provision, Nepal adheres strictly to WTO principles and, interprets "material injury" under Chapter 2 (Safeguards) as meeting or exceeding the "serious injury" threshold. Nepal is committed to ensure that safeguard investigation demonstrates clear and objective evidence of serious injury before recommending the application of a safeguard measure.

Question 2

Article 30 stipulates that "(2) Notwithstanding anything contained in sub-section (1), the goods provided with the following subsidy by the government of the exporting country or the separate custom territory shall not be considered as the subsidized goods: (a) subsidy provided for the research activity operated by or on behalf of the sponsor, producer or exporter of such goods, (b) subsidy provided targeting remote or marginalized area of own country, (c) subsidy provided limiting it to the reform in the existing management related to the technology or process of the construction, production or export in the course of the compliance of the new condition or rule related to the protection of the environment." Please clarify whether such subsidies, if any, will be disregarded in the countervailing duty investigations by the investigating authority of Nepal.

Reply:

Nepal appreciates China's observation regarding Article 30 (2) of the Safeguards, Anti-dumping and Countervailing Act, 2076 (2019). The purpose of this provision is to ensure that Nepal's countervailing duty system remains consistent with the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement). The listed categories such as subsidies for research, development of remote or marginalized areas, and environmental protection represent forms of government support that are generally recognized as non-distortive and, aimed at public welfare.

In countervailing duty investigations, the provision will therefore not be treated as subsidy so long as they serve a specific public purpose or the stipulated public policy objectives. The investigating authority (Department of Commerce, Supplies and Consumer Protection) may examine each case based on clear evidence of benefit, specificity, and injury, in full conformity with the WTO rules. This ensures that Nepal's practice remains transparent, evidence based and consistent with its obligations under the SCM Agreement.

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