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Deputy Prime Minister and Minister for Foreign Affairs Narayan Kaji Shrestha is paying an official visit to China from March 24 to April 1 at the invitation of his Chinese counterpart Wang Yi.

This visit marks the first significant diplomatic engagement by a senior minister since the formation of a new coalition government on March 4. Shrestha’s transition from the home ministry to the foreign affairs portfolio underscores the shifting dynamics within the government. In addition to bilateral discussions with his Chinese counterpart, Shrestha, a prominent Maoist leader, is scheduled to hold meetings with top officials and leaders of the Chinese Communist Party.

Given lingering suspicions and allegations surrounding China’s role in orchestrating the recent political realignment in Nepal, Shrestha’s visit carries considerable significance domestically and internationally. Despite assertions from ruling alliance leaders that the coalition shift was driven solely by internal factors, doubts persist regarding China's influence.

Notably, Shrestha’s departure for China lacked comprehensive briefings from all ministry departments, raising questions about preparedness amidst heightened Chinese pressure to advance the Belt and Road Initiative (BRI) agenda. 

During Prime Minister Dahal’s China visit last year, preparations were made to sign the BRI implementation agreement. But it was put off after Nepal sought some more time, citing the need for further homework. China has been pushing Nepal for BRI implementation, especially after Nepal ratified the US government’s Millennium Challenge Corporation (MCC) grant agreement.

While Shrestha has publicly advocated for prompt BRI implementation, the Dahal-led government has yet to reach a consensus on the matter, indicating a reluctance to hastily commit to China's initiatives. Even though Shrestha has said that implementation of past agreements remains the top agenda of his China visit,  highly placed government sources say the possibility of Nepal signing the BRI implementation agreement is very low. 

Nepal reportedly had proposed nine infrastructure projects under the BRI, but there has been no progress. 

Although Nepal signed the BRI framework agreement with China in 2017, no infrastructure project has moved forward so far. Of late, China has been trying to bring all areas of cooperation with Nepal under the BRI framework. Controversy has also arisen over China’s unilateral designation of Pokhara International Airport as a BRI project, exacerbating anxieties regarding debt sustainability. With the multi-million-dollar airport still unable to see international flights, there are concerns over how Nepal will repay the Chinese loan. 

Prime Minister Dahal has been urging the Chinese side to convert a significant portion, if not all, of the loan into a grant. He told a gathering in Pokhara a few days ago that efforts were underway to convince China on this matter. Dahal’s appeal for converting Chinese loans into grants reflects Nepal's growing apprehension towards accumulating debt, particularly in light of unfulfilled BRI promises and economic viability concerns.

The prime minister believes that if China converts the loan into a grant and makes it a gift project under the BRI, it would facilitate the BRI implementation agreement. China does not provide grants under the BRI, but the Chinese government could make such a decision if it desires. However, the Chinese side has not given a concrete response. 

Earlier last week, the Chinese Embassy in Kathmandu clarified that the Pokhara airport loan is not a noose around Nepal’s neck. It stated that Nepal’s external debt is higher from international institutions and other countries. China has expressed its willingness to bring international flights to Pokhara but has urged Nepal to provide new air routes for this purpose.

Previously, when the Nepali Congress was part of the ruling alliance, Prime Minister Dahal and other communist parties felt that relations with China were given low priority. China’s proactive engagement following the coalition reshuffle suggests a concerted effort to solidify ties with Nepal’s communist-led government. The absence of contentious issues such as the Nepal-China border dispute in the new alliance’s policy agenda signals an apparent alignment with Chinese interests, prompting optimism in Beijing regarding future cooperation.

Chinese activities seem to have increased in Nepal significantly following the formation of the new alliance. In the past, China has been slow to react to changes in government in Nepal. But this time, it issued a response soon after the new alliance was formed.

During her regular press briefing on March 4, Chinese Foreign Ministry spokesperson Mao Ning said: “We would like to work with the new government to uphold the Five Principles of Peaceful Coexistence, deepen traditional friendship, strengthen practical cooperation, advance the China-Nepal strategic partnership of cooperation featuring everlasting friendship for development and prosperity, and deliver more benefits to the peoples of the two countries.”

Two days later, Chinese Ambassador to Nepal Chen Song met with Foreign Minister Shrestha to extend congratulations and engage in in-depth and friendly discussions on bilateral relations and cooperation.

Vice-minister of the Chinese Communist Party Sun Haiyan also held talks with Nepali Ambassador to China Bishnu Pukar Shrestha right after the new alliance was formed.

