Regional Cooperation and Cross-Border Trade: A Study on the

Reopening of Nathu la for Cross-Border Trade between India

and China

A DISSERTATION

SUBMITTED TO THE ACADEMIC COUNCIL

OF

TATA INSTITUTE OF SOCIAL SCIENCES, MUMBAI

IN PARTIAL FULFILLMENT

OF THE REQUIREMENT FOR THE DEGREE

OF

MASTERS OF ARTS IN DEVELOPMENT STUDIES

BY

ANKUR MAHANTA

MUMBAI

2006 – 2008

Dr. Ashwani Kumar …………………………

(Name of the Research Guide) (Signature of the Research

Guide)

Date: ………………….
 To,

The Peoples of Tibet

1
 Table of Contents

Acknowledgement………………………………………………………………………..3

Abstract…………………………………………………………………………………...4

1. Introduction……………………………………………………………………………5

1.1 Regionalism: Old and New………………………………………………..7

1.2 The Concept of ‘Region’ and ‘Borders’………………………………….10

1.3 India-China: Towards Regional Cooperation…………………………...16

1.4 Methodology..............................................................................................22

2. Historical Analysis of Indo-Tibetan Trade

2.1 Introduction………………………………………………………………24

2.2 Early British Efforts……………………………………………………...26

2.3 1890-1914: Formalization of Trade, The Younghusband Mission

and The Shimla Agreement...................................................................................44

2.4 1914-1962: Interregnum to Post-Independence Trade…………………..53

2.5 Conclusion and Emerging Themes……………………………………....70

3. The Reopening of Nathu la: A Field Study

3.1 Introduction………………………………………………………………79

3.2 Cross-border Trade through Nathu la…………………………………...83

3.3 An Analysis of Cross-Border Trade through Nathu la………………....102

4. Conclusion…………………………………………………………………………..111

Bibliography...................................................................................................................115

2
 ACKNOWLEDGEMENT

I take this space to acknowledge the contribution of some people who were crucial in the

execution of my research. I extend my gratitude to;

Prof. Baruah, who acquainted me to a larger world of developments and saw the crucial

links of interconnectedness between regions and between peoples.

Prof. Lama, for showing that it is not enough, as academicians, to merely critique policies

but the need for rigourous creativity to engage in social issues.

Prof. Kumar, who provided me that creative space and rigour to engage fruitfully in my

research.

Prof. Sharma, and Prof. Sahay, for discussing the various nuances of research.

Ganga, for critically engaging in discussions and the countless mugs of coffees over

which much creativity poured out.

I thank everyone in Sikkim, particularly, Pema for his valuable inputs and the Lepcha

family who supported a near stranger and in turn made me feel like one of them.

Mabel!!

Daju at Sikkim Archives, Ramesh at National Archives, the staff at Namgyal Institute of

Tibetology, and the library staff here in TISS.

Larry and Amit for being a constant support all throughout this creative process.

… And everyone I have missed here.

Lastly, my family. Papa, for your constant support and faith in me… Ma, for being there

at all times. I have learnt a lot from your patience. Khurai, for your beliefs.

3
 ABSTRACT

Regionalization has become a worldwide phenomenon. Nation-states are moving towards

greater regional integration or regional cooperation at various levels, thus diluting the

understanding of the global, regional, national and local. The research looks at the

micro-phenomenon of cross-border trade across Nathu la in Sikkim, between India and

China, and contextualizes it within the larger framework of regional cooperation.

Trade along the Indo-Tibetan border in Sikkim has a long history with the first state

intervention in trade recorded over three hundred years ago. Colonial mercantile

interests, the political interests of independent India and China, infrastructure, economic

development and cultural transformations have all affected this trade and transformed

communities living on either side of the border. After a protracted impasse of almost

three decades, following the 1962 War, a memorandum on the resumption of border

trade between India and Chinese Tibet was signed in 1991. This was extended to include

Nathu la, in Sikkim, after a memorandum was signed on expanding border trade in 2003.

The research looks at the historical transformations in trade through which the

Himalayan region emerge as a contested space between India and China. The trade route

of Nathu la is described and current practices, attitudes and aspirations of traders and

other stakeholders are analyzed to understand the potential of cross-border trade. Based

on these, observations are made regarding the need for greater cooperation between

India and China towards an equitable regional development. The research concludes by

observing the need for India to adopt a comprehensive border-regions development

strategy, and the centrality of the Tibet question in India-China bilateral relations.

4
 1. INTRODUCTION

“The construction of regions and territories is part of the perpetual transformation of the

spatial system, in which regions emerge, exist for some time and may finally disappear”

--- Anssi Paasi, 2000

In the current discourse of globalism/regionalism the idea of the global, regional, national

and local are enmeshed in such synergism that the whole becomes greater than the parts.

It becomes nonetheless imperative to analyze the micro-phenomenon that contribute to

this greater whole; which could be replete with antagonism. The idea, as Krugman puts it,

is to understand how the “centripetal” forces (that draws towards a location) combine

with the “centrifugal” forces (that forces away from the location) to produce a kind of

economic and social self-organization where the results could end up playing very

different roles then were planned (Krugman, 1998). How do the political economic forces

commove the inertia of integration or isolation of various processes that work over time

and space? What are the historical and socio-cultural factors that contribute towards such

integration or isolation at a given point in time? How does the State intervene or could

the State intervene to make the processes sustainable and equitable?

I look at the phenomenon of cross-border trade between India and China across Nathu la

in Sikkim, in the larger regionalism and political economy discourse. The reopening of

the historic trade route has been of great symbolic import in the bilateral relations

between India and China. It also provides for much hope to the societies in the

Himalayan and trans-Himalayan region after more than four decades of inertia in

5
isolation. Given the multiplicity of issues related to the borders, the objectives of my

research work out as;

• To understand the historical dimension of the political economy of trade over the

Indo-China border.

• To ascertain the various stakeholders involved in cross-border cooperation.

• To evaluate the policy of cross-border trade in a regional framework and its

implications for regional development.

These objectives have been greatly shaped by the current discourses on regionalism and

the literature available on regional cooperation. Cross-border trade or cross-border

movements are not isolated phenomenon and are closely linked with the transformed

notions of democracy, agency and sovereignty. It thus cannot be seen as purely economic

developments; the role of the polity is as important as the participation of the societies on

both sides of the border. And these three actors constantly interact with each other

towards a dynamic regeneration of the existent realities. Thus, an understanding of the

economic, political and social realities through a historical context becomes important for

any possible policy intervention. It also becomes important to understand the larger

global forces that are at play which forces upon such policy interventions. As would be

observed, nation-states in contemporary times are increasingly being questioned both

from below (as in, the ‘local’), as from above (as in, the ‘global’).

