Nepal’s Trade Cost 44% Higher Than South Asian Average

As Nepal prepares to graduate from the Least Developed Country (LDC) status to a developing nation in 2026, a new government report shows that the country’s trade cost remains significantly higher than the South Asian average.

According to the Nepal Trade Policy Review 2025, released on Monday by the Ministry of Industry, Commerce and Supplies, Nepal’s trade cost is 44 percent higher than the average of SAFTA-member countries.

The report, prepared using trade cost data from 2017 to 2022 compiled by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) and the World Bank, found that Nepal’s trade cost is substantially higher than that of South Asia, Southeast Asia, and four major economies – the United States, the European Union, China, and Japan.

Nepal’s trade cost is 38.2 percent higher than that of ASEAN member states, which comprise 10 Southeast Asian nations that have strongly integrated into global supply chains over recent decades. The cost is 70.8 percent higher than in China, the EU, Japan, and the United States.

Geography And Logistics Drive High Costs

Trade experts attribute Nepal’s comparatively high trade cost primarily to its landlocked geography and elevated logistics expenses.

“High logistics costs make it challenging for Nepal to compete internationally on price,” said Ravi Shankar Sainju, a trade expert. “Current cost calculations do not even include customs duties. If those are added, Nepal’s trade cost would rise further.”

Sainju noted that India’s trade cost (excluding customs duties) stands at 13–14 percent of GDP, whereas Nepal’s logistics cost alone ranges from 30 to 35 percent of GDP.

Transit Agreements And Regional Cooperation

The report highlights that Nepal has signed bilateral transit treaties with India, China, and Bangladesh to facilitate international trade. As a landlocked nation, transit facilitation remains a critical component of reducing trade costs.

Nepal is an active participant in SAFTA and BIMSTEC for regional trade and economic integration. It has also signed the Bangladesh–Bhutan–India–Nepal (BBIN) Motor Vehicles Agreement. Regional connectivity initiatives under the South Asia Subregional Economic Cooperation (SASEC) framework – including rail, road, power transmission, and trade facilitation projects – aim to further reduce trade costs.

Government Plans And Implementation Gaps

The government has announced additional initiatives to lower trade costs, including strengthening production and value chains, diversifying exports and destinations, and improving trade logistics.

A “Smooth Transition Strategy” will be implemented to ensure continued market access, strengthen supply-side capacity, and improve quality standards.

Specific measures include operationalising the BBIN Motor Vehicles Agreement, developing SASEC transport corridors, upgrading warehousing and logistics facilities, and improving transit systems and cross-border procedures.

However, Sainju cautioned that policy improvements have not been fully implemented.

“A Trade Logistics Policy has been formulated to reduce trade costs, but it has not been fully enforced,” he said. “All customs processes must be digitised, and a seamless movement system should be introduced.”

He defined seamless movement as the unhindered flow of import and export goods. “The government must build trade logistics infrastructure, including business-friendly warehouses, cold storage, and distribution centres,” Sainju added.