By refusing to compromise on the issue of service charge, hotel owners and unions are once more waiting to see who blinks first. This time it is not just the hotels and employees who will be affected, the whole economy better brace itself for a catastrophic crash-landing. The impending disaster is only the latest indicator of a crisis of governance in our country, as the government belatedly began its efforts to restart mediation.

Hotel owners say the demand for a 10 percent service charge for employees is outrageous, and are determined to go for a lockout. The hotel unions facing them say they are prepared for a showdown. The two sides are digging in and don't appear to be in any mood for compromise. Even if a dramatic reconciliation occurs over the weekend, much of the damage will already have been done: Nepal's hotels, travel agents, trekking agencies and foreign airlines have begun notifying overseas tour operators that they cannot guarantee hotel rooms for guests after 11 December, while those already in Nepal have been advised to make "alternative arrangements".

The threat of strike couldn't have come at a worse time for the county's tourism industry which has only just begun recovering from bad publicity following the hijacking of IC 814 almost exactly a year ago. The autumn season saw a healthy growth in non-Indian arrivals as two more international airlines began services to Nepal, and Royal Nepal Airlines finally expanded capacity with the lease of a Boeing 767.

All agree that the long-term impact of an indefinite hotel strike will be worse than a hijacking. It will not be confined to tourism, the fallout will affect all downstream activities that depend on tourism: from pashmina workers to breweries, domestic airlines to taxis, poultry and vegetable farmers to folk dancers. "I can't even attempt to quantify the losses of an indefinite strike," says Pradeep Raj Pandey, whose job as head of the Nepal Tourism Board is to bring more tourists to Nepal. "I am worried about what would happen if the hotels were to close for just one day."

A Nepali Times survey this week showed that if the strike goes ahead at current occupancy levels hotels all over Nepal will cancel daily purchases of food, provisions and fuel worth Rs 15 million from local markets. Add room sales, the multiplier effect on handicraft shops, restaurants, treks, safaris, casinos and you come up with a figure of more than Rs 264 million of lost income per week for the country. A longer strike would hurt the one million Nepalis dependent on salaries of people employed in the tourism industry.

Hotel employees are represented by two labour unions affiliated to the ruling Nepali Congress and the UML communists, and have united under the Hotel Workers' Joint Agitation Committee which had threatened strike last month, but called it off at the last moment after the government set up a high-level mediation committee. But the unions refused to talk to this committee, saying they were tricked. After meeting deputy prime minister Ram Chandra Poudel on Wednesday, we were told the unions had finally agreed to sit down with the committee.

Union leaders say service charge is an internationally accepted practice, and argue that it would actually help the GNP by increasing the living standards of hotel employees. Laxman Basnet of the NC-backed Nepal Trade Union Congress says: "We have to put tourism workers under a social safety net, and a service charge would do this, and at the same time force hotel owners to be more transparent with their taxes." Basnet denies that there has been any political pressure on his union to discontinue the strike. "Strike action is a form of negotiation," he adds.

Both sides have told Prime Minister Girija Prasad Koirala and the leader of the opposition, Madhav Kumar Nepal, their side of the story. The two leaders are fully aware of the seriousness of the issue, but so far appear to want to let matters take their own course. Faced with possible liability claims from clients should there be a last-minute strike, HAN has decided to play it safe by stopping bookings. Those still home may have time to revise their itineraries, but tourists already in India or other countries on their way to Nepal will have no option but to cancel their visits. Said one hotel manager: "It doesn't make much of a difference for us. If you close down for a week, you may as well close down for the whole season, this is not a business in which you can just turn the switch on and off." Says another hotel manager in Pokhara: "This is an extremely fickle industry, you don't fool around with it. We had one major conference for December, and full bookings for New Year's. We don't know how we are going to handle that."

It is obvious that the employers, unions and the government are behaving as if this were a classic strike in a coal mine, or a garment factory. It isn't. Even the threat of strike can cripple an industry that contributes 15 percent of the country's hard currency income. As the negotiations broke down this week, it was clear that the strike represented a collapse of institutions. The Tourism Ministry was nowhere in the picture, and no one trusted anyone. The unions don't trust the owners and vice versa, neither trusts the government, and the government doesn't trust hotel owners.

It is also becoming evident that there are other games being played behind the scenes: government officials say privately they think hotels are a pampered bunch of tax evaders and wants to teach them a lesson, hotel owners think their contribution to the economy has never been recognised by a government that only wants to pile on more taxes and squeeze them dry. Hotel managements also want more friendly labour laws and that the hotel industry be declared an Essential Service, something that politicians will hardly find feasible at the moment. Besides, as the hospital strike shows, declaring something an Essential Service doesn't mean much anyway.

HAN has firmly said that it will not negotiate under threat of a strike, but it could sit down to discuss the unions' demand provided the government and workers agree to review the Labour Law. Says one hotel manager: "A 10 percent service charge would add 50 percent to my salary budget. We could pass it to our clients, but the minute you pass it on to your clients you don't have clients anymore."

Nepal has to compete with countries like Laos and Vietnam in the wholesale tour markets of Europe and North America, and middlemen are getting more and more price-conscious. But the unions are just not ready to listen to these arguments. We asked them if they had taken into account the economic impact of the strike. Bishnu Rimal, of the UML-affiliated General Federation of Trade Unions (GEFONT), deflecsted the question by saying that employees have struggled 20 years for the service charge, and the hotel owners have exploited their flexibility. He says adamantly: "Nothing has changed, the strike is still on."


Rimal says if the hotels accept the service charge in principle the strike can still be called off and the unions can begin negotiations. This could be the beginning of a compromise, and there is a last hope that the government's mediation committee may be able to hammer out a last-minute compromise. But with positions so rigid, it could prove difficult. Hotel owners say they want it resolved once and for all, and they're willing to shut down for months if that is what it takes. With this kind of a stalemate, each side blind to the concerns of the other, and a government that doesn't seem to have grasped the gravity of the crisis, the country teeters on the brink.