6
1.1 Regionalism: Old and New

‘Regionalism’, 1 as a phenomenon, is of recent origins that emerged during the post-

World War II era. Distinguishing regional integration of the post-World War II variety

from the earlier forms of ‘integration’, like the Napoleonic or Bismarckian attempts at

political unification, Haas, asserts that the point of departure lies in the “noncoercive”

efforts at regional integration in the later period (Haas, 1970; p. 678). Regional

integration, as an area of international studies, thus evolved out of this need to understand

the efforts at political and economic integration in Western Europe, and later, the

emergence of the regional economic and security blocs in the Cold War period. However,

this has been referred to as “Old Regionalism” and it is considered to be a movement

towards territorial-based autarkies dominated by the interests of the superpowers in a

bipolar world order (Hettne, Bjorn et al, 1999). Thus, what Haas referred to as the

“noncoercive” in the regional integration process, increasingly became an arena of

hegemonic regionalism till the end of the Cold War period. 2

The actual point of departure occurred in the post-Cold War period, and movements away

from the linear praxis of hegemonic ‘blocs’. Thus, a qualitatively new phenomenon

emerged that looked to fill the void created by a structurally different global political

economy towards the late 1980s. The ‘New (or Neo) Regionalism’ refers to that

phenomenon, starting in Europe (with the Single European Act), and gradually turning

1
Regionalism is a flagship concept that “represents the body of ideas, values and concrete objectives that
are aimed at creating, maintaining or modifying the provisions of security and wealth, peace and
development within a region: the urge by any set of actors to reorganize along a particular regional space”
(Schulz et al, 2001; p. 5)
2
Regional integration, regional cooperation, regional identity and regional coherence are various concepts
and processes of ‘Regionalization’, and are not incongruous with the concept of ‘Regionalism’; while the
former relates to the specific processes, the latter refers to the general phenomenon, much in the same token
as Globalization refers to the empirical trend that bears out of the ideology of Globalism (Schulz et al,
2001; Introduction)

7
into a worldwide phenomenon, with a new division of power and multidimensionality

(Hettne, Bjorn et al, 1999). The new regionalism is seen as a heterogeneous,

comprehensive and multidimensional phenomenon as it involves the state, market, and

society. Thus, there are very contrasting differences in the ‘old’ and ‘new’ regionalism;

Table 1: Old vs. New Regionalism

Old Regionalism New Regionalism

• Was formed in and shaped by a bipolar • Taking place in a multi-polar world

cold-war context. order.

• Was created ‘from above’. • Is a more spontaneous process from

• Economic integration was inward- within the region or ‘from below’.

oriented and protectionist. • Often described as ‘open’ and thus

• Was specific with regard to objectives, compatible with an interdependent

some organization being security world economy.

oriented and other being economically • Comprehensive integration process

oriented. which includes trade and economic

• Only concerned relations between integration, environment, social policy,

formally sovereign states. security and democracy.

• Involves market, state and society.

It is within this framework that one can try to understand the recent spate of

regionalization processes in various spheres of activities, throughout the globe. 3 These

3
If we look at the regionalization process regarding trade, as of June 2006, 197 Regional Trade
Agreements (RTAs) notified with the WTO are in force; the total number exceeds 300 if RTAs that are
being negotiated, those in the proposal stage, and ones that are signed but are not yet in force are taken on

8
new global divisions of space must not only be understood as countervailing the excesses

of globalization, but concomitantly, as reassertions of the material, social and cultural

affinities between regions that are being constantly constructed or reconstructed under the

aegis of globalization. The ‘moving away’ from the territorial delimitations of nation-

states, has produced a tangible shift towards regional collaboration, which one author

beckons as the rise of the “region states” (Ohmae, 1993). Ohmae argues, “…in terms of

real flows of economic activity, nation states have already lost their role as meaningful

units of participation in the global economy of today’s borderless world” (Ibid.; p. 78).

Krugman shares this view, albeit to a lesser degree, that in the domain of economic

geography there is no reason to suppose that ‘political boundaries’ define relevant units

over which external economies of cost and production apply – he calls them the

‘centripetal’ forces – which may be spread across political boundaries and space

(Krugman, 1998).

board. An estimated 60% of world trade is now covered by regional pacts. Thus, regionalism has emerged
as a definitive process countervailing the excesses of globalization (Bhagabati, no date).

9
1.2 The Concept of ‘Region’ and ‘Borders’

The study of economic geography or contemporary international studies presupposes the

existence of regions, space, boundaries and territories when reflecting the possible forms

of new regionalism. Regions are understood as a medium where social, particularly

economic, processes occur. The definition of a region also becomes contextual,

depending upon the investigation of an author, which could vary from the question of

economy (and its restructuring) to the question of administration/governance; from

culture and identity to the institutional determinants of regional development. For

instance, in the context of the development process in general, ‘region’ is defined as,

“any area of subnational extent that is functionally organized around some internal

central pole” (Scott and Stroper, 2003; p. 579). These assumptions of regions as ‘given’

spaces or as veritable geographical realities undermine the contestations and

contingencies that are inherent in region-building (Baruah, 2004). Thus, problematizing

the existence/or the generation of regions cannot be overemphasized to take stock of all

the processes that occur in these spatial domains. Region cannot be looked at as a passive

medium in which social action takes place, or on the other hand, as entities that operate

autonomously of human actions. Regions become part of these very actions, which are

constructed through political, economic, cultural and administrative practices and

discourses (Paasi, 2001). Paasi describes the processes of generation and regeneration of

regions, as the “institutionalization of regions” (Paasi, 2000; p. 6). He stresses that

regions, boundaries and identities are spatially and historically contingent and could be

understood by four simultaneous processes that shape regions as entities in the social

10
consciousness of the concerned society, and consequently, in the consciousness of ‘other’

societies;

i) Territorial Shaping

Boundaries are typically used in defining regions. State boundaries are strictly

controlled and are visualized (through maps, and other political instruments),

whereas, sub-state and supra-state boundaries are less dominating. The boundaries are

meant to play a dual role: they work to establish the insiders, who belong to the place

and outsiders, who do not belong. However, there are no ‘natural’ geographical

boundaries that separate the ‘insiders’ from the ‘outsiders’ which then has to be

socio-politically constructed. For instance, in territorial terms, today’s ‘South Asia’ is

to a large extent successor to the entity called ‘British India’, and within South Asia

there are regions which have been bound that were historically terra incognito.

Boundaries are thus largely seen to create a ‘territorial trap’, to borrow from Agnew,

or a state-centered discourse in international relations and politics (Agnew, 1994).

