Bhutan Trade

Basic Situation

The Ministry of Trade and Industries (MTI) is one of the largest ministries with responsibilities covering trade, industries, geology, mines, power and tourism. The MTI deals with various public and joint sector corporations and also interacts very closely with the private sector in general and the Bhutan Chamber of Commerce and Industries (BCCI) in particular on various issues relating to the promotion of the private sector development.

Structure

The services provided by the MTI are delivered through five operational divisions for Trade, Industries, Power, Tourism. Geology land Mines.

The MTI secretariat consists of the Policy and Planning Division (PPD), the Legal Unit and the Administration and Finance Division (AFD) whose functions and responsibilities cut across the work of the other divisions. There are also four Regional Trade and Industry Offices (RTIOS) in Thimpu, Phuntsholing, Gelephu and Samdrup Jongkhar which function under the purview of this Ministry.

Policy and Planning Division

The PPD serves as a coordinating office for the MTI's programmes and projects and represents a link with the Planning Ministry in the formulation, review and monitoring of development activities under the MTI.

The Legal Section

The Legal Unit deals with a range of issues requiring legal opinion and legislation including the administration of the Companies Act. The Unit as the Registry of Companies has been working to streamline procedures relating to administration of the Companies Act in building up data base on Bhutanese companies. The Unit has also started the preparation of the Industrial Property Law and Copyright Law which will continue in the 8FYP.

The Administration and Finance Division

The AFD has two sections - Administration and Finance. With the merger of administrative and financial functions of erstwhile departments (now divisions), the work of AFD has increased considerably. AFD is responsible for provision of all administrative, financial and supporting services to various Division in MTI.

Regional Trade and Industry Offices

With the decentralization policy, the RTIOs work more closely with the Dzongkhag authorities in their respective jurisdictions for promotion and implementation of trade and industrial projects and programmes besides their regular licensing works even through the trade and industrial activities were not decentralized to the dzongkhags. The RTIOs are also entrusted with work of consumer protection as well as implementation of Maximum Retail Price (MRP) in their region. To bring the trade and industrial activities closer to the people, the MTI will set up two more regional offices in Trongsa and Trashigang during the 8FYP.

Objectives and strategies of 8FYP

Objectives and strategies

Programmes for the 8FYP

The programmes for the MTI secretariat are geared towards strengthening of the Administration and Financial services, and creation of an appropriate policy and legal framework for the development of trade and industries in the country.

Strengthening of Administration and Finance Division in the MTI

A project for strengthening the administration system and procedures of the AFD will be implemented during the 8FYP. The project will be aimed at enhancing the delivery of administrative and financial services through manpower training and computerization of budgeting and accounting system.

Strengthening of Regional Trade and Industry Offices

With the emphasis placed on decentralization, it is necessary to bring the administrative set up close to the people. Accordingly, it is proposed to open two regional offices in Trongsa and Trashigang under the project in addition to the existing four. Further, the existing four offices will also be institutionally strengthened during the 8FYP.

Financial and Manpower Requirement

Numbers . In Millions

Trade Sector

BASIC SITUATION

Structure of the Sector

During the last three and half decades commercial activity has grown rapidly. Exports to India increased significantly while exports to third countries, especially Bangladesh, also grew. During the 7FYP the domestic trading sector developed reasonably well land 5,793 trade licenses were operational in the country by the end of 1995. During this period two important programmes affecting the sector were instituted, namely the demonopolization exercise and the decentralization of the export trade.

Constraints

The main constraints are the high costs of transport resulting from Bhutan's landlocked position, the difficult terrain, and limited transport infrastructure especially affecting the export trade. But high transport costs, inadequate infrastructure and services also affect internal trade. The lack of entrepreneurial skill, and of experience in accounts, quality control and related issues, have in the past been met in part by the employment of expatriates, but government policy to encourage employment of national labour force means that a commensurate effort is being made to train and employ more nationals.

Institutions

The Trade Division, under the ministry of Trade and Industry consists of two sections, one for internal and one for external trade, the latter looking after both exports and imports. There are four Regional Trade and Industry Offices located at Thimphu, Phuntsholing, Gelephu and Samdrup Jongkhar. A trade Promotion Centre and Consumer Protection Units are also being developed. The Division works closely with the Bhutan Chamber of Commerce and Industry (BCCI).

