His Majesty’s Government of Nepal and the Government of India (hereinafter referred to as the Contracting Parties),

Being conscious of the need to fortify the traditional connection between the markets of the two countries,

Being animated by the desire to strengthen economic co-operation between them,

Impelled by the urge to develop their economies for their several and mutual benefit, and

Convinced of the benefits of mutual sharing of scientific and technical knowledge and experience to promote mutual trade,

Have resolved to conclude a Treaty of trade in order to expand trade between their respective territories and encourage collaboration in economic development, and

Have for this purpose appointed as their Plenipotentiaries the following persons, namely,

Who, having the exchanged their full power and found them good and in due form, have agreed as follows:

The Contracting Parties shall explore and undertake all measures, including technical co-operation, to promote, facilitate, expand and diversify trade between their two countries.

The Contracting Parties shall endeavor to grant maximum facilities and to undertake all necessary measures for the free and unhampered flow of goods, needed by one country from the other, to and from their respective territories.

Both the Contracting Parties shall accord unconditionally to each other treatment no less favorable than that accorded to any third country with respect to (a) customs duties and charges of any kind imposed on or in connection with importation and exportation and (b) import regulations including quantitative restrictions.

The Contracting Parties agree, on a reciprocal basis, to exempt from basic customs duty as well as from quantitative restrictions the import of such primary products as may be mutually agreed upon, from each other.

Notwithstanding the provisions of Article III and subject to such exceptions as may be made after consultation with His Majesty’s Government of Nepal, the Government of India agree to promote the industrial development of Nepal through the grant on the basis of non-reciprocity of specially favorable treatment to imports into India of industrial products manufactured in Nepal in respect of customs duty and quantitative restrictions normally applicable to them.

With a view to facilitating greater interchange of goods between the two countries, His Majesty’s Government shall endeavor to exempt, wholly or partially, imports from India from customs duty and quantitative restrictions to the maximum extent compatible with their development needs and protection of their industries.

Payments for transactions between the two countries will continue to be made in accordance with their respective foreign exchange laws, rules and regulations. The Contracting Parties agree to consult each other in the event of either of them experiencing difficulties in their mutual transactions with a view to resolving such difficulties.

The Contracting Parties agree to co-operate effectively with each other to prevent infringement and circumvention of the laws, rules and regulations of either country in regard to matters relating to foreign exchange and foreign trade.

Notwithstanding the foregoing provisions either Contracting Party may maintain or introduce such restrictions as are necessary for the purpose of:

1. Protecting public morals,
2. Protecting human, animal and plant life,
3. Safeguarding national treasures,
4. Safeguarding the implementation of laws relating to the import and export of gold and silver bullion, and
5. Safeguarding such other interests as may be mutually agreed upon.

Nothing in this treaty shall prevent either Contracting Party form taking any measures which may be necessary for the protection of its essential security interests or in pursuance of general international conventions, whether already in existence or concluded hereafter, to which it is a party relating to transit, export or import of particular kinds of articles such as narcotics and psychotropic substances or in pursuance of general conventions intended to prevent infringement of industrial, literary or artistic property or relating to false marks, false indications of origin or other methods of unfair competition.

In order to facilitate effective and harmonious implementation of this Treaty, the Contracting Parties shall consult each other regularly.

"This Treaty shall remain in force upto December 5, 2001 and shall be automatically extended for further periods of five (5) years at a time,unless either of parties gives to the other a written notice, three months in advance, of its intention to terminate the Treaty.

This Treaty may be amended or modified by mutual consent of the parties."

Done in duplicate in Nepali, Hindi and English languages, all the texts being equally authentic, at New Delhi on 6th December 1991. In case of doubt, the English text will prevail.

1. It is understood that the trade between the two Contracting Parties shall be conducted through the mutually agreed routes as are mentioned in the Annexure A. Such mutually agreed routes would be subject to joint review as and when required.

2. It further understood that the exports to and imports from each other of goods, which are not subject to prohibitions or duties on exportation or importation, should continue to move through the traditional routes on the common border.

1. It is understood that all goods of Indian or Nepalese origin shall be allowed to move unhampered to Nepal or India respectively without being subjected to any quantitative restrictions, licensing or permit system with the following exception:

2. In order to facilitate the smooth flow of goods across the border, the list of commodities subject to restrictions/prohibitions on exports to each other's territories shall be immediately communicated through diplomatic channels as and when such restriction/prohibitions are imposed or relaxed.

3. It is further understood that when notifications regarding restrictions on exports to each other are issued, adequate provisions will be made therein to allow the export to each other of the goods which are already covered by Letter of Credit or goods which are already in transit and/or booked through the railways or other public sector transport undertakings or goods which have already arrived at the border customs posts on the day of the notification.

4. In respect of goods falling under prohibited or restricted categories as mentioned in para 1 above and where needed by one contracting Party, the other shall authorize exports of such goods subject to specific annual quota allocations. Specific request list of such goods shall be furnished to each other by the end of November and specific quota allocations for the following calendar year shall be made by the end of December with due regard to the supply availability and the overall need of the other Contracting Party. The quota list may be jointly reviewed as and when necessary.

5. The Contracting Parties shall take appropriate measures and co-operate with each other to prevent unauthorized import in excess of the quota of goods the export of which is prohibited or restricted from the territory of the other Contracting Party.

