Kathmandu-Nepal’s trade costs remain significantly higher than regional and global averages as the country prepares to graduate from Least Developed Country status in 2026.

According to the Nepal Trade Policy Review 2025 by the Ministry of Industry, Commerce and Supplies, trade costs are 44 percent higher than the South Asian Free Trade Area (SAFTA) average. Based on data from UN ESCAP and the World Bank from 2017 to 2022, the report identifies Nepal as a high cost trading economy.

Trade costs are 38.2 percent higher than ASEAN countries and up to 70.8 percent higher than major economies including China, the European Union, Japan and the United States.

Experts link the high costs to Nepal’s landlocked geography. Structural issues such as expensive logistics, weak supply chains and poor infrastructure add to the burden. The report notes that actual costs may be higher as customs duties are not included.

In India, trade costs account for 13 to 14 percent of GDP. In Nepal, logistics costs alone reach 30 to 35 percent.

Nepal has signed transit agreements with India, China and Bangladesh to ease trade. It is also working through SAFTA, BIMSTEC, the BBIN Motor Vehicle Agreement and SASEC to improve connectivity and reduce costs.

Projects under SASEC include roads, railways, power transmission lines and cross border trade systems. These aim to improve integration and lower transaction costs.

The government has prioritized production, value chains, trade diversification and logistics infrastructure. A Smooth Transition Strategy focuses on market access, supply chain capacity and quality standards.

However, implementation remains weak. The report highlights gaps in executing trade logistics policy and delays in full customs digitalization.

It calls for investment in warehouses, cold storage, distribution centers and efficient logistics systems to cut trade costs.