Unit- 5

Foreign Policy and Trade

Unit 5: Foreign Policy and Trade
 Introduction and Characteristics of Nepalese Foreign Policy.
 Objectives of Foreign Policy, Non alignment policy
 Foreign Trade: introduction, prospects and problem.
 UNO and Nepal-Social council, Shanti Sena and participation in other
activities.
 SAARC and Nepal
 Introduction to Foreign
Policy
 It is a government's strategy in dealing with other nations, also known as the foreign relations, or
foreign affairs policy.
 Foreign policy refers to sum of principles, interests and objectives which a country promotes while interacting with
other countries. Even though there are certain basic features of a foreign policy it is not a fixed concept.
 The Ministry of Foreign Affairs (MOFA) is the government agency responsible for the conduct of
foreign relations of Nepal.
 Foreign policy of Nepal is guided by the abiding (long lasting) faith in the United Nations and policy of
nonalignment (Neutrality).
 The basic principles guiding the foreign policy of the country include: Mutual respect for each other's
territorial integrity and sovereignty; Non-interference in each other's internal affairs.
 Foreign policy of every country deals first with the preservation of its independence and security, and
second, with the pursuit and protection of its economic interests.
 Historical overview
 The formal beginning of Nepal's international relation is found to have started from the
time when Junga Bahadur Rana made his visit to Britain in 1850 AD.
 The treaty of peace and friendship was signed between Nepal and British government in
1923 during the rule of Chandra Shamsher.
 Nepal entered international world after it had established diplomatic relations with
China, Soviet Union and France following the political change of 2007 BS
 Nepal – United Kingdom:- The British Gurkhas is an important feature of the friendship
between the two countries. The Gurkhas’ service in the British army officially started on
24 April 1815 after the Treaty of Sugauli. After the independence of India, the
recruitment of Gurkha Army was organized by way of the Tripartite Agreement of 1947
among Nepal, India and the UK. After the establishment of its diplomatic relations with
Britain, Nepal appears to have established its relations with only two countries; India and
Britain in the Rana period.

