When the United States launched the Nepal Trade Preference Program (NTPP) on December 15, 2016, offering duty-free access for products under 77 Harmonized Tariff Schedule lines, it was expected to significantly enhance bilateral trade, especially boosting Nepal’s exports to the US. However, eight years later, Nepal has yet to fully capitalise on the opportunities provided by the NTPP in the world’s largest market.
With the NTPP set to expire on December 31, 2025, Nepali officials have formally requested US authorities for extension of the facility, arguing that it would offer greater benefits to Nepal. During the recently concluded 7th Council Meeting of the Nepal-US Trade and Investment Framework Agreement (TIFA) in Kathmandu, Nepali officials raised two key issues: the extension of the NTPP deadline and duty-free access for an additional 30 products.
The NTPP is the flagship programme of the Trade Facilitation and Trade Enforcement Act (TFTEA) of 2015, introduced by President Barack Obama to create a Nepal-specific preference programme designed to assist the country’s recovery from the devastating 2015 earthquakes. Nepali products gain access to trade preferences in the US market through two main avenues: the Generalised System of Preferences (GSP) and the Nepal Trade Preference Programme (NTPP). The GSP, in accordance with the enabling clause of the World Trade Organization (WTO), allows developed countries to provide trade preferences to developing nations, benefiting around 119 countries, including Nepal. However, the GSP expired in December 2020.
Under the NTPP, Nepal enjoys duty-free access for 77 eight-digit tariff lines in the U.S. Harmonized Tariff Schedule, which includes 56 textile-related lines, 10 leather and footwear lines, nine clothing lines, and two for other manufactured products. However, Nepal has struggled to fully capitalise on the NTPP.
Underutilisation of NTPP
According to the 2024 USTR Annual Report on NTPP Implementation, total imports under the programme in 2023 amounted to just $3.9 million, representing only 2.9% of total US imports from Nepal. The largest import categories included container bags and boxes ($1.7 million), handbags ($745,000), and hats and other headgear ($649,000).
In 2023, US imports from Nepal totalled $134 million - a one percent increase compared to 2022. Key Nepali exports to the US during the year included carpets and other textile floor coverings ($43 million), pet food ($23 million) and various textile articles ($10 million). Although the GSP expired at the end of 2020, importers continued to claim GSP preferences on $11.3 million worth of Nepali goods in anticipation of potential retroactive reauthorisation by the Congress.
However, NTPP utilisation in 2023 saw a slight decline. An additional $4.4 million worth of US imports of products eligible for duty-free access under the NTPP did not take advantage of the programme. Of the 77 eligible tariff lines, imports were recorded under 52 lines without a preference claim, likely due to either failure to meet the rules of origin or oversight by importers. Notably, the most commonly imported products without a preference claim included shawls and scarves ($2 million) and carpets ($1.1 million).
According to trade expert Rajan Sharma, Nepal failed to take full benefit from the NTPP because Nepali products did not meet the quality standards of the American market. “Having preferential access alone will not increase benefits for Nepali products in the US market," Sharma said, highlighting the need for Nepal to improve product quality to stimulate demand in the US
Dr Paras Kharel, Executive Director of South Asia Watch on Trade, Economics and Environment (SAWTEE), a Kathmandu-based think tank, said, Nepal has faced challenges in effectively utilising its duty-free access to the US market, whether through the Generalised System of Preferences (GSP), available to a wide range of developing and least-developed countries, or through the Nepal Trade Preference Programme (NTPP), introduced in 2016.
Kharel pointed out that the GSP accounts for 80% of Nepal’s preference-claimed exports to the US. “This scheme has been suspended since 2021. In the past, suspensions have been retroactively reinstated. However, with the US currently showing a bipartisan inclination towards protectionism, we cannot be confident about its reinstatement. GSP reinstatement is more important than the NTPP extension for Nepal,” said Kharel.
Nepal’s merchandise exports to the US in 2023 is 50% lower than their peak in the 2000. “This decline is not solely a consequence of the adverse shocks from the Covid-19 pandemic but is primarily driven by a significant drop in clothing exports since the early 2000s, following the phaseout of global quotas in the textiles and clothing sector,” according to a study conducted by Kharel.
