Nepal-China transit treaty to shift geo-political balance

In a major geo-political shift, Nepal has signed a transit and transportation treaty with China today that will give the land-locked Nepal access to sea from China.
Currently, Nepal has the access to sea, which is vital for third country trade, only through India, the southern neighbour. India and Bangladesh are the only two other countries with whom Nepal has signed transit treaties. But the transit treaty with Bangladesh is based on India, as Nepal and Bangladesh do not share border, and thus has not been implemented fully.
However, today's treaty will give Nepal access to a Chinese port for its third country trade, which is expected to reduce Nepal's dependency on India for trade and transit.
Despite historic and socio-cultural integration between India and Nepal, India's imposition of economic blockade for almost five months generated widespread disenchantment in Nepal, forcing Nepal to seek trade alliances beyond the southern neighbour. Though Tianjin Port, the nearest Chinese port is 3,300 km away from the Nepal border – as against the closest Indian port of Kolkata which is only 1,000 km – the treaty is also expected to shift the geo-political power balance in the region.
The agreement on transit and transport with the People's Republic of China could be a psychological shift for the future, according to senior economist Bishwhambher Pyakuryal. "The agreement is going to have a huge psychological shift in otherwise India-locked Nepal as the country will now have an option for international trade," he said, adding that the implementation of treaty is but a herculean task.
Likewise, trade expert and former commerce secretary Purushottam Ojha also opines that the treaty is a milestone, but Nepal needs to invest its huge resources and efforts on road infrastructure to benefit from the treaty. "Nepal must increase road and railway connectivity to take advantage from the transit treaty and increase economic integration with China," he added.
Apart from widening of Rasuwagadi customs point, and upgrading Korala and Kimathanka customs points and access roads, Nepal also has to work hard to simplify trade-related issues, including visa, currency and language, to make the treaty work in its favour, Ojha said.
Likewise, Nepal has to exchange a protocol with China, which will define the procedures that need to be followed. Nepal also have to have railway connectivity to take advantage from the agreement, which will be automatically reviewed every 10 years, as ferrying goods via road through Tibet may not always be cost-effective and convenient.
The visiting prime minister Khadga Prasad Sharma Oli and his Chinese counterpart Li Keqiang today witnessed the signing of the 10-point bilateral agreement and memorandum of understandings (MoU), including landmark transit and trade deal, in Beijing's Great Hall of the People, according to a press communiqué issued by the Nepali Embassy in Beijing after the signing ceremony.
To increase the connectivity, China has also agreed to construct a strategic railway link between the two countries through Tibet. The railway link, which is expected to link Kathmandu and Tibet, is also likely to be expanded to Pokhara and Lumbini.
According to officials in the meeting, Oli's visit has raised the possibility of the construction of two rail lines connecting three of Nepal's most important cities. China has already expanded its railway service to Shigatse, in Tibet, which is around 450 km from Kerung. Kerung lies at a distance of around 26 km from Rasuwagadi in Nepal. China plans to extend its railway service to Kerung by 2020, and also a longer term plan of extending railway lines from Kerung to Kathmandu depending on geographic and technical conditions, as well as financing, according to the officials.
But, Nepal will have to enter into a separate deal with Beijing to make use of the Chinese railway service for trade purpose.
The high profile visit also witnessed signing of Memorandum of Understanding (MoU) between the Ministry of Commerce of the People's Republic of China and the Ministry of Commerce of Nepal for launching the Joint Feasibility Study of China-Nepal Free Trade Agreement (FTA). Based on the findings of the feasibility study, both the governments will decide whether to sign the FTA.
The FTA is, however, not going to benefit Nepali products, which have lost their competitive advantage against the Chinese products. "Nepal should have pushed for preferential trade agreement with China," Ojha said, "As Nepali products cannot compete with that of China's."
China has already given duty free access to over 8,000 Nepali products. Of the total trade, Nepal's exports to China stand at just 2 per cent, whereas Nepal's imports from China stand at 12 per cent, widening Nepal's trade deficit with China. "FTA will only further widen the trade gap," according to Ojha.
Trade between China and Nepal has been governed by Trade and Payment Agreement signed for the first time in 1974.
According to the press communiqué the two countries also signed agreement on concessional loan for a new airport in Nepal's Pokhara and a feasibility study for oil and gas survey projects, though the much-anticipated agreement on commercial import of petroleum products from China was cancelled at the last moment.
Likewise, China has also agreed to distribute solar panels in Nepal’s rural areas by tapping its Climate Fund, and build, manage and maintain Xiarwa Boundary River Bridge at Hilsa, Humla, apart from signing MoU to strengthen intellectual property system in both the countries, and extend cooperation and exchange information on banking regulation.