This article was originally published on 16 Nov 2015 in Republica.
It is not trade that has now made Nepal vulnerable; it is the lack of free trade
Among other important things, the “unofficial economic blockade” imposed by India forced us to revisit our trade policies. Most discourses in recent times have concentrated on how it is wrong for India to interfere in Nepal’s internal affairs. However, it is equally important to reexamine the fundamental weaknesses in our trade regime, economic blockade or not. For instance, the economic blockade has brought attention to Nepal’s monopoly petroleum trade regime. The 1974 MoU between Nepal Oil Corporation (NOC) and Indian Oil Corporation (IOC) set IOC as the sole exporter of petroleum to Nepal and NOC as the sole importer. Before this, multinational brands like Exxon were operating in Nepal through their own outlets.
Had there been a free trade of petroleum products, companies other than the NOC would be free to import fuel, through suppliers other than IOC. One could argue that if a country like India imposes a sanction against a small landlocked-country like Nepal, trade would still be halted even if we traded with more economies or private actors in India as border controls would still be subject to Indian policies. However, it would be more difficult to cut off Nepal’s fuel supplies if the petro trade was not solely between the government owned NOC and IOC on both the sides.
If a thief is determined to break into my house no wood or iron bar is going to stop him. That does not mean I do not take security measures. I do my best to make it difficult for thieves to break into my house and hence put iron bars and lock windows while I go out.
Having a monopoly contract with IOC was like leaving the window wide open for a day like this to happen. Imposing an ‘official’ economic blockade is difficult, given many international laws and treaties against it, and not having a monopoly would make it difficult to impose an ‘unofficial’ blockade as well.
A general argument of limited infrastructural and investment capacity of private companies to import fuel is made when we talk of liberalizing Nepal’s petro regime. But limited investment capacity of private sector is one thing, keeping other players from entering the market through policy restriction is another. After all, when IPOs of promising businesses open, Nepalis line up for kilometers to buy shares, showing that there is significant amount of capital in Nepali hands waiting to be invested in areas where chances of return are high. Who knows how many of those in the IPO queues are interested in having a more competent and reliable fuel Supply Company? The government cannot rule out this possibility.
Right now, the Nepali government’s diplomatic dilemma is whether or not it should shake hands with China for trade. Had we been a nation that unilaterally upheld the principles of free trade, it would not have been a political dilemma because our economic priorities would have been pretty clear.
In this globalizing world, trade has drastically improved the quality of life of millions. However, recent experience has prompted many to doubt mutually beneficial outcomes of trade, especially while trading across borders. Hence many tend to think that a good response is self-sufficiency. This is not necessarily a progressive move because if we had waited for self-sufficiency in telephones, we might have taken another hundred years to communicate with someone just a few miles away. Examples like these are aplenty.
One may argue we can live without phones, but basics such as food, shelter, etc. are areas where we need to be self-sufficient. But what we give up in order to get there is an important consideration. Will we devote all our energies in ensuring basics all our lives?
It is not trade that has made us vulnerable; it is the lack of free trade. The voices that argue for decreasing trade dependence on India must do so not only by looking at China as an alternative or shifting dependence from one trading partner to another, but by expanding trade with the whole world. Supporters of greater trade with China might be taking the position in response to the frustration of trading with India, but there is nonetheless a greater merit in that mindset in terms of expanding Nepal’s overall trade horizon.
The current political crisis needs to end through dialogue. But it is also a time to delve into the economics of the problems and eliminate the root causes of our vulnerabilities so that we as a society can move towards peace and prosperity. We should separate our economics from politics and let producers and suppliers make their exchange in peace without having to look at the government for everything.
After all, how much longer can we sell the political dreams of a better life in Nepal when we are forced to spend 1,047 days out of 1,825 without work owing to general shutdowns? This way, recent political achievements have not taken us any closer to making a tangible difference to our everyday lives. On the contrary, they might drive us into yet another phase of instability, violence and conflict. So Nepal should use this experience to correct past mistakes and open doors for greater trade across borders.
The author is Communications Coordinator at Samriddhi, The Prosperity Foundation.