Strategic importance of Nepal corridor

August 26, 2005
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View Point

By Jayanata Roy

Regionalism is fast threatening multilateralism. As Peter Sutherland observed, MFN (Most-Favored Nation treatment) is almost a dead letter—virtually all WTO (World Trade Organisation) members are engaged in preferential trade arrangements. India and China are fast realising that they need to recognise this trend and act accordingly. China is negotiating FTAs (Free Trade Areas) with 23 countries/regional groupings, while India is doing so with seven countries/groupings.

In fact, both India and China are contemplating an Asian Economic Community, comprising Association of Southeast Asian Nations (ASEAN), China, India, Japan and Korea. A prerequisite is strong bilateral ties between India and China. China has already established its leadership in East Asia. India needs to strengthen trade ties with its neighbours. It should strategically consider the Nepal transit corridor to boost trade with China and Nepal. It is almost certain that Asia will re-emerge as the dominant global economy in the next few decades, spearheaded by India and China. So there is a need to explore logistical connectivity between the Asian giants through air, sea, rail and road. Logistical infrastructure between China and India is central to the development of intra-Asian trade networks. The India-China-Nepal corridor has to be seen as an integral part of this larger strategic picture.

The existing facilities for overland trade between India and Nepal, Nepal and Tibet, and alternative routes from India to Tibet (bypassing Nepal) have to be reviewed to gauge the economic feasibility of an India-China-Nepal corridor. It must include the scope for trade between India and China and the externalities to be derived by Nepal from this corridor. The India-Nepal overland trade is through the corridors of Raxaul, via Birgunj and through Gorakhpur, via the Sunauli-Siddharthnagar border. Connectivity remains poor on account of the following factors:

• Poor quality roads that are inadequate for traffic even at current levels. Their condition worsens during the monsoons.

• Substantial wait time for trucks at the border.

• Recent outbreak of Maoist insurgencies has led to an atmosphere of insecurity.

The problem is exacerbated by poor trade facilitation on other fronts, too. Customs clearance takes time and is subject to the whims of officials. There are too many forms requiring approval from different agencies. Expediting clearance procedures is an urgent requirement. Following the worldwide success of shared border facilities, India, Nepal and China should integrate their border posts and booths to reduce border-crossing costs. Sharing equipment and infrastructure for truck inspection and sharing data and intelligence can generate further economies of scale.

A single-window inspection, as in Singapore and several other countries, should be adopted to take care of delays due to forms and signatures. Overland trade between Nepal and Tibet encounters similar problems and requires the same solutions. India, however, has more options for road connectivity to China. Such as: Ladakh-Kashi, Tibet-Sikkim (Nathula-Yarlung), the Tawang corridor and Ledo-Myanmar. The Nathula-Yarlung corridor appears most promising in the short-run, given the good roads network and India’s ability to take decisions without Nepal’s involvement. In the long run, though, the Nepal corridor is of great strategic importance to India, as it will allow exporters easy access to the three regional markets of western China— Tibet, Qinghai and Sichuan. Sichuan, particularly, is a huge market for Indian goods and services. Given Chengdu’s emergence as a technology hub, there is potential for joint ventures in the development of hardware and software.

The Nepal corridor will also promote Indian exports to Nepal, as well as discourage unofficial trade flows from China through Nepal as re-exports with a mark-up. The corridor will also be more accessible to the economic centres of Ahmedabad and Mumbai than the Tibet-Sikkim transit corridor. The Nepal corridor is a step towards fulfilling India’s ambition to play a central role in Asian trade, investment, energy, security and geopolitics. The corridor, along with the ones linking Central Asia, southwest China and southeast Asia will be pivotal in fulfilling this goal.