These ‘territorial traps’ had effectively cut-off any non-state relations in the Cold War

period although in the 1990s non-state discourses have gained momentum. Paasi

argues that, although boundaries cannot be “written” away, the need is to re-

conceptualize their functions and meanings so that societies can move away from the

territorial traps and engage through mediated intercourses.

ii) Symbolic Shaping

Political elites everywhere put labels on concrete and symbolic ‘landscapes’ to assert

territoriality. Symbolic shaping is also crucial for institutionalization of all regions. It

11
includes not only naming but also many other elements like coat of arms, flags, rituals

such as parades and celebrations; on the other hand, songs, poems, movies and the

media play a crucial role to bring spatial symbolism as part of the social

consciousness and transforming this symbolism as part of nationalism. ‘Culture’ of

the place is promoted and the local resources and culture of the landscape is

transformed into a national heritage or in turn culture of a place may be superimposed

with a stronger and nationalistic culture. It also works to deepen the separation of the

‘insider’ from the ‘outsider’.

iii) Institutional Shaping

Institutions (political, economic, cultural) and even formal organizations (like

administrative bodies) are used to maintain and reproduce territoriality and inherent

symbolism. Some institutions may have a long time-span (firms, educational bodies,

administrative organizations, and the media). Some others may operate more on ad

hoc basis (cultural events). The depth of territoriality in the operation of these

institutions may also vary. Some institutions are explicitly bound with maintaining

territoriality (army, police, border guards), others do this mainly through the slow

processes of spatial socialization (education, media). Some institutions may promote

culture, some the economy, and still some others, governance. Also various

combinations exist; the promotion of economic life is currently effectively combined

with cultural policy in many regions.

iv) Establishment of Regions

Regions may become established through the above processes and gain an identity,

which it then uses to engage in various spheres of social action and discourses. In the

12
 case of states, establishment usually occurs when its sovereignty is recognized.

Administrative regions may gain formal status in the administrative territorial system.

However, regions must become established before they can become instruments in

the struggle over social and economic power and resources, for instance in regional

policy (Paasi, 2000; p. 7-9).

Thus, the definition of a region emerges as from historically contingent processes and is

seen as a spatial unit that have been produced socially and culturally to become part of a

territorial system. Regions are also dynamic categories and instead of ‘being’ are

constantly ‘becoming’ (Paasi, 2000). An established region becomes part of the social

consciousness and is produced and reproduced on various spatial scales, like sub-

national, national, trans-regional, supranational or global systems. The rigidity of the

boundaries that define regions, often attributed to the imperialist legacy and reinforced

during the golden era of nation states (or the Cold War period) till the 1990s, is

constantly challenged and pressurized (Baruah, 2004). Thus, the de-institutionalization of

regions – the complete territorial or institutional transformation – manifests with a new

regional identity. On the other hand, the boundaries could become ‘soft’ and lead to

cross-border cooperation or integration. This implies that the boundary itself is a passive

line while cross-border processes matter. The fixity of boundaries, which have bounded

cultures and identities, much as, the social and economic processes, is in dire need of re-

interpretation on the face of internal as well as external forces to connect. In the

contemporary world, the images of territorially closed identities are to an increasing

degree being challenged by flows of people, goods and capital and by ‘hybrid identities’,

13
which have occurred due to migration/and or displacement and increasing diasporas. On

the other hand, these movements can be attributed to a rapid change in technological and

global production systems, which have manifested in mercurial improvements in physical

as well as communication infrastructure (Krugman, 1998).

As national economies respond to the constant waves of globalization, in many parts of

the world, notably in Europe and to a lesser extent in Southeast Asia, regions have

merged in key levels of governance, innovation and policy-making. There is a significant

level of region building, where territorial forms of reference are built and nation-states

work within this territorial system of action (Schulz et al, 2001). To facilitate this

regionalization, the rigidities of the political borders – tariffs, customs and restrictions on

human and capital movements – have to go. At the present juncture, there is a perpetual

power of the nation-state in a globalizing system of states, and hence to initiate the

process of regionalization nation-states must come together towards some sort of

‘regional cooperation’. Regional cooperation can be defined as an open-ended process

whereby individual states or other actors within a given geographical area act together for

mutual benefit in certain fields (such as infrastructure, preferential trade arrangements,

water or energy) and in order to solve common tasks, inspite of conflicting interests in

other fields of activity. It may be formal or involve a high degree of institutionalization,

but may also be based on a much looser structure. It constitutes as a component of the

regionalization process which could be contrasted with the deeper process of ‘regional

integration’.

India and China have embarked, over the last two decades, towards a rapprochement in

their bilateral relations and have come considerably closer then they ever were in more

14
than four decades. As Garver saw in 1992, “Both Beijing and New Delhi desire still

further improvements in bilateral relations but have been stymied by a paucity of parallel

interests and by continuing fundamental conflicts over the territorial issue and China’s

role in South Asia” (Garver, 1992; p. 67). Their bilateral relation holds the key towards

greater regional cooperation, particularly in ushering in peace and development in the

volatile and underdeveloped regions of South and Southeast Asia. However, there have

been, from the time Graver noted, many instances when both the countries have shown

the urge to cooperate in various sectors, where parallel interests emerged or where

historical interests were seen to coincide, notwithstanding, the territorial issue.

15
1.3 India-China: Towards Regional Cooperation

After pursuing inward-oriented policies in the early period of their development, China

(since 1978) and India (since 1991) have increasingly deepened their bilateral economic

integration and with the rest of their world. To cite some figures, the degree of openness

of China, which is measured by trade/GDP ratio, was 59.8 per cent compared to 25 per

cent of India in 2004. China’s share in the world trade was a miniscule 1.5 per cent in

1950, which increased to 4.8 per cent in 2002 and 6.81 per cent in 2005, whereas India’s

share has dropped from 2.2 per cent in 1950 to 0.8 per cent in 2002 and rose to 1.14 per

cent in 2005 (Bhattacharya and Bhattacharya, 2007) 4 .India-China bilateral trade has seen

a twelve fold increase in the decade 1994-2005; total trade growing from $ 1.01 billion to

$ 12.71 billion in the corresponding period, and registering an annual exponential growth

rate of 28. 13 per cent.

Except for the year in 1998, when India conducted its nuclear tests in Pokhran, and an

audacious remark by the then Indian Defence Minister calling China as “Enemy number

one” 5 , India-China trade has seen an upward trend and continues to do so (see Table 1).

In contemporary peace research, the “theory of trade expectations” suggests that the

economic interdependence between nations, and concomitantly, the future trade

expectations, determine to a large extent the decision of states to forego war. It also holds

that positive expectations of future trade (even if current trade is low) provide a huge

incentive for continued peace (Copeland, 1996). India-China trade is likely to boom in

the future, and with the negotiations towards a Free Trade Agreement (FTA), their

4
As of 2007, total trade between India and China touched $ 25. 73 billion, which means total trade doubled
in just two financial years. http://dgftcom.nic.in/
5
In Roy, K., ‘Enemy Number One’, Telegraph, December 23, 2003.
http://www.telegraphindia.com/1031226/asp/opinion/story_2715475.asp

16
economic integration is expected to complement each other, rather then compete in the

long run (Bhattacharya and Bhattacharya, 2007).

