Identifier
Created
Classification
Origin
06KATHMANDU267
2006-01-27 10:18:00
CONFIDENTIAL
Embassy Kathmandu
Cable title:  

NEPAL-INDIA TRANSIT TREATY EXTENDED ONLY THREE

Tags:  ECON ETRD EINV BEXP ELTN IN NP 
pdf how-to read a cable
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C O N F I D E N T I A L SECTION 01 OF 02 KATHMANDU 000267 

SIPDIS

SIPDIS

DEPT FOR SA/INS

E.O. 12958: DECL: 01/27/2016
TAGS: ECON ETRD EINV BEXP ELTN IN NP
SUBJECT: NEPAL-INDIA TRANSIT TREATY EXTENDED ONLY THREE
MONTHS


Classified By: Ambassador James F. Moriarty, reasons 1.4 (b/d)

SUMMARY
-------

C O N F I D E N T I A L SECTION 01 OF 02 KATHMANDU 000267

SIPDIS

SIPDIS

DEPT FOR SA/INS

E.O. 12958: DECL: 01/27/2016
TAGS: ECON ETRD EINV BEXP ELTN IN NP
SUBJECT: NEPAL-INDIA TRANSIT TREATY EXTENDED ONLY THREE
MONTHS


Classified By: Ambassador James F. Moriarty, reasons 1.4 (b/d)

SUMMARY
--------------


1. (C) India and Nepal agreed at meetings held in New Delhi
at the beginning of January to extend the Indo-Nepal transit
treaty for three months instead of renewing it for seven
years. The treaty provides for smooth movement of commercial
goods through India, Nepal's largest trading partner. In
1989, after a similar interim extension period had expired,
the Government of India (GOI) virtually shut down the
Indo-Nepal border, crippling Nepal's economy. The head of
the Nepali delegation believes that business issues unrelated
to the treaty was the cause for India agreeing only to an
interim agreement. End Summary.

TREATY EXTENDED ONLY THREE MONTHS
--------------


2. (SBU) India and Nepal could only agree to extend the
Indo-Nepal transit treaty for three months rather than sign
another seven year treaty at review meetings held January 4-5
in New Delhi. The treaty provides conditions for the
movement of commercial goods between India and Nepal. As 61
percent of Nepal's total trade is with India, Nepal's economy
depends largely on the ability to move goods freely and
efficiently through its border with India and Calcutta port.
There has been an Indo-Nepal trade treaty since 1950, with
the issue of transit points first appearing in a 1971 treaty
renewal. In 1989, after a similar treaty extension period
had passed, India closed the majority of transit points with
Nepal over political differences and crippled Nepal's
economy. The current transit treaty went into effect on
January 6, 1999, and called for a seven year extension after
it expired on January 5, 2006, pending review by both
countries. India had notified His Majesty's Government of
Nepal (HMGN) that it wished to review the treaty in November

2005. HMGN and GOI officials have not yet made plans for
further review meetings.


UNABLE TO REACH AGREEMENT ON KEY POINTS
--------------


3. (C) The GOI named five points of concern for review in
the meetings: the rationalization of transit points; a
guarantee system to protect third-country shipments; the
movement of sensitive goods to prevent smuggling; the
incorporation of the existing rail services agreement into
the transit treaty; and the ability to ship goods from one
point in India to another, via Nepal. Jawed Ashraf, Economic
Officer at the Indian Embassy in Kathmandu, lamented to
Emboff that "Nepal expected India to just renew the treaty
and accept what Nepal wanted without giving any responses to
our inquiries." Naindra Upadhayay, Joint Secretary at the
Ministry of Industry, Commerce and Supplies and head of the
Nepal delegation, told Emboff that Nepal had been prepared to
agree to all of the GOI delegation's terms, but the Indian
delegation had claimed it needed approval from higher
authorities to finalize the treaty. Ashraf said the lack of
responses from Nepal had resulted in the necessity for a
three month interim extension of the treaty.

Rationalization of Transit Points
--------------


4. (C) Most important to Nepal are the 15 transit points on
the Indo-Nepal border provided for in the treaty. Upadhayay
asserted India had proposed to reduce the number of transit
points, to which he had argued that more transit points would
benefit both countries in light of Nepal's World Trade
Organization (WTO) commitments and the changing global trade
regime. Ashraf stressed that the GOI "desired to be
extremely accommodating" on transit points; rationalization
did not necessarily mean reducing the number of transit
points, but Nepal should justify the need for the 15 points.

Bank Guarantee for Third Country Shipments
--------------


5. (C) HMGN worried that the Indian proposal that all
third-country shipments transiting India have a bank

KATHMANDU 00000267 002 OF 002


guarantee to guard against liability issues for stolen
shipments would be costly for Nepal. Upadhayay explained
that a bank guarantee requirement would raise the already
high transportation costs for Nepali shippers, increasing the
cost of Nepali imports and exports.

ISSUES RAISED BY INDIA ON SIDELINES - AGREEMENT STOPPERS?
-------------- --------------


6. (C) Upadhayay explained that on the sidelines of the
transit treaty review meetings, the Indians had raised an
on-going dispute regarding United Telecom Limited (UTL),and
expressed a desire for a change in Nepal's current foreign
employment laws for Indians. He opined that these issues
were the main cause for India deferring renewal of the
transit treaty. He also mentioned that other "political
concerns" might have played a part in India's decision. The
Joint Secretary worried that the GOI delegation had decided
in advance of the review meetings only to extend the transit
treaty for three months. He noted that the Indian Ministry
of Commerce had faxed an extension letter for the Nepal
Commerce Secretary's signature while the review meeting was
still on-going in New Delhi.

United Telecom Losing Money in Nepal
--------------


7. (SBU) UTL, an Indo-Nepal telecom joint venture, owned 80
percent by Indian government agencies and 20 percent by a
private Nepali company, has a history of complaints about
doing business in Nepal. Three years ago, the Supreme Court
prevented UTL from importing smaller Code Division Multiple
Access (CDMA) cell phones to Nepal. UTL claimed its
inability to introduce smaller CDMA handsets greatly reduced
the company's competitiveness in Nepal's mobile phone market.
Other grievances include the loss of revenue caused by the
disruption of UTL wireless phone service after the February 1
royal takeover. UTL believes HMGN discriminated against them
in favor of Nepal Telecom, which recently has been given
approval to use CDMA technology. UTL wireless service was
down from January 19 to January 26 when HMGN cut wireless
service before scheduled mass demonstrations, causing UTL a
loss of approximately USD 280,000 a day, whereas the
government allowed Nepal Telecom to restore service to
post-paid cell phones on January 23.

India Wants Foreign Employment Rules Changed for Indians
-------------- --------------


8. (SBU) A 1950 Treaty for Special Treatment to Nepalese
allows Nepalese to work in government or private sector jobs
in India and own property without limit. India has been
pressing Nepal to reciprocate and allow Indian citizens to
work in Nepal without limit. Current Nepali law limits
expatriates to a maximum three year period to work in Nepal;
however, Indians are not required to obtain visas to work in
Nepal.

COMMENT
--------------


9. (C) It is unclear whether the three month extension is
really tied to the UTL or foreign employment law issues or a
GOI reminder to Nepal of its dominant position and ability to
hold Nepal's economy hostage as it did in 1989. India has
once again shown it could use the transit treaty negotiation
points as political leverage and continue to stall treaty
renewal, vital for Nepal.
MORIARTY