1. The Government of India will allow to His Majesty's Government of Nepal payment of the excise and other duties collected by the Government of India on goods produced in India and exported to Nepal provided that:

1. Such payment shall not exceed the import duties and like charges levied by His Majesty’s Government of Nepal on similar goods imported from any other country, and
2. His Majesty’s Government of Nepal shall not collect from the importer of the said Indian goods so much of the import duty and like charges as is equal to the payment allowed by the Government of India.

1. The following primary products would be eligible for preferential treatment:

2. It is understood that in the matter of internal taxes or charges the movement of primary products of either Contracting Party to any market destinations in the territory of the other shall be accorded treatment no less favorable than that accorded to the movement of its own primary products within its territory.

3. It is also understood that the aforesaid provisions will not preclude a Contracting Party from taking any measure, which it may deem necessary on the exportation of primary products to the other.

1. The Government of India will provide access to the Indian market free of customs duties and quantitative restrictions for all articles manufactured in Nepal.

2.

1. Import of articles in accordance with the para "1" above shall be allowed by the Indian customs authorities on the basis of a Certificate of Origin to be issued by the agency designated by His Majesty's Government of Nepal in the format prescribed at Annexure "B" for each consignment of articles exported from Nepal to India. However, this facility shall not be available for the articles listed at Annexure "C".
2. In the event of the above facility leading to a surge in the imports generally or in the import of any particular article, the two Governments shall enter into consulation with a view to taking appropriate measures.
3. In the case of other articles made in Nepal, which do not fulfil the conditions by the Certificate of Origin prescribed at Annexure "B" including those Articles listed at Annexure "C" for the purpose of preferential treatment into India, the Government of India will provide normal acess to the Indian market consistent with its MFN treatment.

3. On the basis of a Certificate issued, for each consignment of products manufactured in the small scale units in Nepal, by His Majesty's Government of Nepal, or by an agency designated by His Majesty's Government of Nepal that the relevant conditions applicable to the products manufactured in similar small scale Industrial units in India for relief in the levy of applicable Excise Duty rates are fulfilled for such a parity, Government of India will extend parity in the levy of Additional Duty on such Nepalese products equal to the treatment provided in the levy of effective Excise Duty on similar Indian products under the Indian Customs and Central Excise Tariff.

4. The "Additional Duty" rates equal to the effective Indian Excise duty rates applicable to similar Indian products under the Indian Customs & Central Excise Tariff will continue to be levied on the imports into India of products manufactured in the medium and large scale units in Nepal.

1. In regard to "additional" duty collected by the Government of India in respect of manufactured articles other than those manufactured in "small" units: Wherever it is established that the cost of production of an article is higher in Nepal than the cost of production in a corresponding unit in India, a sum representing such difference in the cost of production, but not exceeding 25 percent of the "additional" duty collected by the Government of India, will be paid to His Majesty’s Government of Nepal provided His Majesty’s Government of Nepal has given assistance to the same extent to the (manufacturers) exporters.

5. Export of consgnments from Nepal accompanied by the Certificate of Origin will normally not be subjected to any detention/delays at the Indian Customs border checkposts and other places en-route. In case any need for clarification arises, this will be obtained expeditiously, by the Indian border Customs authorities from the Indian and Nepalese authorities, as the case may be.

6. Where for social and economic reasons, the import of an item into India is permitted only through public sector agencies or where the import of an item is prohibited under the Indian Trade control regulations, the Government of India will consider any request of His Majesty’s Government of Nepal for relaxation and will permit the import of such an item from Nepal in such a manner as may be found to be suitable.

7. For the purpose of calculation of import duties customs valuation procedures, as prescribed under prevaling Customs Law, will be followed.

His Majesty’s Government of Nepal, with a view to continuing preferences given to Indian exports, will waive additional customs duty on all Indian exports during the validity of the treaty.

AGREED ROUTES FOR MUTUAL TRADE

1. Pashupatinagar/Sukhia Pokari
2. Kakarbhitta/Naxalbari
3. Bhadrapur/Galgalia
4. Biratnagar/Jogbani
5. Setobandha/Bhimnagar
6. Rajbiraj/Kunauli
7. Siraha, Janakpur/Jayanagar
8. Jaleshwar/Bhitamore (Sursand)
9. Malangawa/Sonabarsa
10. Gaur/Bairgania
11. Birgunj/Raxaul
12. Bhairahawa/Nautanwa
13. Taulihawa/Khunwa
14. Krishnanagar/Barhni
15. Koilabas/Jarwa
16. Nepalgunj/Nepalgunj Road
17. Rajapur/Katerniyaghat
18. Prithivipur/Sat (Kailali)/Tikonia
19. Dhanagadhi/Gauriphanta
20. Mahendranagar/Banbasa
21. Mahakali/Jhulaghat (Pithoragarh)
22. Darchula/Dharchual

Reference No.

Signature & Seal of the certifying authority

Date:
Place:

1. (*) Alcoholic Liquors/Beverages and their concentrates except industrial spirits,
2. Perfumes and Cosmetics with non-Nepalese/non-Indian Brand names,
3. Cigarettes and Tobacco

Note: Government of India may, in consultation with His Majesty's Government of Nepal, modify the above list.

(*) Nepalese beers can be imported into India on payment of the applicable liquor excise duty equal to the effective Excise duty as levied in India on Indian beers under the relevant rules and regulations of India.