Nepal | December 02, 2020

Engagement with Nepal: Crucial for US diplomacy in region

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With the Biden administration likely to adopt a “diplomacy-first” approach to reaffirm its economic and political interest in the Indo-Pacific region, Nepal should be seen as a geopolitical balancer between India and China, and not mistaken as pro-China or anti-India

In Asia, no country has been of more strategic interest to the US administration than China over the last two decades. The Trump administration’s continuity of the country’s commitment to a free and open Indo-Pacific region also centred around rallying allies and partners in the region to stand against China’s growing economic, political and military interests.

Illustration: THT

While the US continues to focus on China, India has emerged as a country that the US administration has realised cannot be ruled out in its pursuit of its broader Indo-Pacific strategy.

Now with Indian-American Harris as the vice-president elect, India sitting on the 15-member UN Security Council, India’s possible interest in G-7 membership, and India being the only G20 member from South Asia, the Biden administration is likely to revisit the country’s engagement with India and India’s allies in the region, with China still at the centre of any strategic rethinking.

This is going to be important for smaller countries in the region to recalculate their position in a possibly revised Sino-US equation where India is likely to be a more influential variable. A tiny Himalayan country sandwiched between China and India, and one of the fastest growing countries in the region – Nepal – deserves some attention in this debate.

Despite India being the de-facto trading partner of Nepal for a long time, China has made significant inroads in the last few years, which has benefited from Nepal’s deteriorating relationship with India. Nepal supports the One China Policy, has signed several agreements with China under the framework of the Trans-Himalayan Multi-Dimensional Connectivity Network, which includes linking China to Kathmandu by rail, and benefitted from increased Chinese FDI.

Despite India’s “neighbourhood-first” rhetoric, New Delhi has been unable to keep up with China’s trade, infrastructure and political investment in Nepal.

The ongoing border tensions between Nepal and India has further soured Nepal’s ruling coalition’s interest in meaningfully re-engaging with India.

India has shown some inclination to resolve the border issues in the last few weeks through diplomatic dialogue.

In this context, where the Biden administration will likely adopt a “diplomacy-first” approach to reaffirm its economic and political interest in the Indo-Pacific region, Nepal should be seen as a geopolitical balancer between India and China, and not mistaken as pro-China or anti-India. The new administration should understand that its predecessor has already suffered a major setback with the $500 million Millennium Challenge Corporation (MCC)’s Nepal Compact grant, which was viewed by many in Nepal’s ruling coalition as a strategic weapon against countering Chinese influence in Nepal. Of this grant,80 percent is intended to be used for transnational power transmission lines, involving India. Any initiative that is aimed at commanding a forced change in Nepal’s relationship with its mighty neighbours is only going to fall apart.

Below I suggest four key undertakings for the Biden administration to further its engagement with Nepal that could enhance its diplomatic endeavour in the region.

First, the outstanding issues, if any, for the Nepali parliamentary ratification of the MCC’s Nepal Compact must be resolved through a revised bilateral negotiation. Keeping it further hanging could derail other potential engagements between Nepal and the US Government. The approval of the MCC is important not only for Nepal but also for India and China, as the resulting investments could provide an infrastructure base for multi-billion-dollar regional investments, where the US could have a diplomatic upper hand.

Second, any kind of military or paramilitary engagement involving Nepal will be a non-starter, as that could raise eyebrows in Beijing, undermining the sustainability of such engagement and straining Nepal’s relationship with China. Instead, the new administration should support and mediate an impartial and transparent handling of Nepal’s border issues along the North and the South that could provide a stable Sino-India-US engagement opportunity in Nepal.

Third, the new administration should ramp up its support on climate change in Nepal and the region as a whole, as the issue is not ‘only environmental’ anymore but is going to be more “geopolitical” in the near future. Scientific studies suggest that one third of the ice on the Himalayas will be gone by 2050 and two-thirds by the end of the century at the current state of slow global progress on cutting greenhouse gas emissions. This will have a detrimental impact on water availability for at least two billion people on both sides of Nepal and could become a source of regional conflict of a scale that the world has never witnessed before. Financial support to address climate vulnerability of the region, supplemented by its superior technological prowess, could give the US a competitive edge in reinstating its diplomatic dominance in the region.

Fourth, the new administration should continue to support free market interventions in a young democracy like Nepal by steadily investing in policy and legislative reforms.

Among other things, such reforms should be targeted towards building a foundation for non-coercive development support, including foreign direct investments, with no political or military strings attached, from either China or India, and other development partners.

While the incumbent administration failed to have sufficient engagement with Nepal, the Biden administration should immediately acknowledge an important role that a meaningful engagement with Nepal could play in furthering its diplomatic interest in the region.

Baral is a managing partner of Hornfels Group, a technology investment consultancy headquartered in Kathmandu

A version of this article appears in print on November 20, 2020 of The Himalayan Times.

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