Transit Protocol with China to come into effect from February, but there are obstacles aheadThe primary challenges to third-country imports via Chinese ports have to do with infrastructure in Nepal and a lack of knowledge about Chinese processes.
Ten months after signing the Protocol on Implementing the Agreement on Transit and Transportation between Nepal and China, Beijing has officially notified Kathmandu that it has completed all domestic legal procedures. This means that the protocol will come into effect from February 1.
Nepal and China signed the transit protocol in Beijing on April 29, during the visit of President Bidya Devi Bhandari.
After completing all domestic procedures, Nepal, on August 9, had notified China and had been waiting for a notification from Beijing.
According to officials familiar with developments, China notified the Nepali Embassy in Beijing on December 25. The embassy then forwarded the notification to Kathmandu and acknowledged the same to the Chinese Foreign Ministry on December 31, said officials.
The transit protocol allows Nepal access to seven Chinese sea and land ports for third-country trade. So far, all of Nepal’s third-country trade takes place via India.
“Now the deck is clear for Nepali businesspersons to conduct third-country trade via China,” said Navaraj Dhakal, joint-secretary at the Ministry of Industry and Commerce. “But there are challenges ahead.”
There are major concerns about infrastructure on the Nepali side, the lack of a trained workforce, and a language barrier.
With the protocol coming into effect, the immediate work will be to hold negotiations with shipping liners and importers, who will sort out issues related to shipments. Shipping liners are akin to agents who take the responsibility of importing and exporting goods from the country of origin to the next destination without any damage or tampering.
Nepali importers could face issues regarding the mode of transportation, cost, timing, non-tariff barriers, adminstrative hassles, and proper documentation, said former and sitting Nepali officials.
“We do not know how much time it will take for businesses to start importing goods from the nearest Chinese seaports,” said Dhakal. “We also do not know the cost of consignments from Chinese seaports to Nepal.”
The nearest Chinese seaport is Tianjin, which is 4,000 kilometres from the Nepal border—four times the distance between Birgunj and Kolkata in India.
“We will help freight forwarders initiate the process of importing goods via Chinese seaports. Once we begin the process, then we will know the challenges and how they can be mitigated,” said Dhakal.
The condition of roads on the Nepali side will be a major obstacle, said officials. To ensure an early start to third-country trade via Chinese ports, Nepal must work on a war footing to upgrade roads and highways and install other necessary infrastructures like customs, quarantine, and digitise all facilities at the border, and construct dry ports.
“Roads on the Chinese side are good, but we have poor infrastructure. We are already facing a lot of hassles on our side while importing goods from China,” said Prakash Karki, president of Nepal Freight Forwarders Association. “Unless such bottlenecks are cleared, it is going to take a long time for Nepali businesses to use Chinese ports.”
According to Karki, language can be yet another issue while dealing with the Chinese. “We are habituated to importing goods via India, where the language is not a problem,” Karki told the Post. “But since we have never imported goods from China, we don’t exactly know what the advantages or disadvantages will be.”
Despite being a friendly neighbour to the north with over six decades of diplomatic relations, Nepal only started looking to China for the possibility of third-country trade after the Indian border blockade of 2015.
During his visit to Beijing in 2016, Prime Minister KP Sharma Oli signed the Transit and Transportation Agreement aiming to break Nepal’s complete dependence on India for third-country trade.
But it took almost three years to sign the protocol for the agreement, without which Nepal could not access Chinese sea and land ports.
The signing of the protocol meant Nepal could use four Chinese seaports—in Tianjin, Shenzhen, Lianyungang and Zhanjiang—and three land ports—in Lanzhou, Lhasa and Shigatse—for third-country import. It will also allow Nepal to carry out exports through six dedicated transit points between Nepal and China.
But progress since the protocol signing has also been sluggish, with months between Kathmandu and Beijing’s notifications regarding domestic readiness.
Nepal imports goods from China through the Tatopani and Rasuwa crossings, but the trade volume via Tatopani has sharply reduced due to several bottlenecks, according to an official who oversees cross-border business matters at the Ministry of Industry and Commerce.
“The Rasuwa-Kathmandu road is not in very good shape and it frequently sees landslides,” the official, who spoke on condition of anonymity, told the Post. “There has been no progress in the opening of more routes through Humla, Mugu, Dolpa, Mustang, Dolakha, Sankhuwasabha and Taplejung.”
According to the official, until more routes are opened and infrastructure is built on the Nepali side, Nepal won’t be able to make the most of the transit protocol.
Rabi Sainju, a former joint-secretary who initiated the protocol talks with China, said it will be difficult to identify challenges on the ground until Nepali private sector starts importing goods.
“Due to long distances, the costs will certainly be high. However, the time spent on bringing the goods to Nepal will be shorter,” said Sainju.
According to Sainju, it takes around two to three months to import goods from Japan or South Korea to Nepal via Indian sea routes.
“Similar consignments via Chinese ports could arrive in Nepal in about three weeks,” said Sainju. “This can be an advantage.”
But officials said that the Nepali side does not know much about the Chinese railway system.
“That’s why I am saying we need to bring some consignments via China to understand the pros and cons,” said Sainju.
Dhakal, however, said the government is all set to implement the protocol and that private businesses should be prepared to start conducting third-country trade via Chinese ports.
“If problems surface, the government will help,” said Dhakal.