February Analysis: International Relations and Foreign Affairs

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Timeline of Major Events

DateEvents
February 6On February 6, a letter jointly endorsed by Prime Minister Sher Bahadur Deuba and NCP (Maoist-center) Chairperson Pushpa Kamal Dahal to MCC headquarters was disclosed. The letter expressed their commitment to pass the MCC by the parliament
February 8Nepal received 800,000 doses of Astra Zeneca Covid-19 vaccines from the U.K. through the COVAX facility On February 8, the BBC disclosed a confidential study report claiming that China attempted to create a permanent canal in Nepali territory.
February 10On February 10, U.S. Assistant Secretary for South and Central Asian Affairs Donald Lu, in a telephone conversation with Deuba, KP Oli, and Dahal
February 18Chinese Foreign Ministry Spokesperson at a general press conference remarked that the U.S. is using “coercive diplomacy” in Nepal
February 23Nepal-India Energy Secretary-Joint Steering Committee meeting

MCC: Prompting Geopolitical Stir

Fatima Sumar, Vice President of the US Agency for International Development (MCC) Millennium Challenge Corporation (MCC), paid a courtesy call on Minister for Energy, Water Resources and Irrigation Pampha Bhusal at her office in Singha Durbar . Photo: RSS

On February 6, a letter jointly endorsed by Prime Minister Sher Bahadur Deuba and NCP (Maoist-center) Chairperson Pushpa Kamal Dahal to MCC headquarters was disclosed. The letter expressed the commitment to pass the MCC by the parliament. In response to the letter sent to the MCC board by the ruling coalition leaders, MCC has indicated that failing to ratify MCC in Parliament within February 28 may result in  consequences like reductions in aid and foreign direct investments from the U.S. and other countries. The letter to the MCC headquarters is deemed to be against diplomatic dignity. The joint letter from the Prime Minister and chairman of another party is atypical practice.

On February 10, U.S. Assistant Secretary for South and Central Asian Affairs Donald Lu, in a telephone conversation with Deuba, KP Oli, and Dahal, conveyed that neither MCC would be amended nor the deadline for a parliamentary endorsement would be extended. He further added that the U.S. would believe that MCC was declined due to Chinese influence in Nepal. The U.S. ‘s adamance on not amending the compact is another dimension. This indicates that the U.S. has adopted a more coercive stance on the issue of the compact ratification in Nepal. The failure to ratify the compact may not bring about immediate reorientation of American foreign policy towards Nepal but it is likely to become a determining factor.

On the other hand, the Chinese Foreign Ministry Spokesperson on February 18 at a general press conference remarked that the U.S. is using “coercive diplomacy” in Nepal. Although China has maintained that it supports developed countries to increase international development cooperation projects to developing countries like Nepal, China has time and again expressed caution on the compact under different pretexts. Chinese statements at this point could aggravate Nepal’s already precarious geopolitical situation. Some analysts suggest that the statements made by the US or China show a cooperative attitude towards Nepal. Former Foreign Minister Dr. Bhes Bahadur Thapa says, “Their comments are not easy and not in the interest of Nepal.”

One of the weaknesses of the Nepali leadership is its inability to grasp the fact that Chinese efforts to thwart U.S. projects and U.S. efforts to stop the Chinese are not new.

In a country with a geopolitical situation like ours, the MCC is treated like any other internal political issue, ignoring the need for clarity, agility, and transparency in the context of such projects that could make a country the subject of its credibility. The issue of MCC illustrates Nepal’s propensity to view any issue from a geopolitical perspective.

China

On February 8, BBC disclosed a confidential study report that claims that China attempted to create a permanent canal in Nepali territory. The report also says that the Chinese side has wired the Nepali territory from Kit Khola to Karnali River. China has been maintaining that there is no border dispute with Nepal. China also stated that BCC’s news report is smearing propaganda against China.

Further, Nepal’s Minister of Communications and Information Technology has stated that the government will resolve border concerns through necessary diplomatic measures. He noted that the government was always attempting to resolve border-related issues. He also clarified that such problems are studied and resolved through the government’s mechanism by studying the reality at the appropriate time and releasing the official stance. The reluctance of the government to officially release the report on border issues with China shows that the fear element in Nepal-China relations is becoming dominant.

Nepal has an enormous trade deficit with China. Nepal purchased NRS 233.93 billion worth of goods from China in 2020-21, while it exported NRS 1 billion. This equated to a trade deficit of Rs 232. 90 billion, accounting for 14 percent of Nepal’s overall trade deficit in the fiscal year 2020-21. One of the reasons for the discrepancy in the volumes of trade between the two countries is the soft trade embargo since the beginning of the Covid-19 pandemic. The virtual blockade continues to persist, with China imposing strict border restrictions. Regarding trade, China has shown no good neighborly behavior.

Further, 50,000 metric tons of urea and 63,535 metric tons of DAP fertilizer imports have been halted due to the Chinese policy of stopping fertilizer exports. Diplomatic efforts at the government level have not been successful. As per the Agricultural Material Company, Chinese fertilizer producers were selling chemical fertilizers in the world market while Nepal was processing the contract. However, contractors refused to supply the fertilizer, saying that the government had stopped exporting. China has taken up a passive aggression approach towards Nepal, perhaps to show its displeasure regarding the surfacing of MCC. Moreover, China’s indifference towards Nepal conveys that Nepal cannot trust China.

India

India announced its budget on February 1, where the aid for Nepal has dropped. In the fiscal year 2019-20, India allotted Rs. 16.8 billion to Nepal, which was later increased to 19.2 billion. In 2020-21 India’s aid to Nepal decreased by 33 percent. In the fiscal year 2022-23, Indian aid to Nepal is Rs. 12 billion, which is 24 percent less than that of the fiscal year 2022/23. The Indian aid allocation to Nepal in the past three years shows a downward pattern.

Effective in May, Indian travelers visiting Nepal will be able to use UPI, an online payment system.  Nepalese payment service provider Gateway Payment Service Private Limited has reached an agreement with the National Payment Corporation of India to implement UPI in Nepal. India’s digital diplomacy is gaining traction. The decision would be a massive relief for Indians traveling to Nepal, as Nepal has only permitted the usage of Indian rupees in the denomination of 100.

The Nepal-India Energy Secretary-level, joint Steering Committee meeting was halted since the Covid-19 pandemic. It was finally held on February 23. In the meeting, the aspects of power trade and bilateral cooperation. The discussion would encompass the export of 850 megawatts of power to India from the approaching monsoon, Butwal-Gorakhpur transmission line, Raxaul-Parwanipur transmission line, and New Nautanahawa-Mainiya transmission line. It is positive news that Nepal and India are making leaps and bounds in bilateral cooperation in the energy sector.

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