Enabling trade through digitization, an opportunity for Nepal

KATHMANDU: The use and application of computers and information technology during 1960s and onward set motion to third industrial revolution that made services faster, easier, reliable and at the same time reduced the cost of transactions for the firms and industries. The developed economies were the pioneers of new technologies on the back of huge investment made by the government in research and development. The internet technology or the worldwide web, transgressed all national boundaries and helped globalization of economic, social and political life of the people. Faster movement of data and information across the territories helped in bringing efficiency in conduct of international trade. This allowed saving time for negotiating the sales contract, making logistics arrangement and border crossing orderly for timely delivery of traded goods. Further advancement on technology is taking place in the
form of artificial intelligence, robotics, big data, and internet of things, all based on internet technology. This new development is making a turnaround in the industry and businesses in the form of fourth industrial revolution. The behemoth tech-giants are on the helm of this changes. The US based technological companies like Google, Amazon, Facebook, Microsoft and Apple and the China based Alibaba, Byte Dance and Tencent are in a position of influencing various aspects of society, including economy and national security. These companies are increasingly shaping the global environment in which government operate. (Bremmer-2021).

The imperatives for digitization and virtual services have become more evident in context of the challenges of Covid-19 pandemic and the looming disasters caused by climate change. Data and information on the rampaging scale of infections and the efforts to contain these, including the works on vaccines and medicaments, were available globally in real time. A coherent approach to fighting the pandemic was made possible by means of information enabled by the internet. Meanwhile, digital technology enabled people to collect prior information on potential climate related natural disasters, take precautionary measures and minimize losses of human lives and their property.

Impact on trade facilitation

Apart from a wider socio-economic impact on people’s life, digital technology is bringing shift in the mode and means of doing cross border trade. Trade facilitation measures is now considered one of the important tools on reducing the trade cost and streamlining border formalities. This implies to a set of measures that streamline and simplify the technical and legal procedures for products entering or leaving a country to be traded internationally. As
such trade facilitation covers the full spectrum of border procedures from the electronic exchange of data about a shipment, to the simplification and harmonization of trade documents, to the possibility of appealing administrative decisions by border agencies (OECD-2021).

The imperative for reducing trade cost through facilitation was formally recognized during the Singapore Ministerial Meeting of WTO in 1996. Trade facilitation thus, got primacy among the four Singapore issues, the others being investment, competition and government procurement. Built on this premises, the issue was included in Doha Development Agenda2001, and made a part of multilateral negotiation as July Package of 2004; which mandated
the negotiating parties to anchor and elaborate the provisions of GATT Article V: Freedom of Transit, Article VIII: Fees and Formalities on Importation and Exportation and Article X: Publication of Trade Rules (Transparency) as the foundations of negotiations. Accordingly, series of negotiations were held in Geneva that culminated into formation of Trade Facilitation Agreement, adopted by the Ministerial Meeting in Bali in 2013. The agreement basically tries to address three aspects related with facilitation; first, clarifying and improving the provisions of three GATT Articles for expediting the movement, release and clearances of goods, second, enhancing support and assistance to the developing countries, particularly the least developed ones and third, achieving effective cooperation among member countries on matters related with trade facilitation. The agreement recognizes electronic data interchange and implementation of single window as the important means of facilitation.

The Revised Kyoto Convention (RKC) espoused by the World Customs Organization (WCO) is another international convention that contributes to the cause of trade facilitation through its blueprint for modern and efficient customs procedures in the new century. Simplification and harmonization of the customs procedures lies in the heart of the convention that emphasizes on transparency and predictability of customs actions, maximum use of information technology and minimum necessary customs control to keep compliance with regulatory requirement (WCO-2021).

Customs reform and automation

In Nepal, effort for customs automation was initiated in mid- 1990s with the piloting of Automated Systems of Customs Data (ASYCUDA) in the Tribhuvan International Airport (TIA). Learning from the experience of TIA, government of Nepal rolled out the system in three major border posts of Birgunj, Biratnagar and Bhairahawa during the last year of the decade. Under the successive customs reform and modernization plan implemented since
2003, Nepal customs undertook various measures for automation with the implementation of ASYCUDA++ to ASYCUDA World, rolled out various modules of the systems for enhancement of efficiency and service delivery to the customers. On the backbone of improved physical and IT infrastructures, customs embarked on legal reform with a view to harmonizing the work processes and documentation in line with the international conventions like the WTO trade facilitation agreement and the Revised Kyoto Convention. Customs act was amended in 2007 in order to accommodate the arrangement required by the reform program. The declaration or the Single Administrative Document was harmonized in accordance with the UN Layout Key.

