VZCZCXYZ0002
OO RUEHWEB

DE RUEHKT #0317 0311106
ZNR UUUUU ZZH
O 311106Z JAN 06
FM AMEMBASSY KATHMANDU
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0125
INFO RUEHBJ/AMEMBASSY BEIJING PRIORITY 3877
RUEHLO/AMEMBASSY LONDON PRIORITY 3542
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 9128
RHEFDIA/DIA WASHDC PRIORITY
RHHMUNA/CDR USPACOM HONOLULU HI PRIORITY
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UNCLAS KATHMANDU 000317 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR SA/INS 
 
E.O. 12958: N/A 
TAGS: ELAB PGOV EINV PHUM NP
SUBJECT: LABOR LAW REVISION TO ATTRACT FDI 
 
REF: 05 KATHMANDU 2723 
 
Ordinance Published 
------------------- 
 
¶1. (U) On January 31, the government promulgated a revision 
to the 1991 Labor Law intended to boost foreign direct 
investment (FDI).  The revision opened the door for 
appointment of up to fifteen percent non-Nepali nationals as 
managers, executive directors and experts in firms.  Existing 
laws did not allow foreign managers.  The revision gives more 
power to management to hire and fire employees, a move seen 
as necessary to attract foreign investment.  The revision 
supports the creation of an independent committee to 
determine the minimum salary of employees, a role the 
government currently maintains.  With the revision, firms 
have the right to completely or partially shut down and lay 
off employees with a three-month advance notice to the 
government, and employees would have to inform the government 
thirty-days in advance if they planned to go on strike. 
 
Industry Welcomes Revision 
-------------------------- 
 
¶2. (SBU) Chandi Raj Dhakal, Chairman of the Federation of 
Nepal Chambers of Commerce, told Emboff that this revision 
was "an absolute necessity" to create favorable conditions 
for investment in Nepal.  He claimed that the revisions were 
needed to meet World Trade Organization commitments and were 
supported by the World Bank.  Rajib Upadhya, Senior External 
Specialist at the World Bank, told Emboff that he had just 
received a copy of the finalized ordinance and would have to 
review it in more detail before fully commenting.  However, 
he asserted that the ordinance appeared to take into 
consideration World Bank concerns regarding labor 
flexibility.  He noted that labor flexibility was one of four 
conditions that Nepal had to meet before Nepal was eligible 
for a World Bank Poverty Reduction Strategy Credit II loan 
(reftel). 
 
Trade Unions Fear Labor Rights Sidelined 
---------------------------------------- 
 
¶3. (SBU) Laxman Basnet, President of Nepal Trade Union 
Congress (NTUC), lamented to Emboff that despite provisions 
in the Labor Law that stated the government should consult 
with labor unions and industry when revising the Law, the 
government had only consulted with industry.  The government 
told labor unions they could review the revision once 
implemented as they had fulfilled their requirement to 
consult by discussing with industry.  As he had only heard 
about the changes, Basnet could only surmise that this 
revision would give full authority to management to act 
according to its wishes, sidelining labor rights.  He 
commented, "now the Labor Act should be named the Industry 
Act."  He explained that it appeared the revision would give 
full authority to management to hire and fire at will without 
explanation to employees as previously required.  He noted 
that the revision would allow firms to hire new employees 
without giving preference to existing employees.  He did not 
understand why the revision would call for an independent 
committee, as the government previously fixed the minimum 
salary on the basis of tripartite agreement between 
management, government and labor unions.  He stated that the 
provision to strike would remain the same as in current 
legislation. 
 
Comment 
------- 
 
¶4. (SBU) Although much of Nepal distrusts government 
intervention, a revision in the labor law had long been in 
the offing and was necessary.  Opening up sectors to foreign 
managers is a welcome change.  Whether the law sidelines 
labor unions will bear monitoring.  Just as important, 
political instability and the Maoist insurgency will continue 
to discourage foreign investors, despite what appear to be 
positive changes in the regulation of Nepal's labor market. 
MORIARTY