Nepal, a landlocked country, is dependent on India for its third-country trade.
The country’s geopolitical location and its rugged and difficult terrain are taking a toll on the economy, in terms of increased cost of transaction, making our goods non-competitive in international markets.
The manner goods pass through the transit country thus becomes central in Nepal’s international trade regime.
The transit provisions were first mentioned in the Nepal-India friendship treaty in 1923 during Rana Prime Minister Chandra Shumsher’s time, whereby the British rulers allowed limited transit right to Nepal for goods owned by the Nepal government, either as a recipient or shipper.
The goods belonging to private owners could not be transited through Indian territories. This treaty was finalized 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 transit facilities to Nepal under the pressure of such international instruments, or if it was just a coincidence. Thereafter, transit rights for Nepali commercial goods were made a part of bilateral treaties between Nepal and India in 1950 and onwards by encapsulating trade and transit in the same treaty.
The two components were separated in 1978 after protracted and arduous negotiations between the two governments. The basic tenets of the transit treaty in effect today is based on the treaty signed in 1978 (and validated in 1991) with some modifications to adjust to the changing international trade climate.
The development of transit regimes since 1990s can be classified under four broad categories. First, the impact of growing containerization of international trade gave rise to the development of transport and logistics services to cater to 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 inter-modal competition and enhance efficiency. Second, the application of advanced information and communication technology has brought about rapid changes in methods of doing business.
Third relates to 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, to effective coordination to bring services providers and private sector on the same platform to enhance trade logistics and services.
There have been some notable changes in the transit regimes of Nepal in the past few 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 a platform to deal with the issues of trade and transit. However, the existing transit regime in Nepal is not up to the mark and hence needs to be shifted to next level in keeping with multilateral trade negotiations.
Transit remained a part of trade in goods agreement of the World Trade Organization and also of trade facilitation initiatives within the framework of Doha Development Agenda. WTO member countries initiated negotiations on trade facilitation in 2004 that culminated in a legally binding agreement at the ninth ministerial conference in the Bali island of Indonesia in December, 2013.
The Bali accord on trade facilitation has laid down several measures of reducing costs of cross-border transaction, simplifying transit and paving the 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 information and communication technology for speedy clearance of transit cargo, use of separate lanes where practicable for traffic in transit, use of comprehensive monetary or non-monetary guarantee for multiple transactions and accepting advance filing of the transit document.
The agreement also reiterates freedom of transit without payment of any charges or duty on such movements. 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 extra lead time. Thus, the trade facilitation agreement in Bali is more development friendly in upholding the spirit of Doha development agenda.
The conclusion of the trade facilitation agreement at multilateral level will have big implications on bilateral transit negotiations. Transit agreements between Nepal and India have evolved over the past two decades and are still on a path of gradual reform to meet demands of trade.
The trade facilitation agreement has encapsulated several provisions that help reduce costs associated with transit for landlocked countries. Both Nepal and India as 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 work in favor of poor countries. Now, the time has come to engage in constructive dialogue with neighboring countries to transform multilateral understandings into bilateral discussions so that Nepal can benefit from new developments in the area of trade facilitation.
Some crucial issues could have been initiated even during the renewal of the transit agreement in early 2013, but this opportunity was missed. The government should start, sooner than later, 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.
The author is former Commerce Secretary