 Nepal – Eswatini:- With the establishment of diplomatic relation with the
African Nation Eswatini on May 9, 2019, the number of countries with the diplomatic
relationship with Nepal has reached 171. (Till the date 2076/2/22) such as: Australia,
America, Argentina, India, Canada and so on.
 Nepal became the member of United Nations on 14th December, 1955AD
 As a founding member of the non-aligned movement, Nepal wishes for
world peace. It has been mentioned in the Constitution of Nepal that the foreign
policy will be conducted being based on the Charter of the United Nations, non-
alignment, principles of Panchasheel, international law and the norms of world
peace, taking into consideration of the overall interest of the nation, while remaining
active in safeguarding the sovereignty, territorial integrity, independence and national
interest of Nepal, and that the international relation will be guided by reviewing
treaties concluded in the past, and making treaties, agreements based on equality and
mutual interest.
 The Five Principles of the Panchsheel Agreement are as
follows:
 Mutual respect for each other’s territorial integrity and
sovereignty,
 Mutual non-aggression
 Mutual non-interference in each other’s internal affairs,
 Equality and mutual benefit
 Peaceful co-existence
Characteristics of Nepalese foreign
policy
The foreign policy of any country is based on her geographical, political, social,
economical, intellectual historical and religious background. In context of these factors,
some of the characteristics are pointed below:
 Nepal has friendly and hostile relation with her neighboring country.
 Whatever the geographical position Nepal has, it has always been independent and had
kept relations with emperor of south.
 Nepal began to participate in non-aligned summit conference from 1961.
 Nepal is active member of UNO after it took membership in 1995.
We Nepalese are capable to safeguard our sovereignty and independence.
Nepalese feel vanity and pride that even to this day they had never been
subjugated by any power.
 Objectives
 Mutual respect for each other’s territorial integrity and sovereignty;
 Non-interference in each other’s internal affairs;
 Respect for mutual equality;
 Non-aggression and the peaceful settlement of disputes;
 Cooperation for mutual benefit;
 Abiding faith in the Charter of the United Nations;
 Value of world peace.
 Preserving Autonomy while building Relation of trust and confidence with our
neighbors.
 Bringing foreign investment to spurt economic growth.
 Foreign Trade
 Trade means the action of buying and selling goods and services and exchange (something)
for something else, typically as a commercial transaction.
 Different Types of Trade
1. Internal Trade
Internal trade is also known as Home trade. It is conducted within the political and geographical
boundaries of a country. It can be at local level, regional level or national level. Hence trade
carried on among traders of Delhi, Mumbai, etc. is called home trade
2. Foreign Trade
It refers to buying and selling between two or more countries. For instance, If Mr.X who is a
trader from Mumbai, sells his goods to Mr.Y another trader from New York then this is an
example of foreign trade.
 External trade can be further sub-divided into three groups,
 Export Trade : When a trader from home country sells his goods to a trader located in
another country, it is called export trade. For e.g. a trader from India sells his goods to
a trader located in China.
 Import Trade : When a trader in home country obtains or purchase goods from a trader
located in another country, it is called import trade. For e.g. a trader from India
purchase goods from a trader located in China.
 Entrepot Trade : When goods are imported from one country and then re-exported
after doing some processing, it is called entrepot trade. In brief, it can be also called
as re-export of processed imported goods. For e.g. an Indian trader (from India)
purchase some raw material or spare parts from a Japanese trader (from Japan), then
assembles it i.e. convert into finished goods and then re-export to an American trader
(in U.S.A).
 Nepal’s main trading partners are India, China, Bangladesh, USA.
 The country mainly exports clothing, carpets, handicrafts, leather and jute
products, vegetables and cereals
 Nepal imports oil and oil products, machinery & equipment and electronics.
 Nepal had adopted liberal trade policy in 1992 and the new Trade Policy is
announced in 2014.
 The foreign trade of Nepal is being directed towards wide range of countries in
the world after Nepal became the member of WTO in 2004.
 Nepal has trade relation with more than 100 countries. Nepal has identified 19
selected items for exports through its National Trade Integration Strategy (NTIS)
in 2010.
 Importance
 If one country focus on certain product, they can develop skills knowledge and
product high-quality goods.
 Employment opportunity
 Opportunity to expand the market
 Resources and means are utilized properly
 It helps in industrialization
 FT enables foreign currency.
 Preservation and encouragement for the arts and crafts skills
 It increases the governemtn revenue and strengthen the economy of the nation
 It helps to strengthen the relationship of countries
Current situation of FT

 the foreign trade in Nepal is still in its infancy. The manufacturing sector is
still small though it is growing gradually. Several studies have discussed about
the, growth, composition and trend of foreign trade of Nepal. However, there
is still some lacking of recent study about the direction and problems of
foreign trade.
 Before 1951 AD, Nepal's foreign trade was limited only with India and Tibet.
The major reasons behind the concentration of Nepalese trade with India
were: Most parts of Nepal surrounded by India, Nepal has open border with
India, and there is similarities in language, culture, religion, tradition, etc.
But at present, Nepal's trade relation is with overseas countries besides India
and China is relatively increasing. But India is still a major trading partner of
Nepal.
Problems of Foreign Trade in Nepal

