REVISED TREATY OF TRADE BETWEEN INDIA AND NEPAL (GOODS)

Note on the meeting of 29 MARCH 2021

Chairman: H.E. Dr. Muhammad Mujtaba Piracha (Pakistan)

1.  The 13^th Dedicated Session on Regional Trade Agreements (RTAs) of the Committee on Trade and Development (CTD) was convened in document WTO/AIR/COMTD/RTA/8/Rev.1 of 19 March 2021. Under item C (I) of the agenda, the Committee considered the Revised Treaty of Trade between India and Nepal (Goods) (WT/COMTD/RTA18/N/1, WT/COMTD/RTA18/1). The present document contains the minutes relating to the consideration of this agreement.^[1]

2.  The Chairman said that the Revised Treaty of Trade between India and Nepal was notified under paragraph 4(a) of the Enabling Clause on 2 August 2010. The notification was originally circulated on 3 August 2010 in document WT/COMTD/N/34, and then re-circulated on 14 December 2020 in document WT/COMTD/RTA18/N/1, in accordance with the new symbols for notifications and subsequent documentation relating to RTAs agreed to by the CTD at its 108^th Regular Session on 5 April 2019. The factual presentation on the Revised Treaty of Trade between India and Nepal – document WT/COMTD/RTA18/1 dated 15 December 2020 – was prepared by the Secretariat on its own responsibility, and in full consultation with the parties. No written questions were received on this agreement before the present meeting. As per the usual practice, he wished to organize the consideration of the agreement by first inviting the parties to make their introductory remarks. The floor would then be opened for interventions by other Members, including on the factual presentation. The parties could provide responses at any time during the discussion to any questions raised. Members would also have the opportunity to ask follow-up written questions after the meeting was concluded. He would remind Members of the timeframes for follow-up questions and responses at the end of the discussion on the agreement.

3.  The representative of India expressed gratitude for the comprehensive and detailed factual presentation prepared by the Secretariat. She said that the Revised Treaty of Trade between India and Nepal came into force in 2009. The agreement aimed to expand trade and encourage collaboration in economic development for the mutual benefit of the two countries. The factual presentation noted that India was Nepal's largest export destination in 2018, comprising 58.9% of Nepal’s exports. Nepal was India's eighth largest export destination, comprising 2.3% of Indian exports. Under the agreement, India had agreed to promote the industrial development of Nepal through the granting, on a non-reciprocal basis, of special favourable treatment to industrial products manufactured in Nepal and exported to India – in respect of customs duties and quantitative restrictions which were normally applicable to these products. Prior to the entry into force of the agreement in 2009, 2% of India's tariff lines – which amounted to 228 tariff lines – were duty-free on a most-favoured-nation (MFN) basis. This corresponded to 0.2% of India's total imports from Nepal during the 2006-2008 period. Upon entry into force of the agreement, an additional 94.7% of India’s tariff lines – a total of 10,748 tariff lines – became duty-free. This corresponded to 80.1% of India's imports from Nepal. She also noted that Nepal’s duty-free tariffs for Indian imports had increased by an additional 8.9% of tariff lines upon the entry into force of the agreement. The liberalized tariff lines corresponded to 5.7% of Nepal's imports from India. Around 93% of Indian imports into Nepal remained dutiable. Total bilateral trade between the two countries reached USD 8.27 billion in the 2018-2019 period, and had been steadily increasing over the years. In closing, she thanked Members for their interest in the transparency and monitoring exercise.