Table 1: Trends in India-China Trade

India-China Trade: 1994-95 to 2004-05

14000
Value in Million $

12000 India's Export to China

10000
8000 India's Imports from
6000 China
4000 Total Trade
2000
0
95

97

99

01

03

05
-

-
94

96

98

00

02

04
19

19

19

20

20

20

Year

Source: Yearly Statistics of Foreign Trade of India, DGFT, Govt. of India, 2005.

However, both countries suffer from intense regional inequalities. Regional economic

development in China and India is unbalanced and in sharp contrast to perceptions about

regional inequality in both the countries in the reforms period. Relatively more developed

regions in both countries have forged ahead with no evidence of catch-up by the

backward regions. As a result, regional disparity has deteriorated though the two

countries have enjoyed unprecedented growth over the past two decades. Urbanized

economies among the regions, which are the engines of economic growth in both the

17
countries, have had a major impact in fuelling this inequality (Wu, 2008). 6 Furthermore,

regional disparities are most visible in the underdeveloped regions of Southwest China

and Northeast India. In a ranking of the Chinese and Indian regional economies, the

Chinese Southwest Provinces, which comprise the provinces of Sichuan, Ghizhou,

Yunnan, and two autonomous regions Tibet, Guangxi were ranked 23, 28, 26, n.a., 20

respectively out of 28 regions. In India, the Northeastern states, which comprise Assam,

Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura were

ranked 24, 19, 23, 18, n.a., 10, 13, 17 respectively out of 27 regional economies (Ibid;

p.3). Wu, found that the basis for these regional disparities lay in the following variables

where the said provinces and states fared poorly (Ibid; 6-8);

i) Infrastructure,

ii) Human Capital,

iii) Urbanization,

iv) Industrialization, and

v) International Trade.

Thus, both India and China, in the recent decade and a half, have focused their

development planning towards these regions. It is also not a coincidence that they lie

almost contiguously along the frontier of both the countries, and suffer from the

proverbial “border syndrome”, where the border areas get continuously neglected as a

result of closed territorial Statism (Baruah, 2004).

6
The rate of urbanization in China is 44 per cent (as of 2006), while in India it is 27.8 per cent (Census of
India, 2001). Both, China and India, are still rural and even the rate of urbanization in restricted to certain
states or provinces in both countries. For instance, the major urban centers in China are located in its
eastern coast, while in India, a large share of the urban population are in the four metros.

18
China’s ‘Western Development Strategy’ and India’s ‘Look East’ policy, although not

constitutionally in the same policy direction, acknowledges the relevance of both these

regions in the context of development policy. China adopted the ‘Western Development

Strategy’ in 2000, which looks at the infrastructural and economic development of the

underdeveloped provinces of West China, while India’s ‘Look East’ policy, which began

in the early 1990s, is a policy to economically integrate itself with the Association of

Southeast Asian Nations (ASEAN), and the Northeast region of India only stands to

benefit from this policy on account of its strategic location as the ‘gateway to Southeast

Asia’. In the broader policy framework, India entered into a few significant sub-regional

cooperation agreements mainly with the Southeast Asian nations, namely;

i) Bay of Bengal Initiative for MultiSectoral Technical and Economic

Cooperation (BIMSTEC), established in 1997,

ii) The Mekong-Ganga Cooperation (MGC), established in 2000.

These cooperation agreements are envisioned to better integrate India with its eastern

neighbours in various technical and socio-economic fields. India, thus, has taken the

initial strides towards regional cooperation in various fields including, trade, science,

technology, tourism, etc. This process of regional cooperation involves local integration

of its border regions with its neighbours, development of infrastructure and markets,

flexible policies so as to draw potential investments into the region, human resource

development through greater institutionalization of education and industries amongst

other processes.

Furthermore, Northeast Region of India and Southwest China are exceptional cases to

their respective countries on various accounts. Due to a turbulent socio-political history,

19
both these regions have also played a significant part in shaping Indo-Chinese bilateral

relations. Moreover, territorialization of these regions has come at a great deal of political

and social cost. In socio-economic parameters, both these regions have performed

significantly below their national averages (although many states in Northeast Region of

India have achieved a high degree of social development it gets acutely offset due to the

infrastructural and ‘democratic deficits’ in the region). Both these regions are also

landlocked islands, and till the recent past, they were isolated from their mainland

economy as well as from their historic ties with their neighbouring countries.

In a significant report by the Asian Development Bank (ADB) on China’s Western

Development Strategy, it notes that cross-border economic cooperation and international

trade of its western regions with their neighbouring countries will play a significant role

in their sustainable development (Asian Development Bank, 2003). It notes from the US-

Mexico cross-border cooperation;

The development of cross-border economic cooperation between the US and its two
neighbors, Canada and Mexico, provides some useful lessons for the PRC [People’s
Republic of China]. The high level of cross-border trade did not come about simply
through the North American Free Trade Agreement or any other regional economic
cooperation agreement. Rather, it evolved over three decades of initiatives in industry
policies, economic deregulation, and transport privatization, which complemented trade
liberalization. Coordination by government agencies is critical to speeding up border
crossings (ADB, 2003; p. 297).

It notes that cross-border trade will be locally beneficial, however, its contribution to

regional economic growth is likely to depend on two factors: i) the export potential and

ii) the existence of suitable conditions for the growth of cities. It makes an important

20
point regarding China’s west development strategy, “Without trade, a border area suffers

from the disadvantage of being on the edge of a closed national economy” (Ibid; p. 298).

In this respect, the opening of the Indo-China border for trade has been an important

development, not only towards a rapprochement of their bilateral relations, but more

importantly, in developing the potential synergies that exist within the border regions.

After, India and China signed the Memorandum on the Resumption of Border Trade in

1992, three trade posts have been opened along the Indo-China border, Nathu la being

opened after another agreement was signed to expand border trade in 2003. The aim of

the research is to understand the institutional arrangements for trade that are in place, and

by analyzing the current trade operations, to ascertain whether these arrangements are

suitable for the sustainability of cross-border trade through this route. Furthermore, by

analyzing the potentials for exports within the region, the research aims to understand

whether the current list of tradable items reflect the export potentials. Lastly, the

reopening of the trade route means that it would bring about a considerable change in the

livelihood patterns, given a few years; the research aims at understanding the socio-

economic impact on the people of Sikkim and the policy initiatives to promote the

infrastructural and institutional transformation that is likely to take place with the

reopening of Nathu la.

21
1.4 Methodology

The inquiry into the phenomenon of border trade and placing it in the larger context of a

regional framework required the use of both quantitative and qualitative research

techniques.

Quantitative Analysis: Since, trade is a quantifiable activity with different values

quantitative tools, like trend analysis and simple composite analysis were used. In

Chapter 2, Table 3: Trend Analysis of Indo-Tibetan Trade through Nathu la and Jelep la

from 1948 to 1953, due to the unavailability of the data in monetary value, the volume of

trade was used as a variable, denoted by ‘Maunds’ (where 1 Maund = 36.3 kgs). It was

the practice then to record data in the volume and only provide approximate value per

Maund in another column, whereas, even this data was unavailable for most years.