With the advancement of information technology and their adoption, customs operation is becoming more robust and connected. The technology enabled senior officials of the department to carry out real time surveillance and monitoring of the field operation in a more effective manner. The stakeholders, particularly the importers and exporters and the customs agent, more than ever, are now able to interact with the customs in a transparent and
friendlier manner. Adoption of automation in customs was primarily met with resistance from the clerical staffs and the customs agent and the later one even staged formal protest in Birgunj custom house during early implementation of the program. However, the perception turned positive over the period as various stakeholder’s found automation beneficial in terms of reduced time and cost of border clearances of traded goods.

The sixth customs reform and modernization plan, started this year, is built upon the foundations laid in the previous plans. The plan aims at achieving full automation of all customs processes over a period of five years and full implementation of national single window (NNSW). The former will be achieved by rolling out automation in all customs offices and moving towards paperless customs while the latter is intended to bring all stakeholders of trade under the premises of single window that allows electronic lodging of all declaration and processing them electronically for clearances of export and import. The submission of documents and information will be only once and transmitted to the relevant stakeholders for their consideration and clearances. Altogether 43 trade related agencies are supposed to be bought under the system in three stages of implementation. This will be a milestone for Nepal to move towards paperless trade.

Government of Nepal has also introduced the system of registration of export in lieu of GSP certification for export of products to EU member countries. Trade and Export Promotion Center (TEPC) works as the coordinator of this certification where the exporters can register their product under the system and send the goods to the export destination along with electronic transmission of information about the goods in question. Arrangement have been
made in recent years to issue the electronic certificate of origin by the chambers and business organizations who are responsible to issue the certificates for export. However, this is still to be institutionalized in view of the low implementation capacity of these organizations.

Obligation under regional agreements

Nepal is the original signatory of South Asian Free Trade area and the BIMSTEC free trade area. The former is under implementation albeit at a snail pace and largely deterred due to strategic conflict between India and Pakistan. Trade negotiations under the BIMSTEC free trade area is still ongoing and not yet clear when it will be over. However, both of these agreements have clearly indicated the need of going into the realm of customs cooperation and digitization in order to achieve the goal of trade integration. Article-8 of SAFTA agreement has set out additional measures for complementing the tariff liberalization through customs cooperation and harmonization, development of communication and transport infrastructures and simplification of banking procedures, among others. The framework agreement BIMSTEC free trade area is more comprehensive and covers the range of actions for implementation of agreement on trade in goods, services and promotion of intra-regional investment. The agreement has also embedded the sectors of customs cooperation and e-commerce under the purviews of regional trading arrangement. But the distressing part is that this regional cooperation agreement is languishing over the last several years which is mainly attributed to the lack of interest to advance the process by the two big economies- India and Thailand.

In addition to the support of the World Bank, the role of Asian development Bank, on improvement of Nepal’s transit and trade operations, is quite significant. Support for development of border infrastructures, customs modernization and automation including HR capacity development are some important initiatives under the cooperation. The regional organization of United Nations-UNESCAP, has been providing support in capacity building in implementation of trade facilitation measures. The Framework Agreement on Paperless Trade developed under the aegis of this organization and endorsed by the member countries stands on the way of supporting least developed countries to move towards the direction of paperless trade and reduce the cost of cross-border transaction.

Modernization of transit services

Transit services plays an important role in linking the landlocked countries with the outside world. One of the factors behind loss of competitive capacity of these countries is the high cost associated with the movement of goods across the borders, particularly between the seaport and their land borders. Nepal first entered into formal agreement with British-India in 1923 for transiting the goods through its seaport to Nepalese borders. A stand-alone treaty of transit was signed for the first time in 1978 which is in vogue even today with several amendments. Similarly, treaty of transit was concluded with Bangladesh in 1976 and the transit transport agreement with PR China in 2016. Out of these agreements, the treaty of transit with India is practically operational; very few movements have taken place through the seaport and land-port of Bangladesh while the transit movement through Chinese port has not yet been tested over a period of five years after signing the agreement. Notwithstanding a long experience of transit transport operation of Nepal through the Indian port and territory, the procedures are lengthy, cumbersome and requires submission of hardcopies with numerous signatures. Port congestions, slow clearance processes at the port and land border stations and outdated fleet of transportation further add to the cost of transit transportation. However, with the opening of additional port facilities of Vishakhapatnam and introduction of electronic cargo tracking system, albeit on a pilot basis, has given some level of comfort to the exporters and importers.

The efforts of government of Nepal making inroads to digital governance is on the way of improving service delivery whether this may be in case of issuing passport and citizenship certificates, land registration and inventory, and maintaining personal records of the employees and so on. Digitization of the trade related stakeholder’s work processes and bringing them under the banner of national single window is under progress which is supposed to bring down the cost and time of transaction. It is obvious that diversification of transit corridors and competition on transport services with digital application help in making Nepalese trade more efficient and competitive.

