Bhutan could prosper as a developed country with this trade pathway
Bhutan has already made in creating inclusive and sustainable trade conditions. Image: Unpslash/Aaron Santelices
- Bhutan has restarted the accession process to the World Trade Organization (WTO) while graduating from the status of “least developed country” (LDC).
- Several measures undertaken by Bhutan have demonstrated a commitment to sustainable development, including saving time and money for farmers, making investment regulations more transparent and increasing access to banking facilities for women.
- Bhutan could still benefit from a transformative approach once it graduates from LDC status by diversifying trade partners, streamlining business registration, reducing trade costs and capacity-building around key sectors.
Bhutan, recognized for its happiness quotient, is graduating from the least developed country (LDC) status in December this year. It has also restarted the process of its accession to the World Trade Organization (WTO) after a hiatus of 15 years.
These developments offer opportunities and challenges. At the same time, the government of Bhutan has strongly emphasised trade and investment in its upcoming Five Year National Plan to become a developed country in the next ten years.
There’s much progress Bhutan has already made in creating inclusive and sustainable trade conditions. At the same time, measures are still needed to propel growth and sustain gains for human development.
Key gains in Bhutan's development
Cutting red tape on potatoes
Among Bhutan’s achievements is a project supported by the Enhanced Integrated Framework at Bhutan’s grading and auctioning centre in Phuentsholing, jointly implemented by the Bhutan Commodity Exchange and Food Corporation of Bhutan Ltd. The project aims to ensure swift grading and auctioning of potatoes, one of Bhutan’s major agricultural exports.
Thanks to machine grading and online auctioning of potatoes, which helps boil down entire transactions in an average of six hours, farmers – used to waiting up to five days for manual grading and physical auctioning – have made significant gains. They save up to $420 per truckload and money associated with being physically present, including hotel costs and time. They also now receive instant payment through a digital system.
Streamlining regulatory compliance
The Department of Industry launched an e‑regulation portal for trade, investment and construction-related information and procedures. The single-site portal represented a serious effort to enhance the transparency of investment rules and procedures and is also on the websites of Bhutanese missions and embassies abroad.
Between the portal launch during the COVID-19 pandemic in November 2020 and August 2022, the Department could swiftly approve 104 domestic and foreign direct investment projects worth $365 million.
Equitable access to banking
Encouraging savings and enhancing women’s access to finance have been major challenges to bolster women’s entrepreneurship in the country. However, adopting micro automatic teller machines (ATM) has resulted in a remarkable increase in savings for the beneficiaries, especially in communities with no banking facilities.
Implemented by the Bhutan Association of Women Entrepreneurs (BAOWE), the initiative resulted in increased savings of 145% in the last four years, according to a progress report submitted by the Government to the EIF. On the ground, BAOWE initiates opening individual savings accounts for women. The field representatives regularly perform collection activities to deposit and withdraw the savings using the micro ATMs, as requested by the beneficiaries.
Making Bhutan’s graduation a success
Although the examples above have had a significant impact on beneficiaries, as the country is on the brink of graduation, it needs a transformative approach in the following areas:
- WTO accession will help Bhutan secure predictable market access and lock in policy reforms. That will signal to foreign investors that the country has policy stability, which can help shore up foreign direct investment, as done by Cambodia, China and Vietnam, albeit at a scale commensurate with the size of the economy.
- As an LDC, Bhutan gets preferential market access without needing to be a member of the WTO. Once the preferential market schemes are phased out, Bhutan will face a cost increase of only 0.2%, as it does not utilize most preferences provided by developed countries and mostly trades with India and Bangladesh. To avoid vulnerability, diversify its export market and alleviate the impact of preference erosion, it should sign trade agreements with other partners, such as Nepal, South Korea and Switzerland, amongst the top destination markets for Bhutan’s exports, similar to the approach adopted by Cambodia.
- Bhutan has already streamlined regulations around business registration, which can go far in attracting domestic and foreign private investment. Further policy reforms are necessary for investment promotion and retention, including aftercare services to enhance the role of the private sector in economic development and job creation.
- Reducing trade costs is critical for landlocked graduating countries such as Bhutan, which a fully digital paperless trade system can aid. The complete implementation of the Asia‑Pacific Framework Agreement on Facilitation of Cross-border Paperless Trade could help Bhutan reduce its trade costs by 286%, translating into an export gain of 34%. Bhutan need only build on existing digitalization efforts.
- Productive capacity‑building to build resilience and long-term growth must be at the forefront of graduation and WTO accession discourse, which means investing in public goods such as infrastructure, human capital and technology. For example, the Bangladesh Garment Manufacturers and Exporters Association launched the Centre of Innovation, Efficiency and Occupational Safety and Health Improvement last year to promote digital technology, competition and efficiency, reduction of trade costs and better compliance with social and environmental norms. Bhutan can follow a similar approach.
Complacency is not an option and policy reform cannot be a one-off agenda, particularly in the context of Bhutan’s graduation and WTO accession. The country should build on its time-tested trade and development agenda that contributes to increasing exports and foreign investment in an inclusive, sustainable and human-centric manner.
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