However, it served the purpose of the analysis which was to show the rate of trade over

the said period.

Simple composite analysis was used to determine the share of various commodities in

trade volume.

Quantitative techniques were used mainly with Secondary data from official

correspondences, unpublished sources, and government data on trade.

Qualitative Analysis: Both Primary and Secondary data collection was done for

qualitative analysis. The primary data were collected with the help of semi-structured

interviews with government officials (both Central and State government), academicians

who had done prior research on border trade, officials of Traders Associations. In-depth

interview technique was used with two traders. The researcher conducted various

interviews with them in a conversational manner, at the same time recordings their

22
responses. This was to gain a better understanding and interpretation of the trade

practices that were prevalent. Since trade had just begun, the questionnaire format was

liable to get saturated very soon, as both the volume and rate of trade was low. The

researcher gained some excellent insights both of the trade mechanisms and traders’

expectation from cross-border trade.

Focused Group Discussion was also conducted to get a clearer understanding of the trade,

especially from the Tibetan perspective.

Non-participant observations were made to gain an understanding not only of trade

operations but also of the other stakeholders in trade, like the military, government

officials, and non-beneficiaries.

Secondary data was collected mainly from academic journals and previous works on

border related issues, particularly trade. The report prepared by the Nathu la Trade Study

Group for the Government of Sikkim was particularly helpful in acquainting the

researcher with the ground realities.

Archival materials, both published and unpublished sources, were collected from

National and State Archives. The historical analysis of Indo-Tibetan trade was based on

archival materials.

Delimitations: A major delimitation was the unavailability of data from 1912

onwards, after which date archival materials relating to external affairs and foreign trade

were made inaccessible from the public domain. Hence, a qualitative analysis was

attempted, although the researcher was fortunate to gather secondary data regarding trade

and other issues from the Sikkim State Archives. Another delimitation was the problem

of language, where much data was lost in translation.

23
 2. HISTORICAL ANALYSIS OF INDO-TIBETAN TRADE

2.1 Introduction:

Cheeni (Sugar) in India has a strange history. In India, the belief is that sugar first came

from China (cheeni, literally means, from China). However, it has been documented by I-

ching, or I-tsing, a Chinese pilgrim who was in India in A.D. 673-85, that the Chinese

learnt from India the process of making sugar from the cane, when a T’ang imperial

mission got the recipe from Magadha around A.D. 647, and subsequently exported

crystallized sugar to India (Chung, 1976). That India and China have been in close

contact, diplomatically, through trade, religio-cultural exchanges, was documented by Fa-

Hien as early as the 5th century A.D. Indian traders were active in maritime trade in

South-east Asia and the Pacific in the first millennia A.D., as large number of Buddhist

travelers testify of a flourishing trade between the two countries. As Chung notes, “The

Chinese imperial documents recorded an exchange of about 150 diplomatic missions with

precise dates between India and China from the 5th to the 15th century” (Chung, 1976; p.

51). This go to suggest that much of the trade had patronage of the imperial dynasties on

both sides at various points in time.

The overland trade between India, Central Asia and China dates back to a few centuries

or even earlier than maritime trade. Indian traders were trading in silk with Southwest

China long before the famous ‘Silk Road’ took silk from China to Rome. Chinese silk has

been mentioned in Kautilya’s, Arthashastra, as ‘cinamsuka’ (Chinese silk dress) and

‘cinapatta’ (Chinese silk bundle), which dates back to the 4th century B.C. Around the 2nd

century B.C., a personal envoy of the Han Emperor was sent to Scythia (Central Asia,

24
north of Afghanistan), where he discovered silk fabrics, produced in the South western

province of Sichuan in China. These silk fabrics, he was told, were re-exported by Indian

merchants through Eastern India via the Northern India trade routes to cities in Central

Asia (Sen, 1971). Kautilya, in Arthashstra, notes the importance of the northern trade

routes, “…a trade route to the north in the direction of the Himalayas is better than a

route to the south, because the [northern] products, such as elephants, horses, perfumery,

ivory, hides and skins, silver and gold are all of high value” (Kautilya, 1992; p. 623).

There were complex network of activity all along the land and maritime routes, which

were not only confined to trade but also intensified religious and diplomatic linkages. As

Chung affirms, “Perhaps it is not an exaggeration to say that India and China were not

only two of the most advanced countries throughout the first millennium after Christ, but

there existed intimate diplomatic and trade contacts between them” (Chung, 1976).

The need to reiterate the historicity and extent of the Sino-Indian relations, particularly

trade, arises from such accounts by British colonial officials that show the pretensions of

universal superiority in their imperialist ideology when dealing with “Asiatics”. 7 In

British accounts of the colonial period there are attempts to over emphasize the apathy of

Asiatic countries towards foreign relations and commerce, with a view to justify their

encroachments and heavy-handedness when dealing with them. Infact, Asia’s rightful and

historically documented place has been denied by the excessively Eurocentric

7
On the Younghusband Mission of 1904; “… One fell to thinking of this odd motley of men, all of one
genus, descended from the anthropoid ape, and exhibiting various phases of evolution- the primitive
Lepcha, advanced a little further than his domestic dog; the Tibetan kahar caught in the wheel of
civilization, and forming part of the mechanism used to bring his own people into line; the Lucknow
doolie-bearer and the Jemadar Sahib, products of a hoary civilization that have escaped complexity and
nerves; and the lord of all these, by virtue of his race, the most evolved, the English subaltern. All these
folk are brought together because the people on the other side of the hills will insist on being obsolete
anachronisms, who have been asleep for hundreds of years while we have been developing the sense of our
duty towards our neighbour. They must come into line; it is the will of the most evolved” (Candler, 1905;
p. 124).

25
perspectives on early modern and recent world history. As Frank notes, “At least since

the nineteenth century, almost all modern and economic world history has been written as

though it began in Europe around 1500 and then spread out from there to “incorporate”

and “modernize” first the Americas and then Africa and “traditional” Asia” (Frank,

1997). The imperialist ideology of the British, which is a manifestation of the Euro-

centrism that Frank points toward, is glaringly evident in their foreign trade policy and as

such, a historical critique of the British trade policy regarding Tibet becomes imperative

when we try to understand the dynamics of the Indo-Tibetan trade. The British, after

colonizing India, handled their affairs with Tibet and China through a ‘Venetian blind’

and rather than look for mutual gains, they imposed treaties and interfered profusely in

these countries’ internal affairs; the Opium Wars (1839-60) and the Younghusband

Mission of 1904 being cases in point.

