INDO-NEPAL COMMERCIAL TRANSPORTATION

UNCLAS SECTION 01 OF 02 KATHMANDU 000363

SIPDIS

STATE FOR SA/INS
LONDON FOR POL/ERIEDEL


E.O. 12958: N/A
TAGS: PREL ELTN NP IN XD
SUBJECT: INDO-NEPAL COMMERCIAL TRANSPORTATION
NEGOTIATIONS STALL

SUMMARY
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1. ON FEBRUARY 10-14, REPRESENTATIVES FROM INDIA AND
NEPAL MET IN KATHMANDU TO NEGOTIATE RAILWAY AND TRANS-
BORDER MOTOR VEHICLE TRAFFIC AGREEMENTS, WITH LIMITED
RESULTS. THE GOVERNMENT OF NEPAL (GON),UNDER
SIGNIFICANT PRESSURE TO OPEN ITS WORLD BANK-FUNDED
INLAND CONTAINER DEPOT (ICD),MADE A NUMBER OF
COMPROMISES INCLUDING AGREEING TO INDIAN MANAGEMENT
OF THE DEPOT AND TO REDUNDANT CUSTOMS PROCEDURES FOR
TRANSITING CARGO. INDIA'S INSISTS ON LINKING
CONCESSIONS MADE MOTOR VEHICLE TRAFFIC TO PROGRESS ON
A RAILWAY AGREEMENT. INDIA'S NEGOTIATING PLOY COMES
AT THE EXPENSE OF NEPALI CONSUMERS AND EXPORTERS, WHO
WOULD BENEFIT FROM THE ESTIMATED FORTY PERCENT
REDUCTION IN TRANSPORTATION COSTS THAT WOULD ENSUE
FROM IMPLEMENTATION OF THE ICD. END SUMMARY.

NEPAL-INDIA TRANSPORTATION NEGOTIATIONS
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2. ON FEBRUARY 10-14, REPRESENTATIVES FROM INDIA AND
NEPAL MET IN KATHMANDU FOR THE THIRD ROUND OF TALKS
ON THE NEPAL-INDIA RAILWAYS AGREEMENT (NIRA) AND
REGULATION OF TRANS-BORDER MOVEMENT OF MOTOR VEHICLES
(RTMMV). THE NEGOTIATIONS WERE HELD IN CONSECUTIVE
MEETINGS DURING THE WEEK BUT WITH FEW RESULTS.


NIRA KEY TO NEPAL'S TRADE FUTURE
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3. THE REPRESENTATIVES OF THE GOVERNMENT OF INDIA
(GOI) AND OF THE GOVERNMENT OF NEPAL (GON) FACED THE
SAME THORNY ISSUES IDENTIFIED IN THE FIRST TWO
NEGOTIATING ROUNDS ON THE RAILWAY TREATY, IDENTIFYING
AN OPERATOR FOR THE BIRGUNJ INLAND CONTAINER DEPOT
(ICD) AND AGREEING TO SIMPLIFIED CUSTOMS CLEARANCE
PROCEDURES. THE GON IS UNDER PRESSURE TO CONCLUDE
THE AGREEMENT, AS THE ICD IS IN DEFAULT TO THE WORLD
BANK FOR THE USD 28.5 MILLION PROJECT. THE WORLD
BANK HAS EXTENDED THE DEADLINE FOR THE ICD'S
OPERATION TO SEPTEMBER 2003; SHOULD IT LAPSE, THE
BANK MAY BE FORCED TO LIQUIDATE THE FACILITY. (NOTE:
TWO OTHER ICDS IN BHAIRAHAWA AND BIRATNAGAR ARE
ALREADY IN OPERATION, WHILE THE BIRGUNJ FACILITY,
WHICH IS THE ONLY FACILITY WITH RAIL CONNECTIONS AND
THE TRADITIONAL TRADE ROUTE WITH THE PORTS IN
KOLKATA, IS YET TO OPEN. END NOTE.) ONCE THE
BIRGUNJ ICD COMES INTO FULL OPERATION, TRANSPORTATION
COSTS FOR NEPALI EXPORTERS, MOST OF WHOSE GOODS
TRANSIT INDIA, ARE EXPECTED TO DROP BY 40 PERCENT.


