Saving Big When Manufacturing in Nepal - International Trade Preferences
- The Purnaa Team
- Feb 29, 2020
- 5 min read
By Corban Bryant and Alex Berryman
While it's rarely a go-to topic at parties, knowing international trade policy is a tremendous tool to save you money when outsourcing your product manufacturing abroad. The US, Canada, and the European Union have special trade preferences that allow brands manufacturing in Nepal to save money. The more you know, the better - but instead of sifting through dry international trade agreements, we have put together a guide to maximizing your country's trade preference program, saving you money.
US Trade Preference Program
To encourage economic development after Nepal’s devastating 2015 earthquake, the USA granted special trade preference for goods being exported from Nepal. Specifically, certain goods made in Nepal and imported into the USA are granted duty-free treatment. When using Nepali manufacturers, American brands can benefit from this during the importing process. With 66 products qualifying, there are a wide variety of products that enjoy this trade preference, including:
many kinds of handbags
suitcases
sports bags
various carpets
gloves
scarves and shawls
hats and other headgear.
By taking advantage of these trade preferences, you can save all of your duties which can be up to 20% of the cost of your products. Follow the simple tips below to capitalize on the benefits and check out the Trade Facilitation and Enforcement Act of 2015 overview.
How do I take advantage of the Nepal Trade Preference?
1. Make sure your products are included in this Act - Check out Section 915 lists 66 subheadings of the Harmonized Tariff Schedule of products. This is a complete list of which products made in Nepal that will receive a duty-free entry to the United States.
You can use this resource to look up your product, or the various HS Codes listed in the trade preference. If you see an “NP” in the column marked “Special”, then it’s time to celebrate! This indicates that your product is included in the Trade Preference Program.
2. Manufacture in Nepal - To take full advantage of the preference, you can produce one of those 66 products with 35% or more of the value addition being done in Nepal (i.e. the cost of processing/ production must be 35% of the products sales price). Simply combining or packaging operations do not qualify for this preference. Sourcing and development can occur outside of Nepal, but the manufacturing must take place in Nepal to qualify for the preference.
3. Filing the necessary forms - Ensure your manufacturer in Nepal fills out a GSP Form A and Certificate of Origin, declaring your items as one of those on the list of 66 HS Codes, annotating Nepal trade preference with an “NP” next to the HS Code. Once completed the manufacturer must get these forms signed and stamped on export by the Nepal Customs department, and must send you copies for your records. This ensures both Nepal customs and US customs know these products fall under the trade preference agreement and you will not be charged duty fees.
4. Notify your customs broker - Before your goods arrive, let your customs broker or shipping company know that your items are eligible for the Nepal Trade Preference and request they declare them accordingly.
Once all of this is completed, you will receive your products duty-free. With this trade preference lasting until December of 2025, you can increase your product offering and gain a strategic cost advantage over your competitors by manufacturing in Nepal.
Do other countries qualify for the Trade Preference?
While the Trade Preference only applies to products shipped to the US, European and Canadian brands can enjoy a similar trade preference due to Nepal's classification as a Least Developed Country under the GSP system and a former conflict country. Please note, each country’s rules may be different so check into how your country relates to LDC's in duty fees.
Least Developed Countries and Canada
In order to assist development in Least Developed Countries, the Canadian government offers brands producing in Nepal duty-free and quota-free preferences on certain products.
Unlike the US Trade Preference program, the Canadian Least Developed Country Tariff (LDCT) is based on product origin, not on the nature of the product; therefore, with few exceptions, products made in Nepal benefit from this adjusted tariff. Cost savings can vary by the price and nature of the product but are often as much as 20% of the total cost of production.
Based on the Rule of Origin, products can qualify for the LDCT when produced or processed in that country (i.e. Nepal) and can have materials sourced outside of the country as long as the cost of the materials does not exceed 40% of the total cost of production.
Additionally, products must be shipped directly to Canada from Nepal to qualify for the LDCT, fulfilling the 'direct shipment' stipulation of the Tariff. For more in-depth information about the Rule of Origin and direct shipping in the Canadian context, please reference this resource.
When exporting from Nepal and importing to Canada, you must ask your manufacturer to file one of the following documents
Exporters Statement of Origin,
Form B255 (specific to apparel goods obtained in LDCs)
As the importer, you will have to fill out a Customs Codding form (or B3-3 form), in which you will declare that you are importing from an LDC (for specific requirements please see this document here)
Preferences for imports from Least Developed Countries to the European Union
Similarly, the European Union adopted a Generalised Scheme of Preferences (GSP) to facilitate development in LDC's. Adopted in 2001, the European Union adopted GSP's under the "Everything but Arms" amendment, allowing for duty and quota-free treatment of all products originating from LDCs (with the exception of arms and ammunition). Much like Canada's LDCT, the EU GSP tariff is based on the Rule of Origin and direct shipping. With each importing country having its own process, please investigate what is needed to take advantage of these trade preferences. For a general step by step process, please see this checklist here.
FAQs
What if I am still charged duties? Purnaa has produced goods for many customers that qualify for the Trade Preference. However, a few customers have still been charged duties. We assume this is because a country-specific Trade Preference is quite rare and few customs officials are aware of Nepal specific rules. If your goods mistakenly get charged import duties even though they are on the Trade Preference list, you can request a refund.
How do I know if my product is one listed in the Trade Preference? At Purnaa, we can advise you if your product is included in the Trade Preference, and we can even give some advice for product changes to help take advantage of the program. But in the end, it’s up to you to check that your product meets the classification criteria of the US HTS system. You can use this website (https://hts.usitc.gov/) to look up your product, or the various HS Codes listed in the trade preference. If you see an “NP” in the column marked “Special”, your product is included in the Trade Preference Program.
How can Purnaa Help You?
Now that you have at least an Associates's degree in international trade law, what is next?
Start producing in Nepal!
Nepal is a country with higher than 40% unemployment, which leads to people being very vulnerable to exploitation. When you choose to manufacture at Purnaa in Nepal, not only can you save money with these trade preferences, but you can also help to employ marginalized people and survivors of exploitation.
At Purnaa, we encourage our customers to take full advantage of these trade preferences. Our shipping manager and project managers assist in filing the necessary paperwork and keep up to date on new policy. By taking advantage of these preferences, you can save money while bolstering Nepal's economy. This could be the beginning of a beautiful partnership.
Get a Production Quote here to explore if Purnaa is a good fit for your manufacturing needs.
Check out these resources for more information :
US Embassy - Exporting to the US from Nepal- particularly see page 16
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