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Bhutan - Trade Policy


Bhutan is a typical landlocked country and heavily trades with a limited number of neighboring countries. Because Bhutan has small domestic market and unfavorable resource endowment for industrialization, majority of its population live on primary sectors and trade issues are not national policy priorities. However, Bhutan has increased trade volumes beginning in the 1990s and thus trade became an indispensable part of its economy. Trade policy is a requisite for all countries. The key issue is how to set up optimal trade policy framework aimed at maximizing economic gains from trade and specialization. 

Bhutan is renowned for its gross national happiness (GNH) philosophy, but it faces many social and economic issues. One of these issues is the need to raise Bhutan’s living standards. Its economic growth has so far been led mainly by hydropower sector development and has not been creating enough jobs especially for the young. Inequality remains high even though Bhutan has been successful in reducing poverty. Bhutan thus needs to ensure a more inclusive and job-generating growth. 

 As a country in the early stages of economic development, Bhutan has tried to improve its business environment since 2008, although it still lags behind its neighbors in this respect. The country faces many challenges in boosting its economy and attracting foreign direct investments (FDIs) to its target sectors in order to improve its people’s well-being. Easing regulations favors business activities, but it is just one of the factors investors will consider. Furthermore, investors usually examine the overall competitiveness of the country before investing. Bhutan needs to recognize that its neighbors are competing for FDIs.

 The Government of Bhutan requires new policies to meet the threshold score of the GNH index. However, the GNH index includes some factors seemingly unfavorable to an active trade policy. Moreover, although the share of trade reached 80% of gross domestic product (GDP) as of 2013, the involvement of the trade authority in the government is very small (the trade authority belongs to only one of 10 departments under the Ministry of Economic Affairs). In most countries, trade policies are administered in the cabinets, such as Ministry of Commerce, Ministry of Trade, or Ministry of Foreign Affairs and Trade. Bhutan is a landlocked country with little economic power, which has resulted in a passive attitude toward international trade.

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