खाद्य–तेल निकासीमा संकट

 व्यापार सम्झौताअनुरूप नै निर्यात भएको कुनै वस्तुमाथि भारतले निकालेको किचलोलाई सहजै स्विकार्ने हो भने भइरहेका र भविष्यमा हुन सक्ने अन्य अवरोधलाई प्रोत्साहन मिल्छ ।

  

Published in Nayapatrika daily, 20 June 2021

 https://www.nayapatrikadaily.com/news-details/65917/2021-06-20

 Geopolitics raises ugly head in life-and-death struggle

That the world is an iniquitous place is no profound statement. Yet, it is still shocking to see people dropping dead from COVID by the hundreds per hour because sufficient production of vaccines and their equitable distribution could not be ensured even as finger-pointing and geopolitically motivated rabble-rousing were in full display over the last one year.

Estimates have it that at least 70 percent of the world's population must be vaccinated to achieve herd immunity. COVAX, the global arrangement aimed at ensuring fair and equitable access to COVID-19 vaccines for all, has a target of vaccinating 20 percent of the global population—and even that is appearing to be a tall order. According to a Duke University study, as of mid-January, 60 percent of the more than seven billion vaccine doses purchased globally had gone to high-income countries, which represent only 16 percent of the world’s population. More than 75 percent of vaccines worldwide have been administered in just 10 countries. The World Health Organization (WHO)’s Director-General, Tedros Adhanom Ghebreyesus, has described the vaccine crisis as a "scandalous" inequity.

A litany of mistakes and missteps and the wearing of geopolitical blinkers on the part of influential nations on the world stage contributed to the crisis. Some rich countries placed advanced purchase orders for vaccines enough to vaccinate their people several times over. They stockpiled the precious commodity. They banned the export of vaccines, including those they had not authorized for domestic use. They imposed restrictions on the export of raw materials used in vaccine production. COVAX remains an abandoned ship. There was an organized attempt to discredit alternative vaccines on spurious grounds—the underlying geopolitical motive barely hiding just beneath the surface.

Consumed by crass geopolitical rivalry, nations flexing or aspiring to flex their muscles on the global ring were out of tune with ground realities—including those concerning the capacity, or lack thereof, of individual countries to produce and supply vaccines for the world. For India and the geopolitical bloc it has embraced, the assumption or conferral of the title of the world's pharmacy quickly proved to be an exercise in self-delusion. The vicious second wave in India served as a rude awakening. It was foolhardy of a section of world leaders to invest all vaccine hopes in a single country while refusing to accept the alternatives offered by rival powers. Oh—how the connotation of "vaccine diplomacy" has changed in but one year! Truth be told, Western hopes that India would rise to the occasion, à la a knight in shining armour, to be the world's vaccine-supplier-in-chief were partly born of the desire to see a strengthened role of Quad in undercutting the significant role in the worldwide provision of vaccines scripted by China, either through direct exports or collaborative production. Poisonous geopolitics constrained some poor countries from exercising their full range of options for procuring vaccines. Diversifying one's sources of supplies is a sane strategy even in normal times. And COVID times are far from normal. It is only rational to secure vaccine supplies from multiple sources. But basic caution was sacrificed on the altar of geopolitics of, by and for outsiders—at the behest of both real and wannabe global powers. Until the second wave came calling in India, disabusing all and sundry of the ludicrous notion of a single global pharmacy.

Spurred by the devastating second wave in India, the United States at long last agreed in principle to consider waiving intellectual property protection over COVID vaccines. India and South Africa had tabled a proposal at the World Trade Organization (WTO) in October 2020 for a temporary waiver, for COVID medical supplies, of the provisions in the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The US, the European Union, Switzerland and Japan, among other developed countries, had vehemently opposed the proposal, which had the support of over 60 WTO members. While it could well take months for the WTO membership to reach a consensus decision to waive intellectual property protection on vaccines—and it is far from certain that members currently opposed to the proposed waiver will support the same, not to mention the pressure that will be brought to bear by the pharmaceutical lobby in the US itself—it is nevertheless significant that the US, ever in the vanguard of intellectual property protection in global fora, has agreed to a waiver, albeit temporarily, to ease the supply of and access to COVID vaccines. This, however, speaks as much to the urgency of the pandemic as to the perceived challenge to maintaining the US-led world order, driven home vividly by the crisis in India, a key developing country in the Western strategy to contain China.

Predictably, the pharma industry is up in arms against the Biden administration's acquiescence—a sacrilege to them. They have powerful allies among the political class in the US, as well as across the Atlantic. They will fight tooth and nail at the WTO, where the matter could drag on for many months. Already, Big Pharma and the votaries of unabridged intellectual property rights have gone into overdrive with the message and argument that waiving intellectual property protection is not going to result in increased availability of the life-saving vaccines, and that it will take more than the waiver to enable facilities in developing countries to start or expand vaccine production. Responding to these attempts to queer the intellectual-property-protection-waiver pitch are credible voices, from academia to the WHO—not to mention the over five dozen countries pressing for a waiver at the WTO—that hold intellectual property protection in its current form as the biggest obstacle to ensuring adequate supplies of, and affordable and equitable access to, COVID vaccines.

