TRADE-NEPAL: Himalayan Nation’s Garment Industry in Tatters

• by Bhuwan Sharma (kathmandu)
• Sunday, May 23, 2010
• Inter Press Service

Pandey, though, did not foray into the education sector by choice. He loved his work in the garment sector. However, complete elimination of quotas on the trade of clothing beginning 2005, Nepal’s utter lack of homework to cope with the quota-free regime and the never-ending political instability made it impossible for Pandey to continue his once booming business.

When Pandey mentions that his company at its peak in the late 1990s and early years of this decade employed 600 people, many people raise their eyebrows in utter disbelief.

However, those who have been keeping track of the rise and fall of this industry know that there are many, many similar stories waiting to be heard in the nooks and crannies primarily of the Kathmandu Valley and Biratnagar, the second largest city of the country, where not very long ago hundreds of garment industries operated day in and day out to export products to clients in the United States, Europe Union (EU), Canada and Japan.

The tiny Himalayan nation’s garment industry in its heydays earned the highest foreign exchange for Nepal and was the biggest export-oriented manufacturing industry of the country.

Export of readymade garments (RMGs) that in 2002/2003 registered over 11.5 billion Nepalese rupees (165 million U.S. dollars) plummeted to about 4.5 billion rupees (65 million dollars) in 2008/2009. An industry that once provided direct employment to approximately 50,000 people, including a significant number of women, now just employs a few thousand people.

The phasing out of the quota system carried out in tune with the 1990 World Trade Organization (WTO) Agreement on Textiles and Clothing (ATC) (also known as Multi-Fibre Agreement), Nepal’s inability to restructure the sector, political instability and the rise of unionism dealt a near-lethal blow to the industry.

The quota reduction was implemented in four phases: 16 percent in 1995; 17 percent in 1998; 18 percent in 2002; and finally 49 percent in 2005, thus ending 40 years of quota-based trading on textiles and clothing.

'The quota phaseout under ATC began in 1995, but its impact on the Nepalese economy was not immediate. This was due to the fact that the RMGs were concentrated on a few products (mainly cotton casual wear), and these products were not under quota restrictions until the last phase of the Agreement,' says a report published by South Asia Watch for Trade, Economics and Environment (SAWTEE) and ActionAid Nepal.

Chandan Sapkota, a regular newspaper commentator on trade and economic issues, says: 'It was known two decades ago that all quotas in this sector would be abolished. There was ample time to invest and restructure the Nepali garment industry. However, both investors and policymakers turned a blind eye to the necessity for the reorganisation of this industry.'

The phasing out of quotas and the country’s inability to prepare itself for a level-playing field has been devastating. While there were 212 manufacturing units in 2000/2001 manufacturing RMG for markets primarily in the United States, EU, Japan and Canada, now only a handful of units remain.

Trade to the United States, which accounted for more than 80 percent of total garment exports before the complete elimination of quotas, nosedived to about 1 billion rupees (14 million dollars) in 2008/2009 from about 9 billion rupees (128 million dollars) in 2002/2003.

What has come, however, as a saving grace is exports to the EU, Canada and Japan, where export shares have grown moderately.

'This is probably due to preferential market access granted by these countries to Nepal, under the Generalised System of Preferences [a formal system of exemption from the more general rules of the WTO].… However, export values in these markets have been small despite the preferential market access and relaxation of the standard RoO (rules of origin),' says the report prepared by SAWTEE and ActionAid Nepal.

The country’s RMG exports to France, for instance, went up from 307 million rupees (4.3 million dollars) in 2004/2005 to 626 million rupees (8.9 million dollars) in 2008/2009. Similarly, exports to Japan and Germany went up from 91 million rupees (1.3 million dollars) and 127 million rupees (1.81 million dollars) to 170 million rupees (2.4 million dollars) and 282 million rupees (4 million dollars), respectively, in the same period.

'Our exports to the U.S. can still go up, certainly not to pre-2004/2005 levels, if the government can lobby hard to get duty-free access to the U.S. market,' says Pandey.

'Besides that, we will certainly need export-oriented laws and policies, favorable labour laws, infrastructure in the form of export and garment processing zones, among others. The bottom-line is that we need political commitment and stability.'

But that is easier said than done.

Industry ethnographer Mallika Shakya best sums up the ups and downs of Nepal’s garment industry: 'We have lost this industry; let us not lose the lessons. Let us at least have the moral courage and intellectual honesty to acknowledge that this industry was one of the few momentous entrepreneurial movements that Nepal had witnessed amid the ongoing political and economic chaos.'

© Inter Press Service (2010) — All Rights ReservedOriginal source: Inter Press Service

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