26
2.2 Early British Efforts (1774-1890)

In 1583, Ralph Fitch was the first Englishman merchant and traveler to notice the trade

between Bengal, Nepal, Bhutan and Tibet and the caravan of merchants coming from

China, Tartary and Persia. His accounts were greatly valued by the founders of the East

Indian Company, who consulted him on Indian affairs (Sen, 1971). The detailed

description of an interesting ledger of an Armenian merchant and Silk Road traveler,

Hovhannes Joughayetsi gives a pen picture of the commercial link between India, Nepal

and Tibet containing extensive information on prices, list of products traded and listings

of terms for weights and measures (Khachikian, 1966). The narration of Father Della

Penna and Father Desideri in the early eighteenth century also confirmed that intercourse

between India and Tibet via Nepal was free and unrestricted. Flourishing trade was

carried out between the plains of Bengal and Tibet through the passes of Nepal. However,

the Lamas believed that the intercourse between Bengal and Tibet fell off after the

Mughal conquests in India, and it was still further interrupted by Chinese interference,

and by the turbulent chief ships of Nepal and Bhutan on the outer slopes of the Himalayas

(Markham, 1875). This explanation could certainly not be true of all trade between

Mughal India and Tibet, as there was a huge demand for Tibetan horses by the Mughal

army who imported up to 12,000 horses a year in the seventeenth century (Frank, 1997).

It is with this background in mind that Warren Hastings, ‘the greatest of the great

Governor Generals of India’, initiated The East India Company’s relations with Tibet.

Immediately on the defeat of the Bhutanese King by the British forces in the battle of

Cooch Behar (1772-74), Palden Yeshe (the third Panchen Lama 8 ) addressed a letter of

8
The Panchen Lama (or Teshu Lama), is believed to be an incarnation of the great Tibetan reformer
Tsonhhapa, who flourished in the fourteenth century. He is supposed to be the temporal and spiritual head

27
mediation to the Governor General. Warren Hastings seized the opportunity and in reply

proposed a general treaty of amity and peace between Bengal and Tibet. He wrote and

obtained a passport for a European to proceed to Tibet for negotiation of a treaty. He

chose George Bogle, a young officer only twenty-eight years of age from the Revenue

Department, for the purpose. It is interesting to note the following instruction that

Hastings gave Bogle, dated May 13, 1774:

I desire you will proceed to Lhasa… The design of your mission is to open a mutual and
equal communication of trade between the inhabitants of Bhutan [Tibet] and Bengal, and
you will be guided by your own judgment in using such means of negotiation as may be
most likely to effect this purpose. You will take with you samples, for a trial of such
articles of commerce as may be sent from this country… And you will diligently inform
yourself of the manufactures, production, goods, introduced by the intercourse with other
countries, which are to be procured in Tibet… The following will be also proper objects
of your inquiry: the nature of the roads between the borders of Bengal and Lhasa, and of
the country lying between; the communications between Lhasa and the neighbouring
countries, their government, revenue, and manners… (Younghusband, 1910; p. 9-10).

Apart from the unique appointment and instructions, Warren Hastings also sought

information about the trade between Tibet and Siberia, Tibet and China, and Tibet and

Kashmir. This was the first British mission to Tibet and Bhutan in commercial diplomacy

and Bogle’s observation of the Tibetan trade is important in this regard.

of the Tsang province and the Dalai Lama being the head of the U province; greater Tibet is divided into U
and Tsang province with the Tsangpo River described as the boundary between the two provinces of the
Dalai and the Panchen Lamas, U being to the north and Tsang to the south.

28
2.2.1 Bogle’s Report on the Trade of Tibet, 1774 9

Bogle made qualitative analysis of the trade of Tibet; but he was unable to compile any

figures. Within his limited experience in Tibet, he recorded a graphic summary of the

scope and pattern of Tibet’s trade with other countries. ‘The foreign trade of Tibet is very

considerable’, he noted. Tibet, being mountainous, naturally barren, and thinly populated,

required large supplies from other countries and its valuable productions, its geo-

economic location as an entrepot to a considerable number of merchants made possible

for Tibetans to procure these supplies. The productions included gold, musk, yak tails,

wool and salt. The nature of the topography prevented any major cultivation of rice or

tobacco or the silk culture, and Tibet had to trade with its neighbours to meet these

demands.

The Tibetan government, Bogle noted, was favourable towards commerce, and no duties

were levied on goods; trade remained protected and free from any form of exactions. This

was one reason that a large number of foreign merchants like the Kashmiris and the

Nepalese settled in Tibet and formed agencies in different parts of the country [visible till

the present times]. The Kashmiris, whom Bogle likens to the Jews in Europe, had agents

stationed in the coast of Coromondel, in Bengal, Benares, Nepal and Kashmir, who

furnished them with commodities of various countries, that they disposed of in Tibet or

forwarded them to the border towns of China. Another trading community, the Gosains

or the Hindu pilgrims, made long and distant pilgrimages and chiefly traded in expensive

but small articles. The Kalmuks 10 loaded their camels with furs, hides, pearls and silver

and other Siberian goods and also traded dromedaries (camels from Northwestern Asia);

9
In Markham, 1876.
10
Mongols from Siberia; now a majority in the autonomous Republic of Kalmykia, in the western shores of
the Caspian Sea.

29
the Bhutanese supplied Tibet with goods from their own country as well as Bengal

products; the traders from Assam traded in coarse manufactures like silk and bamboo

products. The Chinese, who introduced the manufactures and merchandise of China, were

engaged in an extended and lucrative trade with Tibet and this was the most considerable

of all the countries. Thus, Bogle painted the picture of Lhasa as a city which was the

resort of strangers, a centre of communication between distant parts of the world, where

merchants thrived in the look out for tremendous gains. Another envoy to Tibet, Turner

in 1784 also corroborates the findings of Bogle. He provided a list of the commodities of

commerce between Tibet and the surrounding countries that made clearer the kind of

trade that Tibet engaged in.

Another important observation of Bogle was on the usage of currency (specie) in Tibet.

This provided the understanding of the flow of trade and the currencies that were

accorded importance, thus implying the major trading countries. He observed that there

were no mints in Tibet and, “payments were made in talents of China and Tartary

[Mongolian Region], in small bulses of gold dust, or in the coin of the former rajahs of

Kathmandu and Patan, which is the established specie of the kingdom”. Prior to the

Gorkha ascension in Nepal, the kingdoms garnered considerable profit by exporting coins

to Tibet; Turner mentions it as the first article of Nepalese export to Tibet. However, the

circulation of these specie, which increasingly became debased under the Gorkha kings,

led to the desertion of the Nepalese mints and there was no other currency, except

Chinese brass money and few specimens of silver coinage known as “Tsang Money”,

which was procured from China in stamped lumps. The problem of debased coins proved

intractable as later events showed.

