Nathu La- Bridging the Himalayas

By Satyajit Mohanty
Indian Revenue Service

A significant decision of the 2006 Sino-Indian
Friendship Year was to reopen the Nathu La
(pass) for trade. Nathu La was closed following
the 1962 Sino-Indian war and its reopening had
both symbolic and economic significance for
India and China. Interestingly, the “Agreement
between the Government of the Republic of
India and the Government of the People’s
Republic of China on Trade and Intercourse
between Tibet Region of China and India.” in
1954 specifically recognized the need to establish
additional trading points and facilitate an open
border where pilgrims and local inhabitants could
move across the border without legal hassles.
Popularly known as the Panchsheel Agreement, it
forms the foundation of Sino-Indian Confidence
and Security Building Measures (CSBMs).
I
BILATERAL RELATIONS
SIGNIFICANCE OF TRADE
Before analyzing the impact of the reopening of
the 14,140 feet Nathu La on Sino-Indian bilateral
relations, it would be pertinent to seek some sort
of answer to a seemingly simple question – does
increased trade between nations dampen or
exacerbate conflict? This question has generated
a variegated response cutting across a broad
spectrum of theoretical literature. Realism argues
that state capabilities, measured primarily in
terms of military power, determine state
behaviour. Cooperation in the international
system is not possible as relative rather than
absolute gains that states derive from such
cooperation affects the balance of power.
By contrast, the liberal tradition gives importance
to state preferences, rather than state
capabilities. Free trade ushers in economic
prosperity and interdependence and the result is a
rise in the costs of war which rational states avoid.
Taking off from these debates, Dale Copeland
argued that expectations of future trade and
resultant gains would encourage dependent states
to assign a high value to continuation of peaceful
trade, making war a less appealing option.
Suffice it to say, indexed in Purchasing Power Parity
terms, China and India are projected to be the top
two economies of the world by 2050. Sino-Indian
bilateral trade has become increasingly
complementary increasing from a paltry US$339
million in 1992 to US$25,734 in 2007-08. As per the
report of India-China Joint Study Group on
Comprehensive Trade and Economic Cooperation,
the average annual growth rate of trade at 26.4
per cent during 1995-2003, had been higher than
the average growth rate of trade for either China or
India during the same period.
China overtook the US as India’s largest trading
partner in 2007-08. When compared to 2005-06,
bilateral trade grew by 46 per cent in 2006-07.
Given the buoyancy in Sino-Indian trade, the target
of US$40 billion trade by 2010 was revised upwards
to US$60 billion during the visit of Indian Prime
Minister Manmohan Singh to Beijing in January 2008.
Opening of the Nathu La and other land routes for
cross-border trade in future would help achieve this
goal.
II
NATHU LA
BREAKING THE BARRIER
Nathu La formed a part of the ancient silk route
and formal trade linkages between British India and
Tibet through the mountainous passes date back to
the late 18th century. Early in the 19th century, the
Satyajit Mohanty
Indian Revenue Service
IPCS ISSUE BRIEF
British annexed large tracts of the territories of
Sikkim, Bhutan and Nepal and trade through the
various passes increased further. Trade in this
region accounted for 80 per cent of total border
trade volume between India and China in the
early 1900s. Nathu La played an important
strategic role during the 1903-04 British expedition
to Tibet, supposedly meant to prevent the Russians
from extending their influence in Tibet. This mission,
led by Francis Younghusband, also signed a
Convention with the Tibetan government in 1904
with provisions for the frontier between Sikkim and
Tibet to be respected for free trade. Article I of the
1906 “Convention between Great Britain and
China Respecting Tibet” affirmed this provision of
the 1904 convention. In the years that followed,
trade permits were issued to monitor trade of high
value items like petrol and liquor.
The Nathu La trade study group set up by the
Government of Sikkim observed that trade was
initially through the barter system and it was during
the British rule in India that the Indian currency
came into use. After India’s independence, the
Chinese silver coin ‘dyang’ gained wider
acceptance in cross-border trade. Till the pass
was closed in 1962, electronic and textiles items
were exported from Sikkim and raw wool, silk,
medicinal plants, precious stones were imported
into India. Nathu La
also facilitated crossborder
movement of
people and the then
Indian Prime Minister
Jawaharlal Nehru
used this pass to
travel to Bhutan in
1958.
After a long hiatus,
India and China
s i g n e d t h e
Memorandum on
Expanding Border
Trade in 2003. Article
2 o f t h e
M e m o r a n d u m
stipulated opening
of Nathu La, the
modalities for which
had already been
laid down in the Memorandum on the Resumption
of Border Trade signed in 1991 and the Protocol on
Entry and Exit Procedures for Border Trade signed
in 1992. Although border trade has nowhere been
explicitly defined in the WTO agreements, it implies
that cartographic lines that demarcate inter-state
boundaries should not act as stumbling blocks to
economic interaction. Further, border trade is
construed as being limited to people of the
border area and involves trade in a limited basket
of essential commodities of the region only. Nathu
La is the third Sino-Indian land border trade route
to be opened after Shipki La in Himachal Pradesh
and Gunji in Uttranchal. While trade through both
Shipki La and Gunji is negligible, it is envisaged
that in future Nathu La can be upgraded as a
trading route of massive commercial importance.
