“We have finalized the draft trade agreement and are in talks to finalize several bilateral trade issues for inclusion in the proposed trade protocol,” said Navaraj Dhakal, spokesman for the Ministry of Industry, Trade and Supply. Nepal and Bhutan agreed on Thursday to establish a list of export products with duty-free market access in both countries. They also expressed their ready-made business protocol to advance the trade protocol during the discussions in Kathmandu at the level of the joint secretaries. Ojha stressed the need for consensus on a transport agreement with Bhutan to take advantage of bilateral trade. According to him, even after the signing of a trade agreement with Bhutan, Nepal will have to provide a similar facility for Bhutanese products on a reciprocal basis. “This could not be in Nepal`s favour, as it itself is facing a growing trade deficit with this ASARC member country,” Ojha said. Nepal has ratified the South Asian Association for Regional Cooperation (SAARC) agreement on a free trade area in South Asia (SAFTA). Under SAFTA, ASAC`s eight countries (Nepal, Bhutan, India, Bangladesh, Pakistan, Sri Lanka, Maldives and Afghanistan) have committed to reducing product-specific tariffs and more than 5,000 items are eligible for preferential tariff treatment in participating countries. However, the long “negative list” of products excluded from preferential tariff treatment under the SAFTA has limited the impact of the agreement on regional trade. In February 2004, Nepal became a member of the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC). The other members are Bangladesh, Bhutan, India, Myanmar, Sri Lanka and Thailand.

BIMSTEC aims to create a wider free trade area through deeper and more comprehensive sector coverage of services and an open and competitive investment system. The regional group is a bridge between South and Southeast Asia and is a strengthening of relations between these countries. BIMSTEC has also set up a platform for intra-regional cooperation between SAARC and ASEAN members. According to ministry officials, the failure to finalize the product list and the Bhutanese refugee issue delayed the signing of the trade agreement. Despite preferential treatment, Nepal has not been able to maximize the benefits of trade with these countries because of its small basket of exportable goods.