30
Regarding the pattern of Tibetan trade with Bengal, Bogle noted that it was largely

carried through the intermediary countries, chiefly, Nepal and Bhutan. The reason for a

thriving commerce across Nepal was due to the encouragement given to trade by the

different chiefdoms in Nepal; moderate duties were levied and the country was well-

cultivated which provided merchants to settle in Nepal and carry transit trade. However,

after the Gorkha Rajah’s ascension to power in 1769, the trade and specially the Kashmiri

and the Gossain traders, were subjected to heavy and arbitrary duties and fines that led to

their expulsion from Nepal. On the other hand, the trade through Bhutan was carried

wholly by the Bhutanese who brought into Tibet such goods as rice, wrought iron,

madder etc. This trade was not as considerable as the trade that was carried through

Nepal and as such, Bogle observed that the loss which Bengal sustained by the

interruption of its commerce through Nepal was no way compensated by the trade

through Bhutan. The other trade routes of importance were through Sikkim, which Bogle

referred to as, “a province adjoining it [Sikkim] which is subject to Lhasa, and governed

by a chief styled Demo Jong [Rajah]”. The Gossains after being expelled from Nepal

usually frequented this route. Bogle also mentions the trade through Benares, the

Mustang region in Nepal, into Tibet. In the western front of India, he mentions the trade

through “Bulwant Sing’s territories [present day Himachal, Kumaon and Garhwal]”.

2.2.2 Warren Hastings and the Tibetan Policy thereafter

At this point it is important to analyze Warren Hastings objectives and the intended

relationship to be established between Tibet and Bengal. In the period to follow, two

major wars were fought in the Himalayan and trans-Himalayan region, which altered

31
British policy towards Tibet; the first was the Tibeto-Nepalese War (1788-92), and the

other, the Anglo-Nepalese War in 1814-16.

Bogle’s Report, for the first time made the company aware of how China and Nepal had

extensive trading and diplomatic interests in Tibet and, therefore, were important factors

in any Tibetan policy. From the outset, British policy in the Himalayas was closely

connected with the regional politics, although its objectives were determined by a pan-

Asian policy. Thus, the Tibetan policy of the age of Warren Hastings had four main

objectives;

a) It aimed to develop the trade of Bengal with Tibet that was damaged by the

Gorkha conquest of Nepal in 1769 into a valuable source of specie whereby the

company hoped to pay for the adverse balance of the China trade.

b) It was hoped that the Himalayas might become a route by which British

manufactured goods could find their way to the markets of Central Asia and

Western China. The underlying assumption being a ready source of money to pay

for Chinese purchases in Canton.

c) Warren Hastings perceived that relations between the British and the authorities

in Tibet were of great value in preserving the peace of the Himalayan frontier, by

checking the Gorkha expansion and by controlling the activities of the Bhutanese.

d) Finally, the missions of Bogle and Turner established the hope that through

Tibetan mediation the Company might establish satisfactory relations with the

Chinese government in Peking; the major trading country with the British East

India Company during that period.

32
This Tibetan policy survived the crisis of the Tibeto-Nepalese Wars of 1788-92. The

issue of debased currency was one of the major issues, along with the expeditionary

attitude of the Gorkhas towards Tibet. It was here that the Chinese intervened as an ‘ally

of long standing’ on the side of the Tibetans (Deb, 1984). After this war, Chinese

influence became more pronounced in the trade and foreign policy in Tibet. Along with

the Gorkha restrictions on trade this brought a steady decline in Tibet-Bengal trade.

Moreover, the geo-strategic importance of Tibet became significant during the Anglo-

Gorkha War of 1814-16. These two crises together formed two important watersheds in

Anglo-Tibetan relationship.

The Tibeto-Nepalese Wars of 1788-92, in the light of broader Asian politics, suggested

that British activity along the Himalayan borders of the Chinese Empire was liable to

misinterpretation in Peking. This could have been detrimental to the fledgling Anglo-

Chinese relationship. Secondly, the Anglo-Gorkha war of 1814-16, brought British India

into a much closer physical contact with Tibet than had been the case in the time of

Warren Hastings. Thus, any direct intervention in Tibet was refrained as to respect

Chinese suzerainty over Tibet. Sikkim, at the end of the war was very close to becoming

a British protectorate. Sikkim’s role in the Anglo-Tibetan relationship had begun and was

to be felt in the next high-powered Tibetan policy towards the end of the nineteenth

century (Lamb, 1960).

2.2.3 Sikkim and the Tibet Trade Policy

The British retracted from Hastings’ policy of active engagement with Tibet following

the two crises mentioned above. The Company government, after the Anglo-Gorkha War,

33
concentrated on development of a trans-Himalayan trade by engaging in the Western

Himalayas- Kumaon and Garhwal, which developed as a common frontier between the

British and the Chinese Empires. The trade of Western Tibet was chiefly the export of

shawl wool (pashm), and this valued commodity absorbed British interest at the expense

of the old trade routes between Tibet and Bengal. There also remained the political

reason of avoiding Anglo-Chinese friction following criticism from the India Office in

London (Lamb, 1960). With the accelerated development of Shimla, close to the Sutlej

route to Western Tibet, the attempts to reap advantages from the treaty with Sikkim

(called as the treaty of Titalya) after the Gorkha War, were delayed indefinitely. Thus, by

1835 when British acquired Darjeeling as a grant from the Rajah of Sikkim, British trade

policy in the Himalayas were governed by, what Younghusband remarks as, regional

‘political contingencies’ and ‘Tibetan intransigencies’, who were under the influence of

the Chinese superiors (Sen, 1981).

The British policy towards Sikkim till 1861 had been one of little intervention. Until then,

the British concentrated on the advantages of a clearly demarcated Indo-Tibetan frontier

along the Himalayan watershed. A series of agreements beginning in 1844 with the chiefs

of the hill tribes extended British control in the domain of the Brahmaputra Valley; and

there emerged a long Himalayan frontier of India, from the Western Himalayas to the

hills of Assam, cushioned off from the hinterland of Tibet. At this point peace and

stability of the Himalayan frontier became atleast as important an object of policy as the

improvement of trade. However, by 1861, what was called ‘due to political

contingencies’, H. Risley notes,

… the Government of India found it necessary in 1860-61 to order the occupation of

Sikhim [Sikkim] by force under Colonel Gawler, accompanied by the Honourable Ashley

34
 Eden as Envoy and Special Commissioner. Our troops advanced to the Tista, the Raja
accepted the terms offered, and in March 1861 a treaty was concluded at Tumlong, the
capital of Sikhim, which regulates our relations with the state up to the present day
(Risley, 1973; p. v).

