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Identifier
Created
Classification
Origin
06KATHMANDU317
2006-01-31 11:06:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Kathmandu
Cable title:  

LABOR LAW REVISION TO ATTRACT FDI

Tags:   ELAB  PGOV  EINV  PHUM  NP 
pdf how-to read a cable
VZCZCXYZ0002
OO RUEHWEB

DE RUEHKT #0317 0311106
ZNR UUUUU ZZH
O 311106Z JAN 06
FM AMEMBASSY KATHMANDU
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0125
INFO RUEHBJ/AMEMBASSY BEIJING PRIORITY 3877
RUEHLO/AMEMBASSY LONDON PRIORITY 3542
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 9128
RHEFDIA/DIA WASHDC PRIORITY
RHHMUNA/CDR USPACOM HONOLULU HI PRIORITY
RUEKJCS/SECDEF WASHDC PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
						UNCLAS KATHMANDU 000317 

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR SA/INS

E.O. 12958: N/A
TAGS: ELAB PGOV EINV PHUM NP
SUBJECT: LABOR LAW REVISION TO ATTRACT FDI

REF: 05 KATHMANDU 2723

Ordinance Published
-------------------

UNCLAS KATHMANDU 000317

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR SA/INS

E.O. 12958: N/A
TAGS: ELAB PGOV EINV PHUM NP
SUBJECT: LABOR LAW REVISION TO ATTRACT FDI

REF: 05 KATHMANDU 2723

Ordinance Published
--------------


1. (U) On January 31, the government promulgated a revision
to the 1991 Labor Law intended to boost foreign direct
investment (FDI). The revision opened the door for
appointment of up to fifteen percent non-Nepali nationals as
managers, executive directors and experts in firms. Existing
laws did not allow foreign managers. The revision gives more
power to management to hire and fire employees, a move seen
as necessary to attract foreign investment. The revision
supports the creation of an independent committee to
determine the minimum salary of employees, a role the
government currently maintains. With the revision, firms
have the right to completely or partially shut down and lay
off employees with a three-month advance notice to the
government, and employees would have to inform the government
thirty-days in advance if they planned to go on strike.

Industry Welcomes Revision
--------------


2. (SBU) Chandi Raj Dhakal, Chairman of the Federation of
Nepal Chambers of Commerce, told Emboff that this revision
was "an absolute necessity" to create favorable conditions
for investment in Nepal. He claimed that the revisions were
needed to meet World Trade Organization commitments and were
supported by the World Bank. Rajib Upadhya, Senior External
Specialist at the World Bank, told Emboff that he had just
received a copy of the finalized ordinance and would have to
review it in more detail before fully commenting. However,
he asserted that the ordinance appeared to take into
consideration World Bank concerns regarding labor
flexibility. He noted that labor flexibility was one of four
conditions that Nepal had to meet before Nepal was eligible
for a World Bank Poverty Reduction Strategy Credit II loan
(reftel).

Trade Unions Fear Labor Rights Sidelined
--------------


3. (SBU) Laxman Basnet, President of Nepal Trade Union
Congress (NTUC), lamented to Emboff that despite provisions
in the Labor Law that stated the government should consult
with labor unions and industry when revising the Law, the
government had only consulted with industry. The government
told labor unions they could review the revision once
implemented as they had fulfilled their requirement to
consult by discussing with industry. As he had only heard
about the changes, Basnet could only surmise that this
revision would give full authority to management to act
according to its wishes, sidelining labor rights. He
commented, "now the Labor Act should be named the Industry
Act." He explained that it appeared the revision would give
full authority to management to hire and fire at will without
explanation to employees as previously required. He noted
that the revision would allow firms to hire new employees
without giving preference to existing employees. He did not
understand why the revision would call for an independent
committee, as the government previously fixed the minimum
salary on the basis of tripartite agreement between
management, government and labor unions. He stated that the
provision to strike would remain the same as in current
legislation.

Comment
--------------


4. (SBU) Although much of Nepal distrusts government
intervention, a revision in the labor law had long been in
the offing and was necessary. Opening up sectors to foreign
managers is a welcome change. Whether the law sidelines
labor unions will bear monitoring. Just as important,
political instability and the Maoist insurgency will continue
to discourage foreign investors, despite what appear to be
positive changes in the regulation of Nepal's labor market.
MORIARTY