US embassy cable - 03KATHMANDU363

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, India Relations 
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 
--------------------------------------- 
 
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 
-------------------------------- 
 
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