July 2002 was a foreign policy month for Nepal. The King undertook two visits: to India, in end June, and, China in mid-July. The King’s visits took place against the background of political instability – Parliament had been dissolved and fresh elections called for in November; the main ruling party, Nepali Congress, split into two over disagreements regarding the dissolution of the House; there was no sign of the Maoists weakening and the defence budget increased by twenty-five percent to tackle insurgency. The King’s visits highlighted the Monarchy as the only stable institution in Nepal and brought aid and assurances of support from both its neighbours. The focus of these visits was economic, apparent from the large delegation of members from the Nepal Chambers of Commerce that comprised the Royal entourage.

Nepal-India Relations

     The King’s visit to India is significant because it was the King’s first state visit. Apart from India’s assurance to help fight the Maoists, a letter of understanding was signed between both Chambers of Commerce to setup two task forces for mutual cooperation in water resources and tourism management. The visit also provided an impetus for other agreements and enhanced cooperation. A secretary-level meeting, scheduled between the two countries on August 7, is expected to ink an agreement on railway extension which would make the Birgunj Dry Port fully operational. Preparations are on for an extradition treaty.

     In its support to Nepal’s fight against the Maoists, India arrested and handed over four Maoist rebels who were in Delhi to attend a meeting to the Nepalese authorities. Prominent among them was Partha Chhetri, the rebel organization’s key contact person. Five more were arrested in Uttar Pradesh and handed over. A Maoist body, Akhil Bharat Nepali Ekta Samaj, was banned under POTA. A joint team had been established earlier to check the madrassas in the border areas and search hotels and settlements in border areas for Maoists. The Special Services Bureau (SSB) has been deployed along the border.

     On the flip side, the Nepal-India meeting on July 24 to finalize the joint Detailed Project Report (DPR) of the Pancheshwar Multipurpose Project ended without agreement. The Pancheshwar Project, an offshoot of the Mahakali Treaty, would generate 6400 megawatts of electricity when completed. The bone of contention has been the sharing of water and other benefits from the Project. Critics of the Mahakali Treaty claim that India is receiving a much larger share. Both countries have completed their individual DPRs. However, a harmonized DPR is mandatory in terms of the Treaty. The scheduled meeting was crucial to iron out differences between the two DPRs.

Nepal-China Relations

     The focus of the King’s visit to China was also economic – to attract Chinese investment in tourism, agriculture and hydropower, and establish joint-ventures. It was expected to renew the trade treaty with Tibet which has not been renewed for the last six years. Nepal also hoped for concessions for Nepalese goods to reduce trade imbalance. In 2001-2002, Nepal imported Rs. 11.5 billion from China, of which Rs. 5.3 billion was through Tibet. The net export was for Rs. 538 million, of which Rs 525 million was to Tibet. Currently Chinese investment is concentrated in the manufacturing and services sector. Last year, China declared Nepal as a major tourist destination. An agreement was signed recently to make the Chinese Yuan convertible in Nepal. China is the fifth largest investor in Nepal and has opened two more trade points on the Sino-Nepal border bringing the total to five.

     The trade treaty has been renewed, and a Memorandum of Understanding was signed on the opening of an honorary consulate in Shanghai. The Chinese government also agreed to provide Rs. 780 million for the next fiscal year to construct an 18 km road between Rasuwa and Ayaphrubesi, and open a hospital and polytechnic institute in Banepa. An agreement on trade was also signed between the Chinese Vice Foreign Minister and Nepal’s Foreign Secretary.

Maoist Insurgency

     Another significant development in July was Maoist supremo Prachanda’s dropping his demands for the formation of a Constituent Assembly and expressing his willingness to participate in the mid-term polls scheduled in November, provided the elections are conducted by an interim government. Most political parties welcomed this offer and urged the government to respond positively. Prime Minister Deuba, despite welcoming it, is skeptical, since the Maoists had walked out earlier after three rounds of peace talks. Many view the latest offer by the Maoists as one made under pressure due to the changed international milieu on terrorism after 9/11, and the increased Indian crackdown on Maoist networks in India. Deuba is under pressure to respond positively after donor countries stressed the need to resume dialogue with the rebels in their London meeting in June 2002.