Kathmandu: As Nepal prepares to graduate from Least Developed Country (LDC) status to developing country status, its core export industries are bracing for significant headwinds.
Studies cited by the World Trade Organization and regional trade researchers warn that traditional exports such as garments, textiles and carpets could face notable declines once long-standing trade preferences are withdrawn.
Nepal is set to graduate on 24 November 2026, alongside Bangladesh and Laos. With the transition, the country will lose duty-free and quota-free market access and other special trade concessions it has enjoyed under LDC arrangements. Stakeholders say this will raise production costs and erode Nepal’s price competitiveness in international markets, especially in sectors already operating on thin margins.
Garments and textiles are considered the most vulnerable. WTO-linked assessments suggest exports in these categories could fall by 10 to 20 percent after graduation, with an average drop estimated at around 13 percent.
A separate study by South Asia Watch on Trade, Economics and Environment (SAWTEE) projects a smaller but still significant decline of about 4 percent. Researchers note that tariffs on garments and textiles could rise by roughly 6 to 7 percent, putting immediate pressure on manufacturers.
The impact is not expected to stop there. According to WTO analysis, carpets, handicrafts, animal-based products, medicinal herbs, iron and metal goods, import-based processed items and even some service exports could see reduced demand. Carpet exports, largely destined for the United States and the European Union, are projected to drop by 8 to 15 percent.
Handicrafts, animal products and herbal goods could fall by 10 to 18 percent, while metal products may decline by 3 to 8 percent. Import-dependent processed exports face some of the steepest risks, with potential drops of 12 to 25 percent.
Trade data underline how exposed Nepal is. In the first six months of the current fiscal year, the country exported ready-made garments worth roughly Rs 4.6 billion and textiles worth about Rs 1.7 billion. In the previous fiscal year, garment exports exceeded Rs 8.7 billion and textile exports topped Rs 3 billion. Garments mainly go to the US and EU markets, while textiles are largely shipped to India.
Policymakers and industry leaders say the transition is a shared challenge for government and the private sector. At a recent policy dialogue on garment export competitiveness, officials from the Ministry of Industry, Commerce and Supplies said the effects would extend beyond clothing to the broader export base. They argued that sectors where Nepal has a comparative advantage, such as garments and textiles, could still expand if public–private coordination improves, customs processes are streamlined and production efficiency rises.
Trade experts point to high logistics costs, shortages of skilled labour and elevated production expenses as structural barriers that could worsen after graduation. Business representatives stress the need for a clear joint action plan between the state and industry, as well as efforts to diversify markets beyond traditional destinations. Without such adjustments, they warn, Nepal’s traditional export pillars could struggle to hold ground in a more competitive, less preferential global trading environment.
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