Similarly the Asian Development Bank (ADB)'s assistance to Nepal began in 1968. It has also been playing an important role to liberalize Nepali economy. ADB's assistance is primarily on sectors life agriculture and rural development, education, water supply and sanitation, infrastructure (transport and energy), and public and private sector governance.[2]

Then the new democratic government formed after the popular movement of 1990 accelerated the process of liberalization, as Nepal formally adopted liberal economic policy. Several policies and laws e.g. Industrial Policy 1992, Foreign Direct Investment and Technology Transfer Act 1992, Privatization Act 1992 were introduced in line with liberal economic policy. These laws and policies gradually started to create impacts on trade in services also. Basically, banking, insurance, tourism, education, health service and even the public utility services like water and power sector have been mostly affected. Basic logics behind such policy changes were to reduce the governmental burden, increase the efficiency of public utilities, private sector participation and ultimately to reduce poverty.

There has been influential role of International Financial Institutions since the very beginning of liberalization process. They have been pushing not only the aid but also the policy prescription and condition, irrespective of whether it fits in the local context. The service sector has also been affected from this paradox.

Trade in Services and its role in National Economy

Today service sector has become one of the most important determinants of national income and trade worldwide. On average, services account for more than 60 percent of the national income in industrial countries and 50 percent in developing countries, and constitute 20 percent of the total world export.[3]

In Nepal also the contribution of service sector in the national income, and importance of trade in services, have significantly increased during the past few decades. A contribution of service sector to the total GDP of Nepal during the past decades is stipulated in Table 1 below.

Table 1.

Available data also show that developing countries are highly specialized in exports of services and have comparative advantage in many service sectors. The importance of service in Nepal's economy has also been increasing. (See Table 2)

WTO-GATS and Nepal

Recognizing the growing importance of services and various constraints impending the globalization of this sector, the Uruguay Round broadened the scope of multilateral negotiations to include service for the first time in the history of trade negotiations. General Agreement on Trade in Services (GATS) is the final result of the negotiations under the UR. The GATS intended to establish a framework within which liberalization commitments in the area of services are to be undertaken and implemented.

Table 2.

Nepal also entered WTO in 2004 as its 147th member. It has made commitments to liberalize service sectors by ensuring National Treatment and Most Favored Nations principles. Nepal is committed to open all twelve sectors listed in GATS.

As rule-based trade regulating organization, WTO has offered many opportunities and committed to provide incentives and assistance to developing countries. However, WTO rules do not differentiate enterprises according to their size. They provide a level playing field for all participants in international trade. It is a big challenge to the developing countries like Nepal.

In the area of services, key issues for Nepal are the temporary movement of people across border to supply services (Mode 4 liberalization). For many developing countries, sending people to work temporarily is seen as the most promising export interest in services. Therefore commercially meaningful Mode 4 liberalization is a litmus test for the development content of Doha Work Programme. However, the initial offers show limited ambition in terms of both their depth and their coverage, for example in Mode 4, with the exception of the EU, virtually no developed country has offered new liberalization.[4] Additionally, travel related activities, reflected as Table 2, that constitute nearly two-thirds of Nepal's commercial export are also important for Nepal. However, problems facing Nepali people working abroad are a pessimist part.

Law and Policy Regime of Nepal

Trade and investment

Policies and institutional frameworks necessary for making the industrial sector more competitive were devised in early 1990s. Basically, the laws and policies that govern industrial activities and related services are: Industrial Policy 1992, Industrial Enterprises Act 1992, Foreign Direct Investment Policy 1992, Foreign Direct Investment and Technology Transfer Act 1992, Privatization Act 1993, Electricity Act 1992 and Water Resources Act 1992.

These initiatives aim at both deregulating and streamlining investment procedures. Both domestic and foreign investments are encouraged. The liberalized trade regime refers to elimination of all quantitative restriction and import license. In fact, Nepal has already ensured the MFN and NT.

Banking, Finance and other corporate sector

Since1980, when the IMF and the WB initiated their support for improving Nepali banking, financial institutions and other corporate sector reform is still on going.

As a part of the Financial Sector Reform Project of the World Bank, an integrated law on Banking and Financial sectors namely Banking and Financial Institutions Ordinance was enforced in 2004. Main objective of the law is to deregulate the banks and financial institutions.

