Issue of imports coming from Nepal route

• Import from Nepal is governed by the Indo-Nepal Treaty on Trade and Transit which was last amended in December 1996, and was valid upto 5th March, 2002.



• The treaty is automatically renewed in the normal course if either side gives no notice.



• During the last amendment in December 1996, the existing value addition norms were deleted and all products manufactured in Nepal were eligible for duty free exports to India.



• In the absence of value addition norms there had been a rapid growth of imports into India of some Nepalese commodities. This led to representations from domestic industries in these sectors regarding excessive import of many products.



• The industry pointed out that the imports from Nepal are basically re-exports without any significant value addition to take advantage of the facility of 0% customs duty. In the absence of proper rules of origin, Nepal has become a re-export point for many of the products from China and other South Asian countries. There is a spurt in flow of Chinese goods in the guise of Nepali goods which has badly affected the Indian industry particularly small scale and medium industry as they are unable to compete with the cheap Chinese goods with are coming via Nepal and Mynamar borders.



• In the best interest of Indian Trade and Industry it became essential to review the Indo-Nepal Treaty, making it mandatory for goods manufactured in Nepal to be accompanied by the certificate of origin and prescribing value addition norms.



• Total imports from Nepal during the year 1998-1999 were Rs.609.4 crores which rose to Rs.817.3 crores during the year 1999-2000 and to Rs.1006.6 crores during the year 2000-01.



• Indo-Nepal Treaty has now been renewed for a period of 5 years w.e.f. 6th March, 2002.



• It inter alia contains the revised protocol to Article V of the Treaty and the new Protocol to Article IX of the Treaty.



• The most important point is Article V (Protocol to the Treaty of Trade) in terms of which minimum material content requirements for preferential entry of Nepalese goods into India have been stipulated.



• From 6th March, 2002 to 5th March, 2003, the total value of materials, parts or produce originating from non-contracting parties or of undetermined origin used should not exceed 75% of the ex-factory price of the articles produced. However, w.e.f. 6th March, 2003 onwards, the above value should not exceed 70%.



• Imports shall be allowed on the basis of a Certificate of Origin to be issued by the agency designated by the Government of Nepal in the format prescribed. In other words, the value addition norms have been prescribed in the renewed Treaty



• It has also been stipulated that the articles should involve a manufacturing process in Nepal that brings about a change in classification at four digit level, of the Harmonized Commodities Description and Coding System, different from those, in which all the third country origin materials used in its manufacture are classified; and the manufacturing process is not limited to insufficient working or processing as indicated in Annexure ‘B’ to the Protocol to the Treaty.



• The import of certain Nepalese manufactured articles viz. vegetable fats (vanaspati), acrylic yarn, copper products under Chapter 74 and Heading 85.44 of the HS Code and Zinc Oxide, will be allowed in India for free of customs duty on a fixed quota basis (per year).



• Further, the preferential facility shall not be available for the items viz. Alcoholic Liquors/Beverages and their concentrates except industrial spirits, perfumes and cosmetics with non-Nepalese/non-Indian brand names, and cigarettes and tobacco.



• Another, important point relates to new protocol to Article IX which stipulates that in the event of imports under the Treaty, in such a manner or in such quantities as to cause or threaten to cause injury to the domestic industry or a significant segment of it relating to the article, the importing country may request for consultations in the Joint Committee set up by the two Governments for this purpose with a view to taking appropriate measures. It further provides that if the consultations in the Joint Committee failed to resolve the issue within a period of 60 days from the date of such request, then the requesting government shall be free to take appropriate remedial measures which will be reviewed by the India - Nepal Inter-governmental Committee (IGC). The words “injury” and “Threat of injury” has specifically been explained.



• During the last amendment to the Treaty in December, 1996, condition relating to 50% Nepalese Labour, material and Indian material content for Nepalese products for preferential entry into India (i.e. Value Addition Norms) was deleted and all the products manufactured in Nepal were made eligible for duty free exports to India.



• Now, in the renewed Treaty, the provisions relating to Value Addition and Certificate of Origin, etc. have since been incorporated to protect the interests of Indian industry including SSI units.



• Another important point relates to new Protocol to Article IX of the Treaty which will take care of problems due to excessive imports from Nepal causing injury or threat of injury to the Indian industry.



• Import of Certain, products which were alleged to be imported in India in huge quantities namely vegetable fats, acrylic yarn, have also been allowed free of customs duty on a fix quota basis per year.



• Hopefully, the renewed treaty will solve the difficulties faced by Indian industry including SSIs due to erstwhile Treaty.

Inter-ministerial Standing Group

• As per EXIM Policy announced on 31.03.2001, a Standing Group consisting of Commerce Secretary, Revenue Secretary, Secretary (SSI&ARI), Secretary (AHD) and Director General of Foreign Trade has been created. The said group is functioning as a “War Room” for tracking, collating and analysing data on 300 sensitive items including 67 items sensitive to Small Scale Sector.