NEPAL'S PREPARATIONS FOR WTO WORKING PARTY MEETING

UNCLAS SECTION 01 OF 02 KATHMANDU 001705

SIPDIS

SENSITIVE

STATE FOR SA/INS
STATE PLEASE ALSO PASS USTR - BRUCE LEVINE
LONDON FOR POL - RIEDEL
GENEVA FOR USTR

E.O. 12958: N/A
TAGS: ETRD PGOV NP GON
SUBJECT: NEPAL'S PREPARATIONS FOR WTO WORKING PARTY MEETING

REF: STATE 164046

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SUMMARY
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1. (SBU) Upcoming general elections on November 13 do not
seem to have impeded preparations by the Government of Nepal
(GON) for its second Working Party meeting on accession to
the WTO September 12. Accession to the WTO has broad,
multipartisan support, and the process is unlikely to be
negatively affected by a change in government. GON
interlocutors have signaled some openness to considering
further revisions to the services offer. The delegation's
greatest concern is that the USG and governments of other
developed countries provide necessary and adequate technical
assistance, particularly in relation to TRIPS requirements.
End summary.

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GON PREPARATIONS
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2. (U) On July 27 the Ministry of Commerce hosted a briefing
for the diplomatic community on Government of Nepal (GON)
preparations for the second Working Party meeting on
accession to the WTO, to be held in Geneva September 12.
Commerce Minister Purna Bahadur Khadka, who will head the
delegation, assured attendees of his government's commitment
to bring its trade regime into conformity with WTO standards,
and asked that attendees' governments support Nepal's bid to
enter WTO. Commerce Ministry Joint Secretary Prachanda Man
Shrestha also provided a brief overview of the GON's revised
market access offers for goods and services since the first
Working Party meeting in 2000. Both presentations
highlighted GON expectations that the "good will" of
developed countries--i.e., a recognition of Nepal's
limitations and constraints as an LDC--will be a significant
factor in the upcoming Working Party meeting.


3. (SBU) In a September 2 meeting with emboff, Shrestha
asserted that the GON's revised offer on tariffs, which he
said average about 40 percent for agricultural products and
about 30 percent for non-agricultural, are well below those
of other South Asian countries. He acknowledged the
assessment of surcharges on the tariffs--as much as 4.5
percent for non-agricultural products--which he described as
local development and security fees. Agricultural products,
which face an added agricultural development fee, are
assessed surcharges of as much as 9.5 percent.


4. (SBU) Shrestha argued that the GON had substantially
broadened its offer of market access for services from no
more than three in 2000 to eleven sectors and sub-sectors in

2002. Emboff asked why the GON had not opened up more
financial services in the revised offer. Shrestha replied
that the GON--in particular the Central Bank--has not yet
fully assessed the possible effect that inviting broader
foreign participation in the banking sector could have on
Nepal's economy and modest foreign exchange reserves. The
Central Bank is particularly leery of opening up banking to
foreign investment, he said. Discussions on the margins of
WP2 between members of the USG delegation and the GON's
Central Bank representative regarding these concerns would be
helpful, he agreed. Much of the GON's worry regarding
opening up the financial sector focuses on India, he
confided, rather than on other potential foreign investors.
Some quarters in the GON fear that liberalizing market access
in the financial sector would result in the small Nepali
market being swamped and completely dominated by Indian
investors. If there is genuine, specific American interest
in Nepal's modest market, Shrestha indicated, the GON
delegation would welcome further discussion of possible
revisions to its services market access offer with the USG
delegation.

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GON NEEDS
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5. (SBU) Shrestha said the GON's greatest concern in
embarking on WP2 is that it receive adequate technical
assistance from developed nations to meet its requirements
under WTO. Of special concern is the GON's ability to comply
with TRIPS obligations, he noted, an area in which the GON
has no expertise. During the first Working Party in 2000,
the GON received numerous pledges of technical assistance
from various countries (Shrestha says the USG had
specifically committed to provide assistance in customs
valuation),but so far not one country has delivered.

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USG AID TO DATE
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6. (SBU) The USAID Mission in Nepal has agreed to fund
travel and per diem for a U.S. Customs assessment team to
review GON requirements for customs valuation assistance.
The Mission's Economic Growth program is closing out at the
end of this fiscal year, however, and it is uncertain if
USAID Nepal will thus be able to provide follow-on funding
for any actual training or equipment.

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POLITICAL CLIMATE
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7. (SBU) Prime Minister Sher Bahadur Deuba asked the King
to dissolve Parliament May 22 and call mid-term elections for
November 13. Deuba remains in power, along with most of his
original Cabinet, until then. Because Maoist insurgents, who
have been waging a six-year effort to overthrow Nepal's
constitutional monarchy, are expected to attempt to disrupt
the elections, the polling may be conducted in phases in
various parts of the country, elongating the election
schedule considerably. The new Cabinet and Parliament may
thus not be in place before January. Accession to WTO enjoys
broad, multipartisan support from all but a very few small,
politically insignificant parties. The largest Opposition
party, the Communist Party of Nepal - United Marxist Leninist
(UML) was the first political party to endorse publicly
Nepal's efforts to accede to WTO. None of the likely (and
even not-so-likely) winners of the November election is
expected to repudiate previous commitments made during the
Working Party meeting or to reverse position on accession to
WTO.

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COMMENT
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8. (SBU) The upcoming elections have not seemed to hinder
GON preparations for WP2. WTO accession is not controversial
in Nepal and unlikely to become an election issue. The
Commerce Ministry's emphasis on anticipated "good-will"
concessions in view of Nepal's status as an LDC and its
framing of tariff rates in a regional, rather than global
context, make it seem unlikely that the GON will offer a more
significant reduction in tariffs. There does seem to be
latitude for further bilateral discussion of market access
for services. The GON will almost certainly raise its
understanding of previous USG offers to provide Nepal with
customs valuation assistance. We recommend that the USG
formally commit to offer such assistance.
MALINOWSKI