Stripped of political correctness, where does the Biden administration really stand in the intellectual property debate as it relates to COVID vaccines? Deep down, does it subscribe to Big Pharma's argument that the waiver is not going to lead to greater production? Is its acquiescence to the proposed waiver, then, just a gimmick aimed at appeasing the domestic Left gallery and an empty promise to keep the world community occupied? Or, does it believe that the waiver will be instrumental in bringing about vaccine relief, as has been argued forcefully by eminent scholars and activists, including those based on US soil, and by the WHO itself? It is in the interests of the world that the latter is the case. The US will have a pivotal role to play in steering WTO negotiations on the waiver to a speedy and meaningful conclusion with the intended effect.

Ideally, cooperation among all three leaders in COVID vaccine technology—the West (the US, the UK and the EU), Russia and China—and the world's leader in mass vaccine production prior to the pandemic (India) is the first-best outcome for humanity facing one of its greatest crises ever. The record so far since the outbreak of COVID makes this wishful thinking. The non-elites in the vast majority of poor countries without the ability to manufacture vaccines fervently hope that even if geopolitics does not allow active and constructive engagement among the feuding powerful nations to facilitate access to vaccines on humane terms and conditions, it will at least not become the arbiter of life and death in a vaccine-scarce world.

(Published in Trade, Climate Change and Development Monitor (SAWTEE), Volume 18, Issue 5, May 2021)

Home truths amidst added difficulty

The early months of the COVID-19 pandemic were witness to the spectacle of allies in the global arena jostling with one another for masks by diverting consignments of the suddenly-prized product and restricting exports of the same. This scramble served to remind the world at large that each nation has to fend for itself, crunch time.

When a vaccine—or, most likely, multiple vaccines—against the novel coronavirus is developed, will it be made available at affordable prices to all? This will be a test of major and aspiring global powers' stated commitment to protecting human rights and welfare.

The multilateral trading system was under strain from the US-China trade war. The differential in controlling the pandemic has exacerbated it. If there were any illusions that the trade war is only about the bilateral trade deficit, they have been dispelled. The technological gap between the world's largest two economies has narrowed—so much so that the rising power leads the established power in a number of tech domains. This has forced a bipartisan rethink in the lone superpower over continuing with the existing trade regime that was once touted as a win-win for all but which is now deemed to be ill-equipped to deal with "unfair" trade practices, including "forced technology transfer" and "theft" of intellectual property.

From the perspective of the vast majority of people living in developing and least developed countries, most of which have no global or regional power ambitions, the trade regime was never structured to serve their basic livelihood interests. Having to concede too much policy space, disproportionate to their level of development, while still facing restricted market access in products of immense interest to them galvanized these countries into attempting to rectify World Trade Organization (WTO) agreements in line with their development needs through the Doha Development Agenda. The fairness, or otherwise, of trade rules lies in the eyes of the beholder—or, in this context, the trade participant in question. Suppose the US and China reach a modus vivendi. For most of the world, that will not make the trading system any fairer, as long as they are denied the policy levers available to, and utilized by, the now-developed countries, the East Asian tigers and China during their industrialization phases. Remember, a section of developed countries had no hesitation in expressing their scepticism about the relevance of the Doha Round in the declaration of the Nairobi Ministerial Conference of the WTO in 2015. Most people had not heard of Mr Trump back then.

Do the above arguments smack of protectionism? Well, protectionism lies in the experiences and the mind of the exporter or the importer, or the trade partners or geopolitical rivals squaring off. The US accuses China of forcing US companies investing in China to share their technology with local firms. China dismisses the accusation as a politically motivated charge. An idea deemed protectionist or otherwise at a point in time could be considered the opposite at another. Voices have long been raised over the hazards of dependence on imports for critical items, such as staple food. Developing countries' demands for a special safeguard mechanism that allows them to protect their agriculture from price falls and import surges and for a wider berth for public stockholding for food security are a bone of contention in WTO negotiations. Those who oppose these demands as protectionist are now, nevertheless, alarmed by the extent of their dependence on imported medicines and active pharmaceutical ingredients originating in a single country. They call for achieving self-reliance in medical goods, or at least reducing dependence on such imports. There is only a fine line between arguing for self-reliance in medicines and self-reliance in food.

Apparently, self-reliance is no longer a taboo. There are also calls for diversifying supply chains. Existing supply chains are heavily shaped by cost and market access considerations. Apparently, efficiency is not everything. This would imply that, in certain circumstances, the trade-off between efficiency and strategic or national interests becomes binding. But this should not mean only a narrow set of countries has the right to decide what those circumstances are. These strategic/national interests could be geostrategic interests in the case of a hegemon or its challenger, or simple food security for a landlocked country that has been blockaded at least four times.

