Over two decades later, Nepal is nearly six years into its membership of the World Trade Organization (WTO), the successor to the GATT-1947 with an expanded coverage of trade rules and stronger dispute settlement rules. The first blockade to be imposed by a coastal country on its landlocked neighbor after World War II is an awkward, distant memory, best forgotten—at least in mainstream “intellectual” discourse. The 14-month embargo had been instrumental in effecting regime change. Now, with a political system inspired by the world’s most populous electoral democracy well-entrenched here, a repeat of the 1989-90 measure may seem unlikely. Hence the focus on the market access dimension of WTO membership, despite the scope for safeguarding our transit rights under the multilateral regime, political will permitting. However, although the opening up of overseas markets for Nepali goods and services is understandably important for a nation overly dependent on a single economy, Nepal’s quest for freedom of transit—a prerequisite for reducing trade costs—is far from over.
Obstacles galore
Just as the absence of war is not peace, so too the absence of an embargo does not imply unimpeded, smooth transit. A host of transit restrictions is in place, causing delays, raising the landed prices of imports and eroding export competitiveness. The restrictions operate at two levels: Transit to access Indian sea-ports, and transit through Indian territory to access Bangladeshi markets and sea-ports.
Transit procedures are not compatible with WTO rules. It is customary for Indian authorities to issue unilateral notifications on transit and customs matters, adding to the unpredictability stemming from the transit treaty’s lack of unconditional automaticity. Hassles in the form of multiple checking agencies mar the entire transit process. Actual documentary requirements are higher than those specified in the treaty.
Trade deflection has long been used as an excuse for cumbersome procedural controls. Although the 1999 revision to the transit treaty requires duty insurance (to hedge the risk of trade deflection and the resulting loss of customs duties for India) only for goods deemed sensitive by the Indian government, such goods are not made public to Nepali traders. The monopoly of the Kolkata-based office of the Indian National Insurance Company Limited on issuing duty insurance policy means a high premium rate. While insurance policy needs to cover only Indian customs duty if the goods are transported by rail, goods transported in private-owned vehicles by road have to be insured to the difference between the market value and the cost-insurance-freight (CIF) value. The premium amount is also jacked up due to the fixation of the market value by Indian customs at an unreasonably high level, at 200 to 250 percent of CIF value. Making the importer or exporter liable for the loss or pilferage of goods in transit is not a standard international practice. Nepal’s transit agreement with Bangladesh, signed in 1976, clearly accepts “carriers’ liability” whereby the carriers are responsible for any loss or pilferage of goods in transit.
Bilateral talks must be initiated with India exclusively on transit issues. We need to pinpoint the procedures and formalities that do not conform to international standards or WTO provisions, and demand a revision to the transit treaty.
Transit through India is subject not only to central government regulations and formalities but also those that are in force in the states. The enforcement in Uttar Pradesh, Bihar and West Bengal of minimum freight tariffs for the transportation of Nepali cargo has prevented Nepal from benefiting from the otherwise generally competitive Indian road freight market. Nepali cargoes are also subject to state-level taxes in violation of the transit treaty, not to mention bribes.
Administrative rigmarole, gross inefficiency and congestion—resulting in delays, higher turnaround time, detention and demurrage—define Kolkata and Haldia ports, the gateway ports for Nepal’s third-country trade. Worse, there are rules that have Nepali cargoes in the crosshairs. Nepali importers have to pay penalty charges not only for the delayed portion of the cargo but also on the entire cargo, particularly in the case of bulk cargo, when such cargo is transported in partial shipments. Demurrage is charged even if goods are not cleared due to conditions beyond the control of the importer such as labor strikes.
The operationalization of the inland container depot (ICD) at Birgunj, connected by railway to Kolkata/Haldia ports, since May 2004 was expected to reduce transit costs from 12-15 percent of CIF value to 8-10 percent and the journey time between Kolkata and Birgunj from 10 days to 3 days. However, the expected benefits have not been fully realized as the ICD is not functioning as a dry port in the real sense. The standard international operational modalities of ICDs, including in India, have not been extended to Nepal’s ICD. Since “through bills of lading” are still not provided, Nepali cargoes continue to be subject to customs procedures at the sea-ports, where cargoes have to spend three to five days at the minimum even if all documents are in order. The result: The ICD is operating at only 25 percent of its normal capacity.
Nepal has long sought alternative ports in India as Kolkata and Haldiya are not only congested and inefficient but also cannot accept mother vessels, necessitating costly transshipment in other ports. Using Jawaharlal Nehru Port, for instance, is estimated to reduce transit cost by US$400 per 20-foot container by, inter alia, avoiding transshipment, thereby improving the competitiveness of Nepal’s West-bound exports. Without a revision to the protocol to the transit treaty that presently allows Nepal to use only Kolkata and Haldiya ports, India’s ritual pledges to allow Nepal to use other ports sound like empty rhetoric.
It has been more than three decades since Bangladesh opened Chittagong and Mongla ports for Nepal’s third-country trade. Mongla is an underutilized port with a much lower cost of holding of goods compared to Kolkata due to shorter turnaround time and lower detention and demurrage. Moreover, Bangladesh has announced a 50 percent discount on port charges for Nepali trade handled through the port. But Nepal has not been able to utilize Bangladeshi sea-ports as the unavoidable passage through India is mined with difficulties. India has finally agreed to allow transit for railway cargo movement between Bangladesh and Nepal through the Rohanpur-Singhabad route as a replacement for the now defunct Radhikapur-Birol route. Railway distance from Biratnagar/Jogbani to Mongla is shorter by 39 km than that to Kolkata. But it is uncertain whether the route will be allowed just for Nepal’s bilateral trade with Bangladesh or overseas trade also.
Further, a litany of transit problems stymies Bangladesh-Nepal trade passing through the 54-km Indian territory from Kakarbhitta in east Nepal to Banglabandh in Bangladesh. Cargo movement is allowed only under broad daylight under Indian security escort, and the cargo has to be unloaded 500 m from the Bangladeshi border in India. Indian customs is unnecessarily involved in the transit process, and the implementation of the one-time lock system is poor.
Assertion is key
By contrast, another South Asian landlocked country totally dependent on India for transit—Bhutan—enjoys the best transit facilities among landlocked developing countries. All transit trade takes place under Royal Bhutan Customs, with no involvement of Indian customs. This is attributable to Bhutan’s status as India’s protectorate.
Nepal need not go the Bhutan way to secure freedom of transit, though transit through India is an unavoidable reality of geography, whether to access Indian or Bangladeshi ports. The complacency among our policy mandarins is untenable, however. Bilateral talks must be initiated with India exclusively on transit issues. We need to pinpoint the procedures and formalities that do not conform to international standards/best practices or WTO provisions, and demand a revision to the transit treaty. Concurrently, in view of the asymmetric bargaining power in bilateral negotiations, we must lobby for a regional transit arrangement under SAARC that would enable us to secure a better and more predictable transit—one that is not hostage to bilateral relations, since any restriction and the resultant dispute would be a regional issue. Likewise, we should register a proactive participation in WTO negotiations on trade facilitation, including transit issues, in collaboration with other likeminded landlocked countries, as well as nurture domestic human resources to effectively move the WTO’s dispute settlement body if the need so arises.
kharelparas@yahoo.com
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