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Minister for Industry, Commerce and Supplies Dipak Kumar Shah said that Nepal can't reform its export sector without increasing both domestic and foreign investment.

"To reform the export sector, we need to reduce the cost of production and improve productivity, establish an effective product certification system and implement digital upgrade in the entire system," he said while speaking at an event on 'European Union-India Free Trade Agreement's impact on key sectors in Nepal' organised by the European Economic Chamber (EEC) – Nepal in Kathmandu on Thursday.

According to him, Nepal needs to make investment easier, faster, and more attractive, from approval to implementation and from production to export. He also emphasised a mutual recognition arrangement between Nepal and the EU, so that a product tested in Nepal is accepted in Europe. Stating that paperless border trade in Nepal is only around 33 per cent compared with about 94 per cent in India, Minister Shah said, "The question is not how we protect Nepal from this free trade agreement. The question is how we prepare Nepal to benefit from the new economic architecture created by this EU-India FTA."

According to him, if Nepal can establish appropriate rules of origin, diagonal cumulation, and an efficient border crossing mechanism, Nepal can become a meaningful partner in India and EU collaboration. He said that if Nepal is to access the EU market, it must have global-standard quality certification, reliable delivery, and strong rules for intellectual property and geographical identity. He further said that the GSP+ should be treated as a project not a policy, requiring rectification of around 30 international conventions, an action plan and enhanced monitoring, while stressing stronger cooperation among the government, European business committees and EEC-Nepal.

Minister Shah presented clean renewable energy and tourism as the sector with strategic advantage for Nepal.

EU interested in hydropower development

Ambassador of the Delegation of the EU to Nepal Charles Whiteley said that products and services such as yarn, natural fibres, leather, processed foods, packaging, and business services offer promise. "In this regard, the private sector's proposal to develop cross-border processing zones in partnership with Indian firms deserves serious consideration," he said.

According to him, the clearest immediate opportunity lies in Nepal's potential to become a stronger supplier to Indian manufacturers exporting to Europe. Commercial linkages already exist. India is the main buyer of Nepal's intermediate textile exports, yet Nepal still accounts for only a very small share of inputs used by Indian industry.

Ambassador Whiteley said that the European investors consistently look for three things - predictable rules, efficient approvals and confidence in the movement of capital. A fully operational one-stop service for investors, clear administrative timelines, simplified procedures for land, forex, exchange, and profit repatriation, and continued progress on financial integrity would make Nepal a highly attractive proposition for European investors, he said.

He stated that through the Global Gateway, together with the European Investment Bank and EU member states, the EU is keen to help advance bankable projects in generation, transmission, and cross-border electricity trade. Whiteley also said that Nepal's real comparative advantage lies in products with a strong and authentic story - such as tea, cardamom, coffee, medicinal plants, essential oils, carpets, and ashwagandha.

"European consumers increasingly value origin, craftsmanship, and sustainability and they are willing to pay for these qualities," he said, "The EU is not always an easy market to export to in that regard. I'm sure we will work more with the European Chamber to make our regulations, which sometimes seem to fly out of nowhere, better understood and better followed."

President of EEC-Nepal Narayan Bajaj said that the impact of EU-India FTA will be severe on readymade garments while Nepal's graduation from the Least Developed Country (LDC) will bring more complicated requirements.

"So, the government has to think in advance how to increase competitiveness of our industry. Pashmina and other textile products from India will also challenge our export to EU as India will have Zero tariffs," he said.

'Tap on hydro potential'

Economist Nishant Khanal said that Nepal's textile export will suffer the impact from the FTA implementation. This sector is estimated to experience a loss of US$ 7 million by the end of the FTA.

"Hydropower has green advantage. India receives no Carbon Border Adjustment Mechanism exemption under the FTA which has affected Indian producers of iron, steel, cement, fertilisers and aluminum," he said.

He stated that green power from Nepal lowers embedded carbon in Indian exports and cuts the CBAM certificates Indian manufacturers must buy, giving them a reason to locate carbon-sensitive processing in Nepal. More than 43,000 MW electricity in Nepal is economically feasible, with 23.6 million Euro of GREEN+ support committed.

"Cross-border power trade and India's rising industrial demand make Nepali hydro a prime blending opportunity through European Investment Bank and KFW Germany, aligned to the GREEN+ portfolio," said Khanal.

Likewise, branding, design, certification and quality upgrading for high-value, identity-linked products, pashmina, orthodox tea, cardamom and medicinal and aromatic plants can expand opportunity for Nepal.

Author: Modnath Dhakal