There are prominent economists based in the rich world who argue that globalization has gone too far, causing hardships to the person on the street in rich and poor countries alike. Some of their policy prescriptions, even while advocating a restoration of policy space to make globalization work, are delivered, perhaps unconsciously, with an ideological tinge. Harvard economist Dani Rodrik recommends that countries be allowed to uphold national standards in labour markets, finance, taxation and other areas, and to do so by raising barriers at the border if necessary, “when international trade and finance demonstrably threaten domestic practices enjoying democratic support”. In The Globalization Paradox, he proposes that the WTO's Agreement on Safeguards be expanded in scope and converted into an Agreement on Developmental and Social Safeguards, which would provide members, developed and developing alike, the option of opt-outs from WTO obligations even for reasons other than competitive threat to domestic industry.  There is a caveat, though: the raising of barriers at the border to uphold national standards should be deemed legitimate only if “democratic process” has been followed. Rodrik argues that authoritarian regimes must not count on getting the same benefits/preferences in the multilateral trading regime, and that such regimes must meet stricter requirements to exercise opt-outs (an argument he also makes in another book, One Economics Many Recipes). The Achilles' heel of this argument lies in the difficulty—nay, impossibility—of determining whether the domestic practices under threat “enjoy democratic support”, not to mention ascertaining whether a regime is authoritarian or not. It will be a value judgement—nothing more or less. And the World Governance Indicators are no final arbiter. As I have argued elsewhere, "It is somewhat paradoxical that in attempting to suggest a way to expand and preserve domestic policy space under a multilateral economic system so that nations can uphold their national standards in virtually any area, Rodrik tends to prescribe multilateral harmonization, as it were, of standards in democracy."

Written by Paras Kharel and published as opinion in lead in South Asia Watch on Trade, Economics and Environment (SAWTEE)'s Trade, Climate Change and Development Monitor (August 2020).

Flashback: Rhetoric around directive principle on economic matters

Predictably, the draft constitution, in both its process and content, has generated controversy. And not only on matters of federalism and religion. The directive principle concerning the economy has also been criticized by some quarters, notably organized private sector representatives, for listing cooperatives as one of the three pillars of the economy (the other two being the public and private sectors) and envisioning an economy geared towards "socialism". Since the criticism is coming also from Nepali Congress types, it makes me wonder what the current position of the largest (and non-communist) party is on BP socialism--a variant of socialism attributed by party faithful to their late leader BP Koirala who they eulogize as Mahamanav,or Superman. For a party that ditched BP's pro-constitutional monarchy stance as it marched to bed with the Maoists, abandoning another BP principle that it paid only lip service to may not be an awkward moment. There was a similar debate on a proposed directive principle on economic matters in early 2011 during the first Constituent Assembly period. Then, it was "mixed economy" instead of socialism. I find the arguments I made in an article then still relevant in the second Constituent Assembly period.

When rhetoric rules

(Published in Republica daily, 1/16/2011, http://archives.myrepublica.com/portal/index.php?action=news_details&news_id=27201 )

-- Paras Kharel

Perhaps it was another manifestation of the essence of the present Nepali times, where form takes precedence over substance, rhetoric over action. After some haggling over semantics, the high-level taskforce on Constitution-making decided that a three-pillar economic model—consolidating the national economy through “independent development and participation” of the public, private and cooperative sectors—would be enshrined as one of the directive principles of the state in the new Constitution. It took “days” of deliberations among the honchos of the big political parties to “agree” on what is nothing but a longstanding policy of maintaining a mixed economy dating from the Panchayat era.

Naturally, CPN-Maoist, whose chairman heads the taskforce, would insist there is something different about this model, while Nepali Congress and CPN-UML would claim it as a policy they introduced and pursued after the restoration of multiparty polity in 1990. But merely codifying what the economic system should be in the Constitution would serve little purpose other than perhaps setting a world record for the longest directive principles. This is especially so because the constitutional experience so far has been one of political expediency riding roughshod over constitutionalism, with the law of the land being interpreted to serve partisan interests. The 1990 Constitution, once billed as the world’s best by NC and UML, too, had high-sounding economic objectives of the state written out in the directive principles, as has the amendment-ridden 2007 Interim Constitution, but with no operational significance.

All kinds of specific economic policies and decisions, whether in the national interest or not, can be compatible with the broad rubric of a mixed economic system. The guiding philosophy must, therefore, be safeguarding national interest. Whether it actually is critically depends on the integrity of the political class and its "intellectual" sidekicks, not a non-binding directive principle in the Constitution.  It would be a worthwhile exercise if the leading political parties were to engage in earnest soul-searching as to why and how they failed to deliver the economic miracle they promised the hoi polloi.

Take the case of the policy on water resources, one of the very few natural endowments of the nation with a potential to transform the Nepali economy. Properly tapped, the country’s water resources can help bring about an agricultural revolution through expanded irrigation and foster industrialization (e.g., from energy-intensive industries like cement to agro-processing industries with high domestic value addition) through the availability of cheap power. They can also help gradually reduce dependence on imported fossil fuels for commercial energy needs, thereby improving energy security and addressing a major structural component of trade deficit.

Despite the vast domestic demand, existing and potential, the past few years have seen choice hydropower projects being awarded to joint ventures for export purpose. The justification peddled is that of domestic resource constraint. While no effort has been made to tap the resources in the financial system flush with remittance money for hydropower development, there is also no answer as to why foreign investors willing to cater to the Nepali electricity market cannot be attracted.

Tax incentives are offered to hydropower developers, regardless of whether they are producing for the domestic market or the Indian market—which, in effect, implies a subsidy for foreign consumers even as domestic consumers reel under crippling power cuts. A 400 kV transmission line is being built by Nepal with a foreign loan to make exports possible when the export-oriented projects come on stream, although it is the importer who should be paying for it—a point persistently raised by water resource analyst Ratna Sansar Shrestha, but which is yet to be appreciated by the officialdom.     

A sensible strategy would have been to generate as much electricity as possible, from multipurpose projects, to meet the domestic need, and then export the surplus at a right price. At Rs 3 per unit or less, the export price is unjustifiably low, lower than what the market can pay in India, lower than what Nepal Electricity Authority charges domestic consumers and much lower than the price of electricity imported from India. Lower price implies lower royalty for Nepal government.

