Beijing on Wednesday allowed Nepal's exports to pass into China through the Kerung-Rasuwagadhi border after keeping it shut to two-way traffic for three years.

Chinese goods have been entering Nepal intermittently through Kerung, one of the two international border points on the Nepal-China border, but it was no go in the other direction.

“The two-way trade through the Kerung/Rasuwagadhi border port has been resumed today. After a ceremony, 6 cargo trucks full of Nepali goods passed through the port into China. Looking forward to more Nepal’s export to China!” the Chinese Embassy in Kathmandu tweeted.

The fate of another border point further to the east at Tatopani is uncertain. Once a hotspot for transit commerce, Tatopani has lain abandoned since the 2015 earthquake destroyed the infrastructure and trans-Himalayan trade came to a halt.

Nepali traders, who are reported to have suffered massive losses by missing out on the holiday shopping seasons in 2021 and 2022 after China halted all shipments through the border, have been calling the policy a trade embargo.

For years, China had permitted only outbound shipments to pass through the Kerung-Rasuwagadhi border point, about 175 km north of Kathmandu, and that too under a quota system.

From January 2020 when the coronavirus pandemic was beginning to spread, there was a near halt in the arrival of cargo containers from China to Nepal. Trade still has not resumed fully, with the northern neighbour placing strict restrictions at the border. Even then, imports from China swelled in the last fiscal year ended mid-July 2021.

According to the Department of Customs, imports from China in fiscal 2020-21 rose 28.58 percent year-on-year to Rs233.92 billion.

Before Covid in fiscal 2018-19, imports amounted to Rs205.51 billion. In 2017-18, imports were valued at Rs159.98 billion, up from Rs129.87 billion in fiscal 2016-17.

Nepal suffers a huge deficit in its trade with China. If Nepal imported Rs233.92 billion worth of goods from the northern neighbour in 2020-21, its exports across the Himalaya were valued at a mere Rs1 billion.

This translates into a trade deficit of Rs232.90 billion, which accounted for 14 percent of Nepal’s total trade deficit in fiscal 2020-21.

The Kerung-Rasuwagadhi border point, a conduit for political, economic and cultural exchanges between the two countries for centuries, became official in 1961, and was approved as China’s national first-level port in 1987.

After Beijing closed the border crossing, the Nepal government had multiple talks with China to persuade it to ease the movement of vehicles, but nothing came of them.

Nepal exports mainly handicrafts produced by small and medium enterprises and herbs to China. Transport restrictions have pushed them to the brink of collapse.

In Kathmandu, economists and trade experts blamed the failed economic diplomacy with China and other countries as the reason behind Nepal’s ballooning trade deficit.

Though the country saw a 41.7 percent increase in the export of goods to Rs200.03 billion, imports stood at Rs1.9 trillion in the past fiscal year ended mid-July.

“Our trade policies are inclined to promote import rather than export,” said Bharat Raj Paudyal, secretary at the Ministry of Foreign Affairs, at a programme organised by South Asia Watch on Trade, Economics and Environment (SAWTEE), a trade think tank, in Kathmandu on Wednesday.

Nepal has the potential to increase its exports by 12 times, according to a report published by the World Bank last year.

“This report estimates Nepal’s untapped export potential or 'missing' exports at around $9.2 billion, 12 times the actual annual merchandise exports,” he said.

Industry insiders say Nepal needs to enhance its economic diplomacy to promote exports.

“Nepali missions abroad need to prioritise economic diplomacy to increase trade,” said Toyam Raya, secretary at the Ministry of Industry, Commerce and Supplies. “A review of the existing trade policy has reached the final stage, and it will be made public soon.”

Though officials at the Nepali missions abroad are given orientation on how to conduct economic diplomacy, they have failed to comprehend its importance, experts say.

Foreign Secretary Paudyal agrees that the Foreign Ministry has not been able to deliver on economic diplomacy, which he attributes to lack of sufficient manpower. “Most of Nepal's foreign missions are occupied by migrant worker-related issues,” he said.

Labour migration researchers blame Nepali missions for failing to effectively deliver their services towards migrant workers.

“Supply constraints, low productive capacity, incoherent policies, inability to leverage new and emerging sectors and poor implementation of the existing policies have affected the trade sector,” Paudyal added.

The federal structure should have been used to capitalise on the strength of the local units and their potential, but the centralised tendency has sidelined this possibility, speakers said at Wednesday’s programme.

“Along with the formulation of a result-oriented action plan, the government needs to tailor its existing institutions to implement trade policies,” said Paudyal.

“High trade costs because of being a landlocked country has also affected Nepal’s exports,” said SAWTEE Chairman Posh Raj Pandey.

The Nepal Trade Integration Strategy (NTIS) is being updated.

“Nepal’s existing trade policy adopted in 2015 does not incorporate federal structures,” said Purushottam Ojha, former secretary at the Ministry of Industry, Commerce and Supplies.

“Local governments need to be included in the formation of trade policies. Agro-based products need to be prioritised for exports.” he added.