7 June, 2008 - Bhutan will be joining the World Trade Organisation by 2009 and has so far agreed to open up 54 of 155 services and all of 5,820 goods with fixed maximum duty rates, including all agricultural items, according to trade officials (see box).
These numbers may go up or down slightly after some final discussions. In return, Bhutan now has 152 countries as potential trading partners. A WTO negotiation team of key ministries will be leaving on Saturday to WTO headquarters in preliminary rounds before the fourth main meeting or working party meeting. Bhutan will be able to join after the fifth working party meeting in 2009.
“The opening up of the service sectors, however, is not uniform and all foreign companies will have to have Bhutanese partners, with maximum equity limited to 70 percent to a minimum of 49 percent. They’ll also have to be registered as a legal Bhutanese company and will be subject to our domestic laws on trade, tax, labour laws and on,” said the trade director and deputy WTO negotiator, Sonam P Wangdi. In the financial sector, only a portion may be opened up.
On all the non agricultural and agricultural goods, Bhutan will be allowed to impose a maximum duty going up to 100 to 150 percent on sensitive products but, once applied, they can never be applied higher than that. Bhutan’s average duty so far is 48.7 percent on agriculture, with red rice having a protective 100 percent maximum duty. For non-agricultural items, the average duty rate is so far 26.3 percent, but both may be slightly changed after more discussions. Both duty rates were originally higher but brought down to accommodate other countries’ wishes.
So far, USA has expressed interest in Bhutan’s finance and energy sector, China in exporting some goods, Japan in establishing direct car showrooms and workshops, Canada in increasing days of business visa. The European Union has also expressed interest in Bhutan’s services and goods. Officials say that even other smaller countries have shown interest. Any agreement to any one country in opening up services or goods will be applicable to all other countries as well. “Even if we’re a small market, we still matter because we’re a growing one and countries can come in when they think the opportunities are right,” said WTO officer Pema Rinchen.
Sonam P. Wangdi said, “Getting in investments, capital, skills and transfer of technology to Bhutan is now possible because a WTO tag means that you are safe and credible for any business. A major advantage is also that it will now also be easier for the government and commercial sectors to look for markets in any of these countries for our export items like bio-food and handicrafts.” Another advantage would be a set of transparent strong domestic trade laws based on international trade laws, which will promote good governance, according to officials.
Bhutan, as a least developed country (LDC), will also get some concessions, including tariff rates and the pace of opening up, apart from some assistance from WTO.
However, on the downside, unlimited exports from non-rupee countries could have an impact on trade balance and foreign exchange reserves. There could be increased competition to domestic players, smaller and weaker ones may have to shut down. Also laws, relating to market access of services and duty on goods, cannot be changed easily, which could lead to domestic policy inflexibility.
Another area of possible negative impact is agriculture, which is plagued by poor technology, accessibility and marketing, all unfriendly to exports. “In spite of free trade with India and agricultural imports, our farmers’ products are much more popular on the market. Moreover, joining WTO doesn’t mean we develop overnight but we have time,” said Sonam P Wangdi.
On the issue of some Bhutanese industries suffering, Sonam P Wangdi said, “Market forces will determine the best and most competitive are left, so that consumers benefit in the end.” On Bhutanese jobs being lost, he said, “We’ve made sure that any company that comes into Bhutan will have to employ a majority of Bhutanese, except in exceptional circumstances where unavailable skill is required.”
Also both an advantage and disadvantage for Bhutan will be the disputes settlement mechanism of WTO, whereby Bhutan can take even big countries to court for unfair trade practices, but similarly Bhutan can also be taken to task for barring anyone against WTO trade laws.
For Bhutan, the process started in 1999, when it applied for membership. Since then it has made legislative changes in conformity with WTO regulations. Some are agreements on sanitary and phyto-sanitary, which means that sanitation and health issues are not misused to block trade, the TRIPS agreement to protect intellectual property rights and TBT to make sure that duty on products are applied in a transparent manner, as well as standards of quality.
The final decision to join or not join WTO will lie in the hands of the National Assembly, who will take a vote on the issue.
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