Nepal-India Trade Treaty
Automatic Renewal Or Termination

By Bishwambher Pyakurel

Continued

SURPRISINGLY, there is no definition of Surge in the treaty. In such a situation, since Vanaspati Ghee is imported in India only from Nepal, any amount of such import can be termed as Surge. Article 19 of GATT has defined that imports from a developing country exceeding the level of 3 per cent of total imports of that commodity in importing country is export Surge. The total export from Nepal to India does not come even within a range of 0.1per cent of India’s total import. As said before, none of the alleged exports item such as vegetable ghee, acrylic yarn, GI pipes, zinc oxide, and copper wire exceeds the given limit. It actually ranges from 0.5 to 3.0 per cent. And surprisingly, as against India’s allegations such export items involve elaborate manufacturing process, which brings the raw material into substantial transformation meeting the standard of GATT for the rules of origin as well as the spirit and purpose of the 1996 trade treaty. In reality, vanaspati ghee involves 13 processes, zinc oxide 8, acrylic yarn is manufactured under 13 stages, GI pipe/Iron pipe 12 and normal copper wire processing takes 9 stages. The technical justification of which should be given to Indian counterpart to avoid misunderstanding.

The total investment made in the production units of Surge items comes to Rs. six billion. Total employment generated by these units stand at 15,000 employees. The contribution to GDP comes around 2%. This scenario very well responds to India’s major concern that if the 1996 agreement has positively contributed to industrial development in Nepal?

The logical argument for counteracting Surge is the protection of domestic industries from the rising import through selected economic instrument. Anti-dumping duty is such instrument. India has already imposed anti-dumping duty in zinc oxide. Luxury tax is imposed in West Bengal for tea; an entry tax is imposed in vanaspati ghee in Uttar Pradesh. Series of additional taxes are being imposed contrary to the spirit of the treaty. In reality, anti-dumping duty can be applied when the import accounts for 25% of the total production of the like article by the domestic industry. It is not such case created from Nepalese exports. India pays convertible currency to China, Taiwan, France, Germany, Hong Kong, Indonesia, Italy, Japan, Korea, Malaysia, Thailand, Turkey and others to import most of the similar alleged items under the definition of Surge from Nepal. The quantity supplied from Nepal is less as compared to the imports from most of the above mentioned countries.

Unauthorised trade is another important issue where India shows its serious reservations. It is open secret that inspite of several measures taken by both countries, the smuggling in some quantities is still taking place. Nepal should consider making adjustment in increasing tariff to those items, which have significant potential from smuggling to India. However, India should not also forget to regularise its border adjoined to countries other than Nepal since it is also reported that there is heavy smuggling taking place from other countries as well. Such open border access has not only injured Indian industries alone. It is widely reported that because of the open border and easy access of Indian textile goods into Nepal, nine large-scale industries are already closed and remaining seven industries are in the verge of collapse. This has constituted Rs. 15 billion losses invested in those industries. As a result, 100,000 workers have lost their job. Since heavy subsidies are provided by the government in Indian agriculture sector, Indian agriculture products are flooding into Nepal whose market price is cheaper than Nepal’s cost of production. What lesson then we should really get from these eventualities? Putting negative impact aside, in totality, as available statistics reveal that 1996 treaty has been extremely beneficial to both the countries; governments of Nepal and India should promote the positive impact of the treaty through mutual consultation in an environment of trust to each other.

Conclusion

Several issues such as the definition of surge, consensus building in the rules of origin and methods for calculating value-addition, and an agreement regarding the injuries to the industries in respective countries were not resolved during secretary level meeting held in Kathmandu immediately after Indian foreign minister’s visit. Second round of joint secretary level talk in New Delhi, though delayed, did not also produce any fruit. The Indian side has already notified His Majesty’s Government of Nepal showing their desire to modify the treaty. Except for our expectation that some logical understanding will be reached, no progress has been achieved so far in guaranteeing the automatic renewal of the treaty. The Indian authority in their letter sent to Nepal in August, 2001 has clearly mentioned that their intention should be taken in accordance to the provision remained under Article XII which says, the treaty shall remain in force upto December 5, 2001 and shall be automatically extended for further periods of five (5) years at a time, unless either of the parties gives to the other a written notice, three months in advance, of its intention to terminate the treaty. It clearly indicates no possibility of automatic renewal since written notice for necessary adjustment is given by India. The secretary level talk is going to be held on 18 and 19th of October, 2001 in Delhi but without any clarity on the issues raised during Kathmandu and Delhi meeting. It is thus suspected that India will prefer to enter into an agreement on the basis of Most Favored Nation’s concept similar to what we had during India-Nepal Trade and transit Impasse in 1989. If this happens, there will be an end of an era designated as ‘age-old socioeconomic and cultural ties’ between two friendly neighbours. Therefore, since the case seems more of a political in nature, it necessitates dealing politically at higher level to safeguard the interest of both Nepal and India. The solution would be to work out the modality of agreeing to the benefit and cost of each important issue on comparative advantages basis and enter into the agreement to continue existing treaty without any change in its fundamental structure.

(Concluded)

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