During the meeting, she sought information about the recent political developments in Nepal. Vice-minister Haiyan had visited Nepal last month leading a delegation of the International Liaison Department of the Communist Party of China. During her interactions with Nepali political parties, she had remarked that efforts were being made to undermine Nepal-China relations.

Similarly, Lin Jian, a Chinese foreign affairs spokesperson, on March 22, reacted to Shrestha’s visit. In a regular press briefing in Beijing, he said: “The upcoming visit will be [Shrestha’s] first overseas visit after taking office as Nepal’s deputy prime minister and minister for foreign affairs.”

“China stands ready to work with Nepal to take this visit as an opportunity to further deliver on the important common understandings between leaders of the two countries, deepen political mutual trust, pursue high-quality Belt and Road cooperation, expand exchanges and cooperation in various areas and strive for new progress in building China-Nepal strategic partnership of cooperation featuring ever-lasting friendship for development and prosperity,” Lin said.

He added that China and Nepal were “traditional friends and neighbors linked by mountains and rivers. In recent years, our two countries maintained close high-level exchanges with deepening practical cooperation in various fields”. “Our two sides maintained close coordination and collaboration in regional and international affairs.”

Last September, Prime Minister Dahal paid an official visit to China and leaders of the two countries reached important common understandings on growing the China-Nepal relations.”  China expects its security concerns to be somewhat addressed under the communist government in Nepal, which is why Beijing appears more enthusiastic about the new alliance. Additionally, the Dahal-led government has fully banned activities concerning the free Tibet movement in Nepal. 

However, challenges persist in reconciling Nepal’s commitment to an independent foreign policy with the demands of regional stakeholders, particularly amid growing pressure to navigate competing geopolitical interests. Prime Minister Dahal’s emphasis on adopting a balanced diplomatic approach underscores the delicate balancing act facing Nepal’s leadership as it seeks to assert its autonomy while fostering fruitful relationships with key allies.

The five-party ruling coalition has formed a 10-member task force to prepare a Common Minimum Program (CMP) of the government. Along with domestic issues, the task force will also outline the foreign policy priorities of the new government.

The latest coalition has four communist parties—CPN-UML, CPN (Maoist Center), CPN (Unified Socialist), and Janata Samajbadi Party—and one centrist party, Rastriya Swatantra Party. Before the Unified Socialist entered the coalition, the four parties had signed an eight-point deal where they had made a brief mention about the government’s foreign policy. They pledged to ensure “a balanced and extended international relations, keeping national interests and priority at the forefront.”

The UML, Maoist, Unified Socialist, and Janata Samajbadi have almost similar views on foreign policy, while the RSP, a new party that emerged through the 2022 general elections, has no clear foreign policy outlook as of yet. 

Whenever the government in Nepal is overwhelmed by communist parties, the international community, particularly India and western democracies, keenly watch the priorities and approach of Kathmandu. As a result, the communist government always has to go the extra mile to win the trust of democratic world. China, on the other hand, feels comfortable when there is a strong communist government in Nepal. 

So building trust with major powers will be crucial for the government of Pushpa Kamal Dahal. 

Except for China, no countries have officially reacted to the formation of the new coalition. On March 5, Chinese Foreign Ministry Spokesperson Mao Ning said: “China has been informed about the formation of a new power equation and the reorganization of the cabinet in Nepal. We hope that the relevant parties of the alliance will unite and advance the work of forming a new government and bring about political stability, economic growth and improvement in the people’s livelihoods.”

After the Cabinet reshuffle in Kathmandu, major countries—the US, China, India, and the UK— have met Foreign Minister Narayan Kaji Shrestha and Finance Minister Barsha Man Pun. Unlike in the previous Cabinet, the two key ministries are now led by the Maoist party. Earlier, both ministries were headed by the Nepali Congress, and Prime Minister Dahal was unhappy with the working ways of the Congress ministers. 

The prime minister expects to bring some sort of uniformity in both foreign policy and economic fronts by appointing Maoist ministers. But it may take some time to identify the foreign policy and economic priorities of the new coalition. 

After taking a vote of confidence on March 13, Prime Minister Dahal plans to brief the international community about his foreign policy priorities. The prime minister’s secretariat has already been reaching out to major embassies in Kathmandu to assure that the new alliance will  maintain cordial ties with all countries. 

For Dahal, taking the international community into confidence is crucial ahead of the investment summit. 

In its CMP in 2022, the coalition of these same parties had outlined the foreign policy priorities. Its major points included protecting the country’s national independence and national interests, ensuring the rights of land-locked countries, and a relationship based on equality between big and small countries. It also talked about enhancing the policy of non-interference in internal affairs of other countries, adopting the UN Charter, Panchsheel, non-alignment, world peace and operating international relations based on the international laws. On the neighbors front, the 2022 CMP pledged to maintain “a friendly relationship with neighbors and all friendly nations for peace, stability, economic reformation and the people’s prosperity” based on mutual benefits and welfare.