4. INDIA HAS DELAYED FINALIZATION OF A RAILWAY
AGREEMENT, INSISTING ON INSPECTING CONTAINERS BOTH AT
THE PORT OF ENTRY AND ON THE INDIAN SIDE OF THE
BORDER BEFORE ENTRY INTO NEPAL. THE GON HAS INSISTED
ON A "ONE-TIME LOCK" SYSTEM, ENSURING DIRECT ENTRY OF
THE CONTAINERS TO THE ICD ONCE THEY HAD BEEN
INSPECTED AND LOCKED IN KOLKATA, INDIA. INDIA HAS
ALSO STIPULATED THAT, IN POSSIBLE CONTRAVENTION OF
THE TERMS OF THE WORLD BANK LOAN, THAT THE CONTRACT
FOR OPERATING THE ICD INCORPORATE AN INDIAN MANAGER.
ACCORDING TO NEPAL'S LEAD NEGOTIATOR, PURUSHOTTAM
OJHA OF THE MINISTRY OF INDUSTRY, COMMERCE, AND
SUPPLY, NEPAL CONCEDED TO INDIA'S DEMANDS. FOR THEIR
PART, INDIAN NEGOTIATORS AGREED TO SIMPLIFY DOCUMENT
REQUIREMENTS AND CUSTOMS CLEARANCE PROCEDURES.

NEPAL-INDIA MOTOR VEHICLE TRANSPORTATION TALKS
-------------- -


6. NEPAL AND INDIA HELD SEPARATE BILATERAL
NEGOTIATIONS ON THE REGULATION OF TRANS-BORDER
MOVEMENT OF MOTOR VEHICLES (RTMMV),WHICH ALSO
GARNERED FEW RESULTS. THE NEGOTIATIONS FOCUSED ON
TWO AREAS OF CONCERN: PASSENGER TRANSPORTATION AND
CARGO TRANSPORTATION.


7. ACCORDING TO DR. MADAN BHATTARAI, MINISTRY OF
FOREIGN AFFAIRS JOINT SECRETARY FOR SOUTH ASIA, GON
REPRESENTATIVES OFFERED DIRECT BUS SERVICES TO 11
MAJOR NEPALI CITIES FOR INDIAN BUS OPERATORS.
HOWEVER, INDIA, CITING SECURITY CONCERNS, REPORTEDLY
STOOD FIRM IN BARRING DIRECT ACCESS FOR NEPALI
VEHICLES TO MAJOR CITIES LIKE DELHI, KOLKATA, AND
PATNA, LEADING NEPAL TO DENY ENTRY INTO KATHMANDU AND
POKHARA. IN TERMS OF CARGO TRANSPORTATION, INDIA
REQUESTED THE FREE PASSAGE OF CARGO VEHICLES WITHIN
NEPAL. NEPALI TRUCKING COMPANIES AND THEIR
ASSOCIATIONS EFFECTIVELY PRESSURED THE GON DENY THE
INDIAN REQUEST. NEPALI TRANSPORT COMPANIES FELT
THREATENED, AS CARGO COMING FROM INDIA AND INDIAN
PORTS WOULD NO LONGER REQUIRE TRANSFER TO NEPALI
CARRIERS AND NEPALI OPERATORS HAVE LITTLE CONFIDENCE
THEY WOULD RECEIVE RECIPROCAL TRANSIT RIGHTS IN
PRACTICE.

COMMENT
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8. OBSERVERS HERE ARE SKEPTICAL OF AN EARLY
RESOLUTION TO THE PROBLEMS RAISED DURING THE NIRA AND
RTMMV NEGOTIATIONS. INDIA'S NEGOTIATING TACTICS ON
NIRA LEVERAGE NEPAL'S DEPENDENCE ON INDIAN PORTS, AND
ITS LIABILITY TO THE WORLD BANK FOR THE CONTAINER
DEPOT. DUE TO THE OPEN BORDER, INDIA'S CROSS-BORDER
SECURITY CONCERNS DO NOT STAND UP TO SCRUTINY AND
APPEAR TO BE ANOTHER MEANS TO DEFLECT NEPAL'S
REQUESTS FOR RECIPROCAL COMMERCIAL BUS OPERATIONS.
IN WHAT APPEARS TO BE ANOTHER CALCULATED MOVE, INDIA
HAS TIED CONCESSIONS ON CARGO TRUCKS TO OPENING THE
CRITICAL ICD FACILITY TO RAIL TRAFFIC. THE
DIPLOMATIC MANEUVERING OVER THESE AGREEMENTS COMES AT
THE EXPENSE OF NEPALESE CONSUMERS AND EXPORTERS, WHO
FACE HIGHER COSTS. CONTINUED DELAY ONLY BENEFITS
INDIA, AS A MEANS OF PRESSURING NEPAL INTO MAKING
DEEPER CONCESSIONS.

MALINOWSKI