Q. China and Nepal are linked with land. Still, most Chinese goods reach Nepal via sea routes, and Nepal is a landlocked country. The situation is like so close yet so far. It seems there is trade barrier in addition to trade deficit. Your take on it.

Ambassador Paudyal: Yes, there are trade barriers. Infrastructure bottleneck is one of the major barriers besides some procedure related matters and some systemic issues. We can't drive in vehicles to either's territory due to differences in driving lane. This is one of the reasons that I have emphasized the railway connectivity as early as possible. Railway connectivity, I am sure, will solve the problem of routing cargo via sea that takes unnecessarily long time.

Secondly, with growing economic contacts, we have to facilitate the cross border movement of people of either sides residing beyond the 30-km area from the Nepal-China border. Residents of bordering districts can travel within the 30-km area without passport and visa for trade and social contact. We have to make arrangement of issuing permissions for those who need to cross border everyday or more frequently for business purpose. Banking, insurance, cargo handling facilities, bonded warehouse facilities are other services for smooth flow of goods and people that require in either sides of border.

I have also learnt from Nepalese businessmen recently that custom valuation for a product being imported via land route through Keyrung is considerably high than the custom valuation of the same product via sea route. I have been checking the facts, if it is true we have to address it urgently.

Roads in the Nepalese side are in very dilapidated condition which needs immediate improvement. Some Nepalese merchants had recently showed me a video about pathetic condition of road. I was also told that there is illegal syndicate in transportation of goods towards Nepal side. The cost of transportation from Guangzhou to Keyrung covering 5000 km rail and road distance is more or less the same with the cost of transportation from Keyrung to Kathmandu that is just 130 km.

You used the phrase 'so close yet so far'. I would not use it to describe the relations between Nepal and China that way. Because China is the first in terms of volume of foreign direct investment in Nepal and it is also the second largest trading partner. China is the largest development assistance provider. Even in terms of tourist arrival in Nepal, China is the second largest country to send tourists to Nepal. I agree that given the Chinese capacity to help transform Nepal economy, we have not been able to reap the benefit as we could have.

Q: Nepal's trade deficit with China is huge. Out of total trade between the two, Nepal's part constitutes less than 5 per cent. How can trade balance be created for healthy trade growth?

A: It is wrong to think of creating an exact trade balance by trade alone or creating balance by importing the same value of goods and services as exported to any country. But present trade deficit of Nepal with China is extremely high. There is ample possibility in making balance of payment in our favor by bringing in sufficient number of Chinese tourists and investment to earn Chinese currency for payment of goods we import. Apart from that we should not let the present extent of trade deficit to continue, and we have to make hard effort to bring down export import ratio at sustainable level.

The first effort we have to make is about augmenting our production capacity. As the Chinese market is very big, we should ensure regular supply of qualitative goods and services. Otherwise, Chinese businessmen will not get involved in importing Nepalese products and promote in the Chinese market.

If there is anything in Nepal in a large quantity that we can market in China now, they are only tea and carpet. As I came here, I tried for the same. But, now I have understood that until we expand our production capacity of these products as well, we are unlikely to be able to cater to the market need of China.