Nepal, China agree to review and amend trade and payment agreement
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.
‘South bloc’ in geopolitics and great power rivalry
In contemporary geopolitics, international organizations play a crucial role in shaping global governance and power dynamics. China and the United States have reached an ideological stalemate as they are entrenched in shaping global governance through intergovernmental groupings by influencing the Global South. A contested US, an emerging China and a rising India have been openly trying to stabilize their relationship with renewed dialogues and regular diplomatic engagements, which have been at their lowest in the last 50 years with the risk of war. The Group of 20 (G20) and the Group of 77 (G77) are two prominent blocs within the international community.
The triad diplomacy between China, Russia and North Korea is an endeavor of Russia to globalize the war in Ukraine. President Putin’s ambition and strategic misstep is costing the world colossal losses, together with Sino-American rivalry. Putin is rooting for an international system that is multipolar, upholds conservative values, is largely delinked with the US and gives space to Russia as a dominant player in a new era of global politics. In the Cold War, the inclination of the ‘Third World’ toward the Non-Aligned Movement was phenomenal.
But in the era of Cold War 2.0, India’s influence in the Global South is more visible as the G20 summit, just concluded with North-South cooperation, has shown. Like India, China also has plans to lead the Global South for South-South cooperation.
It is important to compare India’s role in the US-governed G20 with that of the China-led G77. Additionally, discussions on the concept of the ‘South bloc’ and its implications for geopolitics and great power rivalry are essential for international relations.
Geopolitical significance
The G20 comprises Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, United Kingdom, and the United States along with the European Union. This bloc, accounting for more than 80 percent of world GDP, 75 percent of global trade, and 60 percent of the global population, was established in 1999 as a platform for Finance Ministers and Central Bank Governors to discuss international economic and financial issues and address major issues related to the global economy, such as international finance stability, climate mitigation and sustainable development. India and the US are key players in the G20, which comprises major economies of the world. Both countries possess significant geopolitical and economic clout. India represents a large emerging market with tremendous growth potential, whereas the US remains a global superpower with vast influence.
The Group of G77 (G77) was established in 1964 and originally consisted of 77 member-states, hence its name.
Over the years, the membership has grown to include 134 developing countries from Africa, Asia, Latin America, and the Caribbean. China’s membership in the G77 in 1994 grants it a platform to represent the interests and aspirations of developing nations to promote economic cooperation, coordinate positions on international issues and advocate for development needs of member-states. As the world’s second-largest economy, China’s growing influence in G77 gives it a considerable geopolitical leverage.
Global politico-economic connection
The New International Economic Order (NIEO) approached around after the Intergovernmental Group of Twenty-Four on International Monetary Affairs and Development or the Group of 24 (G24) was recognised in 1971 as a chapter of the G77 to harmonize the opinions of developing countries on international monetary and development releases, which then envisaged North-South cooperation in 1973 in the Algiers Conference of non-aligned countries. The sixth Special Session of the United Nations Conference on Trade and Development (UNCTAD), established in 1964 as an authorities’ body of the UN General Assembly in stimulating trade and development predominantly in developing countries or the Global South, adopted a program of action while the Paris talks (North-South Dialogue of 1977) negotiated North-South cooperation by setting up the Willy Brandt Commission with an understanding to revitalize the issues of international economic development emphasized by the World Bank Commission Report (1980) for North-South cooperation.
In G20, both India and the US possess strong and diversified economies. With the nominal GDP of $25.46trn in 2022, the US has a higher GDP and greater economic influence globally. India’s GDP of $3.39trn in 2022-23 with economic growth rate and potential offer has vast opportunities for investment and development. The G20 is composed of most of the world’s largest economies’ finance ministries, including both industrialized and developing countries. It accounts for around 80 percent of the gross world product (GWP), 75 percent of international trade, two-thirds of the global population and 60 percent of the world’s land area.
G77 accounts for 80 percent of the world’s population. Within the grouping, China’s economic strength is emerging with the GDP of $18trn and its Belt and Road Initiative aims to channel financial aid, infrastructure projects, and investment among the G77 nations o
This is Part I of a two-part series.
The author is a Strategic Analyst, Major General (Retd) of the Nepali Army, and is associated with Rangsit University, Thailand
