Purushottam ojha article--1

Remodeling Transit Agreement

Purushottam Ojha

Nepal, as a land-locked country, is dependent with India for transit movement of goods in its overseas trade. The disadvantages of geographical location and presence of a large mass of rugged and difficult terrain within the country is taking a toll to the economy with increased cost of transaction; making goods non-competitive in the international markets. The way goods passage through the transit country thus becomes central while dealing with the international trade of Nepal.

The manifest of transit provisions were mentioned in the Nepal-India friendship treaty for the first time in 1923 during the regime of Rana Prime Minister Chandra Shumshere, whereby the British rulers allowed limited transit right to Nepal for the goods owned by the Nepal government either as a recipient or shipper of the goods. The goods belonging to the private owners could not be transited through the Indian territory. This treaty was signed just two years after the signing of Barcelona convention in 1921 that provided right of access to sea to all landlocked countries through their contiguous states.However, it is not clear whether the then British rulers agreed to provide transit facilities to Nepal at the behest of such international instrument or it was just a coincidence of the events. Thereafter, the transit rights for the Nepalese commercial goods were made a part of the bilateral treaties signed between Nepal and India in 1950 and onwards by encapsulating the trade and transit in the same treaty till these were separated in 1978 after protracted and arduous negotiations between the two governments. The basic tenets of the transit treaty that is in effect today is rooted in the treaty signed in 1978 and validated in 1991 with some modifications bought about to adjust to the changing scenarioof international trade.

The development of transit regimes since 1990s can be classified in four broad categories. First, the impact of growing containerization of international trade gave rise to the development of transport and logistics services to cater this new dimension of cargo transportation. Thus, physical infrastructures in the port and border customs were upgraded along with the transport infrastructures in order to promote the inter-modal competition and achieve efficiency. Second is the application of advanced information and communication technology that has brought out rapid changes in the method of doing business. Third relates with the development of institutional capacity of the customs, ports and border management authorities to regulate the cross border flow of goods, vehicle and peoples and the fourth is the effective coordination mechanism in order to bring the services providers and the private sectors in the same platform to enhance the effectiveness of trade logistics and services. There are some noticeable changes in the transit regimes of Nepal during the past decades which, among others, include the development of dry ports (ICDs) and integrated customs check posts at the land border stations, improvement of port facilities, diversification of transit corridors with the opening of additional land routes to link Bangladesh by road, development of a rail linked dry port and simplified procedures for operation of railway between gateway port and such ports. Besides, the cooperation and consultative mechanisms between Nepal and India at the level of Commerce Secretaries and Director Generals of Customs provide platform to deal with the issues of trade and transit. However, the existing transit regime of Nepal is not up to the mark and hence need shifting to next level in order to maintain coherence with the outcome of multilateral trade negotiations.

Transit remained a part of trade in goods agreement of the World Trade Organization and also part of trade facilitation initiatives within the framework of Doha Development Agenda. WTO member countries initiated the negotiations on trade facilitation since 2004 that culminated into a legally binding agreement at the ninth ministerial conference at Bali island of Indonesia. The Bali accord on trade facilitation has laid down several measures towards reducing the cost of cross border transaction, simplifying transit and paving way for efficient delivery of traded goods. These, among others, include measures enhancing transparency of trade administration, promoting predictability in release and clearances of goods, enhancing customs cooperation and harmonization, simplification of formalities and introduction of single window, and facilitating temporary admission of goods. Transit facilitation remains a part of the agreement that includes measures including simplification of the transit documentation and procedures, application of the information and communication technology for speedy clearances of transit cargo, use of separate lanes where it is practicable, for traffic in transit, use of comprehensive monetary or non-monetary guarantee for multiple transaction and accepting advance filing of the transit document. The agreement also reiterates freedom of transit without payment of any charges or duty in respect of such movement. Special and Differential Treatment (SDT)is the exclusive provision in favor of the developing and least developed member countries as the least developed countries are given flexibility to implement the provisions of the agreement with an extra lead time and their readiness supported by built-in capacity. Thus, the trade facilitation agreement concluded in Bali is more development friendly in upholding the spirit of Doha development agenda.

The conclusion of the trade facilitation agreement at the multilateral level will have immense implications on the bilateral transit negotiations. Transit agreements between Nepal and India have evolved over the past two decades and still in a path of gradual reform but it needs reinvention in order to meet demand of trade. The trade facilitation agreement has encapsulated several provisions that help reduce costs associated with transit movement to the comfort of landlocked countries. Both Nepal and India as the member countries of WTO are committed to uphold the spirit of this agreement.

The trade facilitation agreement concluded in Bali has once again signaled that multilateral trading system can still deliver in favor of the poor countries.  Now, time has come to take up the challenges   of engaging into constructive dialogue with the government of neighboring countries to transform the multilateral understandings into the bilateral discussions so that Nepal could benefit from the new development in the area of trade facilitation. Some crucial issues could be initiated even during the renewal of transit agreement in early 2013 but this was missed due to one or the other reason. Government of Nepal should start, sooner than later,  a fresh dialogue on transit with a view to addressing long pending issues of simplification and harmonization of trade, transport and customs procedures and reducing the cost of transportation between the gateway port in India and Nepal.