Time for Nepal to reboot ties with India and China

As Hubert Humphrey, former Vice President of the United States, once said, “Foreign policy is really domestic policy with its hat on”. The recent Nepal visit of Chinese Foreign Minister Yang Yi and the official India visit of Nepal’s Prime Minister Sher Bahadur Deuba should be analyzed within Nepal’s evolving political context. The resumption of high-level meetings, regardless of immediate gains, should also be seen as a good start in the rebooting of Nepal’s relations with India and China.

For example, Prime Minister Deuba raised outstanding border issues during the summit with his Indian counterpart and there was general understanding to address it through dialogue. This was indeed an icebreaker in the Indo-Nepal border dispute. Similarly, Nepal has successfully communicated with China its continued need for development assistance, preferably grants.

Nepal’s relations with two big neighbors have gone through many ups and downs in the past six years. KP Oli, now the leader of the main opposition, in his first stint as prime minister, signed the ‘Transit and Transportation Agreement’ with China in 2016, aiming to diversify Nepal’s third-country trade. In his second stint, Oli led the process to amend Nepal’s constitution to unveil a new map of Nepal by incorporating Kalapani, Limpiyadhura and Lipulekh.

However, Oli’s foreign policy approach was criticized for its vacillation between two neighbors, initially tilting towards China and later making overtures towards India. Oli famously ratchetted up anti-India sentiment through nationalistic rhetoric, including mocking India’s national emblem and also making an unsubstantiated claim over Lord Rama’s birthplace. However, in his last few months in office, Oli extended an olive branch to India by meeting India’s intelligence chief in Baluwatar and expressing his intent to mend fences by resuming high-level meetings. It was viewed by many as a 180-degree foreign policy turn from China towards India—just to save his chair.

When Deuba came to power in July 2021, he had challenges of improving strained relationships with both China and India. The recent visit from China seems to be more of a Chinese push, particularly after the disintegration of Nepal Communist Party, the formation of Deuba-led government, and parliamentary ratification of the MCC compact.

PM Deuba and his team seem to have made many attempts to reach out to India, including for party-to-party exchanges and interactions.  In late August 2020, the NC invited the Bharatiya Janata Party’s Foreign Affairs Department Chief Vijay Chauthaiwale for a Nepal visit and an NC team led by Prakash Sharan Mahat went to India.

In light of growing India-China competition in Asia, the US alliance with India, the American bid to counter China, the economic challenges brought by Russia’s invasion to Ukraine, and development challenges posed by climate change and the coronavirus, Nepal needs to reboot its foreign policy, particularly with its two big neighbors, and the resumption of high-level meetings is a step in right direction.

In foreign policy literature, weak states are those that lack resources or economic power or, alternately, those without strong foreign relations. Understanding its geography is vital to understating Nepal’s foreign policy, but in the emerging world order with multipolarity and multilateralism, it is equally important to understand how a state can maintain its foreign policy space bilaterally and multilaterally—regardless of its size and location.

The 2015 constitution of Nepal aims to pursue “an independent foreign policy based on the Charter of the United Nations, non-alignment, principles of Panchsheel, international law and the norms of world peace, taking into consideration of the overall interest of the nation.” However, these guiding principles enshrined in the constitution need to be tweaked in line with the emerging world order and evolving relationships.

For example, the principle of neutrality has also been evolving. For example, Switzerland has abandoned its traditional neutrality to join Western countries in imposing sanctions against Russia after its invasion of Ukraine. Together with 141 UN member states, Nepal voted in favor of a UN resolution deploring the invasion, although Nepal’s two big neighbors China and India abstained from voting. Nepal’s position this time was strikingly different to those of India and China, not because Nepal wanted to be different, but because Nepal chose a straightforward position to call a spade a spade.

For decades, although there has been occasional tilting towards one or the other, Nepal’s geography as a landlocked country has always been considered a key for balancing India and China. The traditional sense of balance of power was largely based on the principle of being cautious to the interests of its neighbors rather than maximizing Nepal’s opportunities as an economic link. Nepal’s new foreign policy approach to India and China, two emerging global powers, should be based on a connectivity-driven development strategy with a shift from a ‘landlocked’ state to a ‘land-linked’ state, focusing on cross-border infrastructure investments for transport, trade, information and power connectivity.

The ratification of the MCC compact has signaled to the international community that Nepal is open for foreign aid investment. This might have worked as a reverse psychology: China decided to send its foreign minister to assure Nepal on Sino-Nepal relationships.

A sense of competition among major powers in supporting its development is what Nepal needs for the self-sufficiency of its economy. Most importantly, Nepal’s foreign policy reboot should be based on two principles: The principle of engagement with all major powers for Nepal’s socio-economic development, and the principle of mutual respect for each other’s territorial integrity, security and sovereignty.

During the recent visit of Chinese Foreign Minister Wang, Nepal and China reinvigorated bilateral ties by signing nine agreements, related to grass to railway and vaccines to economic and technical cooperation. None of these agreements, however, were about the Belt and Road Initiative (BRI), from which many countries in the world are benefitting as a development financing mechanism.

As a follow up to Wang Yi’s visit, Nepal needs to put more effort into achieving its long-term strategic goals by focusing on results-oriented discussions on security, development assistance and investment (including on BRI), as well as transit, trade and tourism.

Nepal has also experienced a blockade-like situation from China since January 2020. China has halted issuing visas to Nepali traders. China is Nepal's second largest trade partner after India; however, it is not the second largest trade partner for Nepal's exports. This means Nepal needs more open and productive follow up discussion with China on a preferential trade agreement.

In 2016, Nepal signed a landmark Transit and Transportation Agreement with China, followed by the signing of protocol on its implementation in 2019. However, Nepal’s transit deal with China has made no headway even after six years. Similarly, Nepal signed on to the BRI in 2017 with much expectation, but so far not a single project has taken off. These examples clearly point to lack of direction, planning and negotiation with China on issues of strategic importance.

Nepal’s relations with India have been severely strained, particularly after the 2015 undeclared blockade and dispute over Kalapani. There were no high-level visits between India and Nepal after the global spread of coronavirus. Although the main opposition party speculated that Prime Minister Deuba went to India to seek its blessings ahead of elections, this official visit has rather opened up a door to discuss all outstanding issues and strengthen multi-faceted relations.

Nepal and India agreeing to expand sub-regional cooperation in power and energy under the framework of BBIN (Bangladesh, Bhutan, India and Nepal) and to engage in bi-directional power trade are welcome news given the potential of clean energy to tackle the challenges posed by climate change. However, the real success of Deuba’s recent visit will depend on whether India will be open to resolve border disputes, grant more air routes, import more electricity during the summer, provide access to Bangladesh for electricity export, and be open for China-India-Nepal cross-border infrastructure development under the ‘trans-Himalayan connectivity’ concept.

With both India and China, Nepal should continue emphasizing its ambition and aspiration to be a country that could help markets in South, Central and Southeast Asia integrate.

The author is a member of the board of directors at the Institute of Foreign Affairs, Nepal

A shorter version of this article was published in the print edition of The Annapurna Express on 7 April 2022.