All the three largest parties have been party to this tomfoolery, although the Maoists, after losing power, have started making noises against export-oriented hydropower projects. One is free to call this hydropower policy as being part of a “mixed” economic policy—after all, the private sector (foreign and domestic) is involved, as is the public sector (NEA). But can anyone explain how this helps “transform the national economy into an independent, self-reliant and progressive economy”, as stipulated in the directive principles of the state in the Interim Constitution, without taking recourse to the wonky economics of the economic thinkers of these parties?

There are many other policies, decisions and practices that have cost the economy and public welfare dear. The directive principle in the 1990 Constitution concerning the economic objective, which also envisioned an “independent and self-reliant” economy, did not prevent NC from launching a mad privatization drive, which reeked of corruption at the highest level and political puppetry. The directive principle did not prevent NC, UML and RPP from ratifying the infamous Mahakali Treaty (albeit with strictures never to be followed up), with RPP leaders claiming the sun would rise from the west. The directive principle did not prevent governments spanning the political spectrum—from avowed adherents of BP socialism to disciples of Marx, Lenin and Mao—from politicizing the bureaucracy and staffing public organizations and enterprises with party faithful.

For all their rhetorical emphasis on strengthening the public sector and despite the fact that even many advanced economies are not prepared to privatize utilities, the Maoists did not have any qualms about acquiescing in the privatization of the water supply utility for Kathmandu valley, instead of reforming Nepal Drinking Water Supply Corporation. It is another matter that the focus of mainstream media coverage then was on how a minister was standing up to a multilateral lending agency foisting a notorious foreign company on Nepal. Few seemed to notice the irony of a Maoist minister failing to resist privatization itself.

Call the awarding of state contracts for local development works to the private sector public-private partnership, if you like. Local leaders, cadres or simply people close to the leaders of the ruling and opposition parties invariably bag such contracts, regardless of whether they made the best bid or not. While their bosses appear to bicker in Kathmandu, local-level party leaders are busy divvying up the spoils among themselves. It seems that keeping the local bodies sans elected representatives is in the interest of the major parties as their slice of the local-level corruption pie is assured through collusive politics.

These are just a few examples of bad policies and practices that have brought us to the current mess. Without integrity and a serious commitment to development and public welfare at the highest political level, no ism or lofty constitutional provision can deliver.

On Nepal-India relations

Below are my comments on Nepal-India relations published in an Indian think tank's periodical -- Foreign Policy Research Centre (FPRC) Journal-19 (http://www.fprc.in/Pragya-NEPAL-19.pdf). 

1.  Why India bashing has become a favourite sport with most Nepalis who blame New Delhi for most of the ills in their country  little knowing the dynamics of relations between both countries? 

Whether most Nepalis blame New Delhi for most of the ills in their country can only be ascertained through a credible survey/opinion poll, of which I am not aware. If this view of an average Nepali’s attitude towards India is based on media contents and slants, then that itself is a distorted view. For every report or commentary that is “hard” on India, one may spot another that seeks to wish away bilateral problems, with Nepal at the receiving end. Few media, or for that matter opinion makers that spill ink or hog airtime, are independent, what with business, political and foreign interests determining coverage of issues and events. The mainstream media—particularly the influential ones—are wanting in consistent, sustained and critical coverage of bilateral problems and issues going to the heart of the matter, essential to persuade decision makers to resolve the same. Doing so would jeopardize the receipt of advertisements from Indian business houses. So if some media or analysts here appear to raise the problems a tad too critically and stridently than the rest, those on the other side of the border who wish for good bilateral relations should not be too concerned. It should be taken in the spirit of a free marketplace of ideas. Moreover, they would be familiar with the nationalistic slant of the Indian media when it comes to matters foreign relations, faithfully toeing the South Block line.

Just as to say that most of the ills of Nepal are attributable to India would be naivety, so too would be the argument that none of them are. The imposition of a blockade by India in 1989 did hurt landlocked Nepal. Indian officialdom’s attitude towards Nepal was also questioned in the context of its refusal to endorse Nepal’s proposal that it be declared a Zone of Peace, first made in 1975 and which by the late 1980s had been endorsed by over 120 countries. India’s role in the Bhutanese refugee impasse that burdened Nepal with 100,000 Bhutanese refugees for two decades did not put the world’s most populous democracy in good light. It allowed Lhotsampa Bhutanese evicted by the Druk regime—whose defence and foreign affairs it controlled—free passage to Nepal but denied them return passage to their homeland.  Transit travails still handicap the Nepali economy. Nepali goods’ access to the Indian market is constricted by a host of para-tariff and non-tariff barriers. Border encroachment remains unaddressed.  Crimes committed on Nepali soil by elements exploiting the open border have been a problem for ages.  The practice of the Indian embassy doling out aid unilaterally, without keeping the Nepal government in the loop, casts suspicion over the intent.