The new CMP is unlikely to come up with any concrete or new points to provide guidelines for the new coalition. In the past, Prime Minister Dahal had tried to skip the contentious issues with major powers to focus on development and economic partnership. This led the main opposition at the time, CPN-UML, to blame the Dahal government for giving less priority to the relationship with China.  

Now the UML has become a key coalition partner in the Dahal-led government, and it will be interesting to see how the Maoists and UML will reconcile their differences. 

NP Saud, the former foreign minister from the Nepali Congress, says Nepal’s foreign policy is based on non-alignment and UN charter but in practice the country needs to make cordial ties with immediate neighbors India and China and other major countries.  

“Under my leadership, we have been successful in creating an environment of trust with both neighbors and other big powers. We signed energy trade cooperation with India which is instrumental to bring foreign investment in Nepal’s hydropower and other areas.” 

He adds that the previous coalition government also convinced the US and other western powers to make investment in Nepal, while the relationship with China was also moving in a positive direction. 

“There is an opportunity for this coalition government to bring in huge investments from the US and the UK. It will be a wise idea for the new coalition to follow the path that we have created in the last one year,” suggests Saud.

Dr. Nihar R. Nayak, research fellow with India’s think tank MP-IDSA, says given Nepal’s geostrategic location, Nepal does not have leverage to bring about strong changes in the conduct of foreign policy irrespective of which party comes into the power. 

“The policy of neutrality, Panchansheel,  non-alignment and not to join any military alliances are the key issues that the new coalition is likely to reiterate while conducting the foreign policy. The new coalition I think will try to keep a cordial relationship with neighbors and other powers such as the US, the UK, Japan, South Korea and other key development partners.” 

In China, Nihar predicts that there could be some progress on the BRI projects as both China and the left government want to move ahead with it. 

“China is likely to adopt some sort of flexibility in the negotiations with BRI such as concessional loans and other issues. 

In India, Nihar says, “there will not be any major changes and the current government is unlikely to raise any sensitive issues.”

When Prime Minister Pushpa Kamal Dahal ditched the Nepali Congress to form a new coalition with the CPN-UML, he noted that he felt it necessary to deliver what he had promised the country. To ensure good governance and improve the political and economic situation of the country, he said he was compelled to make the move. For the prime minister, the Congress party was hindering his efforts to bring changes that could be felt by the people.      

Leaders close to Dahal say the prime minister brought the UML onboard to reinvigorate his government—although the UML on its part was also working behind the scene to break the Maoist-NC alliance. The UML felt that the Maoist-NC alliance was formed with the express purpose of keeping the UML out of power. So the party was quietly exploring ways to undo the Maoist-NC partnership, which had a strong backing from internal and external powers.  

On the face of it, the UML was focused on its ‘Mission 84’ campaign to strengthen the party’s structure and support base targeting the general elections of 2084 BS (2027). But when Prime Minister Dahal sought UML’s support to form a new coalition, UML Chairman KP Sharma Oli agreed without hesitation. This time Oli did not bargain much when it came to power-sharing. While there may have been a gentlemen’s agreement between Oli and Dahal on leading the government on equal terms for the remaining four years, there was no written deal. 

It appears that Oli was more lenient this time, that he was willing to make some sacrifices. The UML did not bargain for powerful ministries and even agreed to support the Maoist candidate for the NA chairpersonship, a major bone of contention between the Maoist and the NC. 

One UML leader says since the party did not demand attractive ministries, such as the foreign affairs, home, and finance, it helped Prime Minister Dahal to expand his Cabinet without much hassle. Oli suggested Prime Minister Dahal and other coalition partner leaders to choose their preferred ministries. 

The UML also did not send any of its senior leaders to join the Dahal-led Cabinet. For instance, senior leader Bishnu Poudel, who had earlier served as a finance minister, refused to join the government.

The uncharacteristic approach taken by Oli while joining the Maoist-led government has raised a debate whether the UML is committed to the coalition. Is it a half-hearted commitment, or is it the UML’s ploy to keep the Dahal government weak? None, says Bishnu Rijal, a UML central committee member. For Chairman Oli and the UML, he says, breaking the Maoist-NC partnership was crucial to bring political stability. Gaining important ministries was never a priority for Chairman Oli and the party, adds Rijal.   

