Nepal

This article provides a general overview of the Safeguard, Anti-Dumping and Countervailing Act 2076 (2019) (“SACA”).  SACA, which came into force on Poush 27, 2076 (January 12, 2020), aims to protect domestic industries from material injury or threat of serious material injury caused by unanticipated and unusual surge in import of foreign goods or import of goods at a price lower than normal value or import of subsidized goods into Nepal. The key provisions of SACA, in summary, are discussed hereunder: Definitions The key definitions of the SACA include: Domestic Industries:  Domestic industries producing similar, identical or directly competing goods to the goods under consideration. Directly Competing Goods:  Goods, although not similar or identical to the goods under consideration, which are directly competing to goods under consideration and can be used as a substitute. Identical Goods:  Goods alike in design, characteristics, features, and in all respects. Serious Material Injury:  Injury caused or likely to be caused to domestic industries from the unanticipated and unusual surge in import of foreign goods or import of subsidized goods determined on the basis of criteria prescribed in Section 27.  However, criteria prescribed in Section 27 are applicable for determination of serious injury for the application of safeguard measures only and not for anti-dumping or countervailing duties.  This is one of the major loopholes of SACA. Similar Goods:  Goods although not alike in all aspects but are composed of similar raw materials and perform a similar function and due to their similar characteristics, can be commercially interchanged. Material Injury:  Injury caused or likely to be caused to domestic industries as a result of import of similar, identical or directly competing goods.  The term also refers to retardation of the establishment of such industries. Safeguard Measures Types for Safeguard Measures The Government of Nepal (“GON”) is empowered to impose various safeguard measures in the event it is found upon investigation by the Department of Commerce, Supplies and Consumer Protection (“Department”) of the Ministry of Industries, Commerce and Supplies (“Ministry”) that domestic industries have suffered or are likely to suffer serious material injury due to unanticipated and unusual surge in the import of foreign goods, namely: to impose additional duties in addition to custom duties levied as per prevailing laws; to impose additional tariffs rate on the top of the additional duty stated above based on tariff quota in the event goods are imported in a larger quantity than those determined by the GON; to impose partial or complete restriction on the import of such good; to impose any other measures as specified in the Regulation. Duration of Safeguard Measures Initially, safeguards measures may be imposed for a term not exceeding four years.  The GON may further extend the term for additional four years at the recommendation of the Investigating Officer.  In addition, the GON may further extend such safeguard measures for an additional two years if it deems necessary to do so.  The GON may also impose provisional safeguard measures for a period not extending 200 days in the event it deems necessary to do so. Inconsistency with WTO’s ASA Safeguard measures are primarily used against fair-trade as an emergency action for protection of domestic industries.  Under Article 7 of Agreement on Safeguard Measures (“ASA”) of the World Trade Organization (“WTO”), States are under an obligation to progressively liberalize such safeguard measures at a regular interval after one year of its imposition.  Further, safeguard measures imposed during the extended period should not be more restrictive than the initial period.  SACA provides that safeguard measures shall be reviewed at a period prescribed in the Regulation.  Nevertheless, contrary to ASA, SACA neither requires such measures to be progressive liberal nor does it address that such measures should not be more restrictive than the initial period. Anti-Dumping Duties Prohibition on Dumping Dumping is prohibited under SACA.  The GON is empowered to impose anti-dumping duties in addition to prevailing custom duties in case in the investigation by the Ministry, it is found that goods under consideration are being exported to Nepal at a price lower than its normal value thereby causing material injury or threat of serious injury to domestic industries. Duration Initially, anti-dumping duties may be imposed for a term not exceeding five years.  The GON may further extend the term for additional five years at the recommendation of the Investigating Officer.  The GON, in the event an affirmative determination on dumping is made in the preliminary report, may also impose provisional anti-dumping duties for a term not exceeding six months, in case such measure is requested by domestic industries or 120 days in all other cases. Countervailing Duties Subsidized Goods Goods, which have received grants or other forms of concessions from government of exporting country or government owned financial or other organizations or agencies, are regarded as subsidized goods, in particular, those goods:  which receive direct/indirect financial benefits, grants, discount, or support for their production or export; which receive direct or potentially direct transfer of capital fund, share investment for its production or export; for which the government or its agency have  undertaken liability of manufacturing or have made  arrangement for regular purchase of such goods; for which tax or revenue have been  reduced or waived which  otherwise should have been paid by  the manufacturer; for which manufacturers have received other materials, services or facilities from the government apart from the basic infrastructural facilities. The GON is empowered to impose countervailing duties in case upon the investigation by the Ministry, it is found that subsidized goods are imported in a manner causing serious material injury or threat of such injury to domestic industries. Duration Initially, countervailing duties may be imposed for a term not exceeding five years.  