After forty-two years, Nepal and China have agreed to amend the bilateral trade agreement that has been guiding the bilateral trade between the two countries. The two neighbors, on Monday, agreed to form a joint technical working committee to review and amend the Nepal-China Trade and Payment Agreement signed in 1981. 

The Ministry of Industry, Commerce, and Supply of Nepal and the Chinese Ministry of Commerce signed an agreement to this effect in Beijing during the bilateral meeting held at the Great Hall of the People between Prime Minister Pushpa Kamal Dahal and his Chinese counterpart Li Qiang. Prime Minister Dahal is on a week-long visit to the northern neighbor.

The Trade and Payments Agreement between Nepal and China has been in operation since 1981. The agreement allowed the use of a number of trading points for the transport of goods between the two countries. 

With a paradigm shift taking place in the international trade regime, trade experts have been insisting on an amendment to the bilateral trade agreement with China. According to them, there are several gaps in the current bilateral agreement and it has also turned obsolete in the current scenario as Nepal faces a huge trade deficit with China. 

After three years of border closures and transportation disturbances, bilateral trade with China is coming back to normalcy with the opening of the Rasuwagadhi and Tatopani border points. 

Over the last several years, imports from China have grown steadily except for occasional hiccups such as in the fiscal year 2019/20 when the government in Nepal imposed a lockdown in March 2020 to curb coronavirus transmission that went on for nearly four months.

On the other hand, Nepal’s exports to its northern neighbor have dwindled leading to a massive trade deficit in the trade between the two countries. Nepal’s exports to China in the last FY 2022/23 stood at just Rs 2.34 billion whereas imports from China reached Rs 231.5 billion in FY 2022/23.

Despite being a next-door neighbor, Nepal has failed to boost its exports to China. China has also been providing duty-free and quota-free market access to thousands of Nepali products which are available to Nepal for being a least developed country. According to the Nepal Trade Information Portal of the Ministry of Industry, Commerce, and Supplies, China has been providing zero tariff facilities for about 8,000 goods originating in Nepal. These goods make up 95 percent of the total exports of Nepal to China. 

To receive the Chinese zero-tariff facilities, exporters are required to fulfill certain rules of origin conditions for their goods. Despite such a facility, Nepal has been failing to utilize the duty-free facility and boost exports. One of the reasons, according to officials and experts, is the strict documentation requirements to get export clearances from the Chinese authorities. 

The World Bank in its Nepal Development Update Report in April 2021 pointed out that Nepal has the potential of exporting 12 times higher than its existing annual exports with the highest potential of boosting exports to China. The multilateral agency has termed the untapped export potential as ‘missing exports’. From the perspective of destinations, Nepal’s largest ‘missing exports’ are with China (by $2.2bn), followed by India ($1.2bn), the United States ($800m), and Japan ($700m), according to the report. According to GAN President Pandey, the thin population in the bordering Tibet region also limits Nepal’s export potential to China.