The UML seems comfortable just supporting the Maoist-led coalition government, and allowing Prime Minister Dahal to effectively implement his plans. Dahal has mentioned that with the Nepali Congress, he felt limited and was unable to produce the desired results. The prime minister was mainly dissatisfied with former finance minister from the NC, Prakash Sharan Mahat, for not involving him in key decisions.  

Rijal says Oli believes that Prime Minister Dahal should be allowed to work without any pressure from his coalition partners. 

It is apparent that if Oli becomes prime minister, he expects the same from his coalition partners: a free hand to run the government affairs. When Oli led a powerful communist government in 2018, senior leaders including Dahal and Madhav Kumar Nepal had criticized him for not consulting with them on the issues related to the government. The infighting eventually led Oli to dissolve the parliament and to the break-up of the erstwhile Nepal Communist Party. 

Oli has provided Prime Minister Dahal free rein to work on his vision of good governance and improved economy. The onus now lies on Dahal to effectively lead the latest coalition. Like in the case of the Nepali Congress, he cannot use the excuse of ‘non-cooperation from coalition partners’ in case this alliance were to break up again.   

The only challenge Prime Minister Dahal may face could be from his other coalition partner, Rastriya Swatantra Party, which leads the Ministry of Home Affairs. A senior UML leader says his party will fully support Dahal’s leadership so long as he works honestly without harboring any ulterior motives to safeguard his position. 

The Dahal government should now expedite the process of finalizing the common minimum program and put serious effort into its execution. If he leads successfully, UML leaders say, the party will also consider building a long-term alliance of communist parties. For now, everything rests on Prime Minister Dahal’s action.  

Nepali Congress President Sher Bahadur Deuba was fully confident that Prime Minister Pushpa Kamal Dahal would hand over the power to him in 2025. So he was treading cautiously to keep the current coalition intact, extra careful not to upset Dahal. 

In Deuba’s own words, he refused to meet the opposition leader, KP Sharma Oli of the CPN-UML, despite the latter’s repeated requests. He even turned down Oli’s premiership offer, because he didn’t want to betray Dahal’s CPN (Maoist Center). But little did Deuba know that Oli’s UML had also been making overtures to Prime Minister Dahal to break the Maoist-NC coalition and form a left alliance. 

While it is true that the relationship between Dahal and Deuba was fraught with disagreements and misunderstandings, Deuba never thought they were serious enough to break the alliance.
According to NC leaders, the current situation resonates with the incident of 2017 when the Maoist party while being in the NC-led government forged an electoral alliance with the UML. Consequently, the NC faced a historic drubbing in the general elections, while the Maoists and UML went on to unify to become the largest communist party that the country had ever seen. The unified communist party, however, split to their old forms following a power tussle between Dahal and Oli.  

Now the two communist parties are together again and the Nepali Congress, which emerged as the largest political party through the 2022 parliamentary elections, has been relegated to the opposition’s role. Deuba’s party has also been stripped of power in the provinces. The NC has been in this same situation before. Soon after the 2022 general elections, the NC had taken a firm stance of forming a government under its leadership. This led the Maoists to switch sides and make an alliance with the UML to form a government. But once again, there was a power tussle between Dahal and Oli, and the Maoist-UML coalition fell through. 

The NC returned to power after agreeing to Dahal’s condition that he should be allowed to lead the government for two years. As per the agreement, Deuba would lead the coalition government for the final two years of the five-year term, and Madhav Kumar Nepal of the CPN (Unified Socialist) would helm the government for one year after the end of Dahal’s term.  

With everything that had occurred between the Maoists and UML, with all the bad blood between Dahal and Oli, there was no reason for Deuba to suspect that something was amiss. How wrong was he! 

In Monday’s office-bearers meeting, Deuba called Dahal a betrayer for secretly aligning with the UML without any solid reason. While Deuba and his supporters have taken it as a major loss to the NC, leaders like Shekhar Koirala and Gagan Thapa are of the view that it will be beneficial to the party in the long-run. 

Koirala said break-up and formation of alliances is a normal affair in politics, even though Prime Minister Dahal abandoned the NC in an abrupt and abnormal manner. 

He added that the NC should be careful about forging such an alliance in the future.

For a long time, Koirala was against the NC-Maoist alliance. The party’s general secretary duo Thapa and Bishwa Prakash Sharma also held contradictory views regarding the alliance with the Maoist party. Even though the Nepali Congress leader Ram Chandra Poudel was elected the President with the support of the Maoists, Thapa, Sharma, Koirala and other NC leaders were concerned that the alliance with the Maoist party was compromising the party’s ideology and eroding the support base. 

