US embassy cable - 02KATHMANDU1705

UNCLAS SECTION 01 OF 02 KATHMANDU 001705 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR SA/INS 
STATE PLEASE ALSO PASS USTR - BRUCE LEVINE 
LONDON FOR POL - RIEDEL 
GENEVA FOR USTR 
 
E.O. 12958: N/A 
TAGS: ETRD, PGOV, NP, Government of Nepal (GON) 
SUBJECT: NEPAL'S PREPARATIONS FOR WTO WORKING PARTY MEETING 
 
REF: STATE 164046 
 
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SUMMARY 
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1.  (SBU) Upcoming general elections on November 13 do not 
seem to have impeded preparations by the Government of Nepal 
(GON) for its second Working Party meeting on accession to 
the WTO September 12.  Accession to the WTO has broad, 
multipartisan support, and the process is unlikely to be 
negatively affected by a change in government.  GON 
interlocutors have signaled some openness to considering 
further revisions to the services offer.  The delegation's 
greatest concern is that the USG and governments of other 
developed countries provide necessary and adequate technical 
assistance, particularly in relation to TRIPS requirements. 
End summary. 
 
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GON PREPARATIONS 
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2.  (U) On July 27 the Ministry of Commerce hosted a briefing 
for the diplomatic community on Government of Nepal (GON) 
preparations for the second Working Party meeting on 
accession to the WTO, to be held in Geneva September 12. 
Commerce Minister Purna Bahadur Khadka, who will head the 
delegation, assured attendees of his government's commitment 
to bring its trade regime into conformity with WTO standards, 
and asked that attendees' governments support Nepal's bid to 
enter WTO.  Commerce Ministry Joint Secretary Prachanda Man 
Shrestha also provided a brief overview of the GON's revised 
market access offers for goods and services since the first 
Working Party meeting in 2000.  Both presentations 
highlighted GON expectations that the "good will" of 
developed countries--i.e., a recognition of Nepal's 
limitations and constraints as an LDC--will be a significant 
factor in the upcoming Working Party meeting. 
 
3.  (SBU)  In a September 2 meeting with emboff, Shrestha 
asserted that the GON's revised offer on tariffs, which he 
said average about 40 percent for agricultural products and 
about 30 percent for non-agricultural, are well below those 
of other South Asian countries.  He acknowledged the 
assessment of surcharges on the tariffs--as much as 4.5 
percent for non-agricultural products--which he described as 
local development and security fees.  Agricultural products, 
which face an added agricultural development fee, are 
assessed surcharges of as much as 9.5 percent. 
 
4.  (SBU)  Shrestha argued that the GON had substantially 
broadened its offer of market access for services from no 
more than three in 2000 to eleven sectors and sub-sectors in 
2002.  Emboff asked why the GON had not opened up more 
financial services in the revised offer.  Shrestha replied 
that the GON--in particular the Central Bank--has not yet 
fully assessed the possible effect that inviting broader 
foreign participation in the banking sector could have on 
Nepal's economy and modest foreign exchange reserves.  The 
Central Bank is particularly leery of opening up banking to 
foreign investment, he said.  Discussions on the margins of 
WP2 between members of the USG delegation and the GON's 
Central Bank representative regarding these concerns would be 
helpful, he agreed.  Much of the GON's worry regarding 
opening up the financial sector focuses on India, he 
confided, rather than on other potential foreign investors. 
Some quarters in the GON fear that liberalizing market access 
in the financial sector would result in the small Nepali 
market being swamped and completely dominated by Indian 
investors.  If there is genuine, specific American interest 
in Nepal's modest market, Shrestha indicated, the GON 
delegation would welcome further discussion of possible 
revisions to its services market access offer with the USG 
delegation. 
 
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GON NEEDS 
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5.  (SBU) Shrestha said the GON's greatest concern in 
embarking on WP2 is that it receive adequate technical 
assistance from developed nations to meet its requirements 
under WTO.  Of special concern is the GON's ability to comply 
with TRIPS obligations, he noted, an area in which the GON 
has no expertise.  During the first Working Party in 2000, 
the GON received numerous pledges of technical assistance 
from various countries (Shrestha says the USG had 
specifically committed to provide assistance in customs 
valuation), but so far not one country has delivered. 
 
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USG AID TO DATE 
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6.  (SBU) The USAID Mission in Nepal has agreed to fund 
travel and per diem for a U.S. Customs assessment team to 
review GON requirements for customs valuation assistance. 
The Mission's Economic Growth program is closing out at the 
end of this fiscal year, however, and it is uncertain if 
USAID Nepal will thus be able to provide follow-on funding 
for any actual training or equipment. 
 
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POLITICAL CLIMATE 
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7.  (SBU)  Prime Minister Sher Bahadur Deuba asked the King 
to dissolve Parliament May 22 and call mid-term elections for 
November 13.  Deuba remains in power, along with most of his 
original Cabinet, until then.  Because Maoist insurgents, who 
have been waging a six-year effort to overthrow Nepal's 
constitutional monarchy, are expected to attempt to disrupt 
the elections, the polling may be conducted in phases in 
various parts of the country, elongating the election 
schedule considerably.  The new Cabinet and Parliament may 
thus not be in place before January.  Accession to WTO enjoys 
broad, multipartisan support from all but a very few small, 
politically insignificant parties.  The largest Opposition 
party, the Communist Party of Nepal - United Marxist Leninist 
(UML) was the first political party to endorse publicly 
Nepal's efforts to accede to WTO.  None of the likely (and 
even not-so-likely) winners of the November election is 
expected to repudiate previous commitments made during the 
Working Party meeting or to reverse position on accession to 
WTO. 
 
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COMMENT 
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8.  (SBU) The upcoming elections have not seemed to hinder 
GON preparations for WP2. WTO accession is not controversial 
in Nepal and unlikely to become an election issue.  The 
Commerce Ministry's emphasis on anticipated "good-will" 
concessions in view of Nepal's status as an LDC and its 
framing of tariff rates in a regional, rather than global 
context, make it seem unlikely that the GON will offer a more 
significant reduction in tariffs.  There does seem to be 
latitude for further bilateral discussion of market access 
for  services.  The GON will almost certainly raise its 
understanding of previous USG offers to provide Nepal with 
customs valuation assistance.  We recommend that the USG 
formally commit to offer such assistance. 
MALINOWSKI