The GON may further extend the term for additional five years at the recommendation of the Investigating Officer.  Further, the GON, in the event an affirmative determination on the import of subsidized goods is made in the preliminary report, may impose provisional countervailing duties for a term not exceeding 120 days. Inconsistency with WTO’s ASCM WTO’s Agreement on Subsidies and Countervailing Measures (“ASCM”) provides that only specific subsidy may be subjected to countervailing measures.  Under ASCM, four types of ‘specificity’ are recognized, namely, enterprise specificity, industrial specificity, regional specificity, and prohibited subsidies.  In contrast, SACA does not require subsidies to be specific for countervailing duties to be imposed. Investigation The Ministry may initiate investigation through the Department for imposition of safeguard measures, whereas, investigation for imposition of anti-dumping or countervailing duties may be initiated upon an application filed by domestic industries representing at least 25 percent of the total domestic production of similar or identical goods.  Such application must be seconded by domestic industries representing at least 50 percent of the total domestic production of the similar or identical goods. Investigation Report The Investigating Officer shall submit the final investigation report to the Department generally within one year from the date of initiation of investigation.  The report shall then be forwarded to the Ministry for imposition of safeguard measures or anti-dumping or countervailing duties. Duties Retrospectively The GON may impose anti-dumping or countervailing duties retrospectively in following situations: if it is proved that the goods under consideration were dumped or imported as a subsidized goods before as well;  if the Ministry is convinced that the dumped or subsidized goods were regularly imported  into the country;  if a large volume of subsidized goods are imported or goods are imported in a relatively shorter period of time and non-imposition of countervailing duties on such goods retrospectively might undermine the remedial effect of the protection provided to domestic industries. Nevertheless, such retrospective period shall not go beyond 90 days from the date of issuance of the notification imposing anti-dumping or countervailing duties. Appeal A person aggrieved by the decision of the Customs Office imposing safeguard measures, anti-dumping or countervailing duties, whether provisional or final, may file an appeal before the concerned High Court within 35 days from the date of the decision. Conclusion This is the first instance that a comprehensive legislation on contingency trade remedy is promulgated in Nepal.  Several representatives of the GON, industrial federations, etc. have praised the GON’s effort in enforcement of SACA aiming to protect Nepali industries from import of foreign substandard goods.  The enactment of SACA is seen to be a positive step towards protecting domestic industries from unfair trade practices of the foreign exporters, in reality, it should not be used as a weapon to safeguard incompetent national industries.  Further, several provisions of SACA are inconsistent to WTO’s ASA and ASCM and lacks clarity, which need to be addressed in future.

This article summarizes a Supreme Court ruling in the first case relating to recognition and enforcement of an arbitral award under the New York Convention. Background Hanil Engineering & Construction Co., Ltd. (“Hanil”), a South Korean company, entered into an agreement with Melamchi Water Supply Development Board (“Melamchi Board”) to construct access roads for the Melamchi Water Supply Project.  Hanil subcontracted the construction work to KONECO Pvt. Ltd. (“Koneco”), a Nepali company, under the condition that the entire construction be completed by the deadline.  Despite repeated warnings, Koneco failed to fulfill its obligations.  As a result, Hanil was in breach of its main agreement with Melamchi Board, which forfeited Hanil’s bank guarantee, and Hanil suffered financial loss totaling USD 1,758,578 plus interest. The agreement between Hanil and Koneco included an arbitration clause and Korean law as the choice of law for settlement of disputes.  The arbitration clause also stipulated that any dispute between the parties shall be settled amicably and in good faith before resorting to arbitration.  The parties didn’t adopt institutional arbitration in the agreement.  Nonetheless, Hanil applied to the Korean Commercial Arbitration Board (“Arbitration Board”) to adjudicate its dispute with Koneco.  In July 2009, the Arbitration Board awarded Hanil damages against Koneco in the amount of USD 1,758,578 plus interest.  To enforce the award in Nepal, Hanil submitted an application before the then-Appellate Court Patan requesting that the Arbitration Board’s decision be enforced as required under Nepal’s Arbitration Act 2055 (1999) (“Arbitration Act”).  The Appellate Court Patan declined to enforce the award.  