In the recently concluded Mahasamiti meeting of the NC, Thapa and his team took a firm position that the party should make an official stance that it will not forge any electoral alliance in the next general elections. So the party endorsed the proposal to not form a pre-poll alliance while also committing to give continuity to the NC-Maoist coalition until the next elections. 

It was a reason enough for Prime Minister Dahal to sever ties with the NC. Dahal was also unhappy with the performance of the NC ministers. Some leaders say the prime minister was also being pressured by the NC not to investigate high-profile corruption scandals involving politicians and businesspersons.

The NC was allegedly putting pressure on Prime Minister Dahal to remove Home Minister Narayan Kaji Shrestha, claiming that Shrestha was targeting NC leaders by opening investigations into past corruption cases. 
The NC is currently discussing their future course of action. So far it is not clear whether the party will remain in opposition and prepare for the 2027 general elections, or start making efforts to dismantle the Maoist-UML coalition all over again. 

Youth leaders of the party are of the view that the party should remain in the opposition and focus on party building, but the decision rests upon Deuba, who holds a major sway in the party. Koirala said the NC should learn a lesson from this episode, but it is really Deuba who should.  

In a dramatic turn of events, Prime Minister Pushpa Kamal Dahal has ditched his key coalition partner, Nepali Congress, to form a new alliance with the main opposition, CPN-UML. According to Maoist leaders, though the breakdown in the alliance seems sudden, there was a series of misunderstandings with the NC that led to the decision.

One of the primary reasons, they say, is the recently held Mahasamiti meeting of the NC where the party’s general secretary, Gagan Kumar Thapa, and scores of other leaders passed a proposal stating that the NC will not forge any pre-poll alliance. It was a clear reference to the potential partnership with the Maoist party, whose political ideology is diametrically opposite with that of the NC. Similarly, a political document presented by NC Vice-president Purna Bahadur Khadka at the Mahasamiti meeting had portrayed the Maoist insurgency in a negative light which miffed PM Dahal. 

One senior Maoist leader said considering the constant friction encountered with the Nepali Congress, Prime Minister Dahal reached the conclusion that the alliance cannot sustain for long and started working to revive the alliance with the UML. Besides the UML, Rastriya Swatantra Party and Janata Samajbadi Party have also agreed to enter the new alliance.     

The senior Maoist leader said that Prime Minister Dahal was in favor of continuing the Maoist-NC coalition as long as the NC was willing to forge an electoral alliance in the next general elections. While NC President Sher Bahadur Deuba seemed somewhat lenient regarding the Maoist’s condition, the NC second-rung leaders were averse to joining forces with the Maoist party ahead of the next elections.

Inside the Maoists too, many leaders were raising their voice for reviving the left alliance. 

NC leader and Foreign Minister Narayan Prakash Saud said while there were some disagreements with the Maoists, including the decision taken by the Mahasamiti meeting and the issue of Cabinet reshuffle, the NC had not anticipated that Prime Minister Dahal would go on to dissolve the coalition.

Another bone of contention between the Maoist party and NC was picking the National Assembly (NA) chairperson candidate. When the elections for 19 NA seats were held in January, the two parties had agreed to field NC’s Krishna Prasad Sitaula as one of their common candidates from Koshi province. The plan was to make Sitaula an NA member and then field him again as the NA chairperson candidate to replace the incumbent Ganesh Prasad Timilsina of the UML, whose term ends this month.    

Sitaula was elected to the NA with the Maoists backing, but the candidates from the Maoist party did not win the election. Dahal’s party later concluded that the NC did not vote for the Maoist candidates. Shortly after the NA election results, Maoist leaders including Barsha Man Pun publicly announced that the party would review its alliance with the NC. The Mahasamiti meeting of the NC further reinforced the Maoist suspicion that the alliance was unfruitful.

In the government, meanwhile, there was a continuous tussle between Prime Minister Dahal and the ministers from the Congress party, particularly Finance Minister Prakash Sharan Mahat. For a long time, Dahal had been complaining that Mahat was bypassing him while taking key decisions. The prime minister was unhappy with Mahat as he failed to make any progress to recover the faltering economy of the country. Prime Minister Dahal wanted to replace Mahat, but Deuba was against it. Dahal was also not pleased with the way the NC was pressing him not to investigate the corruption cases where senior Congress leaders and businessmen were reportedly involved. 

While taking the decision to change the current coalition, Prime Minister Dahal has his own personal reasons. As the government was becoming unpopular for its failure to improve service delivery, tame corruption and bring the failing economy back on track, Dahal wanted to divert people’s attention by shifting the blame on an incompatible alliance. Also, with a new coalition in place, he buys himself some time and the reason to renew his vows of delivering good governance and progress.  