Under the terms of Article I of the 2003
Memorandum, India designated Changgu in
Sikkim and China designated Renqinggang in the
Tibet Autonomous Region (TAR) as places for
border trade markets. The 29 items exportable
from India include agricultural implements,
clothes, barley, tea, rice, spices, oils, cycles,
copper products and tobacco. China’s export
basket consists of 15 items such as goat and
sheep skin, raw silk, yak tail, china clay, borax,
domestic animals and salt. A trader can trade
goods worth up to Rs.100,000/ per day. These
conditions have been imposed by India whereas
China has not imposed any such restrictions. The
border trade mart is open from May to November
in 2008 and trade is allowed five days a week.
The Nathu La study group estimated that proper
trade facilitation measures could result in bilateral
trade worth Rs.122 billion by 2015 through Nathu
La alone. The prognosis of the group was that
conservatively trade through the pass would be
close to Rs.5 billion by 2015. In fifty one days of
trading in 2006, India exported goods worth
Rs.885, 000 while it imported goods worth Rs.1.082
million. While Indian exports climbed up to Rs.2.876
million in six months of trade in 2007, Chinese
exports dipped to Rs.686, 000 for the same year.
The limited basket of commodities coupled with
inclement weather resulted in dampening of
trade volumes. Unfortunately, the ceremony on
the Indian side this year to mark the opening of
the trading season lacked the level of enthusiasm
seen in 2006 and the India-China Traders
Association for Sikkim has predicted a further dip in
the trade volumes in 2008. Hence, without
concerted efforts across both sides of the border
to expand the basket of tradable items as also
improve connectivity and logistics, trade across
The Nathu La study
group estimated that
proper trade facilitation
measures could result in
bilateral trade worth
Rs.122 billion by 2015
through Nathu La alone.
The prognosis of the
group was that
conservatively trade
through the pass would
be close to Rs.5 billion
by 2015.
NATHU LA PAGE 2
Nathu La will have symbolic significance and fall
far short of even the conservative targets
projected by the study group.
III
PASS AS BRIDGE
FROM KOLKATTA TO BEIJING
To augment border trade there should be a road
map to develop a trading highway providing
seamless connectivity between Lhasa in Tibet and
Kolkata and Haldia ports in West Bengal and even
the Chittagong port in Bangladesh. On the Indian
side, this would benefit the northeastern states. A
proposal to transform Siliguri as a transit and
transshipment point for trade with Tibet has
already been initiated through measures like
improved connectivity between Kolkata and
Siliguri along national highway 34.
The Border Roads Organisation has been assigned
the task of widening the 52km Gangtok-Nathu La
road by 2010. India also plans to build 27 new
roads covering the Sino-Indian border. These
initiatives may primarily be intended to ensure
movement of military forces, but would, in the
long run, definitely help facilitate border trade by
reducing transaction costs. Realizing the promise
of border trade with its neighbours, India has
already decided to establish a Land Ports
Authority of India and provide integrated checkposts
at select places as exists between Johar
Baru on the Malaysian side and Singapore.
Tibet also expects to benefit from resumption of
trade through Nathu La. At present, Indo-Tibetan
imports and exports are mostly channeled through
Tianjin, a port city near Beijing that involves a
detour of thousands of kilometers. Landlocked
Tibet, one of the poorest regions of China, with a
foreign trade of just US$200 million, would also
benefit from easy access to the Kolkata port.
Goods from China’s eastern and southern regions
will reach Tibet through this route rather than the
mountainous Beijing-Lhasa stretch which entails
higher transaction costs. Improvement in
infrastructure and an array of financial and
logistics services across the border would lead to
integrated economic development of the region.
Both countries appreciate the urgency of
mitigating inter-regional disparities within their
borders, since economic imbalances have fuelled
ethnic conflicts, fissiparous tendencies and
sectarian activities. Increased connectivity
between nations bridges their differences, leads to
economic spin-offs and reins in conflicts stemming
from deprivation and poverty. India has special
economic schemes for its northeastern regions.
Arunachal Pradesh has expressed hopes that
upgradation of its infrastructure and establishment
of trade marts at places like Kenzamane and
Bumla in Tawang
d i s trict and
G e l l i n g
(Kepangla pass)
in Upper Siang
district along the
S i n o - I n d i a n
border would
invigorate its
e c o n o m y .
