After the 2015 Indian blockade, Nepal concluded a series of trade and transit deals with China. Yet there has been no progress on either front. Why?

It is true that we have been unable to increase our trade with China. The first reason is lack of connectiv­ity. Our transport networks have not been properly developed. Of the six open border points between Nepal and China—Humla, Mugu, Mustang, Keyrung, Tatopani, Olangchungola and Kimathanka—only two—Tatopa­ni and Rasuwagadhi—are connected by motor roads. And even they are in a bad state. The problem is not on the Chinese side, which already has the needed infrastructure.

The second reason is Nepal’s low production and productivity. Although over 8,000 Nepali prod­ucts have duty-free access to China, we have not been able to export much. In the last fiscal, total imports from China totaled Rs 205 billion while exports were worth a mea­gre Rs 2 billion. Even the little we do export—products like medicinal herbs, vegetables, woolen carpets, Thangka paintings, handicrafts—end up in Tibet. We have no export at all to mainland China. The third reason is non-tariff barriers—those related to quarantine, food standards and administrative hurdles. Language is also a barrier as communication between Nepali and Chinese traders is not easy.

How do you view the 20-point agreement signed during Presi­dent Xi Jinping’s visit?

The agreement has strategic sig­nificance as it is focused on con­nectivity, mainly rail connectivity. Yet bringing the Chinese railway line to Nepal is time-consuming and costly. But if we could at least develop north-south roads, Nepali territories will be better connected with China, making trade easier. The multi-dimensional connectivity and trans-Himalayan connectivity men­tioned in the 20-point agreement is a milestone development and could potentially enhance bilateral trade—but only if accompanied by prod­uct-development and enhancing our productive capacity. For that, we need more Chinese investment. China’s labor-intensive industries are relocating to South-East Asian countries. China itself is focusing on high-tech goods and services. As wage levels rise in China, it has found labor-intensive industries non-competitive. Why not bring some of those industries here?

You talked about the big trade deficit. Can you name four or five products that Nepal can profit­ably export to China?

We have to focus on niche prod­ucts. For example, we can pro­duce medicinal herbs in our hill and mountain regions for Chinese markets. To that end, we have to create large farms for cultivating and processing medicinal herbs. Similarly, the government should invest more in research and devel­opment. Currently, the herbs found in the Himalayas are collected and traded in raw form. There is no val­ue addition or processing. And these products are exported informally. We have to formalize this. We have to develop specific economic zones for specific products like medicinal herbs, wool, mountain goats and sheep, and pashmina.

Another vital exportable product is handicrafts. Thanka and various types of statues can also be export­ed to China. We should also bet­ter explore the Chinese market to understand what they really want. It is a dynamic process; we cannot stick with the same products all the time. Again I focus on connectivity. All trade with China today is via ocean routes, which takes 40 to 45 days. If we can use land routes, it will come down to 10 or 12 days.

There is a big debate about the cross-border rail line and its costs. Instead of the railway, should better cross-border roads be our priority?

We have to consider both, but the priority should be roads as they are both cheaper and quicker to build. For railway lines, we need heavy investment, technical manpower, and a lot of time and effort. In the short term, railway is not viable economically. It can be justified only if it links India and China via Nepal. Chinese President Xi has said that he will help Nepal be a ‘land-linked’ country. But India is mum on this. If both India and China are willing to trade through Nepal, a railway line may be justified.

In high-volume trade, transport via railway is cheaper than transport via road. But, again, in the current low-volume trade, building a railway line may not be justified.

We signed the Transit and Trans­port Agreement with China in 2016, and this year the two coun­tries finalized its protocol. But is it at all feasible for Nepal to trade with third countries via China?

It is very important to have Chi­nese transit facilities as strategic options. But in practical terms, it would be difficult to replace India with China in transit. The nearest sea-port in China is 4,000 km from the Nepali border while the nearest Indian port is just 700-800 km away.

What other technical difficulties will Nepal face in using China to transit goods?

The first is the long distance, which entails higher cost. Second, there is no railway connectivity up to the Nepal border, and transport networks are fragmented. Third, as goods will have to be transferred between, say, railways and trucks, that too will add to the cost.

There is a need for a comprehen­sive study on the movement of cargo via both Indian and Chinese routes to third countries, which will tell us which route is more viable.

Even if transit via China is costly, can’t we profitably trade with the Chinese mainland by developing proper linkages?

The Chinese mainland with its major population centers are far from Nepal. Tibet itself is eight times the size of Nepal. It has a limited absorptive capacity in the sense that it has just three million people. Just crossing Tibet will cost a lot. What we can do is develop distribution centers or parks in cities near Nepal like Keyrung. If you request China to develop such distribution parks with big areas, exporters from Nepal can send their goods there and Chinese traders can pick them up.

India still places many restric­tions on the import of Nepali goods. If most of these restric­tions were lifted, would Nepal need to explore other options?

Almost 60 percent of our export goes to India. Almost two-third of our import is also from India. Still, there are certain barriers while exporting goods to India. Practi­cally India does not impose any custom duty on Nepali agriculture and industrial products and only three items—alcohol, tobacco and perfume—are on its sensitive list. But there are many non-tariff barriers. The trucks carrying Nepali tea are stopped at the border. A tea sample is then taken to a laboratory in Pat­na. It takes five to six days to get a final report, which makes the whole operation costly.

In that case, is there a possibil­ity of China replacing India as Nepal’s biggest trading partner?

I do not think so because import from China is increasing and we have to do a lot to increase exports. Until we enhance our competive­ness it is difficult to increase our exports. We have an open border with India and there are many sim­ilarities between the two countries. So it might not be possible to replace India with China in the near future.