Since the first day in power, Prime Minister Dahal’s top priority was settling the transitional justice process. To this end, he has been continually seeking international support including the United Nations. Most importantly, he needed the support of the main opposition, UML, which was not forthcoming. It was obvious that the UML would support Dahal’s plan to conclude the transitional justice process only if he was willing to sever ties with the Congress.  With the UML’s support, Dahal wants to conclude the transitional justice process according to his own terms, although it is still not an easy task.

As the main opposition, the UML too was continuously working to break the Maoist-NC alliance. Although the UML leaders publicly said that the party was set on the mission of emerging as the majority party through the next general elections, the party had also set its sight on breaking the ruling alliance and coming back to power. Due to the NC-Maoist alliance, the UML was powerless both at the center and provinces.  Initially, the UML had even tried to forge an alliance with the NC and keep the Maoists and CPN (Unified Socialist) out of the equation, but the NC was not ready to entertain the idea. 

It is uncertain how long the latest coalition will last. But Dahal’s tenure is likely to be prolonged. According to leaders, Dahal and Oli will lead the government for an equal period. The two leaders have agreed to take this coalition until the next elections. But given Dahal’s track record, his propensity and history of flip-flopping between the UML and NC, one could argue that there could be more topsy-turvy political events before we reach the election season in 2027.

The 13th World Trade Organization Ministerial Conference (MC13) has concluded, issuing the Abu Dhabi declaration, which sets out a forward-looking reform agenda for the organization. The conference also took a number of decisions, including renewing the commitment to have a fully and well-functioning dispute settlement system by 2024.

The ministerial meeting decided to improve the use of the special and differential treatment provisions for developing and least developed countries (LDCs). As scores of LDCs are graduating, they are demanding a smooth and sustainable transition. 

“Recalling that, at our 12th session, we recognized the role that certain measures in the WTO can play to facilitate smooth and sustainable transition for members after their graduation from the LDC category, we welcome the decision adopted by the General Council in 2023,” the declaration states.

The general council decided to encourage those members that graduate or remove countries from unilateral tariff or duty-free and quote-free preferences programs reserved for LDCs based on their being graduated from the UN list of LDCS. It also decided to provide a smooth and sustainable transition period for withdrawal of such preferences after the entry into force of a decision of the UN to graduate a country from the LDC category.

The member-states adopted the Abu Dhabi Ministerial Declaration, where they expressed commitment to preserving and strengthening the ability of the multilateral trading system, with the WTO at its core, to respond to current trade challenges. The  declaration underlines the centrality of the development dimension in the work of the WTO, recognizing the role that the multilateral trading system can play in contributing toward the achievement of the UN 2030 Agenda and its Sustainable Development Goals. It also recognized the contribution of women’s economic empowerment and women’s participation in trade to economic growth and sustainable development.

The member-states recognized the role and importance of services to the global economy, as it generates more than two-thirds of global economic output and accounts for over half of all jobs. They encouraged the relevant WTO bodies to continue their work to review and build on all the lessons learned during the Covid-19 pandemic and to build effective solutions in case of future pandemics in an expeditious manner. 

Nepal is graduating from LDC in 2026. But there are fears that the country’s economy will suffer if it loses the preferential treatment from the international community post-graduation. While major countries have pledged to support the countries who face graduation problems, Nepal still needs to come up with a strategic roadmap. 

Speaking with ApEx, Li Chenggang, permanent representative to WTO, said: “With an increasing number of LDCs’ meeting the criteria of graduation and 19 out of 35 WTO LDC member of on their path toward graduation, it is imperative than ever to explore pathways as the WTO to facilitate the smooth transition.”

He further said China supports the smooth transition of graduated LDCs supporting measures such as extending preferential trade arrangements for market access. “This means, after LDCs graduation, China still provides zero tariff treatment for 98 percent tariff lines of products originating from LDCs for another three years,” he added.

For quite some time now, Prime Minister Pushpa Kamal Dahal has been vocal about his intentions to revamp his Cabinet, aiming to oust underperforming ministers and those embroiled in controversies. Specifically, Dahal seeks to remove Health Minister Mohan Basnet, who has been mired in various controversies, and Minister of Physical Infrastructure and Transport Prakash Jwala, whose negligence resulted in the deaths of two youths in Balkumari. However, coalition leaders Sher Bahadur Deuba of the Nepali Congress and Madhav Kumar Nepal of the CPN (Unified Socialist)have exerted pressure on Dahal to refrain from making such decisions. The main opposition, CPN-UML, is also urging Dahal to dismiss ministers entangled in controversies.

