CHINA TO PROVIDE DUTY-FREE ACCESS FOR 500 NEPALI

C O N F I D E N T I A L KATHMANDU 000688 SIPDIS SIPDIS DEPT FOR SCA/INS NSC FOR RICHELSOPH E.O. 12958: DECL: 03/15/2016 TAGS: ECON ETRD ECIN NP SUBJECT: CHINA TO PROVIDE DUTY-FREE ACCESS FOR 500 NEPALI EXPORTS Classified By: Charge John Schlosser. Reasons 1.4 (b/d). CHINA EXPECTED TO LIFT EXPORT DUTIES ON APPROXIMATELY 500 ITEMS -------------- -------------- ¶1. (SBU) On March 14, news media reported that China would provide duty-free access to approximately 500 Nepali items, on a non-reciprocal basis. This news comes in advance of a three-day visit to Nepal by a Chinese delegation led by Chinese State Counselor Tang Jiaxuan, beginning March 16. Naindra Upadhyaya, Joint Secretary, Ministry of Industry, Commerce and Supplies explained to Emboff that while the final list of products to be granted duty-free access to the Chinese market was not available yet, the list would include items of interest for Nepalese exporters such as agricultural, herbal (forest) and industrial products. He added that the agreement would be finalized on March 16 by an "Exchange of Letters." DUTY-FREE ACCESS OFFERS LIMITED BENEFITS TO NEPAL -------------- -------------- ¶2. (C) Government officials and businessmen were not optimistic that China's granting duty-free access to the items would result in large gains for Nepal's economy. Upadhyaya noted that most manufactured goods would need to have value-added in Nepal to qualify for duty-free access as most manufactured goods in Nepal were made of imported raw materials. However, he commented that duty-free access to the Chinese market would expand the potential for joint ventures between Nepal, India, and China. Kush Kumar Joshi, Second Vice-President of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) and Chairperson of the Nepal-China Non-Governmental Forum, opined that the trade agreement was an effort by the Chinese and Nepalese governments to regulate the majority of unauthorized trade in agricultural and herbal products that occurred between Nepal and the Tibet region of China. Joshi remarked that there was some potential for Nepal to export manufactured construction materials. However, he explained that the Government of Nepal (GON) would have to establish more transparent industrial policies on foreign investment and joint venture regulations and improve transport infrastructure between China and Nepal in order for Nepal to capitalize on the new trade benefits. Rajendra Khetan, Vice President of the Confederation of Nepalese Industries, stated that the trade agreement was "more a gesture of goodwill from China" and had "little substance" in terms of benefits to Nepal. He noted that Nepalese products would not be competitive in the Chinese market. However, China was interested in creating more business opportunities in Tibet to divert Tibetans from political activities. COMMENT -------------- ¶3. (C) The granting of duty-free access should give a small boost to China-Nepal relations. However, it likely will not have a significant impact on Nepal's large trade deficit with China because Nepali manufactured goods are not very competitive in China and the amount of agricultural trade is not substantial. The impending arrival of Tang's delegation March 16 probably spurred China to grant duty-free access, which Nepal has pursued for the past five years. SCHLOSSER