With Reference to Article V

1. The Government of India will provide preferential access to the Indian market free of customs duties normally applicable and quantitative restrictions, except as mentioned elsewhere, for all articles anufactured in Nepal, provided they fulfill the qualifying criteria given below:

a) the articles are manufactured in Nepal wholly from Nepalese materials or Indian materials or Nepalese and Indian materials; or

b) (i) the articles involve a manufacturing process in Nepal that brings about a change in classification, at four digit level, of the Harmonized Commodities Description and Coding System, different from those, in which all the third country origin in materials used in its manufacture are classified; and the manufacturing process is not limited to insufficient working or processing as indicated in Annexure ‘B’, and

b) (ii) From 6th March 2002 to 5th March 2003, the total value of materials, parts of produce originating from non-Contracting Parties or of undetermined origin used does not exceed 75 percent of the ex-factory price of the articles produced, and the final process of manufacturing is performed within the territory of Nepal. From 6th March 2003 onwards, the total value of materials, parts or produce originating from non-Contracting Parties or of undetermined origin used does not exceed 70 percent of the ex-factory price of the articles produced, and the final process of manufacturing is performed within the territory of Nepal.

Note:

The value of materials, parts or produce originating from non-Contracting Parties shall be the CIF value at the time of importation of materials, parts or produce, at the point of entry in Nepal, where this can be proven, or the earliest ascertainable price paid for the materials, parts or produce of undetermined origin in the territory of the Contracting Party where theworking or processing takes place.

c. For Nepalese articles not fulfilling the conditions given in sub-para-1 (b) (i) above, but fulfilling the condition at sub-para-1 (b) (ii) above, preferential access may be given by the Government of India, on a case by case basis, after satisfying itself that such article has undergone a sufficient manufacturing process within Nepal.

d. However, the import of Nepalese manufactured articles described in Annexure ‘C’ which fulfill the criteria in sub-para-1 (a) or (b) (i) and (ii) above will be governed by the terms specified in this Annexure.

e. In the case of other articles manufactured in Nepal which do not fulfill the qualifying criteria specified in sub-para-1 (a) or (b) (i) and (ii) above, the Government of India will provide normal access to the Indian market consistent with its MFN (Most Favored Nation) treatment.

2. Import of articles in accordance with the para-a above shall be allowed by the Indian customs authorities on the basis of a Certificate of Origin to be issued by the agency designated for this purpose by His Majesty’s Government of Nepal in the format prescribed at Annexure- ‘D’ for each consignment of articles exported from Nepal to India. Information regarding the basis of calculation for grant of such Certificates of Origin to the manufacturing facilities in Nepal will be provided to the Government ofIndia on an annual basis. The modalities for this will be worked out within three months from the signing of the Protocol. Preferential facility shall not be available for the articles listed at Annexure ‘E’.

3. On the basis of a Certificate issued, for each consignment of articles manufactured in the small-scale units in Nepal, by His Majesty’s Government of Nepal, that the relevant conditions applicable to the articles manufactured in similar Small Scale Industrial units in India for relief in the levy of applicable Excise Duty rates are fulfilled for such a parity, Government of India will extend parity in the levy of Additional Duty on such Nepalese articles equal to the treatment provided in the levy of effective Excise Duty on similar Indian articles under the Indian Customs and Central Excise Tariff. However, this facility will be applicable only to articles manufactured in Nepal in such small-scale units which qualify as small-scale units under the Nepalese Industrial Policy as on 5 December, 2001.

4. The ‘Additional Duty’ rates equal to the effective Indian excise duty rates applicable to similar Indian products under the Indian customs and Central Excise Tariff will continue to be levied on the imports into India of products manufactured in the medium and large scale units in Nepal.

4.1 In regard to additional duty collected by the Government of India in respect of manufactured articles other than those manufactured in ‘small’ units; Wherever it is established that the cost of production in a corresponding unit in India, a sum representing such difference in the cost of production, but not exceeding 25 percent of the ‘additional duty’ collected by the Government of India, will be paid to His Majesty’s Government of Nepal provided HMG of Nepal has given assistance to the same extent to the (manufacturer) exporters.

5. Export of consignments from Nepal accompanied by the Certificate of Origin will normally not be subjected to any detention/delays at the Indian customs border checkposts and other places en route. However, in case of reasonable doubt about the authenticity of Certificate of Origin, the Indian Customs Authority may seek a clarification from the certifying agency, which will furnish the same within a period of thirty days. Meanwhile, the subject consignment will be allowed entry into India on provisional basis against a bond i.e. a legally binding undertaking as required. After examining the information so provided by the certifying agency, the Indian Customs Authority would take appropriate action to finalize the provisional assessment. Whenever considered necessary, request for a joint visit of the manufacturing facility may be made by the Indian Customs Authority, which would be facilitated by the concerned Nepalese authority within a period of thirty days.

6. Where for social and economic reasons, the import of an item into India is permitted only through public sector agencies or where the import of an item is prohibited under the Indian Trade Control regulations; the Government of India will consider any request of His Majesty’s Government of

Nepal for relaxation and may permit the import of such an item from Nepal in such a manner as may be found to be suitable.

7. For the purpose of calculation of import duties customs valuation procedures, as prescribed under the prevailing customs law, will be followed.

With reference to Article IX

In the event of imports under the Treaty, in such a manner or in such quantities as to cause or threaten to cause injury to the domestic industry or a significant segment of it relating to the article, the importing country may request for consultations in the Joint Committee set up by the two Governments for this purpose with a view to taking appropriate measures. If the consultations in the Joint Committee fail to resolve the issue within a period of sixty days from the date of such request, then the requesting Government shall be free to take appropriate remedial measures. The India-Nepal Inter-Governmental Committee (IGC) will review such measures.

‘Injury’ means significant damage to the domestic procedures, of like or similar products resulting from a substantial increase of imports under the Treaty in situations which cause substantial losses in terms of earnings, production or employment unsustainable in short term. The examination of the impact on the domestic industry concerned shall also include an evaluation of other relevant economic factors and indices having a bearing on the state of domestic industry of that product.

(Note: Secretary at the Ministry of Industry, Commerce and Supplies Bhanu P. Acharya and his Indian counterpart, Dipak Chatterjee, signed on the renewed Treaty and accompanying Protocol in New Delhi on March 02, 2002 on behalf of their respective governments.)