REVIEW OF PAST PERFORMANCE

Objectives of the 7FYP

• Increase the contribution of the retail and wholesale trade, hotels and restaurants to GDP by an average of at least 2.4% per annum.
  
• Improve the trade balance by increasing exports to India and third countries.

Strategies

A greater role was given to market mechanisms, accompanied by further privatization. Procedures for obtaining trading licenses were also relaxed and simplified and public awareness of licensing rules and regulation increased.

Achievement

In respect of internal trade, additional dealers for 36 principal Indian companies dealing in 306 items were selected under the de-monopolization exercise. The Packaged Commodity Rules aimed at making imported goods available at the Maximum Retail Price marked by the Indian producers, were developed land implemented initially in Phuntsholing and Thimphu for all packaged goods. Quotas for LPG and SKO from India were also increased during this period to 300 MT and 15000 KL, respectively.

Rules & Regulations for carrying out temporary contract works of a highly specialized nature by non-Bhutanese companies were framed and modifications made to the existing Trade Rules & Regulations. An exercise on the elimination of fronting in the trading sector on a phased manner within a period of three years from 1995 was also initiated.

Under external trade, a Trade Development Board was set up which simplified export and import procedures rules and regulations. The export trade was decentralized and 90 export licenses were issued to private individuals. The existing trade agreement between India and Bhutan was renewed in February, 1995 for a period of ten years and additional road/rail routes in India for trade with Bangladesh and Nepal were incorporated. In order to increase imports from Bangladesh, 6 import houses were formed and two trade exhibitions on their products were held in Thimphu and Mongar.

SAPTA (South Asian Preferential Trade Arrangement) was launched on December 7, 1995 and its member countries have agreed to initially reduce tariffs on 226 products in the region including 11 products for Bhutan. A project proposal for development of traditional handicrafts and its export the Netherlands was also formulated and is under review. Another project was initiated towards the end of 7FYP with EU funding to strengthen the institutional capacity of the Trade Division.

OBJECTIVES AND STRATEGIES OF THE 8FYP

Objectives

Internal trade

• Improve the efficiency and management of small trading ventures.
  
• Promote consumer awareness and protection.
  

External trade

• Promote trade and improve the balance of trade with India.
  
• Expand trade with SAARC and other countries.
  

Strategies

• upgrade and increase the number of national wholesale dealers in the country and streamline their operations. Indian principal companies will be approached to solicit their co-operation in the appointment of additional dealers.
• Initiate appropriate measures to deal with complaints received from consumers on the prices and quality of products sold and to undertake regular inspections..
  
• Conduct training programmes on the use of cash registers, basic book keeping, salesmanship and other related issues on a yearly basis for the private sector..
  
• Promote diversification of trade both product-wise as well as area-wise through private initiatives..
  
• Reinforce export promotion, especially with India, by market studies to explore the potential for Bhutanese products..
  
• Provide assistance to the private sector to participate in SAARC trade fairs and exhibitions. Internal trade fairs will also be held..
  
• Conduct training courses/workshops for the private sector on export documentation procedures, business negotiation, changes in the world trade scenario and adjustments as required..
  
• Liaise with the Government of India with regard to the road, transit, customs and related facilities in India.

PROGRAMMES FOR 8fyp

Global System of Trade Preferences (GSTP) and International Trading Environment

The GSTP Agreement sets a global framework for trade relations among developing countries on a preferential basis besides supplementing and reinforcing the sub-regional groupings like SAPTA. Accession to the GSTP will enable Bhutan to avail benefits that would accrue from the arrangement through improved and preferential trading access to the markets in the developing countries.

Bhutan may joint the World Trading Organization (WTO) in the near future in order to keep pace with the everchanging international trading environment and avail benefits from the globalization process. This project will familiarize Bhutan with the system. The this end, Bhutan would initially apply for an observer status to WTO.

Bhutan Trade Development

To promote increased export activities this project will develop effective export services, impart training to the exporters and undertake initiatives to overcome specific constraints including creation of third country markets for Bhutanese products. The project is also geared towards strengthening the capability of the Bhutan Chamber of Commerce and Industry (BCCI).

