‘Transit Transport Agreement should be utilised to enhance economic engagement between Nepal and China’

Nepal recently signed the Transit Transport Agreement with the northern neighbour during Prime Minister KP Sharma Oli’s recent visit to China. Reportedly, the agreement has paved the way for Nepal’s third-country trade through the gateway of Chinese port for the first time in the country’s history. Purushottam Ojha, former commerce secretary, spoke to Pushpa Raj Acharya of The Himalayan Times on the importance of the Transit Transport Agreement for the country and other trade related issues between Nepal and China. Excerpts:

Nepal and China signed the Transit Transport Agreement (TTA) during the recent visit of Prime Minister KP Sharma Oli. How will the country benefit from this pact?

The Transit Transport Agreement concluded between Nepal and China is a watershed moment in the trade history of Nepal. We have now opted for diversification regarding the utilisation of the transit rights. At present, there might not be tangible benefits to Nepal’s trade and economy but it will open up a new window of opportunities for enhancing bilateral trade with China in the long term. It will also facilitate overseas trade of Nepal. So, the agreement has to be looked at with a long-term perspective.

Do you believe that Nepal will be able to utilise the facility granted by China?

Just signing the agreement is not sufficient. There are many things associated with the utilisation of transit services through China that need to be looked into. The first issue is the transport connectivity because the nearest port of China — Port of Tianjin — which is close to the Chinese Capital, is almost 3,500 kilometres away from Kathmandu. If we consider other ports like Guangzhou and Shanghai, they are even further away (around 4,500 km) from Nepal. In this scenario, transit services via the road network will not be feasible because movement of trucks for such long distances will not be cost effective. Hence, we will have to seek railway service. There is no direct rail link between Shigatse — the nearest rail-head from Nepal — and Port of Tianjin. (China has expanded rail network to Shigatse of Tibet that is 540 km far from Nepal). But the government of China is developing railway connection from Shigatse to Kyirong, which is close to Rasuwagadhi of Nepal. Once this rail connection is completed by 2020, then we will be able to fully utilise the transit services. The joint communiqué released by China and Nepal also talks about developing trans-boundary railway network between Tibet (China) and Nepal, which will also be crucial in utilising transit service. However, prior to that we must make sure that we establish good road connectivity between the national highways of Nepal and

the Chinese border posts. I believe our government will give consideration to improving quality of road networks with China. If we cannot do that on time then the transit transport facility granted by China will be futile.

After signing of the TTA, does the country need to sign a separate agreement with China to utilise its railway service?

As far as I understand, the TTA does not have any protocol. It is just a framework agreement. For movement of goods, whether through rail or road, there should be defined parameters and procedures laid down in the protocol. So, the protocol that we develop with China for operationalising transit services will count a lot. Since goods in transit are always under the control of the customs, there should be balance between customs control and customs facilitation. If it is more facilitative, it will help reduce the cost of trade. Facilitation of cargo movement is associated with the use and application of electronic data interchange (EDI) facility, guarantee and customs seal, among others.

While talking about third-country trade, ocean freight cost is also one of the components of trade logistics. Is there any possibility to bring down this cost through the utilisation of a Chinese sea port?

Normally, ocean freight is cheaper than rail freight and likewise, rail freight is cheaper than road freight. So we have to take a holistic approach and calculate the cost based on the amount of cargoes being ferried through ocean, rail and road. Similarly, cost of document processing, customs control, delay and various other aspects have to be taken into consideration. We need to work out in detail the cost that will be incurred while loading the goods through a port in China to Nepal and we can make a comparative analysis of the cost and benefits. Then only will we be able to talk about this. It is definite that the transit service of China will be another gateway for Nepal’s third-country trade, but it is the private sector that is the actual beneficiary and they must decide which route is easier and cost effective. While getting the overland transit service through China, there is possibility of linking Central Asian countries like Kazakhstan, Kyrgyzstan and Uzbekistan. So once the Nepal border is connected with the Chinese railway system it might be easier to transport goods to Central Asia and vice-versa. Secondly, Central Asian nations are rich in petroleum products, so may be petroleum products could also be transported from there. I would say that the most important thing is whenever there is a very difficult situation like the recent border blockade the transit facility granted by China can act as a safety valve to connect to the world. But our priority should be to make it a regular feature, than just utilising it as a safety valve. Another important aspect is we should not use the facility only for transit purposes. It should be utilised to enhance economic engagement between Nepal and China.

