[This agreement is being touted within the Indian media as an end of India’s monopoly over transit rights to Nepal. While such agreements definitely make good headlines provided the popular frame of looking at China’s increasing involvement in South Asia as an act of undercutting India’s influence but ground realities are very different.]
By Monica Verma
Due to
its landlocked status, Nepal is dependent on Indian ports for its trade. There
are always minor issues involved with the use of these ports such as cost
factors and delays etc.
Nepal
and China have finalized the protocol text of the Nepal-China Transit and
Transport Agreement. This agreement is set to allow Nepal access to Chinese
ports, including Tianjin, Shenzhen, Lianyungang and Zhanjiang open seaports and
Lanzhou, Lhasa and Xigatse dry ports in China for third country trade.
This
agreement is being touted within the Indian media as an end of India’s monopoly
over transit rights to Nepal. While such agreements definitely make good
headlines provided the popular frame of looking at China’s increasing
involvement in South Asia as an act of undercutting India’s influence but
ground realities are very different.
A little background
Being
a landlocked country, Nepal relies on access from neighbouring countries to
participate in international trade. With India, mainly two agreements govern
the transit: the India-Nepal Treaty of Trade and Transit and the India-Nepal
Rail Services Agreement. Nepal uses Kolkata and Haldia ports for its
international trade where Kolkata port handles mostly containers and Haldia
port handles heavy cargo such as coal and cement. Around 6,000 of Nepalese
containers are moved through the West Bengal ports compared to just 150 for
Bhutan. According to some estimates, 90% of Nepal’s international trade is
routed through these ports. Off late there has also been a trend to route
Nepal’s imports through the Vishakhapatnam Port due to importers concern with
rising costs at the ports located in West Bengal.
Due to
its landlocked status, Nepal is dependent on Indian ports for its trade. There
are always minor issues involved with the use of these ports such as cost
factors and delays etc. However, a blockade at the India-Nepal border in 2015
where Nepal’s essential supplies were cut-off for a period of two months
triggered anti-Indian sentiments at another level altogether. The blockade was
caused due to protests by Madhesis demanding a greater representation in the
country’s new constitution. But the government in Nepal started viewing it as
an “unofficial blockade” by the Indian government in solidarity with the
Madhesis who ethnically, in terms of language and culturally have a resemblance
to people in the Indian state of Bihar and Uttar Pradesh. This understanding of
the Nepalese government led it to look for alternative options for transit
trade. Even during the blockade, China came to the aid of Nepal by supplying
essential commodities and fuel providing relief to some extent.
While
Nepal under KP Oli’s Prime Ministership has taken a number of steps to increase
economic linkages with China. There has been a sharp departure in China’s
policy as well towards Nepal. While earlier it was content with the Himalayan
Kingdom paying lip-service to the ‘One China’ policy and keeping Tibetan
activists under a hard watch, now China has started to actively cultivate its
influence in every manner possible- investments, outreach initiatives, cultural
diplomacy, academic exchanges et al. While this can worry India at many levels
but as far as the transit rights are concerned, Himalayas continue to remain
the most important challenge to the Nepal-China transit story. Any talk of
China allowing access to its ports or a rail-link substituting the existing
transit trade must be carefully weighed in on the basis of the facts at hand.
Why
China cannot replace India?
The
ports that China has promised to provide access to are roughly more than 3,000
Km away from Nepal. The nearest port is Zhanjiang which is 2,755 km away from
Nepal while the rest of the ports are more than 3,000 km away. In trade, every
kilometre of transit increases the cost of the final product. Traversing this
distance in comparison to Kolkata which is 774 kilometres away and
Vishakhapatnam which is 1194 kilometres away would entail exorbitant cost and
time. In fact, the road infrastructure, especially from the Nepalese side,
would require a high level of investments, something that Nepal might not be
able to commit to owing to the size of its economy.
China
had earlier expressed its desire to supply petroleum products to Nepal. Nepal
also showed interest in importing at least 1/3rd of its requirements from China
but difficult Himalayan terrain poses a significant challenge to any meaningful
fuel-trade between the two countries. The officials in the Nepal government are
also aware of the challenge especially due to the absence of infrastructure on
the Nepalese side. There already is an awareness amongst the policymakers that
China will not be interested in commercially supplying fuel to Nepal if it is
not economically viable for the country. Nepal Oil Corporation even signed an
MoU with PetroChina to import fuel for Nepal from China however that agreement
has not been implemented commercially. Plus, the Nepalese government has
started granting petroleum import license to private firms who have shown a
preference to import fuel from India at much cheaper rates instead of
considering the Chinese option which is expensive and not commercially viable.
There
is also a tendency to place hopes on the China-Nepal rail link through Tibet.
China cannot fulfil Nepal’s fuel requirements even if the Tibet railways reach
right up to the Nepal-Tibet border. First of all, providing access to Tibet is
China’s own security pressure point. One of the reasons why China is interested
in a healthy relationship with Nepal is because of the large Tibetan community
whose activism if goes unchecked can become a nuisance. Opening Tibet to Nepal
on a scale that trade relations normally require would be a security headache
for China and it will surely prefer to avoid it.
Secondly,
the Kolkata-Raxaul railway line is a much cheaper and less costly alternative
to the China-Nepal rail link. Because a rail link in the difficult Himalayan
terrain requires heavy investments with mostly bridges and tunnels lining up
the entire route. Is it logistically wise to depend on rail links in such
difficult terrains for your key supplies? The railway project is clearly
fraught with dangers. The contractors needed to work on the project have been
tough to find because of health and environmental hazards. More than a 100 died
during the construction of a small section only. The cost is again very
prohibitive with even a conservative estimate putting it at $16.1 Million per
0.6 miles.
Long
story, cut short, the fears of Nepal’s transit dependence on India being
replaced by China are not new. The Araniko Highway, connecting Kathmandu to
Tibet constructed in the 1960s has been used in the past also to play the China
card against India. However, to imagine that it can handle volumes of cargo
traffic that can fulfil Nepal’s essential requirement is impossible. In fact,
this oldest infrastructural link between modern day Nepal and China can’t
handle Nepal and China trade alone. A huge quantity of goods continues to come
from China to Nepal through the Kolkata seaports. This highway has often
fuelled many fantasies of China-Nepal trade but it is environmentally
vulnerable to the extent that the friendship bridge that links the highway on
both sides is reduced to just minor foot traffic after the 2015 earthquake.
Thus, this link continues to remain one of the most dangerous roads in the
world with frequent instances of landslides blocking access.
In the
current scheme of things, it looks very difficult that any transit rights
provided by China to Nepal can end the historic relationship of transit and
trade that exists between India and Nepal. In fact, Nepal’s own media believes
that such agreements provide “psychological boost” at best and might reduce the
“excessive dependence” of the landlocked country on India. Even they understand
that China cannot replace India or end its monopoly. Nepal’s own foreign policy
experts call the transit agreement as posturing by Nepalese elites to please
the public back home and send a message to India.
@ opindia