Group discussion
Problems of Foreign Trade in Nepal
Foreign trade is not in favour of Nepal. It is not in balance. There are
several problems in foreign trade,i.e.
 Land-locked,
 Open border with India,
 High import and low export,
 Low quality goods high cost of production,
 Low capital formation,
 Tough competition,
 Lack of proper policy etc.
 Land-locked
Land-locked is one of the major problems of foreign trade in Nepal.
Nepal, being a landlocked country, has no seaports. She has to travel through
India to be able to use Indian ports. Quite often do come unexpected transit
problems. Transportation cost, demurrage charge and insurance charge make the
goods more expansive. It takes longer time as well.
 Open Border
Open Border is one of the major problems of foreign trade in Nepal.
Nepal, which is bordered by India from three sides, has open border policy with
India. There is a large flow of Indian goods at cheap price. At borders, on one
hand, Indian goods are smuggled in and imported foreign goods smuggled out into
India through unofficial routes. Individuals and businessmen get high benefit but
the country gains a little. This has been hurting foreign trade badly.
 High Import and Low Export :
High Import and Low Export is one of the major problems of foreign trade in
Nepal. Nepal imports more than it exports both in terms of items and value. Most
of the things exported are agricultural products, handicrafts and raw materials,
which don’t earn much. It imports a lot of goods of daily uses and also expansive
luxurious items. This has caused tremendous trade imbalance.
 Low Quality Goods, High Cost of Production
Low Quality Goods, High Cost of Production is one of the major problems of foreign
trade in Nepal. Nepal doesn’t have yet well-developed industrial base. Its products are
generally of low quality. At the same time, due to various reasons, the cost of production is
also high. This makes Nepali products unable to compete in international markets.

 Low Capital Formation:

Low Capital Formation is one of the major problems of foreign trade in Nepal. There
are very limited economic activities in Nepal. The infrastructures for development and
industrial base are not well developed. There lacks favourable environment for both private
and foreign investment, which means there is very little capital formation in the country. This
is not a favourable situation for international trade.

 Tough Foundation:
Tough Foundation is one of the major problems of foreign trade in Nepal.
International trade is becoming more and more competitive. Many countries export quality
goods at lower rate to increase their share in the international trade. Nepal lacks skill,
resources, technologies and support bases to compete in the international markets. Some
countries do have even policy of protecting their own industries and products, and give
subsidies on their products
 Lack of Proper Trade Policy
Lack of Proper Trade Policy is one of the major problems of foreign trade
in Nepal. Nepal has adopted a liberal trade policy since 1990. According to this
policy, Nepal has been following open door policy. This allows uncontrolled flow
of foreign goods into Nepal, whereas Nepal doesn’t have the capacity to counter
this. This is causing large trade deficit. There lacks proper trade policy due to
political instability and lack of political commitment
Solutions of Foreign Trade Problems in Nepal
 Enhance industrial bases
 Promote export-oriented goods
 Give appropriate incentives to exports
 Improve quality of goods
 Adopt proper trade policies
 Enhance training and skills
UNO and Nepal
 Introduction
 The united Nations organizations (UNO) is an international
organization founded in 1945 for the peace, security and cooperation
among Nations.
 currently has 193 member states.
 Headquarters in New york city
According to the charter the UNO has 4 basic principles:
1. Maintain international peace and security
2. Develop friendly relation among nations
3. Cooperate in solving international problems and promote respect for
human rights.
4. Be the centre for harmonizing the actions of nations
Why UN Formed ?

 To solve the problems of member nations in a peaceful manner.

 To stop dispute between nations in a peaceful manner. Dispute (bibad) on any
issue i.e. land dispute, trade dispute, etc.
 To stop any wars between member nations.
 To create welfare policy for nations to encourage pubic welfare throughout
the world.
 To promote the globalisation
 To protect and promote human rights, dignity, and freedom
To work for the economic and social progress of the world
To achieve international co-operation in solving nation’s problems.
Roles of Nepal in UNO (United Nations
Organization)
 After joining the UN on 14 December
1955, Nepal has reposed her enduring
faith in the principles and purposes
enshrined in the UN charter and have
shown full support.
 As a peace-loving nation, Nepal has
been significantly contributing to the
UN peacekeeping operations around
the globe since 1958.
 She has shown strong commitment
towards peace, security, and
disarmament.
 Nepal has been actively fulfilled its responsibilities while being members of
Security Council in 1969-70 and 1988-89 and other different positions.
 Nepal is in favor of reformation of UN. It believes that Security Council should
be made more representative, more transparent and more democratic,
holding that the council should reflect.
 Nepal has always supported the decision and resolutions of UN for the cause
of peace and security in the globe.
 Nepal has always called for the protection and promotion of human rights.
 Nepal has hosted the UN Regional Centre for peace and disarmament in Asia
and the Pacific in Kathmandu.
 Nepal has incessantly called for the protection of the rights of small
landlocked countries and Land Locked Developing Countries in the UN sessions
and other meetings.
 Roles of Nepal in UNO (United
Nations Organization)
 1. After joining the UN on 14 December 1955, Nepal has reposed her enduring
faith in the principles and purposes enshrined in the UN charter and have shown
full support. It has been actively involved in the activities of the UN with fidelity
and commitment.1. After joining the UN on 14 December 1955, Nepal has reposed
her enduring faith in the principles and purposes enshrined in the UN charter and
have shown full support. It has been actively involved in the activities of the UN
with fidelity and commitment.

