June 30, 2006

India and China have decided to formally open Nathula point for bilateral trade. Nepal needs to quickly step up efforts to develop its transit economy to benefit from growing Sino-Indian trade

By SANJAYA DHAKAL

Finally, Indian and Chinese authorities have agreed to open Nathula point for trade. After four decades, the Nathula pass between Tibetan Autonomous Region of China and Sikkim of India is all set to re-open beginning July 6.

At a time when Nepal was debating the economic significance of forwarding itself as a transit bridge between two rapidly growing economic giants, the two countries have overcome decades-old bitterness to open the strategic trade point between themselves.

Last week, a delegation of Indian officials crossed the border between the two countries via the land route in Nathula to meet with their Chinese counterparts and make on-site inspection of the route, which had remained closed since Indo-China war in 1962.

It took more than three years for the point to be actually opened even after the two governments had signed a pact to open it at the highest political level. It was in 2003 during then Indian Prime Minister Atal Behari Vajpayee’s visit to Beijing when the decision to reopen the pass was announced with much fanfare. However, due reportedly to security concerns, the opening of the pass was delayed.

Located 54 km from Gangtok, the capital of Sikkim , Nathula is situated at 15,000 feet (4,500 meters) above sea level. Lhasa is some 460 km away and Kolkata is 550 km away from Nathula. From Kakarvitta point in Nepal , Nathula is 200 km away.

Resulting Implications

The opening of Nathula has generated mixed feelings among the business community in Nepal . While some believe that it could divert the possibility of Nepal transforming into a transit bridge between India and China , others consider the growing Sino-Indian trade ties to be too huge to be limited to any one or two points.

In fact, in recent years the bilateral trade volume between India and China is growing astronomically. In 1990, it stood at US$ 260 million, which increased to US$ 7.6 billion in 2003 (compare this to total trade of Nepal , which stands at meager US$ 2.3 billion) and US$ 13.6 billion in 2004. In 2008, this figure is expected to touch US$ 20 billion and to US$ 30 billion in 2010.

As such, the two Asian giants would be needing much more trading interface between them. Nathula or no Nathula, Nepal still can offer its transit points for the trade between them. In the coming years when bilateral trade between India and China will continue to soar, every route worth their penny would be utilized.

“I do not think the decision to open Nathula would hurt the chances of Nepal becoming transit bridge,” said Dr. Shankar Sharma, former vice chairman of National Planning Commission (NPC). Dr. Sharma also headed a team that studied Nepal ’s prospective as transit bridge and which submitted its recommendations to the government.

Agreed, Rajendra Kumar Khetan, noted industrialist and vice chairman of Confederation of Nepalese Industries (CNI). “There is no reason for us to worry whether the whole trade would now be diverted to the Nathula point. If we adopt appropriate policies and develop our infrastructure, we can attract the trade here,” he said.

Besides, the recent agreement to open Nathula are, at best, ‘baby steps’ as was termed by an editorial in a leading Indian daily. “The reopening of the Nathula pass, a key junction for trade between India and China over centuries, could have been a momentous event. Instead, trade between the two sides will be confined to about 40 commodities, identified as being of interest to people living in the border areas,” wrote the editorial in The Times of India (June 21, 2006).

For the time being, the Nathula point would be open for trade for only four days a week and only the traders from bordering areas will be allowed to operate.

What For Nepal ?

Despite the timorous moves by the two neighbors who are still haunted by the history, the future appears bright so far as their trade and economy is concerned. Outside world, if not they themselves, is highly optimistic about their growth. After years of talking about rising China , the whole world is now talking about rising “Chindia.”

Nepal , consequently, is sitting atop arguably the most precious piece of real estate – located between the two darlings of global economists. In recent years, whereas China and India have been growing impressively at nearly 10 percent and 7 percent annually, Nepal – sandwiched between the two – has suffered from internal conflict, which has dragged its growth to around 3 percent.

Nepal shares over 1700 km of open border with India . It also has over 1400 km border with China , which is separated by high mountains. However, despite the difficult terrain, Nepal-China border consists of more than 34 important passes through which trade and cultural interactions have taken place in ancient period. In fact, before the entry of British Empire into Indian sub-continent, traders used the route through Nepal to conduct trade with Tibet - with Nepal acting as an entrepot. Subsequently, in the past two-three centuries before Nepal formally opened up to the outside world in 1950, Nepal ’s trade interactions were limited with Tibet .

There are eight major trade routes between Nepal and China that have been identified as economically viable. One is the existing Kodari highway. Other seven includes Syaphrubesi-Rasuwagadhi (under construction); Belhiya-Beni-Jomsom Lomanthang-Korala; Brahmadevmandi-Tinker; Jamuniya-Hilsa; Bhittamod-Lamabagar-Lapchegaun, Jogbani-Kimathanka and Kechana-Olangchungola-Dharila.

“The priority for us right now should be the swift up-gradation of Kodari highway and completion of the Rasuwagadhi-Syaphrubesi highway. Since, the Asian Development Bank and Chinese government are helping in the construction of the latter highway, it would also be open soon. The third highway – Beni-Jomsom-Lomangthang will also be completed next year and will have to be upgraded. These transport infrastructures will be vital for Nepal to become transit bridge,” said Dr. Sharma. According to him, becoming a transit bridge is also the need of Nepal . “In the coming days, we will not be able to escape this opportunity,” he said.

Apart from facilitating bilateral trade between two giant neighbors, the development of transit routes would also be in the economic interest of Nepal . The development of infrastructures, human resources, and trade-friendly policies would also improve the country’s financial position. Currently, Nepal has trade deficit with both its neighbors. In the fiscal year 2003/04, Nepal ’s total international trade (including exports and imports) stood at US$ 2.3 billion – 57% of its total trade were conducted with India ; 37% with the overseas countries and the rest with China .

However, if Nepal continues to be embroiled in political instability and misses the bus, the economic opportunities would only be in paper. As such, the country needs to swiftly work towards developing infrastructure, harmonization of trade, transport and custom policies and practices and convincing its two neighbors of the judiciousness in using its territory for their trade. If this can be done, Nepal can look forward to its prosperous future.