From Tatopani to Rasuwa: An Analysis of Nepal-China Trade after 2015 Earthquake

This paper analyses changes in Nepal’s trade with China in the wake of the 2015 earthquake, which was followed by a blockade of the Nepal-India border. Using monthly trade data to obtain trade flows over subperiods of less than a year, it first shows how the blockade compounded the earthquake’s blow to trade. It, then, dissects Nepal-China trade performance and patterns at the product level, customs point/route level and product-customs point/route level. With Tatopani-Zhangmu, the main commercial trading point on the Nepal-China border, shut after the earthquake and Rasuwagadhi-Kerung, a recently opened trading point with a barely motorable road, unable to fully absorb the diverted trade traffic, portions of Nepal’s overland imports from China were forced to take a costly detour via sea. The share of overland imports from China fell from 24 per cent before the earthquake to 12 per cent two years after the quake. There was a general shift towards using both sea and air routes rather than just a single route for imports. The time cost imposed by the enforced sea detour for imports is equivalent to a tariff of 18 per cent to 62 per cent. The share of overland exports to China fell from 69 per cent to 43 per cent. While changes in routes were stark for imports, they were modest for exports that initially used Tatopani. The limited route changes for exports occurred overwhelmingly towards the air route rather than the sea route. The relative importance of exports to China via air has increased, but total exports to China, as of the end of Fiscal Year 2016/17, were yet to be restored to pre-earthquake levels. The paper discusses likely issues in the future of Nepal-China trade through the lens of transport and transit, including the emergence of the Rasuwagadhi-Kerung option. As a landlocked country, Nepal’s strategy should be to diversify trade and transit routes, exploring all options. The temptation to make a cost-benefit analysis comparing trade costs along different routes, without factoring in the value of transit needs, must be avoided.