Page 1 of Foreign Trade FOREIGN TRADE Meaning of foreign trade: Foreign trade refers to the exchange of goods and

services between countries. Export and import are its two components. GROWTH AND TREND OF FOREIGN TRADE IN NEPAL: Before 1950 A.D Nepals foreign trade was confined only with India and Tibet. Trade with Tibet was negligible. Nepals trade with overseas countries started with the launch of first five year plan. Nepal pursued trade diversification policy from 1960 and thus opened the door for trade liberalization. Since then foreign trade of Nepal has gained momentum. During 1956-57, Nepals foreign trade volume was just Rs. 265.4 millions; with total exports (Rs. 95.5 millions) and total imports (Rs. 169.9 millions). By 2005-06 total volume of trade has increased to Rs. 234014.4 millions. The growth trend of foreign trade of Nepal has been increasing year after year but trade deficit has also been increasing. In 2005-06 trade deficit was Rs. 113546.2 millions. COMPOSITION OF NEPALESE FOREIGN TRADE Composition of trade means the items of export and import. The compositions traded in foreign countries are classified according to Standard International Trade Classification (SITC). Principal items exported by Nepal are jute, pulses, oil seeds, ginger, live animals, food items, carpet, readymade garments, handicrafts, herbs, dairy production, skins and hides etc. Nepal imports finished goods, semi finished goods, raw materials, machinery, locomotives, fertilizer, medicine, petroleum, equipments etc. DIRECTION OF FOREIGN TRADE In the past, trade with India formed 95 percent of Nepals foreign trade. A small percentage of trade was with Tibet. Nepal adopted Trade Diversification Policy from Third Five Year Plan. Since then, Nepal has been able to diversify trade relations with overseas countries as well. Nepal has now trade relation with over 80 countries and transit agreement with 17 countries. The development of transport and communication, participation in international trade fairs, membership of WTO has helped Nepal to diversify its trade. COUNTRY WISE TRADE DIVERSIFICATION Nepal in reality has been able to diversify its trade only in terms of trade with India vis--vis other countries. Nepals overall export is concentrated only with USA, Germany and India, and overall imports is also concentrated in India, Honkong and Singapore. Nepal has been unsuccessful in market diversification. COMMODITY WISE TRADE DIVERSIFICATION Nepal has not been unsuccessful even in commodity wise trade diversification. The structure of exports has obviously changed but there is no diversification in production of exportable goods. About 91 percent of export earnings come from seven commodities- carpet, readymade garments, pulses, handicrafts, leather, herbs and paper products. The exports of traditional agricultural items have declined in recent years due to various reasons. Of late, Nepal exports have also inclined towards manufactured goods. PROBLEMS OF NEPALESE FOREIGN TRADE Major problems on the way to its rapid and satisfactory development are as follows: 1. Poor access to transit facility Nepal is a landlocked country with no direct access to sea. There is lack of proper transit arrangement with other countries. This limits Nepals foreign trade. 2. Low export base Nepals exports mainly agricultural goods and semi finished goods. The over dependency on few commodities for exports possess a difficulty in diversifying Nepals exports. 3. Undeveloped industrial sector The industrial sector in Nepal lacks development. As such Nepal cannot export manufactured industrial goods. The exports of primary goods fetch low price. So, export earning of Nepal is low. 4. Import based industries Most of the Nepalese industries are based on import of raw materials. This increases cost of production in Nepal. As such Nepalese goods lose competitiveness in international market. Sanjay Karki

Page 2 of Foreign Trade

5. Lack of export credit Capital as well as money market of Nepal is at an infancy stage. Exporters require credit to finance export. But credit facilities are lacking in Nepal. This limits export trade. 6. Tough competition from foreign good Cheap imports of foreign goods have badly affected Nepalese industries. Nepalese goods are losing their existence not only in international market but also in domestic market. 7. Lack of standardization Standardization and quality control is vital for export promotion. But Nepal lacks proper quality control and standardization. This has proved a problem in the development of Nepals foreign trade. 8. Low quality goods Goods are produced in Nepal with outdated technology and unskilled labour. As such cost of production is high and products are of inferior quality. As such Nepalese goods cannot compete in the international market.

Sanjay Karki