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September 2015 Sectoral

Published on: 2015-09-21 14:59:57     1174 times read    0  Comments
Elusive Hope for RMG

Democratic Party Senator Dianne Feinstein from California moved proposals on January 7 and May 5 to provied special facility to Nepal's RMG in US market but no concrete further developments are reported so far. She had also proposed that selected products from 13 Least Developed Countries (LDCs) be included on the list, known as the Generalized System of Preferences  (GSP) list. 

Nepal’s officials and businessmen have taken the news positively and said they are prepared to work out a plan to get RMG under the non-tariff list in the US. President of the Garment Association of Nepal (GAN) Chandi Aryal says the private sector is doing its bit to petition the United States Trade Representative (USTR) office to include Nepali RMG on the GSP list. 

Around a decade ago, the total export of Nepali RMG amounted to Rs12 billion a year. But with the phasing out of the 1974 Multi Fiber Agreement (a pre-WTO global deal that gave RMG from LDCs tariff-free access to developed markets under a quota system), Nepal witnessed a steady decline in export of RMG. 

The country’s garment industry had to compete globally to reach markets that could easily be reached under the quota deal. But then came, the Hong Kong Duty Free Quota Free (DFQF) declaration of WTO in December 2005, under which developed countries including the United States are obliged to extend duty free treatment to export products originating in LDCs including Nepal.

For such provisions to be meaningful, the list must include exports of interest to Nepal. Organisations that have sup-ported Nepal in this endeavour are: Ann Taylor Corporation, J.C Penney, Jockey International Inc, Wal-Mart Corpora-tion, Phillips Van Heusen, Kellwood Company, NIKE Inc, and Gap Inc, among others. 

Just as the industry was coming to terms with the new system, the global financial crisis came in 2008. Until 2002, around 87 percent of Nepali RMG export was to the United States. But in the last fiscal year, GAN says, not only has the United States’ share gone down to 25 percent, the total value of exports has fallen to Rs 5 billion. As Nepali gar-ment export to US has declined significantly, the EU has emerged as the main market for Nepali RMGs. During 2005/06, the US accounted for 55.16 percent of Nepal’s total RMG exports while the EU accounted for 18.14 percent. Five years later, the EU has the largest share with 46.13 per cent of total export while the US accounts for only 21.49 percent.

Following news of the proposals presented in the US senate, the GAN has discussed the issue with secretaries from various ministries such as the foreign ministry, commerce ministry and the finance ministry. According to the association, it has also consulted former Nepali ambassadors to the US and Dr. Swarnim Wagle, who looks after commerce-related issues at the National Planning Commission.

If the proposal is passed, the RMG industry will be able to reap the benefit for the next ten years. This is evident from the fact that when the US did not make necessary changes in its GSP after the Multi Fiber Agreement was phased out in 2004, more than 5,000 Nepali products lost their ‘preferential’ status. The argument that allowing Nepali RMG access to the US market will hurt the US economy should not be the reason to deny Nepal this facility.

Nepali apparel exports to US comprise just 0.01% of the total US import. 


The Harmonized System (HS) codes of the items that are being proposed to make duty-free by the US Senate are:


GAN President Aryal says government subsidies can be the most effective way to make the industry more competitive, regardless of preferential treatment. Similarly, the government needs to include RMG as one of the priority products under the Nepal Trade Integration Strategy (NTIS) to promote exports, say garment industry insiders who are waiting for the fate of the proposal in the US senate. 


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