Our secretary for Industry, Commerce and Supplies Bhanu Acharya is in New Delhi this week to discuss ways to get the Nepal-India trade treaty renewed before it expires on 5 December. Given the experience of the past two rounds, there is a possibility that the talks may be deadlocked yet again and Acharya may return with an agreement to meet again. Back home he would be charged with not having done enough homework, or not being able to understand India's "concerns." There is a strong possibility that the talks won't go anywhere because we just don't know what India wants incorporated in the revisions.
Officials from the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), which had lobbied to get the 1996 treaty signed by India, has been trying to tell Nepalis what India wants. They tell us privately that if Nepal agreed to India's changes in rules of origin and value addition, the treaty could be renewed. But they aren't sure if that alone will do the trick.
The FNCCI handed in a report to the prime minister about a month ago, and only a month later did it become public. Commerce Ministry officials had not even seen it before that. Officials there are said to have tried to get a copy and were unable to locate one at the Prime Minister's Office earlier.
India is said to want Nepal to agree on adding 30 percent value as the basis for origin certification-against free trade, without any quantitative restrictions. If that is done India would agree to a renewal without seeking additional changes. It is said the out-going commerce secretary and our ambassador in New Delhi had agreed to this new provision.
But this is easier said than done because nobody in government seems to know what the value addition means in practice. By one measure it could mean: output minus input divided by output. This means the added value in hydrogenated vegetable oil-Nepal's main export to India-would be around 14 percent. But the FNCCI says Nepali vegetable oils would still be eligible for duty-free exports without quantitative restrictions. That leads to the next question: How is the added value India is talking about calculated? The FNCCI is mum on this though its officials claim the 30 percent was something they had proposed.
Nepali officials are said to have asked their Indian counterparts to prepare a version of the treaty for discussion when the two sides met in Kathmandu in August. Nepal was assured this would be tabled when the joint secretaries would meet in New Delhi-that meeting is over, and there was no draft.
It is not fair to blame Nepal for failing to reach an agreement as they have nothing concrete to work with. This week our ambassador in New Delhi said the reason behind the stalemate was our inability to do our homework in time to address India's "concerns". I would like to ask the ambassador if he had communicated those concerns to the government, and if he can explain them to the Nepali public?
The best that can happen for Nepal is automatic renewal. If that is not possible, the minimum we expect Mr Acharya to come back with is a clear understanding of what India wants. India can help by telling us clearly whether it wants trade under the Most Favoured Nation regime or continue the preferential treatment granted by the treaty to Nepali exports. Nepali officials who see the treaty working well to boost exports cannot go about guessing what India wants. -they have simply never been told.
Could India gain by forcing Nepal to plead for agreement on 30 percent value addition? There is a possibility: it would be difficult for India to negotiate for concessions with its larger trading partners after imposing restrictions on a poor, small neighbour when the November WTO round begins in Doha.
A win-win scenario for Nepal and India is to agree on renewing the treaty as it is, automatically, before it expires. Nepal would also need to do is take immediate actions to address the sensitive issues of "surge" and "dumping" of certain Nepali and assure India such acts will not be allowed to happen again, because we must accept that there are certain things just not right with how we are trading.
(Dr Chalise is the former Secretary of Industry)