Strong Antidumping law needed to protect local startups


The Context

A while ago, we got to witness the Daraz Acquisition by Alibaba and recently we have been witnessing exponential expansion of Pathao Nepal. Because of products like these speculations are made regarding the negative impact it might bring to the local startup ecosystem. When Chirinjivi Nepal, the governor of Nepal Reserve Bank was releasing the 13th Monetary Policy, there was another news which was making rounds in the social media, Union Pay was given the approval to operate in Nepal. There was a mixed reaction regarding Union Pay. While some were busy welcoming another international payment gateway to the country, others were criticizing Union Pay as a threat to local payment gateways. However, it is assured that the Union Pay will ease the payments for the tourists coming from china which eventually shall contribute the economy. Besides, these there are many local franchises and direct expansions from foreign multinationals.

The Consequences

Expansion of foreign companies are sometimes considered as a threat to the local startup ecosystem. While it encourages the competition and fair market, it also poses a threat to struggling startup diaspora. When Pathao started their operations in Nepal with very aggressive marketing, speculations were made on how it can negatively affect tootle. Of course, when multiple companies provide same service it initiates a competition which in turn helps in brining an equilibrium to the market. However, the question we are concerned here is, does it help or throttle the local startups. Definitely, there are advantages of allowing a foreign company to operate in the country. This will help in promoting a competition between companies, create more jobs and help the economy. But this also has negative sides. Foreign companies starting their operations in Nepal can sell their product or services at a very low cost making it impossible to small companies to compete which might cause them to collapse. It has often been noted that, companies sell their product and services in loss to eliminate the competitor from the market. In a short run when we look from consumer perspective, it is a win. But when we look from the ecosystem perspective, it might be a big loss. This would eventually end up in monopoly in the market because local companies have been forced shut with competition, which will later might create a hike in price.

The Countermeasures

But there is a good side to this. This situation mentioned above has already been accounted by the World Trade Organization and have also been witnessed in several countries. The Anti-dumping complaints regarding Steel import are quite famous and have been seen multiple times if we look globally. Nepal has been a member of World Trade Organization which allows Nepal to benefit from several regulations one of which is GATT that exclusively defines how local government can apply anti dumping measures against companies selling their services at a price lower than what they would do in their home countries. When companies that are based outside of the country compete against the local companies on by selling products lower than its original price, then government can take actions against those companies complying with the GATT regulations. The discussion of Anti-dumping and countervailing measures are not new in Nepal. Government has issued “Safeguards, Antidumping, and countervailing measures -2076” which has clearly mentioned process of safeguarding techniques, fines, applications, investigations, postponing or extending investigation, scope which is a great hope for the local ecosystem.

So, what’s the problem?

House of Representatives has passed Safeguards, Antidumping, and countervailing measures which is a great news. But while drafting the law most of the focus has been on FMCG goods. The whole target has been towards, Fruit juices and energy drinks. This does not make sense to apply the Anti-dumping law because there are no products in fruit juices or energy drink those are produced locally to compete with the import. This is also the reason why we never heard of any accusations of anti-dumping laws so far. If we see at local ecosystem, most of the local startups are IT based service providers. And there are enough of foreign companies which are targeting the same market segment and product ideas. Yet, this is should not be considered threat. Moreover, they should be allowed easy entrance to the market. But when these foreign companies enter the market, sell services at low price, then this will threat the local startup ecosystem. And surprising, the existing Anti-dumping, Safeguards and counter-vailing law can not be applied to involved companies. Because, existing law speaks a lot for the FMCG products. In 2017 Industries contributed for 13.4% of the GDP whereas Service sector contributed for 51.6% of the GDP. In such case, the anti-dumping and countervailing law focused on industry makes least sense to the economy whereas, if the focus was on the service segment it could make more sense.

Way forward

It is very important for the government to allow more small or big, national or foreign companies to enter the market. This can bring more FDI, create more jobs, create healthy competition and also increase revenue of government. However, it is also important to protect the local innovations, ideas and startups. This can increase number of local companies, create more jobs, decrease dependency on remittance. To do this ecosystem needs many laws and support from government. But a strong anti-dumping law can be a great start and a strong message to the startups. Current law on anti-dumping and countervailing is good but not enough for the current situation. The current law is strong enough to protect the consumable goods. But the threat to startup is not from consumable industry rather from IT based service industries. Government has promised to strengthen its antidumping act through the budget also. But the bill passed has not met the expectation of the industry. If amendments are made incorporating the pain of startup ecosystem, then country can benefit by decreasing the import/export gap and creating job opportunities locally.

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