Not helping matters are comments on Nepal’s internal affairs made by Indian diplomats and leaders, something that is almost unheard of in India. It is hard to interpret the open support extended to one political party by India’s ruling party in Nepal’s first elections to a constituent assembly in 2008 as anything but interference. The perception of Indian officialdom micromanaging Nepal’s political affairs, including the regime change of April 2006 that subsequently saw the overthrow of the monarchy, was substantiated, unwittingly or otherwise, in recent writings by former top Indian bureaucrats, among others. Related to this is India’s apparent policy of running with the hare and hunting with the hound with regard to Nepal’s Maoist movement that claimed over 12,000 lives, destroyed the social fabric and hugely damaged the economy: the Indian government declared the rebels terrorists even before the Nepal government did so, but continued to allow the rebel leadership to operate from its soil, including New Delhi and its outskirts!   

When genuine concerns are not addressed, there is bound to be a reaction at some level, say, the occasional demonstration at the grassroots or the waving of black flags at an Indian envoy. For better bilateral relations—one that is based on mutual trust and is on an even keel—initiatives must be taken at the highest political level to tackle burning bilateral problems and issues. For Nepal that would require key political actors to rise above petty interests, forge a common stance on foreign policy matters, and, above all, stop dashing off to the city that Lutyens built with exclusively domestic problems. For India and its new government that represents a fresh break with the past in many respects, that would mean freeing its Nepal policy from the stifling clutches of spooks and parochial bureaucrats, to be steered by open-minded political leaders who appreciate the fact that close cultural ties between the two countries have been subsisting for thousands of years, much before 1947. That no Indian prime minister has paid an official visit to Nepal since 1997 (ignoring a visit for SAARC Summit) despite invitations is telling—unless the argument, however lame, is that the “close”, “special” ties between the two neighbours obviates the need for such a visit.

2 Do you believe transforming the India-Nepal border from an 'open border' to a 'closed border' would severely damage the traditional socio-cultural,economic  ties?

Maintaining an open border with a country 41 times bigger than itself imposes a stifling constraint on economic policymaking. People can freely cross the border with gold bars in their pockets. There aren’t many places in the world where you can do that. The open border sanctions smuggling and, worse, erodes the state’s power to govern. Still, the crucial issue is not “open” versus “closed” border, but rather the unregulated border as it currently exists versus a regulated one. Cross-border crime is well-nigh impossible to check when no record is kept of people crossing the border. The proliferation of armed groups in the Tarai belt, which borders India, was made possible by the unregulated border. It is the ordinary people there whose cross-border cultural affinity is oftentimes invoked to defend the unregulated border that bear the brunt. Unregulated border-induced crime has been witnessed in the capital city too—for example, high-profile shootings. An unregulated border renders the distinction between internal and external security irrelevant.  A seemingly “domestic” insurgency or political movement that exploits the unregulated border as a matter of operational policy, with support from assorted elements on the other side, cannot be considered just an internal security threat. Free-Tibet movement footsoldiers from Dharmashala have also exploited the porous border to conduct anti-China activities from Nepali soil—which should be as much a source of concern for Nepal as any anti-India activity.

Complaints about India being at the receiving end of the unregulated border are also heard from time to time, including in the Indian media.  Fencing and regulating the border with identity cards would help address the security concerns of both countries. That would help strengthen bilateral ties in the long run. Remember, it was at India’s insistence, on security grounds, that identity cards were made mandatory for Nepali and Indian nationals travelling by air to each other’s country.

3.Nepal’s Trade deficit with India is increasing at an alarming pace.What should  be done to correct the imbalance?

Exports are low due to trade barriers and domestic supply-side constraints. True, the bilateral trade treaty accords customs duty-free market access to almost all products from Nepal. However, para-tariff and non-tariff barriers, and the unpredictability in their imposition, dampen exports. The high-level mechanism for resolving bilateral trade problems must be made robust. A timeline must be agreed for mutual recognition of standards. The restrictiveness of standards-related measures is linked to Nepal’s own supply-side constraints, too. The provisions in the trade treaty for assistance in enhancing standards-related capacity ought to be effectively implemented. Power shortages are the most crippling supply-side constraint on production, the basis for exports. Without addressing the power crisis, fast growth in exports cannot be sustained. Investment in hydropower projects to cater to domestic needs, coupled with a comprehensive plan to partly substitute petroleum products, can help contain the burgeoning petroleum import bill. Foreign investment, including Indian, in power projects will help—but these should target domestic needs first. It is a shame that a number of big hydropower projects with foreign investment are export-oriented ventures. In line with Nepal’s natural comparative advantage, agro-food production must be leveraged for industrialization purpose, by achieving horizontal and vertical product diversification, value addition and processing. Trade support institutions for, inter alia, market research, promotional activities, capacity building, information sharing and overcoming non-tariff barriers must be strengthened.

4.There seems to be a certain level of nervousness about Chinese investments in Nepal in the Indian intelligentsia and among its think tanks, which is clearly reflected in the Indian media. Do you agree? 

Needless to say, as a sovereign country Nepal has the right to maintain economic relations with any country it wants to. Nepal needs foreign investment and technology for high economic growth and job creation. It matters little whether it is Indian, Chinese or Western. China is a major source of foreign direct investment worldwide. Nepal should be concerned that it has not been able to attract more Chinese investment despite proximity and existence of high potential sectors.

If the nervousness in question stems from the involvement, direct or indirect, of the Chinese state, it is misplaced. The nature of the Chinese political and economic systems is such that some, particularly large, investments are apt to be channelled through state agencies. As long as those investments match Nepal’s needs and Nepal’s laws are respected, there must not be any issue. In particular, Chinese investment in hydropower projects to meet Nepal’s power needs is welcome.

