I found this excellent Article in Telegraph Nepal of which link is provided below, while researching on India-Bangladesh Trade. I will have some comments on this as per my experience in Indian Customs Laws. The Copyright of the Article vests with Author/Publisher.
Enhancement of Nepal-India bilateral Trade & Commerce Ties
Rajesh Agrawal National Council Member, Confederation of Nepalese Industries
The bilateral framework for trade and transit is provided by the India-Nepal treaties of Trade, of Transit, and Agreement for cooperation to control unauthorized trade 1991. The trade treaty valid for five years was renewed through an exchange of letters on December 3, 1996 and March 5, 2002 and automatically renewed for another five years in March 2007.
Under the Treaty of Trade, India provides, on a non-reciprocal basis, duty free access, to the India market for all Nepalese-manufactured articles barring a short negative list (cigarettes, alcohol and cosmetics), subject to the conditions, since march 2002, that the exports meet the domestic value addition requirement of 30% and change in its classification at four-digit level in the course of manufacture or processing in Nepal.
After the March 2002 revision, annual quotas have been prescribed for duty free exports to India for four sensitive items-vegetable fats (100,000 tons), acrylic yarn (10,000 tons), copper products (10,000 tons) and zinc oxide (2,500tons).
Bilateral trade takes place generally in Indian rupees, but Nepal’s Central Bank maintains a list of items that can be imported from India in us dollars.
The India–Nepal Treaty of Transit, renewed every seven years, provides for port facilities to Nepal at Kolkata and specifies 15 transit routes between Kolkata and the India-Nepal border for bilateral trade, 22 entry/exit points are provided along the Indo-Nepal border. The transit treaty was last renewed in March 2006. The agreement for cooperation between India and Nepal to control unauthorized trade was automatically renewed for five years in March 2007.
The two governments are negotiating a bilateral investment protection and promotion agreement.
India and Nepal signed a rail service agreement in May 2004, to extend cargo train service to the inland container depot (ICD) at Birgunj in Nepal. ICD has been constructed with World Bank assistance of US$ 17 million, while India has constructed the rail tracks which link the ICD with the Raxaul railway station in India. The ICD became operational on 16th July 2004. A container corporation of India-led joint venture Himalayan Terminals Private LTD. is operating the ICD.
A motor vehicle agreement for passenger vehicles, initialed on 23rd February 2004 awaits formal signature. The agreement envisages bus services between India and Nepal on 14 routes through 5 borders on reciprocal basis.53 buses will operate under this agreement everyday. Individuals traveling to either country in their personal vehicles would also be able to cross over into the other country without payment of any charge for the first five days.
Now I would like to high light some of the issues related to trade:
The trade treaty between India and Nepal has made specific provision which allows access of Nepalese manufactured goods to the Indian market without payment of any customs duty.
But in the past, through national budgets additional duties to the extent of 4% has been imposed on Nepalese exports, later on at the request of Nepalese’s exporters as well as Nepal government these duties were called off.
Eventually when the 4% additional duty was waived by other notification, it was made applicable only to those items, which were being exported by the date of the notification as per the list approved by the finance ministry on the basis of H.S. Code classification.
Many items which could have been exported or are exported from Nepal are still subject to this 4% additional duty.
By this the exports under Nepal India trade treaty has virtually frozen to the items enlisted prior to the notification and for the new items, the treaty is virtually extinct.
As a result of such discretionary levy of the additional duty, Nepalese exports have been badly impacted.
Agro based industries are facing problem of quarantine and lab testing and borders.
The garment industries are facing problems of levy of CVD in India on the basis of MRP.
Quota and canalization on vegetable fat, acrylic yarn copper products, zinc oxide
On specific items like steel pipes it is required to take ISI mark from BIS before they can be exported though they have already taken ns mark from Nepal bureau of standards.
Pharmaceutical industries are unable to export their products to India, because the registration of their pharmaceutical products in India is almost impossible.