Experts say the limited supply-side capacity is a major constraint affecting the performance of Nepali exports under the trade preferences programme. According to Kharel, limited production capacity, supply-side challenges and a lack of understanding of target markets have been hindering export growth from Nepal to the United States.
Few may realise that the US is Nepal’s third-largest trading partner and second-largest export destination. Historically, it was one of the few countries with which Nepal maintained a trade surplus. Exports from Nepal to the US peaked in 2000, totalling $229.5 million, primarily driven by ready-made garment exports. However, following the phase-out of quota facilities for ready-made garments provided by the US in 2004, Nepal's overall exports have declined significantly.
The abolition of the quota system led to a substantial loss of market share for Nepali ready-made garments, particularly in the United States. Additionally, the phase-out increased entry barriers, as buyers from supplier countries like Nepal now expected higher global standards.
Requests for Expansion
Nepali officials, during the recent TIFA Council meeting, requested that the US extend duty-free benefits to 30 additional goods and services under the NTPP, including ready-made garments and information technology (IT) products. The current focus of the NTPP on items like handicrafts, shawls and travel materials, which already face low tariffs, has had a limited impact on boosting the competitiveness of Nepali exports, say private sector representatives.
According to Nepali officials, the US delegation expressed a positive outlook regarding the extension of the NTPP programme. Baburam Adhikari, the Spokesperson for the Ministry of Industry, Commerce and Supplies (MoICS), said that US representatives were committed to lobbying Congress for the programme's extension. Additionally, Nepal has sought a revision of the list of products eligible for duty-free access as part of its efforts to enhance trade benefits, he added.
Govinda Bahadur Karki, Secretary of the Ministry of Industry, Commerce and Supplies, led the Nepali delegation in the TIFA Council meeting, while the US delegation was headed by Brendan Lynch, Assistant US. Trade Representative for South and Central Asia.
Nepal Readymade Garments Association had urged for the inclusion of 15 items under the customs exemption, such as cotton shirts, pants, t-shirts, and synthetic garments for both men and women. These items are considered “fast-moving and core competence” products and have significant potential to enhance Nepal’s export performance in the US market.
At present, products not included in the NTPP face customs duties ranging from 14% to 34%. According to government sources, these high tariffs have discouraged the US buyers from purchasing Nepali goods. Since any revision in the list of eligible products requires approval from the US Congress, Nepali officials are making strong lobbying for the same. However, there was reluctance among officials to add new products to the list during the meeting, according to a Nepali representative who attended the meeting. Since extension of the NTPP and the inclusion of new items are ultimately decisions within the jurisdiction of the US Congress, the US government cannot make direct changes to accommodate Nepal's requests.
The impact of high tariffs on Nepali exports is evident in the case of footwear companies like Goldstar, which launched its products in the US two years ago but faces a 37.5% customs duty. Such a high customs duty has made Goldstar products five times more expensive in the US retail market, forcing the company to halt exports. Vidushi Rana, Executive Director of Goldstar, said the government should advocate for the inclusion of footwear in the NTPP to improve the competitiveness of Nepali products in the US market.
According to Kharel, the Nepali private sector feels that the capacity-building aspects of the TIFA and NTPP have not effectively addressed the needs of the export sector. “It believes Nepal could boost exports to the US if duty-free access were granted to key items like apparel and footwear. However, the private sector has not been proactive in taking advantage of the opportunities in the US market, even with the duty-free access provided to 77 products under the NTPP,” Kharel said. “Notably, over 85% of Nepal’s exports to the US already benefit from zero-duty access, with about 20-24% benefiting due to preferential schemes.”
A study conducted by SAWTEE under Kharel’s leadership found that there is no evidence that the NTPP increased exports of products to which it granted duty-free access. One set of reasons could be limited awareness of the scheme, weak productive capacity of Nepali producers and inadequate knowledge of the conditions of the US market other than those concerning tariffs, the study found. “ The other reason, as the private sector argues, could be that a number of key products are excluded from the duty-free list.”
(The news report was originally publihsed in the October, 2024 issue of the New Business Age Magazine.)