4.  The representative of Nepal said that the Chairman could count on Nepal's support and cooperation during his tenure. Appreciation was also expressed for the contributions of the previous Chairman. He additionally thanked the Secretariat for the preparation of the factual presentation. He went on to say that Nepal and India were close neighbours, and that their ties had further strengthened over time through increased interactions and close cooperation. The countries had enjoyed longstanding and intensive trade relations, and Nepal’s partnership with India in trade and transit was a matter of utmost importance to Nepal. The parties had formally signed the Treaty of Trade and Commerce in 1950, and had subsequently updated their trade relations in different time periods. The Revised Treaty of Trade was the accumulated outcome of the parties' longstanding experiences, and aimed to further strengthen their trade relations in a more transparent, predictable and rule-based manner. The agreement was signed by the parties on 27 October 2009, and came into force on the same day. It superseded its predecessor – the Treaty of Trade signed in 1991 and its amendments thereafter – and covered only trade in goods. The factual presentation on this agreement was the first on a Nepal-India Trade Treaty to be discussed in the CTD. His delegation believed that the factual presentation would contribute to ensuring transparency for RTAs, as per the spirit of WTO law. Though the size and composition of Nepal's and India's economies were significantly different, the agreement had become instrumental in facilitating bilateral trade relations. The agreement was initially to remain in force for a period of seven years, and was to be automatically extended for a further period of seven years unless a written notice of intention to terminate the agreement was given by any party in advance. In this regard, he indicated that the agreement had already been extended for seven more years. The agreement could also be amended through mutual agreement. Under the terms of the agreement, each party was to accord to goods, of the other party, treatment no less favourable than what it accorded to the goods of a non-party. This was with respect to customs duties and charges of any kind imposed on, or in connection with, importation and exportation – as well as with respect to import regulations, including quantitative restrictions. The agreement additionally ensured national treatment to each other's goods, and had the objective to explore and undertake all measures – including technical cooperation – to promote, facilitate, expand and diversify trade between the two countries.

5.  Some of the major aspects of the agreement included trade through mutually agreed trade routes; the simplification, standardization and harmonization of customs, transport and other related procedures; the development of border infrastructure; no provisions of export duties and charges; and India’s best endeavour to assist Nepal to increase its capacity to trade through improvement in technical standards, quarantine and testing facilities, and related human resources. Other important features of the agreement included the adoption of necessary measures to reduce or eliminate non‑tariff, para-tariff and other barriers; exchanging trade data; and undertaking all necessary measures for the free and unhampered flow of goods. He also pointed to reciprocal duty-free market access for primary products; duty-free market access to Indian markets for Nepal’s industrial products qualifying though the rules of origin criterion; provisions for the invocation of safeguard measures in some situations; and quantitative restrictions for preferential access to Indian markets for vegetable fats, acrylic yarn, copper products, and zinc oxides produced in Nepal. In addition, there were provisions concerning the granting of a margin of preference by Nepal to imports of industrial products from India, and the favourable treatment by India to Nepalese goods produced by small-scale enterprises. He indicated that the agreement established bilateral consultation mechanisms, ranging from the Intergovernmental Committee (IGC) at the Commerce Secretary level to the working level at border points, so as to facilitate implementation and resolve issues affecting the operation of the agreement. The IGC had met in December 2020 and had discussed a wide range of issues of mutual interest concerning trade, transit, investment, and greater economic integration between the two countries. Trade data revealed a significant increase in the volume of bilateral trade over the years, which was dominated by manufactured goods. India remained the largest trade partner of Nepal, both in terms of imports and exports of goods. Trade with India accounted for about 62.2% of Nepal’s total trade in the fiscal year 2019-2020, and comprised exports of 70 billion Nepalese rupees (NPR) and imports of NPR 735 billion. Similarly, Nepal was the second largest trading partner of India in South Asia, and was one of the top 10 export destinations of Indian goods in the world market. Nepal's trade deficit had widened significantly over the period, mainly due to rising imports, while exports had remained relatively stable.^[2]

6.  The representative of the European Union expressed her delegation’s appreciation to the parties for the transparency provided.

7.  The representative of the United States thanked India and Nepal for participating in the transparency exercise. She noted that both parties had non-notified agreements that were in force, and urged the parties to notify these agreements promptly.

8.  The Chairman said that oral discussion of the Revised Treaty of Trade between India and Nepal could be concluded in accordance with paragraph 11 of the Transparency Mechanism for RTAs (RTA TM). Follow-up questions by Members would need to be submitted in writing to the Secretariat within one week, by 5 April 2021. The parties would then be given two weeks to submit written replies, by no later than 19 April 2021. In accordance with paragraph 13 of the RTA TM, all written submissions as well as the minutes of the present meeting would be circulated promptly in all WTO official languages, and would be made available on the WTO website.

9.  The representative of the United States thanked the Chairman for providing the deadline for the submission of follow-up questions. In light of the connection problems experienced when the representative of Nepal was delivering his statement, she asked whether it would be possible for Members to review Nepal's statement prior to this deadline.

10.  A representative of the Development Division said that he would follow up with the delegation of Nepal after the present meeting. If there were no objections by Nepal, the statement would be shared with Members.

11.  The Committee took note of all interventions.

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