The indo Nepal trade treaty allows for sending any machinery for repair & maintenance only within 3 years of importation from India to Nepal. Whereas in normal cases, it is after 3-4 years of installation that a machinery requires repair and maintenance.
By products not being allowed to be exported in India;
These are products where main finished products are allowed to be exported in India, but by –products generated during the course of manufacture of the finished products are not allowed for export to India due to some prohibitions either due to the Exim policy of India or some other notification.
Heavy congestion at Kolkata port resulting in delay and cost increase of import cargos.
Road and customs infrastructure not sufficient, very weak at the borders.
It should be specifically provided in the treaty that neither the central government of India nor the state governments will levy any form of additional duty on goods imported into India from Nepal as per the provision of the India Nepal trade treaty. And whatever products it is being levied currently should be waived immediately.
Regarding quarantine testing Nepalese labs should be accredited for the testing.
Third party pre-shipment inspection and their certification is the norm for the exports all over the world, the same can be made applicable for India-Nepal trade on agro products.
Initiations had started for negotiating a bilateral cooperation agreement on standards between bureau of Indian standards and Nepal bureau of standards and meteorology. It should be finalized with both recognizing quality standard marks provided by each other.
Nepal allows the import of Indian products with the minimum of non-tariff barriers and the Nepali exporters also expect the same treatment from the counterpart.
Provision for allowing the sending of machinery for repair and maintenance within 3 years of import only to be amended to remove the 3 years boundation.
The motor vehicle agreement for passenger vehicles should be formalized to allow Nepalese vehicles into Indian Territory which at present require a permit.
Removal of quota and canalization; when the quota was prescribed in 2002 on vegetable ghee, acrylic yarn, copper products, zinc oxide, the import duties in India on these products were very high, but now they have been significantly reduced and in some cases it is even 0%, so there is no logic in continuing with the quota.
Nepali manufactured goods out of Indian and or Nepali raw materials should have a separate procedure for export to India. They should be given national treatment as given by the central government of India to the states like Assam, Meghalaya, Uttarakhand and Himachal Pradesh in terms of tariff and non-tariff issues.
The DRP system (duty refund procedure) was introduced for goods exported from India to Nepal in Indian currency with a view to increase trade with Nepal as well to reduce the landed cost of goods to the consumers of Nepal. Under this system the amount of excise duty paid on Indian goods is given as rebate in the customs duty levied by Nepal and that amount is refunded to the Nepal government by the Indian government. During that time import duties were about 25% in Nepal so the full excise amount would be exempted but now the duties have fallen to the range of 5-10% resulting in the full excise not being exempted hence Indian goods becoming expensive.
So for all exports from India to Nepal in Indian currency excise duty should not be charged as in the case of dollar exports.
For the congestion being faced in Kolkata additional sea ports with railway connection for Nepal as JNPT, Kandla, Vishakhapatnam and ICD Tuglakabad for import and export of goods from Nepal should be provided.
ICD Birgunj should be connected with major ICD of India for bilateral and overseas cargo.
The facilities of concur should be extended to carry export material from Nepal to major cities of India and vice versa
Goods imported from third country into India are not allowed to be re-exported to Nepal. This provision should be removed and goods imported into India from third country should be allowed to be re exported to Nepal.
Improvement of cross border trade related infrastructure such as upgrading major customs check points at Birgunj-Raxaul, Biratnagar-Jogbani, Bhairawaha-Sunauli and Nepalgunj-Rupediya to international standards, upgrading approach highways to the border on the Indian side and the Nepalese side; and broad gauging and extending rail links to Nepal.
Lastly rivers flowing from Nepal into India constitute an important part of the Ganges river system. Nepal’s enormous hydropower potential estimated at 83,000 mw, of which 44,000 mw is considered economically feasible, could transform Nepal’s economy.
There is considerable scope for mutually beneficial cooperation between India and Nepal in developing small and medium sized hydropower projects in Nepal for internal use in Nepal or exports to India. Nepal’s hydropower development policy permits private and foreign investment in generation of hydropower, including for exports.