Policy and regulatory intervention

After the re-introduction of multi-party democracy in the country, government of Nepal  introduced National Communication Policy in 1992 which was followed by enactment of Telecom Act- 1999 and its regulation. The act provided space for the private sector to be engaged in the provision of telecom services. A dedicated Information Technology Policy was bought out in 2000 followed by Telecom Policy in 2003. The policy embedded open general licensing regime with the provision of technology neutrality in order to promote healthy competition among the service providers.

Another milestone in the development of telecom sector is the Broadband Policy-2014 which beacons pathways to achieving socio-economic development goal through the use of information and communication technology. The IT policy-2000 was replaced by the new IT Policy-2015 which sets the objectives of; making ICT accessible, affordable and inclusive, expand broadband services and ICT infrastructures, promote research and development in order to cope up the environmental, social, economic and technological challenges, develop HR and promote good governance through the application of ICT services.

The Electronic Transaction Act, legislated in 2006 provided legal framework for authentication and regularization of the electronic records, transactions and electronic communications; vis-à-vis controlling the acts of unauthorized use and abuse of electronic data and records. Recognition of digital certificates and the establishment of the office of
controller of certifications were the provisions made in the Act. The office works as watchdog for maintaining cyber security. Similarly, a new Information Technology Bill was submitted in the Parliament in 2019 that is more comprehensive and replaces the previous IT act. This Bill, among other things, proposes to regulate the social media to make them disciplined and responsive and also promote the use of IT for delivery of public services.

Similarly, comprehensive revision in the existing customs act is being proposed by the government with a view to harmonize the documents and processes in accordance with the international norms and standards. These two pieces of legislations are supposed to bring qualitative change in the realm of digitization and improvement of government efficiency. But, the legislation process of the parliament is delayed leaving a consequential impact on
reform and modernization. Digital Nepal Framework-2019 underlines the pathways for advancing the application of ICT in eight sectors, namely, digital foundation, agriculture, health, education, energy, tourism, finance and urban infrastructures. These sectors are supposed to guide Nepal into transformative journey by addressing the crucial challenges while unlocking the growth potential and propel socioeconomic growth in the country (MOCIT-2019).

Prospects of enabling trade

Nepal has made a remarkable progress in establishing telecom infrastructures over the last two decade or so. A large number of Nepalese people are digitally connected as internet penetration has reached to 63 percent and 40 percent of the population use smart mobile phones. Now, the telecom services have become an integral part of our life and living. There is no alternative to moving forward in the path of progress and prosperity based on digital infrastructures.

Faster digitalization of trade sector is now becoming indispensable for connecting the country with global market. Many countries around the globe are moving towards paperless trade. The implementation of electronic based single window is gaining traction among many developing countries in their bid to be more competitive. Nepal needs to work on five areas in order to optimize the benefits of digitization and achieve competitiveness.

First, the digital infrastructures to be strengthened and expanded in the country. This requires expansion of broadband services in all parts of the country, particularly on the settlement of remote hilly and mountain area. Provision of uninterrupted power supply, robust data recovery center, communication solutions, industry gateways and instrumentation create a powerful basis for current and future IT applications. The development of infrastructures should aim at accommodating future technologies like 5G and beyond.

Second, government of Nepal should take initiatives to update and modernize the trade and transit related services with an orientation towards application of IT enabled services in all stages of supply chain including the clearances of the goods at the port and international borders. This primarily requires business process analysis with a view to eliminate the redundant documents and procedures and reduce the number of documents and processes in order to exercise minimum control at the borders. The current practices that use numerous documents for clearances of goods at border posts can be replaced by simple mechanism of submitting electronic declaration with common data elements that are required by all transit customs. However, this needs formal authorization through necessary modifications in the existing treaty of trade and transit between the partnering countries.

Third, a major step toward moving to paperless trade is the implementation of national single window. The implementation of single window also remains as one of the obligations of the member countries under the WTO trade facilitation agreement. This entails to enabling traders to submit documentation and/or data requirement for importation, exportation, or transit of goods through a single-entry point to the participating authorities or agencies. After examining the documentation and/or submitted data the results are notified to the applicants through the single window (WTO-2021).

Fourth, government should focus on educating people on digital technology and expand digital literacy, particularly focusing the small businesses and the women entrepreneurs. There is great digital divide between the urban and rural areas, large/medium industrial establishments and the cottage, micro and small industries. This requires capacity enhancement of the latter in digital technology. Similarly, digital awareness campaign should be launched in the community in collaboration with the NGOs, civil societies and the local municipalities. Digital course curricula should be developed for the students in secondary level of education.

Fifth, the national capacity should be built in order to deter the cyberattacks, data theft and maintain cyber security. This requires not only the technical solutions at hand but the appropriate legal regimes and work in unison with neighboring countries to make a collective effort against the cyber threat.

This article was originally published in customs.gov.np and Purushottam Ojha is its original author.