BIMSTEC FREE TRADE AGREEMENT CLOSER TO

UNCLAS KATHMANDU 000026 SIPDIS SENSITIVE SIPDIS DEPT FOR SA/INS E.O. 12958: N/A TAGS: ECON BTIO BEXP EINV ETRD NP SUBJECT: BIMSTEC FREE TRADE AGREEMENT CLOSER TO IMPLEMENTATION SUMMARY -------------- ¶1. (U) According to Ramesh Nath Pandey, Minister of Foreign Affairs and head of Nepal's delegation to the 8th Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) Ministerial Meeting on December 19, representatives from member states made important decisions that would affect Nepal's trade, tourism, transport, and energy sectors. (Note: BIMSTEC is a regional forum established in 1997 to promote economic and trade relations between South and Southeast Asia. Members include Bangladesh, Bhutan, India, Myanmar, Nepal, Sri Lanka, and Thailand. End Note.) The 10th Trade Negotiation Committee (TNC) meeting was held in Kathmandu from December 21-27. The meeting produced an agreement about a dispute settlement mechanism (DSM) as well as progress on several other issues related to the BIMSTEC Free Trade Agreement (BIMSTEC FTA). End Summary. FOREIGN MINISTER CLAIMS BIMSTEC FTA WILL BENEFIT NEPAL -------------- -------------- ¶2. (SBU) On his return from the 8th BIMSTEC Ministerial Meeting in Dhaka, Bangladesh, Pandey said a BIMSTEC FTA was expected to be signed at the next ministerial meeting in 2006 and implemented from July 2006. The members had agreed that a group of experts would meet in Kathmandu in early 2006 to discuss liberalizing member visa regimes to facilitate increased travel within the region, which Pandey hoped could benefit Nepal's tourism sector. Nepal proposed and received a favorable response from members to host the 2nd Roundtable and Workshop of BIMSTEC Tourism Ministers in 2006, which would be important to promote and develop tourism in the BIMSTEC region. Nepal had expressed a desire to be the chair country for small hydropower and adventure- and eco-tourism. According to news reports, Pandey discussed with Bangladeshi Foreign Minister Morshed Khan, upgrading road links through Bangladesh, and Khan reportedly had expressed his commitment to provide Nepal with port facilities in Bangladesh on friendly terms. Pandey talked with officials from India, Thailand, and Myanmar and agreed to initiate cooperation for mutual benefit in the energy sector. The Ministers from other BIMSTEC countries also reportedly welcomed His Majesty's Government of Nepal's (HMGN) initiatives to make Nepal a transportation transit point between India and China and discussed how this could benefit member countries. TRADE NEGOTIATION COMMITTEE MEETING MADE PROGRESS ON FTA -------------- -------------- ¶3. (SBU) At the 10th Trade Negotiation Committee (TNC) meeting which concluded on December 27, BIMSTEC members agreed on terms for a DSM and made progress on value addition for rules of origin, fast-track tariff liberalization, and negatives lists. Members decided that for DSM a third party mediation committee would be established to settle trade-related disputes that may occur between member countries; no time frame for implementation was set. Narendra Prasad Upadhyaya, Joint Secretary of Ministry of Industry, Commerce, and Supplies, and chief of Nepal's delegation at the TNC, told Emboff that Nepal negotiated for 25 percent value addition in the rules of origin, but was prepared to accept 30 percent in order to qualify for preferential treatment under the BIMSTEC FTA. A TNC sub-group planned to meet in New Delhi before the next TNC meeting scheduled for 2006 in Bangkok to settle rule of origin issues. He also said that 10 percent of exported products were to be listed for fast-track tariff liberalization, in which tariffs on listed goods would be reduced to zero within the next four years. Upadhyaya added that Nepal presented a list of three percent of exported products that needed revision and that all member countries agreed to present lists at the next TNC meeting in Bangkok. Regarding negative lists, member states agreed to exclude items of their export interest from the list and to a 20 percent maximum of products allowed on the list. Joint Secretary Upadhyaya said that Nepal's negative list was at 22 SIPDIS percent (over 1,300 products) and would be discussed at the upcoming Bangkok TNC meeting. INVESTMENT PROMOTION AND PROTECTION ALSO DISCUSSED AT TNC -------------- -------------- ¶4. (SBU) The TNC also decided to draft an investment promotion and protection agreement, highlighting ways member states could open their service and investment sectors to foreign investment. Members agreed to exchange lists of service sectors they would like to open before the Bangkok meeting in order to expedite negotiation on the BIMSTEC FTA on service trade and investment. In one news report, Upadhyaya said that Nepal would have a tough time coping with emerging global and regional competition. There were no agreements reached on safeguard and anti-dumping mechanisms. Investment promotion and protection would be discussed at the TNC meeting in Bangkok. It is expected that least developed countries in BIMSTEC would seek special treatment by adopting safeguard mechanisms when opening free markets for investment and service sectors. COMMENT -------------- ¶5. (SBU) The BIMSTEC FTA is a welcome development for Nepal. However, Nepal's largest trade partner is India and many in the business community believe the bi-lateral Indo-Nepal Trade and Transit Treaties have more potential trade benefits for Nepal than BIMSTEC FTA or the South Asian Free Trade Agreement (SAFTA). (Note: The current five-year, Indo-Nepal Transit Treaty expires January 5 and renewal meetings are being held January 4. The Indo-Nepal Trade Treaty expires March 5, 2007. End Note.) Also, while BIMSTEC opens Thailand's market to Nepal, it remains to be seen what Nepal could export to Thailand. Pandey's comments about improving trade transit through Bangladesh and Nepal as an Indo-China transit link are long-term HMGN plans that have less short and mid-term potential to impact Nepal's economy than BIMSTEC FTA or SAFTA. MORIARTY