U p b e a t
sentiments were
also expressed
from across the
border by Hao
P e n g , Vice
Chairman of TAR
who stated that
“the reopening
of Nathu La will
h e l p e n d
economic isolation of this area and also boost the
transportation, construction and service industries,
paving the way for a major trade route that
connects China and South Asia.”
China wants to link its relatively backward western
regions with South Asia in tune with the
comprehensive periphery policy which it has been
evolving since the 1980s. The Qinghai-Tibet
Railway and the Sino-Pakistan Friendship Highway
will enable China to deepen its economic
interdependence with South Asia. China is aiming
to interlace its regional economic diplomacy with
the ideology of ‘peaceful rise’ to reassure smaller
neighbours that it wants to connect its
southwestern regions to South Asia in the same
way as its prosperous coastal provinces are
connected to Hong Kong and Taiwan.
At a regional level, the opening of Nathu La
coupled with other initiatives like the Mekong-
Ganga Cooperation, the Kunming Initiative and
proposed development of the Stilwell Road would
link northeastern India, Southeast Asian countries
like Thailand and Myanmar, South Asian countries
like Bangladesh and Nepal and southwestern
NO 73 PAGE 3
China wants to link its
relatively backward western
regions with South Asia in
tune with the
comprehensive periphery
policy which it has been
evolving since the 1980s.
The Qinghai-Tibet Railway
and the Sino-Pakistan
Friendship Highway will
enable China to deepen its
economic interdependence
with South Asia.
border cooperation at mutually agreed sites with
the objective of transforming their border from
being a dividing line into a bridge that unites them
in cooperative pursuits.” The same declaration
also affirmed that “the two sides shall strengthen
border trade through the existing locations, while
continuing to explore the possibility of opening
additional trading routes.” Thus, Chinese intrusions
into the Indian territory as seen recently in Sikkim
and Ladakh negate both the letter of the 2005
Agreement and the spirit of the 2006 declaration.
As a great power on the rise, it is strategically
necessary that New Delhi maintains peace and
tranquility along its borders.
Better connectivity and infrastructural facilities in
the region would result in greater tourist
movements. On the occasion of the opening of
Nathu La pass for trade the Sikkim Chief Minister,
Pawan Kumar Chamling, said, “this is not just a
trade route, but a cultural highway.” The Chinese
Ambassador to India, Sun Yuxi, hoped that a bus
service between Gangtok and Lhasa would be a
reality in the future. Visit of Tibetans to places like
Rumtek Monastry and Indians to Kailash
Mansaravor would be facilitated through the
Nathu La. Increased people-to-people contacts
promotes inter-state understanding and
appreciation of each other’s history and culture
helps alleviate conflict situations.
As long as China’s presence in South Asia is
benign, India and China can foster deeper
cooperative relationships through regional trade
and economic integration. Bilateral confidence
displayed by opening border trade could deepen
regionalism and have a positive effect on other
politico-strategic issues like institutionalized
defence cooperation, which the two countries
have already established.
About the Author
Satyajit Mohanty is currently with the Indian Revenue
Service. He did his M.A & M.Phil in International Relations
from Jawaharlal Nehru University.
The views expressed in this essay are personal.
Chinese provinces like Yunnan. Nepal is also
banking on Tibet’s development and deepened
trade and transport links to develop its own
mountainous northern districts. Bangladesh has
also expressed optimism over the opening of
Nathu La, as it foresees Chinese goods crossing
Nathu La to reach Southeast Asia via the
Chittagong port.
On the political front, the opening of Nathu La
marked a new high in Sino-Indian camaraderie.
China, for long, had claimed Sikkim to be its own
territory. Sikkim enjoyed the status of a
protectorate state of India until 1975 when it
became part of the Union of India. However,
China refused to recognize this and Sikkim
witnessed repeated incursions by the People’s
Liberation Army in the 1960s. The PLA’s attack on
the Indian army in September 1967 and our strong
reply is well-documented. For India, the opening
of Nathu La marked a firm recognition by China
that Sikkim is an integral part of its territory. On its
part, China is satisfied that India has recognized
TAR as its integral part.
In the early 1990s, the Indian army had voiced
concerns about security hazards related to the
opening of the Nathu La for trade. A series of
CSBMs since the 1990s and efforts to replace
deterrence with reassurance have resulted in a
positive milieu for conducting bilateral relations.
Increased security through greater trade and
cross-border movement of people and not
through greater deployment of troops not only
might result in economic prosperity but also
redirect part of the defence spending towards
developmental expenditure.
IV
CONCLUSIONS
Improved cross-border trade could inhibit the
unresolved border issue from flaring up and have
a salubrious effect on border talks. As per Article IX
of the 2005 Agreement on the Political Parameters
and Guiding Principles for the Settlement of the
India-China Boundary Question, both countries
shall maintain peace and status quo along the
border pending final settlement of the boundary
issue.
During the visit of Hu Jiantao to India in 2006, a 10-
point joint declaration was signed which provided
that “both sides shall promote greater trans-


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