Hanil then filed a Writ Petition at the Supreme Court of Nepal seeking to quash the decision of the Appellate Court Patan and to enforce the Arbitration Board’s award under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (“New York Convention”) and the Arbitration Act. Decision  The Supreme Court ruled that in the instant case the Arbitration Board’s foreign arbitral award was unenforceable in Nepal.  In its decision, the Supreme Court laid down the following principles regarding enforcement of a foreign arbitral award in Nepal:   Governing Law:  Under the “Doctrine of Separability,” the arbitration clause is separable from the contract.  Unless the parties specifically agree otherwise, the governing law of the contract will not necessarily apply to the appointment of arbitrator(s) and arbitration proceedings.  In other words, the governing law of the contract cannot be automatically deemed to be the governing law of the arbitration clause as well. Dispute Resolution:  The Supreme Court interpreted that the arbitration clause required Hanil and Koneco to settle their dispute amicably and in good faith before resorting to arbitration.  In the instant case, the Supreme Court ruled that the parties initiated the arbitration prematurely without first attempting to resolve their disputes amicably, resulting in non-compliance of the agreement between the parties.  The Supreme Court found that Koneco was thus deprived of its right to amicably resolve the dispute as stipulated by the agreement. Appointing Authority:  If the parties failed to authorize an organization or individual to appoint the arbitrator(s), the procedural law selected by the parties for the arbitration proceedings will apply for appointment of arbitrator(s). Appointment of Arbitrator(s):  The Supreme Court cited Article V.1.d of the New York Convention and § 34(2)(a) of the Arbitration Act, which require that arbitrator(s) must be appointed as agreed to by the parties.  The parties must agree, either in the main agreement or in a separate agreement, on the appointment of arbitrator(s).  In other words, the appointment of the arbitrator(s) must be done and the arbitrator(s)’ decision must be made under the laws and procedures specified by the agreement.  Only if the parties fail to appoint arbitrator(s) by mutual agreement and request a court to appoint arbitrator(s), the court may do so under applicable national laws.  This principle is also adopted by Article 12(2) of the Korean Arbitration Act 1999 (“KA Act”) and under § 7 of the Arbitration Act, both of which, according to the Supreme Court, were not followed in the instant case. The Supreme Court found that the parties in the instant case had not agreed on the appointment of arbitrator(s) or the appointment procedure.  Nonetheless, the Arbitration Board appointed arbitrator(s) based on Hanil’s ex parte request.  As the arbitrators were not appointed under either the laws of Korea or Nepal, the arbitral award did not satisfy § 34(2)(a) of the Arbitration Act requiring that the arbitrator(s) be appointed as per the laws and procedures specified by the parties.  The Supreme Court concluded that the appointment of the arbitrator(s) and arbitration proceedings were not done as per the agreement between the parties as well as the laws selected by the parties and that the arbitrators were not appointed based on the principle of fair and impartial hearing. Service of Notice:  The Supreme Court ruled that under § 34(2)(c) of the Arbitration Act, which requires that for a foreign arbitral award to be recognized and enforced in Nepal, the parties must be timely notified of the arbitration proceedings so that they may be able to present evidence in their defense.  Emphasizing the need for timely notice, separate notice must be issued during each step of arbitration proceedings in accordance with the law in order for the foreign arbitral award to be recognized and enforceable in Nepal.  A decision that is issued when a party does not have a fair notice and opportunity to be heard is against the principles of natural justice. In the instant case, a notice for appointment of arbitrator(s) was served to Mr. Hyunil Chung, Managing Director of Koneco in Korea after the notice could not be delivered at Koneco’s address in Nepal.  The Supreme Court stated that Koneco had not authorized Mr. Chung to participate in the arbitration proceedings on behalf of Koneco.  Thus, Mr. Chung’s receipt of the notice failed to meet the requirement for notice to Koneco.  Further, the Supreme Court noted, the notice served on Mr. Chung was solely for the purpose of appointment of arbitrator(s), and no other notice was issued to Koneco to participate in the arbitration proceedings.  A notice must be served timely and properly to ensure the parties’ right to a fair hearing.  The Supreme Court concluded that Koneco did not get a fair opportunity to be heard. Analysis Nepal is party to the New York Convention, the major international instrument for enforcement of foreign arbitral awards.  An arbitral award rendered in a foreign jurisdiction is enforceable in Nepal provided that it meets the requirements specified in § 34 of the Arbitration Act, which is based on the New York Convention.  After twenty years of enforcement of the Arbitration Act, the Supreme Court has rendered its judgment on enforceability of a foreign arbitral award for the first time in this case.  The judgment affirms that a foreign arbitral award, which is intended to be recognized and enforced in Nepal, must ensure that the arbitration proceedings fulfill the requirements specified in § 34 of the Arbitration Act and the New York Convention.

