NATIONAL TREATMENT OF FDI IN NEPAL
National Treatment of a foreign investment refers to the trade principle whereby the host country extends the treatment provided to the national investment, to the foreign investors under like circumstances. As per the United Nations Conference on Trade and Commerce, it is a contingent standard based on the treatment given to other investors, observed to ensure a degree of competitive equality between national and foreign investors. Nonetheless, the concept more often than not refers to the post-entry circumstances of a foreign investment.
Under the Nepalese investment regime, the provision of national treatment is incorporated under the principal legislation for foreign investment i.e. Foreign Investment and Technology Transfer Act, 2019 (hereinafter referred to as the “Act”). Section 32 of the Act explicitly maintains that in respect of the terms applicable to the management, maintenance, use, transfer and sale of any foreign investment made in Nepal shall, after the investment is brought into, and until it remains in Nepal, be accorded national treatment no less favorable that accorded to any native investment.
The additional protections ensured by the Act are:
- Decontrolling of prices of their products or services,
- No prevention from doing trade as per prevailing law limited to that industry,
- No restrictions on repatriation of income and profits, and payment of interest and principal of loan.
The legislation also ensures that there shall be either no change in the law prejudicial to the existing foreign investment without approval, or the amended provision shall not be applicable to the existing foreign investment if such provision is disadvantageous to the foreign investment.
Since the national treatment standard touches upon politically and economically sensitive issues, various exceptions are laid down in the provision, such that national treatment shall not be executed in following matters:
- Creation of intellectual property rights, limits thereof, transfer of title or provisions requiring compulsory licensing for the use thereof as specified in any agreement made under the WTO,
- Exemption or facility granted to any domestic industry or goods in accordance with the prevailing law relating to public procurement,
- Grant or concession to be made or provided by the Government of Nepal,
- Non-commercial services to be provided by the Government of Nepal,
- Measures relating to financial services relating to protection of investors, participants in the securities market, insurance policy holders or insurance policy claimants, or relating to financial institutions,
- Matters involving liability or provision to accord special treatment by Government of Nepal,
- Matters relating to the terms that may be specified by the regulatory body in respect to repatriation of investment, repayment of loan, payment of service fees,
- Matters relating to the protection of human, animal and plant health or the environment.
Addressing economic asymmetry between the existing infirm or other economically disadvantaged national investment and the foreign investment, the host country is always required to grant national treatment with certain qualifications. However, Nepalese legislation has fairly incorporated the focal points under the national treatment standard.