Recently, Nepal introduced few corporate laws in late 2005 with the support of ADB Corporate Sector Reform Project. Company Ordinance, Bankruptcy Ordinance, Secured Transaction Ordinance 2005 are few examples. Main objective behind such laws is to promote corporate governance in Nepal. But unfortunately these are mostly copied from the western countries rather than based on ground realities of the country. It is because of the 'one size fits all' approach of the donor agencies. It has come under the prescription of ADB without any proper research in local context.

Public utilities and Privatization

Privatization is one of the major components in the process of economic liberalization. However, the impact of privatization is always contended. The experience in different countries has shown that privatization of public utility service is very sensitive. In Nepal, the government has decided to open banking, education, health, telecommunication services and electricity services for the private sector.[5] After Nepal's accession to WTO, the schedule of commitment was determined for other areas of services that Nepal has to open within stipulated timeframe.

The government has even been thinking of privatizing drinking water. The ADB approved a US$1.4 million technical assistance (TA) grant to support water and sanitation sector reform in the Kathmandu Valley. It includes the establishment of the National Water Supply Regulatory Board (NWSRB) and the Kathmandu Valley Water Authority (KVWA), and private sector participation (PSP) scheme. The ADB project is pushing for implementation of full cost recovery, and privatization of Nepal Water Supply Corporation (NWSC), the public utility.[6]

The management of NWSC is a precondition ADB put in financing the Melamchi Water Supply Project. The private sector gradually escalates the price until it reaches at least five times the current rate by the time the project is completed.

Given the fact that privatization seems to be the cornerstone of government's economic reform agenda, this idea has been strongly pushed by the international financial institutions and multilateral institutions with several conditions for financial controls. That is not true.

The World Trade Organization (WTO) and GATS are the latest mechanisms to push privatization and global corporatization of services and utilities. South countries are being pressured to make policy reforms to ease the entry of international corporations to invest in energy, environment, water, education, health and other service sectors. GATS proponents deceptively argue that governments can choose to keep certain sectors closed and that privatization of basic social services is not a GATS requirement. But GATS has indeed pushed for privatization and if unchecked, may very well be on their way to controlling various sections of the world's water industries.

Conclusion

It is argued that free trade in services enables countries to better enjoy the benefit of globalization and improve economic efficiency just as freer trade in goods does. It is said that it contributes to job creation, higher income, more consumer choice, downward pressure on inflation and a better quality of life. Further, the proponents of trade in services believe that imports of services and foreign investment in services stimulate production and competition that improves the efficiency of domestic service industries and contribute to technological advancement.

However, liberalization of trade in services has in fact led to job losses, increases in prices of services, and discontinuation of service provisions to the poor where suppliers chose to focus on the more profitable segments of society. This can be especially contentious where public services such as water, electricity, health services, and education are involved. Similarly, it is also argued that many services should be regulated to ensure a certain level of quality, to protect consumers or the environment, and in financial services sector, to ensure a country's 'financial stability'. But such regulation whether for economic or social purposes, can be designed, implemented, or enforced in more transparent and efficient ways with positive overall effects.

Endnotes:

[1] Keshave Prasad Acharya and et. all, ECONOMIC LIBERALIZATION IN NEPAL SEQUENCE AND PROCESS, Nepal Labor Academy (NLA) and OXFAM GB Nepal, 1998 Kathmandu p 9

[2] A Fact Sheet : Nepal and ADB can be reached at www.adb.org/documents

[3] Siv Raj Bhatta, WTO GATS MODE 4: ROLE IN POVERTY REDUCTION ; New Business Age Vol 5 No 5, Kathmandu , Nepal, September 2005

[4] Shiv Raj Bhatta, SERVICE TRADE LIBERALISATION UNDER WTO: HOW COULD NEPAL BENEFIT? , New Business Age Vol 5 No 6, 2005 December, Kathmandu Nepal

[5] See also, Adhikari Ratnakar and DhrubeshChandra Regmi(2001), Anti Competitive Practices in Nepal, Discussion Paper iii+65, SAWTEE Kathmandu and CUTS Jaipur p. 24

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