The prime minister is apparently dissatisfied with the performances of Finance Minister Prakash Sharan Mahat and Foreign Minister NP Saud, both from the Deuba camp of the Nepali Congress. But Deuba is reluctant to recall them due to the intra-party dynamics. The Dahal-led government is facing widespread criticism for its failure to improve the country’s economy, create jobs, curb youth migration abroad, and enhance service delivery. Acknowledging these shortcomings, Dahal repeatedly asserts that he will bring about changes through Cabinet reshuffling, but faces resistance from his coalition partners.

Another point of contention between the primary coalition partners, Congress and Dahal’s CPN (Maoist Center), is their respective positions on the candidate for the chairman of the National Assembly (NA). With the current chairman, who is from the main opposition UML, retiring this month, both parties are vying for the position. The NC has already communicated to the Maoist party that its senior leader Krishna Prasad Sitaula, who won the NA election last month, should be elected as the new chair, a position that Prime Minister Dahal had initially supported. But of late, Dahal’s party has taken a hard stance on the issue due to a couple of reasons. Firstly, the NC voters did not vote for the Maoist candidates in the Koshi provinces during the NA election, and secondly, the recently concluded NC’s Mahasamiti meeting portrayed Maoist insurgency in a negative light.

Prime Minister Dahal is under pressure from his own party not to relinquish the claim for the NA chair. Although the Maoist party has decided to field its own candidate, leaders say Dahal will most likely support Sitaula for the NA chair. 

Maoist leaders fear that the party will be left without any representatives in the Constitutional Council if the NA leadership is handed over to the NC.

After the NA election last month, the Maoists, which is the third-largest party in the House of Representatives, emerged as the largest party in the National Assembly. In the recently concluded party’s Standing Committee, there were strong voices advocating for the party to claim the chairmanship of the NA, which led to the formal decision on the same issue. 

The Maoist decision may also have been partly influenced by the NC’s Mahasamiti meeting, where the majority of representatives opposed the electoral alliance with the Maoist party, though the outcomes of the meeting did not create any obstacles for the party to forge an electoral alliance in the next local and national elections.

A senior Maoist leader says, “We should not expect that one alliance lasts forever; there could be changes.”

Though the current coalition may not be in any significant danger, the gap between the two coalition partners is widening by the day. It appears that both Deuba and Dahal are committed to the continuation of the current coalition, but there is growing unease within both NC and Maoist parties. Both Dahal and Deuba are extra cautious that the current differences between the two parties should not create problems in the coalition.

They sit together even if some minor issues arise to maintain an environment of trust. For instance, when Nepali Congress General Secretary Gagan Thapa took a firm stance in the party’s Mahasamiti meeting to endorse the proposal that the party would not forge a pre-poll alliance, Deuba and his close aide Purna Bahadur Khadka personally assured Dahal that the coalition will remain intact. Inside the NC, senior leader Shekhar Koirala continuously asserts that he is working to change the coalition, while Thapa has taken a middle ground that the party should remain committed to the current coalition but should not forge an electoral alliance in the next general elections. 

Meanwhile, Deuba and leaders close to him argue that the party should take a pragmatic approach because if the party leaves the government, the UML will come to the rescue of the Dahal-led government, ultimately paving the way for the left alliance. And, in case the left alliance is formed again, the party could face an electoral defeat like it did in the 2017 elections.

However, the NC rank and file are not happy with the alliance, as reflected in the party’s Mahasamiti meeting where they stated that the alliance with the Maoists has eroded the party’s ideology and support base. Inside the NC, there are growing voices that the party is suffering due to the non-performance of the NC as a key coalition. 

A NC senior leader says, “On the one hand, our cadres at the local level have not felt the party’s presence in the government, on the other hand, the Dahal-led government is becoming unpopular, but people are pointing fingers at us because Dahal remains in power.”

Similarly, inside the Maoist party, there are growing demands that the alliance with NC should be reviewed as vote transfer has emerged as a big problem. Though Dahal seems committed to continuing with the current coalition, senior leaders inside the party believe that it would be natural to form a left alliance. For now, it seems that both Deuba and Dahal, who have a strong command in the party, would manage the differences, but it is uncertain whether they will be able to do so for a long time.

At the ongoing 13th World Trade Organization (WTO) Ministe- rial Conference, representa tives from the Least Developed Countries(LDC) are demanding an increased role of the global trade body for their smooth and sustainable transition.

Since the 12th conference that took place in Geneva in 2022, there has been some notable progress when it comes to addressing the demands of least developed countries. LDC rep- resentatives expect that the current meeting will deliver something more substantial.

