In Himalayas, there is a way but not a will for China-India trade

Deep in the Himalayas some three miles above sea level, Indian security forces and Chinese soldiers gaze at each other through a barbed-wire fence while trucks carrying goods from both sides pass through a large iron gate that marks the border.

TheNathula Pass, once part of the ancient Silk Road and later sealed after a 1962 war, was reopened in 2006 as a symbol of improved relations between Asian neighbours that account for more than a third of the world’s population. A decade later, however, it perhaps better reflects a trust deficit: the pass does not account for 1 per cent of bilateral commerce.

“Business is very slow here,” said Riku Doma, 42, a shopkeeper at a market close to Nathula who sells jackets, blankets and shoes in India. “I’m just managing to survive.“

Large sections of the road linking India’s state ofSikkimwith Tibet are narrow and littered with potholes. The area has no warehouses to store goods nor any hotels. Only 56 low-end items can be traded, like tea, bicycles and canned food. And for about half the year, heavy snowfall forces authorities to close the border altogether.

The connectivity problems in the Himalayas, long a natural land barrier between India and China, extend to sea routes that account for the bulk of tradebetween the nations. A lack of quality roads around ports, insufficient warehouses, high tariffs and visa restrictions have contributed to a lopsided and lacklustre trade relationship. To help ease trade barriers, negotiators are meetingthis week.

In the last four years, commerce between the ­nations has failed to match its peak of US$79 billion in 2011, according todatacompiled by Bloomberg. China’s trade with the US has grown 21 per cent in that time to US$627 billion. Moreover, India has atrade deficitwith China of nearly US$50 billion, its largest with any country.

“Both sides are yet to tap their trade potential,” said Ravi Shekhar Vishal, an assistant professor atSikkim University who co-authored aresearch paperon Nathula trade. “That’s primarily because the trust between them is fragile and superficial.”

The large trade deficit makes any future opening politically difficult for Prime Minister Narendra Modi. Lawmakers keep urging him to take protectionist measures against China, and the gap routinely comes up in Modi’s meetings with President Xi Jinping. Even so, Indian policy makers realise that little can be done in the short term.

For one, both nations are members of the World Trade Organisation, which does not allow governments to discriminate against specific countries in setting trade policy. A bigger problem, however, is ­India’s own infrastructure – its roads, ports and railways. In 2014 itcostUS$1,332 on average to export a container from India, compared with US$823 to ship from China.

Even the Regional ComprehensiveEconomic Partnership (RCEP), a 16-country trade deal that aims to unify a market of more than three billion people, has problems. India wants moderate import tariffs on goods rather than complete elimination of ­duties, while China is pushing to increase the number of products that will attract zero duty.

Due to an impression that India is creating obstacles, the chance of a breakthrough at the talks isn’t very high, said Amitendu Palit, a senior research fellow at the Institute of South Asian Studies at the National University of Singapore. RCEP members will start a two-day meeting in Jakarta on Monday.

“It’s just not convenient to do business between the two nations,” said Huo Jianguo, senior researcher at the Chinese Academy of International Trade and Economic Cooperation. “There’s a lack of trust between the two peoples.”

(BLOOMBERG)