Currently, Nepal has the access to sea, which is vital for third country trade, only through India, the southern neighbor.India and Bangladesh are the only two other countries with whom Nepal has signed transit treaties.
Nepal can now use a Chinese port for its third country trade, which is expected to reduce Nepal's near total dependency on India for trade and transit.
Despite historic and socio-cultural integration between India and Nepal, India's imposition of economic blockade for almost five months generated widespread disenchantment in Nepal, forcing its leaders to seek trade alliances beyond the southern neighbor.
Though Tianjin Port, the nearest Chinese port is 3,300 km away from the Nepalese border -- as against the closest Indian port of Kolkata which is only 1,000 km -- the treaty is expected to shift the geo-political power balance in the region.
The agreement on transit and transport with the People's Republic of China could be a psychological shift for the future, according to senior economist Bishwhambher Pyakuryal. "The agreement is going to have a huge psychological shift in otherwise India-locked Nepal as the country will now have an option for international trade," he added.
Likewise, trade expert and former commerce secretary Purushottam Ojha also opines that the treaty is a milestone, but Nepal needs to invest its huge resources and efforts on road infrastructure to benefit from the treaty. "Nepal must increase road connectivity to take advantage from the transit treaty and increase economic integration with China," he told Republica.
Apart from widening of Rasuwagadi customs point, and upgrading Korala and Kimathanka customs points, Nepal also has to work hard to simplify trade-related issues, including visa, currency and language, to make the treaty work in its favor, Ojha added.
Visiting Prime Minister Khadga Prasad Sharma Oli and his Chinese counterpart Li Keqiang witnessed the signing of the 10-point bilateral agreement and Memorandum of Understandings (MoU), including landmark transit and trade deal, according to a press communiqué issued by the Nepali Embassy in Beijing after the signing ceremony.
To increase the connectivity, China has also agreed to construct a strategic railway link between the two countries through Tibet. The railway link, which is expected to link Kathmandu and Tibet, is also likely to be expanded to Pokhara and Lumbini.
The visit also witnessed signing of Memorandum of Understanding (MoU) between the Ministry of Commerce of the People's Republic of China and the Ministry of Commerce of Nepal for launching the Joint Feasibility Study of China-Nepal Free Trade Agreement (FTA).
The FTA, however, is not going to benefit Nepali products, which have lost their competitive advantage against the Chinese products. "Nepal should have pushed for preferential trade agreement with China," Ojha said. "As Nepali products cannot compete with that of China's."
China has already given duty free access to over 8,000 Nepali products.
Nepal's exports to China stand at just 2 percent, whereas Nepal's imports from China stand at 12 percent, widening Nepal's trade deficit with China. "FTA will only further widen the trade gap," according to Ojha.
According to the press communiqué the two countries also signed agreement on concessional loan for a new airport in Nepal's Pokhara and a feasibility study for oil and gas survey projects, though the much-anticipated agreement on commercial import of petroleum products from China was cancelled at the last moment.
During the meeting with his counterpart in Beijing's Great Hall of the People, Oli said that he had "come to China with a special mission."
According to officials in the meeting, Oli's visit has raised the possibility of the construction of two rail lines connecting three of Nepal's most important cities. China plans to extend the railway from the Tibetan city of Shigatse to Kerung on the Nepal border. China also has a longer term plan of extending railway lines from Gyirong to Kathmandu depending on geographic and technical conditions, as well as financing, according to the officials.
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