The draft of the Abu Dhabi ministerial declaration that is currently under discussion states: “Recalling that, at our Twelfth session, we recognized the role that certain measures in the WTO can play to facilitate the smooth and sustainable transition for members after their graduation from LDC category.”

In this regard, the General Coun- cil meeting in 2023 took a vital deci- sion which has been welcomed by the draft text of 13 conferences. The decision of General Council states: “To encourage those Members that graduate or remove countries from unilateral tariff or duty-free and quota free (DFQF) preference programmes reserved for least developed countries (LDCs) based on their being graduated from the UN list of LDCs, to provide a smooth and sustainable transition period for withdrawal of such preferences after the entry into force of a decision of the UN General Assembly to graduate a country from the LDC category.”

The draft text of the 13th conference further states that the General Council recognizes the particular vulnerability and special needs of the LDC, and that their interests should be given due priority for them to secure meaningful integration into the multilateral trading system.

Nepal which meets the two out of three criteria is all set to graduate in 2026. Nepal meets the criteria for human assets index and economic vulnerability index, but it is yet to meet the gross national per capita. Officials say Nepal’s graduation preparations are not satisfactory and that its economy could face the risks after the graduation. 

Although Nepal has been continuously asking the international community to continue duty-free and quota-free preferences even after the graduation, there has not been any notable progress to strengthen the trade capacity of the country.

“Many countries which are graduating are coming up with specific proposals to improve in certain areas, and we are providing support to them. But Nepal has not come up with any proposal for us to support,” said an official requesting anonymity.  

In this scenario, Nepal can also request the United Nations to provide additional years to make the necessary preparations. For instance, the deadline could be postponed for 2029 instead of 2026, but Nepal is apparently sticking to the 2026 deadline.

Nepal’s economy suffered from the 2015 earthquake and the Covid-19 pandemic. According to the figure provided by the WTO secretariat, Nepal’s merchandise export averaged $835m during 2011-2019. With the onset of the Covid-19, they decreased from $968m in 2019 to $856 in 2020, below 2011.  Commercial services exports of Nepal almost doubled from $775m in 2011 to $1.5bn in 2019, but decreased to $830m in 2020, mainly due to a collapse of travel services induced by the pandemic.

The LDCs are accorded special treatment by the international community, mainly in areas such as trade and development cooperation, which is broadly known as “international support measures”. Trade is one of the key areas where LDCs enjoy exclusive preferences, both in the context of market access as well as in the implementation of WTO rules and disciplines. 

Graduation from the LDC category will eventually result in the loss of this special treatment, although the degree to which this will impact individual countries graduating from the LDC category differs. Nepal is asking developed countries to continue the preferential facilities even after the graduation, but this is not sufficient. Nepal has to make a comprehensive strategy for LDC graduation. 

Nepal’s trade deficit is widening. Nepal’s top markets are India, China, the EU, the US, the UK, Japan, and Canada. Nepal has bilateral agreements with India and the US regarding duty-free and quota free market access. 

A report prepared by South Asia Watch on Trade, Economics and Environment in 2022 states that about two thirds of Nepal’s exports are absorbed by India, and preferential market access there is built into a bilateral trade treaty and is not tied to LDC status. 

However, the report says, Nepal’s exports will face tariff increases in other major and potential destinations that offer LDC-specific tariff preferences.  

“While the EU, the UK, and Turkey provide a transition period of three years after graduation, Nepal will face new tariff regimes in other preference-granting countries post-graduation, according to the report,” according to the report. 

It further states: “For some products, the next-best tariff regime offers the same tariffs as the LDC-specific tariff regime, while for others the new tariffs will be distinctly higher. We find that exporters, in general, are not aware of the likely tariff changes.” 

The Nepali private sector is worried about the possible increase in tariffs and fear a severe impact given that Nepal's cost of production is already much higher than that of neighboring and other competing countries. For instance, the cost of production in the apparel sector is about 26 percent higher than that of neighboring countries, as per the Garment Association of Nepal. 

Experts suggest that either Nepal should seek the extension of the deadline or make a comprehensive strategy to mitigate the negative effects of the graduation. Under the Agreement on South Asian Free Trade Area (SAFTA), Nepal will face a significant increase in tariffs for its top two current exports—refined soyabean oil and palm oil. It exports these products to India through the SAFTA route, says the SAWTEE report. 

The report suggests that Nepal must use international/multilateral forums to pursue its post-graduation interests, including continuation of the use of LDC-specific provisions for a specific period, particularly regarding the provisions related to preferential market access, use of export subsidies and the flexible implementation of the Agreement on Trade-Related Aspects of Intellectual Property Rights.