SAARC Preferential Trading Arrangement

Improvement of Trade and Transit facilities

The project will work towards further enhancing road links and transit facilities at the various entry/exit points on the Indo-Bhutan border to expand trade with India, our major trading partner.

Consumer Protection

During the 8FYP, the MTI will further strengthen the consumer protection scheme in the country which was initiated in the 6FYP. This programme will primarily involve promotion of quality, standard weights and measures and fair prices of goods imported in the country.

Demonopolization

The exercise of negotiating with principal companies in India dealing in essential commodities in Bhutan to appoint additional dealers in Bhutan will be further strengthened and continued to upgrade and increase the number of national wholesale dealers in the country and streamline their operations.

Financial and Manpower Requirement
Nu. In Millions

PROJECT TI 01 : GLOBAL SYSTEM OF TRADE PREFERENCES LAND

INTERNATIONAL LTRADING ENVIRONMENT

Project summary :

1. Sector : Trade
   
2. Location : Thimpu
   
3. Executing Agency : Ministry of Trade & Industries (MTI)
   
4. Implementing Agency : Division of Trade
   
5. Estimated cost:
   Recurrent : Nu. 1.500 m
   Capital: Nu. 1,000 m
   Total: Nu 2.500 m
   
6. Funds Secured : Nil
   
7. Financing Gap: Nu. 2.500 m
   
8. External finance reqd.: Nu. 2.500 m
   
9. Status( New / Continuation) : New Project
   
10. Documents available: None
    

    Project Objectives

    - To avail benefits that would accrue from the arrangement through improved and preferential access to the markets of developing countries. Integration into the World Trading Organization.

    Project Description

    The Global System of Trade Preferences (GSTP) Agreement sets a global framework for trade relations among developing countries on a preferential basis. Under this arrangement, the LDCs are not required to make concessions on a reciprocal basis, while they benefit from the concessions exchanged in the bilateral / multilateral negotiations. It also provides exclusive preferential access to the agreed products originating from the LDCs. The project will also supplement and reinforce the sub-regional and regional groupings like SAPTA.

    This arrangement would facilitate trade with other developing nations like Thailand, Japan, Singapore etc. with whom Bhutan's trade is very small at present.

    As such, during the 8FYP, the Ministry of Trade and Industries (MTI) would like to accede to this Agreement. In doing so, technical assistance may have to be sought from the UNCTAD for making necessary preparatory arrangements for trade negotiations which would precede the accession. Further, delegations would have to be fielded for trade negotiations under GSTP.

    In order to keep pace with the ever-changing world trade scenario and avail benefits from the globalization process, Bhutan would have to joint the WTO in the near future.

    While integration into the international trading environment is essential for Bhutan, it is equally important to familiarize with the system before heading for the accession so that Bhutan can continue to safeguard its national interest. Bhutan would initially apply for an observer status to WTO during which analytical study would be conducted in trade related matters. This would basically focus on the core areas of the whole package like General Agreement on Trade in Services (GATS); Trade-Related Aspects of Intellectual Property Rights (TRIPs); Trade-Related Investment Measures (TRIMs) and other Multilateral land Plurilateral Agreements. Through such analytical studies, Bhutan would be able to bring about Policy adjustments, wherever necessary, in conformity with the norms of the multilateral trading arrangement which are scrutinized under the Trade Policy Review Mechanism (TPRM) of the WTO. Besides, This would facilitate Bhutan's eventual accession to the WTO.

    As such during the 8FYP, the Ministry proposes to field delegations to the WTO in addition to the regular participation by the Mission in Geneva. Also, technical assistance from UNCTAD/ITC/WTO will have to be sought to clarify certain issues of crucial importance.

    Project Impact

    Improved market access would mean more trade which in turn would mean more production. The rise in the scale of production would ultimately resultl in increased employment opportunities and income generation to the economy.

    Project Management

    The project will be managed by the MTI
    

    Financing Detail

    The annual member contribution may be borne by RGOB while the required external financial and technical assistance for the project is sought from UNCTAD/UNDP/WTO.

    Technical Assistance

    Assistance from UNCTAD to make the necessary preparations.