SAARC The idea of regional cooperation in South Asia was first raised in November 1980.

It was established in 1985 and it has Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka and Afghanistan as its members now. It was formed to promote the welfare of the peoples of South Asia, strengthen collective self-reliance, promote active collaboration and mutual assistance in various fields, and cooperate with international and regional organizations. SAFTA The trade liberalization entered the mandate of SAARC in 1993 when the Member countries decided to liberalize under successive rounds of preferential tariff concessions with the ultimate objective of achieving a free trade area (FTA). A decade after the preferential trade arrangement (PTA) took effect; the South Asian Free Trade Agreement (SAFTA) was signed in 2004 and came into effect in 2006. (JAMIL, 2004) SAFTA helps in better economic interaction and integration between SAARC countries. The reason for Nepal joining SAFTA was to expands its exports to the rest of South Asia and contribute in geographic export diversification. When we observe the data we found that exports from Nepal to rest of South Asian countries was very low due to policy and other structural factors. Export Nepals export potential is calculated based on exports (of Nepal) and imports (of the partner). Nepals real trade potential in a South Asian country is calculated by subtracting Nepals actual exports to that country from the minimum of Nepals total exports and the partners total imports. It gives an indication of the value of additional exports that Nepal can potentially make to another country, given Nepals existing export capacity, the existing imports of the partner country and the existing exports from Nepal to that country. Nepal trade in South Asia is mostly concentrated with India. The restricted provisions in the bilateral treaty and other barriers have also not helped Nepal to improve its trade balance with its largest trading partner. The export data reveals tremendous trade potential with South Asian countries but its supply side capacity and market access barriers affect its trading strategy.

The figure of exports shows that Nepal has tremendous potential to increase its exports in South Asian countries. Nepal has not been able to successfully exploit these markets although having its existing trade capacity. The calculated ratio of trade potential from Nepal to South Asian countries shows that trade potential exceeds existing exports by certain factors which Nepal has not been able to exploit. The highest trading partner of Nepal, India, which already absorbs 63% of Nepal export also have existing export potential. Nepal should exploit it trade potential opportunities in these markets. Opportunities Revealed comparative advantage The important measure through which Nepal can decrease it trade deficit is through its revealed comparative advantage index (RCA). It is calculated as the ratio of the share of a countrys total exports of a commodity in its total exports to the share of world exports of the same commodity in total world exports. RCA index greater than unity reveals that Nepal has comparative advantage in that product. Nepal needs to focus on those items that have RCA and export the items that are not in the sensitive list of the trading partner. In 2009, Nepal revealed RCA in 478 products. For example: 154 of these products are in Bangladeshs global imports which exceeded Nepals global exports, implying there is a potential additional market in Bangladesh for these products from Nepal provided Nepal can increase its export supply. (Kharel & Adhikari, 2011) Some good opportunities for Nepalese trade are: Handicraft exporters identify new markets:

The Federation of Handicraft Associations of Nepal (FHAN) is planning to identify new markets in East Europe, Africa, Mexico and Brazil for export of handicrafts from Nepal. Western Europe has been Nepals traditional destinations for exports of handicrafts; however, due to recent economic slowdown in the existing markets, FHAN is planning to extend to new markets. FHAN has asked Trade and Export Promotion Centre (TEPC) for a financial assistance, while SAARC secretariat has shown interests in boosting this sector.

Nepal to sign trade agreement with Turkey:

The Turkish Government expressed its interest to partner and work with Nepal in establishing trade, investment and economic relationship between the two countries. International Monetary Fund (IMF) has recognized Turkey as one of the emerging economies and one of the worlds newly industrialized countries. Until now, the government of Nepal has signed bilateral agreements with 17 countries, including India, the USA, China, Bangladesh, Czechoslovakia, England and Poland. Exports to Afghanistan, Turkey and China witnessed a surge:

Nepals export to Afghanistan rose a whopping 895% during the first nine months of fiscal year 2012-13. Similarly, exports to Turkey and China surged immensely by 188.2% and 175% respectively while shipments to traditional exports destinations of the Canada, USA and Germany dropped by 28.8%, 9.2% and 16.3% respectively Threats Supply side constraints Another major problem Nepal is facing while trading is its supply side constraints. These factors are critical while exploiting trade opportunities to South Asia and other countries. Transit facility is one of a critical determinant for doing trade with other countries. Nepal completely depends on transit passage through India so political relationship with Indian government also affects its trading. Other factors such as limited and low quality infrastructure, weak governance, technological factors also contribute to decrease Nepals export competitiveness in global market. Sensitive list of SAFTA SAFTA adopts a negative list approach to trade liberalization. The Negative List is called the Sensitive List in the SAFTA Agreement. The Agreement allows all member countries to maintain Sensitive Lists, products of which will not be subject to tariff reduction.Nepal has a long sensitive list in SAFTA. Under the sensitive list, Nepal has put 1,257 goods for Least Developed Countries (LDCs) and 1,295 goods for Non-LDCs. Almost 140 agriculture products

are on sensitive list but duty free access is provided to those products from India and China who are also the major suppliers of the same products. This is a serious threat to those agricultural products and Nepal should remove these items from the SAFTAs sensitive list and negotiate a revision of trade treaty to provide tariff protection to those agricultural products. (Kharel & Adhikari, 2011) Swamp up domestic producers If the tariffs are brought down to zero among all SAARC nations the products of regional economic giants will flood the market not the products of least developing countries. The regional economic giants of SAFTA may cut into Nepals comparative advantage. There will always be problems with transit and transportation and these add up cost of our exports and minimize our comparative advantage. Lowered tariff for imported products will result imported goods to swamp the domestic markets and if their quality and price remain more competitive than home country products they will wipe out domestic production. This will result domestic producer suffer huge loss by decline in export and sales.. The regional giants like India, Pakistan, Srilanka produces everything Nepal makes in large economies of scale. Even if the tariff for imported products is low these giants will not buy expensive products from Nepal. The domestic producer will have to compete with the manufactures of regional giants. This will be threat to Nepali producers. Learnings Rationalize sensitive list of NEPAL Nepal needs to rationalize long sensitive list of Nepal and remove some of the items from sensitive list of SAFTA considering the impact of the imports that can have in our market. It is necessary to negotiate a revision to the trade treaty with India to be able to provide tariff protection to those agricultural products which is sensitive for rural livelihood of Nepal.

Focus on regional transit agreement Transit related problems which are adding cost to our traded goods should be solved by regional transit agreement. Nepal needs to secure better transit rights and such rights

should be backed up by regional agreement rather than dependent on political relationship with the country. This will lead to effective, integrated and harmonies transit system that will unlock trade potential with not onlySouth Asia but rest of the countries in the world.

Develop competitiveness of domestic producer Nepal must craft strategy to benefit itself from SAFTA. The domestic suppliers should develop competitive edge otherwise we will lose our domestic market either at zero tariffs .The large volume of goods produced by regional economic giants will be much cheaper. It may be cheaper to import these goods at zero tariffs than to buy goods from domestic producer. The government should provide export incentives to domestic producer depending upon the value addition to the national trade.

Bibliography
JAMIL, S. I. (2004). THE SOUTH ASIAN FREE TRADE AGREEMENT (SAFTA): TOWARDS A MULTILATERAL FRAMEWORK. SAARC LAW CONFERENCE. PAKISTAN. Kharel, P., & Adhikari, R. (2011). Nepal and SAFTA: Issue, prospects and challenges. Kathmandu.