 2. As a peace-loving nation, Nepal has been significantly contributing to the UN

peacekeeping operations around the globe since 1958. She has been sending
military and police personnel to various peacekeeping operations upon the call on
UN. Currently, it is the 5 largest contributor, Nepal has received hopping
appreciation of the world community for the efficiency and the honesty of its
peacekeepers.
 3. She has shown strong commitment towards peace, security, and
disarmament. She has supported the establishment of peace zones in
different parts of the world for the sake of world peace. She is in favor of
general and complete disarmament. She has been relentlessly calling for the
elimination of weapons of mass destruction-chemical, biological and nuclear.

 4. Nepal has been actively fulfilled its responsibilities while being members of
Security Council in 1969-70 and 1988-89 and other different positions.

 5. Nepal is in favor of reformation of UN. It believes that Security Council

should be made more representative, more transparent and more democratic,
holding that the council should reflect the balance of the North and the
South.

 6. Nepal has always supported the decision and resolutions of UN for the
cause of peace and security in the globe.
 7. Nepal has always called for the protection and promotion of human rights.
Nepal is one of the nations to sign the Universal Declaration of Human Rights
proclaimed by the UN General Assembly on December 10, 1948.

 8. Nepal has hosted the UN Regional Centre for peace and disarmament in
Asia and the Pacific in Kathmandu. This is the obvious manifestation of the
recognition of Nepal by the UN for her active role in that multilateral body.

 9. Nepal has incessantly called for the protection of the rights of small
landlocked countries and Land Locked Developing Countries in the UN sessions
and other meetings. She has participated in all the conferences on LDCs in
which she has actively worked to promote the interests of LDCs.
SAARC
 The South Asian Association for Regional
Cooperation, or SAARC, is an economic and
geopolitical organization that was established to
promote socio-economic development, stability,
and welfare economics, and collective self-
reliance within its member nations.
 Founded during a summit in 1985, SAARC’s initial
members include Bangladesh, Bhutan, India,
Maldives, Nepal, Pakistan, and Sri Lanka. Due to
rapid expansion within the region, Afghanistan
received full-member status and countries are
considered observers. SAARC respects the
principles of sovereign equality, territorial
integrity, and national independence as it strives
to attain sustainable economic growth.
 Nepal successfully hosted the 18th
SAARC Summit in Kathmandu on
26-27 November 2014.
 The 36-point Kathmandu
Declaration entitled ‘Deeper
Integration for Peace and
Prosperity’ was adopted at the
conclusion of the Summit.
 At Nepal’s initiative, cooperation
in the field of migration,
cooperatives and social protection
featured for the first time in
SAARC agenda and reflected in the
Declaration. Signing of SAARC
Framework Agreement for Energy
Cooperation (Electricity) was an
important achievement of the
Summit.
 Nepal had also successfully organized the
3rd and 11th Summits in Kathmandu in 1987
and 2002 respectively. During the 3rd
Summit, SAARC Regional Convention on
Suppression of Terrorism was signed
which entered into force on 22 August
1988. The Summit commissioned Regional
Study on “Consequences of Natural
Disasters and Protection and Preservation
of Environment”. Two important
conventions, namely SAARC Convention
on Preventing and Combating Trafficking
in Women and Children for Prostitution
and SAARC Convention on Regional
Arrangement for Promotion of Child
Welfare in South Asia were signed during
the 11th Summit.
Relationship with Nepal

Group discussion
Thank you