There are many barriers like movement of people and language, among others, between Nepal and China. In this context, will we be able to develop protocol for TTA, so that the Chinese sea port authority itself transships

Nepal-bound cargo to the Inland Clearance Depot at border points and vice-versa from Nepal?

For that purpose there should be some infrastructure facility, especially, a dry port close to the Nepal border because a dry port is basically an extension of a sea port. If the Chinese government agrees to develop a well-equipped dry port near Nepal border then we will directly be receiving Nepal-bound cargo and it will also be a shipping destination for exports. Since we have been talking about transshipment modality with India, why not do the same with China?

You served in the commerce ministry for a long period. Why did the government not approach China for TTA earlier?

In the past too some agreements and memorandums related to trade and transport were signed between the two governments. In 1994, we signed cross-border transport agreement that allows movement of bus service between Lhasa (China) to Kathmandu and vice versa but that could not materialise due to visa problems. Again in 2005, when I was secretary at the Ministry of Labour and Transport Management, based on the earlier agreement, I started the bus service but it lasted for just two months due to visa problems. During my visit to China in 2010 as the commerce secretary, I held extensive talks with the vice minister of the Ministry of Commerce in Beijing regarding transit transport facility but that could not gather pace due to several reasons. The TTA is not a completely new thing; we were talking on this issue since six years back and it has been realised now. However, it will take time to come into operation. During high-level visits a lot of agreements are signed but the crucial aspect is implementation. It is not only with China. Even with India there is lack of implementation of agreements of bilateral cooperation. Therefore, we need to focus on time-bound action and hold regular talks between joint mechanisms for the implementation of the agreements. In this regard we have to improve the bilateral and consultation mechanism with China. We have a Joint Economic Commission (JEC), which is chaired by the finance secretaries of both the countries but the meeting of the JEC has not been held for more than seven years. We need to have a regular consultative mechanism to address bilateral issues promptly.

The PM’s visit to China failed to address much-talked about issues like petroleum trade agreement and bilateral investment promotion and protection agreement (BIPPA). What is your view on these issues?

I think both these agreements are in the process of being signed. But the one most important thing that the visit missed to address is linking Nepal within the ‘One Belt, One Road’ initiative. In 2015, there was a car rally from Kunming to Kolkata via Myanmar and Bangladesh. They call it the BCIM (Bangladesh-China-India-Myanmar) corridor and it is a part of ‘One Belt, One Road’ initiative to link South Asia with China. If BCIM could link this road all the way from Kolkata to Kathmandu, Kathmandu to Lhasa, and Lhasa to Kunming, then it will make a complete circle and that will bring Nepal within the ‘One Belt, One Road’ initiative. This is one area that our officials should have held discussions on with China during PM’s visit. Linking Nepal in ‘One Belt, One Road’ initiative is not very clear in the joint communiqué. It only says Nepal will develop its transport network under ‘One Belt, One Road’ initiative.

Nepal and China have agreed to conduct feasibility study of Free Trade Agreement (FTA). What would the implications of FTA be for Nepal?

We have to be clear about what type of FTA we want. The international nuance of FTA is providing reciprocal tariff preferences and removal of non-tariff barriers. If that is the case then Nepal would be the net loser after signing FTA with China. Because even today there is huge trade imbalance between China and Nepal and after concluding the agreement, we need to make arrangements for free flow of Chinese goods in Nepal on preferential basis. If this happens then the entire production base in Nepal may be destroyed. That’s why we should be very clear regarding the concept of FTA. Rather than FTA we have to focus on Preferential Trade Agreement.