Despite Nepal's upcoming upgrade from a Least Developed Country (LDC) to a developing country in 2026, it will continue to receive zero customs duties from the UK until 2029.

The British government introduced the Developing Countries Trading Scheme (DCTS) in June 2023, replacing the Generalized System of Preferences (GSP). This scheme offers customs exemptions to 65 developing countries, categorized into three groups, with varying levels of customs and quota-free benefits for a range of goods.

Nepal, along with 47 other least developed and low-income countries, currently enjoys comprehensive preference benefits, which allow 99.8 percent of goods to be exported to the UK with zero customs duty, excluding arms and ammunition. After Nepal’s transition to a developing country in 2026, it will undergo a three-year transition period.

"This means Nepal will continue to receive benefits under the Comprehensive Preference until 2029," said Fabian Hartwell, Regional Trade and Development Advisor for South, Central, and Southeast Asia at the UK’s Foreign, Commonwealth & Development Office, during an event in Kathmandu on Monday. He also noted that the British government is committed to reviewing economic risks for countries like Nepal, which may face financial challenges post-upgrade.

During the program, organized by the British Embassy in Nepal, it was highlighted that other categories under the DCTS offer customs-free facilities as well. The second category includes low-income and lower-middle-income developing countries, which receive duty-free benefits under the Enhanced Preference heading. Sixteen countries fall into this category, receiving duty-free access for 92 percent of their exports to the UK. Once upgraded, Nepal will be part of this category but will continue to benefit under the Comprehensive Preference until 2029.

The third category, known as the Standard Preference Program, allows 65 percent of goods exported to the UK to be duty-free, with an additional 26 percent benefiting from reduced customs rates.

Hartwell’s presentation highlighted that Nepal has yet to make full use of these facilities, ranking fifth in South Asia after India, Bangladesh, Pakistan, and Sri Lanka. The UK remains a significant export market for Nepal.

The UK launched a business partnership program in 2019 to enhance the capacity of Nepal’s small and medium industries, in light of the impending loss of duty-free benefits post-upgrade. The British Embassy has initiated programs to support market access, business development, and private sector growth under initiatives such as Nepal in Business.

During Monday’s event, Commerce Secretary Gobinda Bahadur Karki from the Ministry of Industry, Commerce, and Supplies emphasized the importance of fully utilizing the UK’s DCTS scheme. "Bangladesh has set a strong example of increasing bilateral trade through DCTS. Nepal, which currently exports fewer goods to the UK, must leverage this duty-free scheme, which allows 99 percent of goods to be exported without customs duty," he said.

British Ambassador to Nepal Rob Fenn mentioned the UK’s ongoing efforts to support small entrepreneurs of Nepal by enhancing their capacities. He also announced a potential agreement for the export and storage of Nepali pashmina in the UK, stating, "We are committed to helping Nepali entrepreneurs by making their products more technology-friendly, while also improving marketing and branding." He added that he personally visited pashmina farms in Mustang to support this initiative.

Hartwell urged Nepal to take full advantage of the DCTS, noting that 100 percent of goods exported by Nepal will remain duty-free. He also identified 25 types of goods, including sports footwear, garments, and baby clothing, that have high export potential.

Chandra Prasad Dhakal, president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), highlighted the opportunities the DCTS presents for Nepal and requested the British Embassy to assist in technology funding to boost the capacity of Nepali entrepreneurs. Birendra Raj Pandey, vice president of the Confederation of Nepalese Industries (CNI), emphasized the importance of attracting British investment into Nepal’s tourism, infrastructure, energy, and other sectors to enhance bilateral trade relations.