The article summarizes Foreign Investment and Technology Transfer Act 2019 (2075) that has brought into effect the Foreign Investment and Technology Transfer Rules 2021 (2077) (“FITTR”). Major provision of FITTR are: Royalties and Fees for Technology Transfer FITTR prescribes following limits on royalties and fees under any technology transfer agreement: Limits on Royalties or other fees for all types of technology transfer: Limits on Royalties or other fees for usage of trademarks only: Limits on royalties and fees are applicable on the aggregate of all fees and royalties charged in a technology transfer arrangement and are applicable regardless of the number of agreements entered between the foreign party and the local party. However, limits on royalties and fees shall not be applicable in case of fees determined by parties for the purpose of bringing an industry into operation, i.e., pre-operating fees. Time Period for Bringing in the Investment  FITTR mandates following percentage of investment to be brought within one year of approval: Notwithstanding the above-mentioned timeline: all industries must bring in 70% of the investment prior to commercial operation and remaining 30% within two years following the commercial operation date in case of equity investment into an existing industry through share purchase, the total investment amount must be brought within one year of investment approval Any prior approved investment yet to be brought in shall be regularized through investment action plan within six months from enactment of FITTR. Notification of Transfer of Shares or Interest In case of sale or transfer or change in ownership or vested ownership over any assets or shares or any financial instrument generated in Nepal from foreign investment, the concerned company must record the change by filing an application at foreign investment approving body along with following details: A copy of relevant agreement and certified document evidencing such transaction; Document disclosing the per unit price of the share of the company certified by its auditors and audit report; Timeline for repatriation of investment from such sale or transfer of shares (if applicable); Document evidencing the payment of all taxes required to be paid to the GON; and Updated share capital of the local company. This provision shall be applicable for a foreign holding company transferring its shares or interest from its Nepali subsidiary. Documentary Requirements for Repatriation of Earnings from Investment Foreign investor wishing to repatriate its investment or profit accrued from such investment must file an application at the foreign investment approving body along with following documents: Resolution of general meeting and Board of Directors of the local company; Certified and updated share capital and directors’ registry of the local company; Audit report and tax clearance certificate for the preceding fiscal year; Evidence of investment having been made as per prevailing law; Letter of approval for sale of such shares and a copy of share purchase agreement (if applicable); In case of repatriation of profit or dividend, copy of evidence of distribution of bonus in accordance with the prevailing laws and audit report of the concerned fiscal year; In case of payment pursuant to litigation, arbitration or any other legal proceeding, documents regarding the same; In case of royalty, document relating to the same; Record evidencing the sale or transfer of property in Nepal (if applicable); and Any other documents required by foreign investment approving body. Visa Facility Visa facility shall be provided to a foreign investor or his authorized representative and their families based on the investment amount, as follows: Business visa - for the time period till which the minimum investment amount is kept in Nepal; Business visa - if the proposed investment equals NPR 100 million or more and 25% of the investment amount has been brought in; or Residential visa - if USD 1 million or more is invested all at once then till the time 50% of the investment is maintained in Nepal. Others  Assistance may be provided for acquisition or purchase of land by energy, manufacturing, infrastructure or mining industries. Industry may open retail sales outlet within its industrial complex upon obtaining required approval. Re-investment of profits generated from foreign investment may be made into the same industry or to other industries open for foreign investment provided the re-investment amount is not less than 10% of the investment threshold if it is the same industry and not less than the investment threshold in case of other industries. Quantities Sold in Nepal Quantities exported outside of Nepal For Tobacco and Liquor industries, up to 2% of ‘gross sales’ price excluding taxes For Tobacco and Liquor industries, up to 5% of ‘gross sales’ price excluding taxes For other industries, up to 3% of ‘gross sales’ price excluding taxes For other industries, up to 6% of ‘gross sales’ prices excluding taxes Investment Amount % to be brought in Minimum investment (NPR 50 million) 25% Up to NPR 250 million 15% Up to NPR 1 billion 10% Exceeding NPR 1 billion 5% Royalty Quantities Sold in Nepal Quantities Exported outside of Nepal Determined on the basis of ‘gross sales’ price Up to 5% of ‘gross sales’ price excluding taxes Up to 10 % of ‘gross sales’ price excluding taxes Determined on the basis of ‘net profit’ Up to 15% of ‘net profit’ Up to 20% of ‘net profit’