It would be naive to think that private companies of non-communist states are never hand in glove with their home states, particularly when venturing abroad. It is hard to believe that the Indian government had no hand whatsoever behind private Indian companies landing contracts to develop choice hydropower projects meant to export power to their mother country.

5.   What steps should be under taken to link Nepali business to the global economy?

A host of measures must be taken to enhance the competitiveness of Nepali businesses, and facilitate foreign investment—details of which are beyond the scope of this response. Effective implementation of trade policy and trade integration strategy would go a long way. Better transit facilities are crucial for export diversification. A South Asian regional transit arrangement can help Nepal integrate with the entire region and beyond. 

6. It is said that Nepal cannot prosper "without good relations with India". It’s also argued  that the economic development of Nepal was in the larger interests of India and China. The tripartite cooperation would neither undermine nor replace the bilateral relationship between India and Nepal. Do you see India, China and Nepal as an Emerging Trilateral Relationship  in the 21st Century?

Although the frequency and intensity of interaction at the people’s level is greater between Nepal and India than between Nepal and China, in large part due to the geography of the plains and the Himalayas, Nepal’s foreign policy has historically been guided by the principle of equidistance between India and China, recognizing that good relations with both countries are central to its sovereign interests. This augured well for peace and stability in Nepal. When that delicate balance was systematically disturbed in the 1990s, Nepal descended into conflict, tearing apart its socio-economic fabric. It is now in the throes of unprecedented foreign interference aimed at clobbering the Nepali state (discussed in my response to question 7 below). A section of the extraneous interests is thriving in real or perceived rivalry and mistrust between India and China. Instability in Nepal can easily spill over to its immediate neighbours. National interests of both India and China would dictate that they bury their rivalry to implement a mutually compatible Nepal policy that will help arrest Nepal’s slide to a failed state. Two important avenues are engaging with Nepal at the highest political level while respecting its sovereignty (which will also provide powerful signals to other external actors), and scaling up contributions to help meet Nepal’s development needs, including via trade and investment.

7.The increase in Western spending in Nepal reflects in part an increasing appreciation among Western donors of the connection between security and development and of the need for higher levels of support to be provided in contexts that are fragile and  to examine the full range of international interests in Nepal and their implications for conflict and security. However, it does highlight the importance of understanding how the interventions of Western actors too may aggravate or mitigate conflict risks in Nepal. Do you agree with this viewpoint ? 

Foreign aid is an important source for funding Nepal government’s budget. Historically, infrastructure has been a key area where foreign aid has made a positive contribution. The conventional challenges to aid effectiveness in its various dimensions—from alignment to national needs, to outcomes—remain. However, the last eight years, as the Nepali state weakened further, have seen massive inflows of foreign aid in the name of peace process and constitution-making, with unprecedented levels of corruption. Worse, foreign agendas inimical to Nepal’s national interests have been pedalled, blatantly or subtly, as never before. For example, considerable foreign funds have been invested in one side of the debate on state restructuring in its various aspects. Seeds of ethnic and religious discord have been sown; federalism along ethnic lines has been promoted. Non-issues are raised and real issues are swept under the carpet. The insidious influence is far, wide and deep: conferences/workshops, rallies, media reports and analyses, discussions within political parties, debates in parliament. The activities of a handful of bilateral aid agencies, many I/NGOs and their pet NGOs are especially suspect.

Earlier, India stood out for attempting to overtly or covertly influence Nepal’s internal affairs, including its more than casual interest in developments related to the Tarai belt. Now it faces competition from a section of Western actors— whose interests in Nepal lie primarily in an environment potentially conducive to rattling China (via its so-called soft underbelly Tibet) and advancing an evangelical agenda. The weapon being deployed is state restructuring of a variety sure to emasculate the Nepali state. An unstable Nepal would have serious implications for India, where fissiparous tendencies lurk not far below the surface. For its own sake, India must reassess its unstated position on state restructuring in its neighbour: it must weigh any short-term gains it fancies from a putatively “India-friendly” autonomous Tarai against the long-term ramifications for itself from an unstable Nepal divided into numerous provinces.

8.Currently, Nepal is  in the middle of completing a peace process and a constitution. Do you see these processes heading towards the right direction, or what challenges do you see in completing them? 

As mentioned earlier, the constitution making process has been sabotaged by external interests bent on weakening the Nepali state. Even eight years and two constituent assemblies (with the life of the first repeatedly extended) after the political changes of 2006 that dumped the 1990 Constitution—once dubbed the “world’s best” by some major political parties—a new constitution is nowhere in sight. In the final analysis, far more important than writing a new constitution per se is the question as to whether it will find widespread support among the Nepali people and not undermine national cohesion, and whether the political actors will embrace constitutionalism or continue to interpret and mess with the rule of the land to suit their own interests.

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Transit travails revisited

At a time when Nepali officials are negotiating with their Indian counterparts for a renewal of the bilateral transit treaty that expires 5 January 2013, it is in order to recount the transit-related problems perennially faced by Nepal.

Under international convention, a landlocked country has the right of transit passage to the sea through its coastal neighbor. At the operational level, much hinges on the discretion of the neighbour. Indian insistence on inserting in the treaty a provision for an additional lock on transit cargo is reportedly holding up treaty renewal. Industrialists and actors in the logistics chain argue it is unnecessary to take a stand on this issue and, if anything, it should facilitate Nepal’s third-country trade, avoiding hold-ups when a single lock seems to be or really is out of place, and the benefit is worth the marginal cost of an extra lock. The Nepali side, at the initiative of the foreign ministry, is resisting the proposal. The resistance is not totally unfounded: Nepal having to accept one demand after another of the other side even as a litany of transit difficulties faced by Nepal remains unsolved. The additional lock issue should, therefore, be considered in the broader context of Nepal’s transit woes.

Lest we forget (and that seems to be the habit of our stock), the blockade on Nepal in 1989 was the first blockade imposed by a country on its landlocked neighbour after World War II without a formal declaration of a war. Remember also the reluctance with which Nepal’s long-standing demand for a separation of trade and transit treaties was met in 1978. The demand stemmed from the principle that transit—crucial for Nepal’s third-country trade links—must not be held hostage to bilateral trade relations on one pretext or the other.

Security is used to justify restrictive transit facility for Nepal (although Bhutan, another landlocked country in South Asia dependent on India for transit, enjoys a highly liberal transit regime, not least because it is allowed to conduct transit trade under the supervision of Bhutanese customs). But, as fate would have it, India’s desire to secure transit passage through Bangladesh for its internal as well as international trade is running into stiff resistance in the latter, and security concern is one reason behind the resistance. Such concerns cannot be brushed aside especially in the light of the fact that India has been denying landlocked Nepal unhindered transit through its territory for Nepal’s trade with Bangladesh and third countries using Bangladeshi ports on security grounds, besides fear of trade deflection. Surely, what is sauce of the geese is also sauce for the gander. This is despite the fact that all three countries are members of the World Trade Organization (WTO) and Article V of the General Agreement on Tariffs and Trade (GATT) provides for “…freedom of transit through the territory of each contracting party, via the routes most convenient for international transit, for traffic in transit to or from the territory of other contracting parties” on a non-discriminatory basis. Importantly, the Article does not require the transit trade to be preceded or succeeded by a sea journey. Valid concerns of security and trade deflection can be addressed through, for example, the adoption of the TIR (Transports Internationaux Routiers) system or a similar regionally based equivalent customs transit system. But if the transit-providing country views transit as a leverage over its landlocked neighbour, then no security concern can ever be mitigated.

The controversy over double lock, in which the foreign minister has weighed in in a queer fit of nationalism, diverts attention from other, far more serious problems on the transit front. A host of transit restrictions is in place, causing delays, raising the landed prices of imports and eroding export competitiveness. The restrictions operate at two levels: transit to access Indian sea-ports, and transit through Indian territory to access Bangladeshi markets and sea-ports. Cumbersome transit processes, including procedural controls, citing the possibility of trade deflection, are in place. It is customary for Indian authorities to issue unilateral notifications on transit and customs matters. Hassles in the form of multiple checking agencies mar the entire transit process. Actual documentary requirements are higher than those specified in the treaty. The consent to allow Nepal to use Vishakhapatnam port as an alternative to the congested Kolkata/Hadia ports where mother vessels cannot berth, thereby necessitating transshipment via Colombo and Singapore ports, has not been followed through. Burdensome procedures and controls—including one that causes high insurance costs for Nepali cargo—raise transit time and cost, and thereby reduce trade competitiveness, hurting producers and consumers alike. Through-bills-of-lading (TBLs) are not issued for cargo to and from Nepal, with the result of low utilization of the Birgunj dry port. The most important advantage of issuing and receiving TBLs at a dry port is that they reduce customs and clearance activities at sea-ports to a minimum, with only the transport activities of transit being emphasized. The pledge to grant Nepal transit through India for Nepal’s bilateral as well as transit trade with Bangladesh via the Rohanpur-Singhabad railway point remains a pledge. And then there is the highly restrictive transit regime governing road-based transit through India along the 55-km Kakarbhitta/Panitanki-Fulbari/Banglabandh route.

While bilateralism is India’s preferred approach to dealing with its neighbours, for a landlocked country like Nepal, a regional approach to transit is in its interest. A regional transit arrangement will create a level playing field and address the problem of low bargaining power of the smaller and vulnerable nations, particularly landlocked ones. Through a regional agreement, landlocked countries stand to secure better transit rights, and the realization of such rights will be less dependent on their political relationship with any particular country as any restriction and the resultant dispute will be a regional issue as opposed to a bilateral issue. Coastal countries—the traditional “transit-providers”—also stand to benefit from regional cooperation on transit and transport. For example, a 20-foot container takes at least 30-45 days to move between New Delhi and Dhaka through the maritime route at a cost of around US$2,500, whereas if there were direct rail connectivity, the time would be reduced to 4-5 days and the cost would drop to around US$850. Likewise, substantial time and cost savings could accrue if India were to be able to use Bangladesh territory for transportation of goods between parts of India’s northeastern states and Kolkata. Similarly, a container from Dhaka to Lahore now needs to travel 7,162 km by sea instead of 2,300 km, as overland movement across India is not allowed.

A regional transit transport agreement would need to be backed by investments in infrastructures (including roads, railways and sea-ports, customs and communications. The SAARC Regional Multi-modal Transport Study identified 10 road corridors, 5 rail corridors, 2 inland waterway transport corridors, 10 maritime corridors and 16 aviation gateways as having great potential to improve regional connectivity. But for their approval by the 14th SAARC Summit in 2007, progress has been nil. When will the bilateralist mindset change?

(Published in New Spotlight, 28 December 2012)

A critique of Rodrik’s proposal for “smart” globalization

“Who needs the nation state?”, asks Harvard University Professor Dani Rodrik in a new paper. He concludes: We all do. His argument is that globalization’s ills stem from the “imbalance between the global nature of markets and the domestic nature of the rules that govern them”, and global governance is neither feasible nor desirable because: market-supporting institutions are not unique; there is a heterogeneity of needs and preferences with regard to institutional forms among communities; geographical distance limits the convergence of those needs and preferences; and experimentation and competition among diverse institutional forms is desirable.

He makes quite a compelling case against what he terms hyper-globalization—which considers globalization as an end in itself rather than as a means to prosperity—just as he did in his book The Globalization Paradox, published last year. And it is difficult to contest his conclusion that all of us need the nation state. However, some of the prescriptions he makes for achieving “smart” globalization, in the paper and/or in the book, should be treated with extreme caution. A careful, in-depth analysis and assessment of their possible implications is required, to say the least. Some issues with regard to a few of his prescriptions are briefly discussed below.

He recommends that countries be allowed to uphold national standards in labour markets, finance, taxation and other areas, and to do so by raising barriers at the border if necessary, “when international trade and finance demonstrably threaten domestic practices enjoying democratic support”. In The Globalization Paradox, he proposes that the World Trade Organization (WTO)’s Agreement on Safeguards be expanded in scope and converted into an Agreement on Developmental and Social Safeguards, which would provide members, developed and developing alike, the option of opt-outs from WTO obligations even for reasons other than competitive threat to domestic industry. Rodrik’s proposition is that the raising of barriers at the border to uphold national standards should be deemed legitimate only if “democratic process” has been followed. He even goes as far so to argue that authoritarian regimes must not count on getting the same benefits/preferences in the multilateral trading regime, and that such regimes must meet stricter requirements to exercise opt-outs. The emphasis on a democratic process is to guard against the erection of trade barriers at the behest of vested interests which do not represent the interests, values and preferences of the vast majority of the people in a nation.

The fundamental problem with this prescription is how to determine whether the domestic practices under threat “enjoy democratic support”. Even if one were to accept the notion that none (all) of the decisions of an authoritarian (democratic) regime enjoy democratic support—which itself is highly controversial—there still remains a difficult question: how do you judge a regime to be democratic or otherwise? While few would oppose the proposition that governments should take decisions rooted in the interests of the people, there are no universal principles of democracy; nor are there universally accepted indicators or metrics of democracy. It is one thing to use indicators such as the World Bank's World Governance Indicators, including the voice and accountability indicator, in cross-country growth regression or a gravity equation (to explain bilateral trade flows). But few regimes/governments will accept the use of such indicators to judge the legitimacy of their decisions to impose trade barriers. It is also an open question whether democracy should be measured in terms of outcome or process. Some (with the process in mind) might argue that India has a democratic polity because it has universal suffrage and witnesses periodic elections, while others (with the outcome in mind) might argue that a country plagued by rampant corruption, criminalization of politics, a raging insurgency and separatist movements, and where poverty rates are still high, and hunger and undernourishment rates match those in sub-Saharan Africa cannot be considered to be a democracy—at least a functioning one. Similarly, while some might argue that China cannot be considered as a democracy because it is a one-party state and its citizens cannot voice their opinions as freely as their counterparts in the West can, others might argue that if India can be considered a democracy then surely so can China if only for the simple yet incontrovertible fact that it represents the greatest growth and poverty-reduction success story ever (something admitted even by its rabid critics), and that a nation, which boasts the oldest running civilization in the world, should not be expected to have a domestic system of governance that apes Western political values and systems.

Moreover, even if Rodrik’s proposal were to assess the democratic legitimacy of every decision of a regime/government to exercise opt-outs on  a case-by-case basis instead of judging a regime/government in its entirety as democratic or authoritarian, the operational difficulties of making such assessments, even if the criteria could be agreed upon, would make the proposal, however noble in intent, a pie in the sky. Forget about India or China—imagine conclusively determining whether the protection afforded by the US government to its cotton farmers carries the support of the overwhelming majority of the American people (unless a referendum is held on the issue!).     

Just as standards concerning, say, labour vary across nations, so do ideas of democracy. It is somewhat paradoxical that in attempting to suggest a way to expand and preserve domestic policy space under a multilateral economic system so that nations can uphold their national standards in virtually any area, Rodrik tends to prescribe multilateral harmonization, as it were, of standards in democracy. Moreover, Rodrik’s persistent argument (which can also be found in earlier writings, including the book One Economics Many Recipes) that authoritarian regimes must not count on getting the same benefits/preferences as democratic ones in the multilateral trading regime is an open invitation to trade war or a breakdown of the multilateral trading system. Another issue is that the proposed Agreement on Developmental and Social Safeguards, while prima facie appearing to protect the policy space of developing countries, may in reality have adverse developmental implications for them, particularly the least-developed countries, by making it legal for developed countries to discriminate against imports from countries that do not have, for example, labour standards as their own. That the proposed agreement would also allow poor countries to take border measures to preserve their own national standards would be of poor consolation in the real world of asymmetric political and economic strengths of nations.