The conclusion of the treaty could not have been purely due to the ‘political

contingencies’, but were the culmination of long drawn observations made by important

British officials who were struck by the potentiality of Darjeeling and the ridges to

engross in all the trade of Tibet. Were a road built from India to Darjeeling, Grant argued

in 1835, “the people of Sikkim would take the opportunity to open a traffic not only

between themselves and the inhabitants of Bengal, but between Bengal and Chinese

territories” (Lamb, 1960; p. 88). Thus, with the Anglo-Sikkimese treaty in 1861,

commercial interests were diverted from Western Tibet to the road to Lhasa through

Sikkim. The Special Commissioner, Ashley Eden wrote to Bengal in 1861, “A

considerable trade will spring up between Lassa [Lhasa] and Darjeeling. The Tibetans

will only be too glad to exchange gold dust, musk, borax, wool and salt for English cloth,

tobacco etc.; and the people of Sikkim will gain as carriers of this trade, and their

government will raise a considerable revenue from the transit duties” (Ibid., p. 105).

It becomes important to note at this juncture that Sikkim, although never posed as a

vassal state of Tibet, remained under the religious supremacy of the Dalai Lama. The

ideas of theocratic allegiance would be difficult to grasp with any contemporary

understanding, and more so for the British at that period, who looked for treaty-based

allegiances (Richardson, 1962; p. 73). Thus, Tibetan paramountcy over Sikkim, that the

British thought, had been lost over the due course of time, played a major role in Anglo-

35
Tibetan bilateral diplomacy till the Younghusband Mission of 1904 or even until Chinese

cartographers accepted Sikkim as a sovereign part of India in 2003.

The state of ambiguity over Sikkim could thus be traced back to the Anglo-Sikkimese

treaty of 1861. The terms of the treaty gave the British ‘suzerain’ rights over Sikkim and

its foreign policy; trade monopolies, restrictions on the movements of travelers, duties on

goods passing between Sikkim and British territory were abolished, and British

government had the power to build roads through Sikkim. These were extensive powers

that the British government imposed upon Sikkim, however, the question remained – how

sovereign was Sikkim from Tibetan supremacy to accede to these terms? 11 Only when

things came to a head, with the abandonment of the Macaulay Mission to Tibet in 1886,

did it become clear that Sikkim remained an Achilles’ heal in the Anglo-Tibetan

relationship.

2.2.4 1861-1886

Meanwhile, the period from 1861 to 1886 saw the height of commercial agitation for the

opening of Tibet. Following the arguments and observations of important British officials

in Sikkim and Darjeeling, the British Government considered four main methods of

opening Tibet to British commerce. These had emerged out of the Report on a Visit to

11
A curious Galing Treaty, signed in 1886, between Sikkim and Tibet point towards this ambiguity, which
declared Sikkim was subject only to China and Tibet. A section reads, “From the time of Chogyel Penchoo
Namgay (the first Raja of Sikkim), all our Rajas and other subjects have obeyed the orders of China… You
have ordered us by strategy or force to stop the passage of the Rishi river between Sikhim and British
territory; but we are small and the sarkar [British Government) is great, and we may not succeed, and may
then fall into the mouth of the tiger-lion. In such a crisis, if you, as our old friends, can make some
arrangements, even then in good and evil we will not leave the shelter of the feet of China and Tibet… We
all, king and subjects, priests and laymen, honestly promise to prevent persons from crossing the boundary”
(Risley, 1973; Introduction).

36
Sikhim and the Tibetan Frontier, by J.W. Edgar in 1873, where the recommendations

were made;

1) To build roads with good bridges through Sikkim to the Tibetan Frontier;

2) To discuss the establishment of a fair or mart where Indian and Tibetan traders

could meet at some convenient point to exchange their good;

3) To request the British minister in Peking to obtain from the Chinese Government

passports for a British mission to visit Lhasa; and

4) To encourage its officials to try and establish friendly relations with Tibetan

frontier officials and other Tibetan dignitaries like the Panchen Lama.

Edgar’s Report was the sequent to many high level reports- the Government of Bengal’s

systematic assessment of the trade with Sikkim, Tibet, Bhutan and Nepal over the period

1860-63 in 1864; Colonel Haughton’s report in 1870 on the subject of extension of trade

with Tibet and China; the Government of Bengal’s report in 1871 on the examination of

routes to Tibet via Sikkim; the submission of a memorial in 1873 by the Royal Society of

Arts to the Duke of Argyle, the Secretary of State suggesting inter alia the improvement

of routes through Sikkim and their extension to the Tibetan frontier and completion of the

railway connection between Darjeeling and Calcutta for promoting commerce between

India and the Trans-Himalayan countries (Sen, 1971). Edgar’s deputation to visit Sikkim

and the Tibetan frontier, however, caused a stir amongst the Tibetan officials and the

Chinese Ambans, or Residents in Lhasa, expressed to the Sikkim Raja that the “Pelling

Sahib” (British official) be prevented from crossing the frontier of Tibet. Edgar

discovered that the Tibetans were averse to the efforts made by the British to open up

trade with Tibet and recommended the issue be taken up at Peking. For the next seven

37
years or so, the British government shelved their aggressive trade policy towards Tibet

and to some extent, argued Lamb, “the failure to open Tibet during these years must be

attributed to the attitude of the British Ministers in Peking” (Lamb, 1960, p. 323). They

were aware that the Chinese laid great importance to the position of Tibet, and in

deference to their sentiments, and the danger of losing the benefits that were derived from

diplomacy in China, the British Ministers or Charge d’affaires, were less insistent on

opening Tibet for trade.

During this interim, the British Government worked to connect Sikkim and the Terai

region with the Bengal plains. Sir Richard Temple, while Lieutenant-General of Bengal

from 1874 to 1877, saw to the construction of a cart-road through Sikkim to the Tibetan

Frontier in Jelep la. His successor, Sir Ashley Eden in 1879, accepted the proposal of

extending the railway tracks from Siliguri to Darjeeling; the Darjeeling Himalayan

Railway was inaugurated in 1881 and thus was brought within easy reach of the Tibetan

frontier. By 1881, it took less than a week for someone to reach the Tibetan frontier from

Calcutta; a considerable reduction in time and effort for that period. With these

developments in infrastructure and support from the Sikkim Government, the question of

promoting commercial intercourse with Tibet came to the fore with renewed vigour.

In 1884, Colman Macaulay, Financial Secretary to the Government of Bengal was

deputed to visit Sikkim and the Tibetan Frontier in order to, a) enquire into certain reports

of the stoppage of trade through Darjeeling by Tibetan officials; b) to ascertain the

feasibility of a direct road between Darjeeling and the province of Tsang in Tibet,

celebrated for the quality of wool; and, c) deliver a message from the Government of

India to the Minister at Tashe-lhunpo, the capital of Tsang. After satisfactory

38
deliberations with the Tibetan officials, Macaulay, under instructions from the English

Foreign Office, proceeded to visit Peking the next year to obtain a passport from the

Chinese Government to visit Lhasa.

The objective of the Macaulay Mission in 1886 was of a mixed political and scientific

nature, to consult with the Chinese Ambans and the Lhasa Government on the free

admission of British subjects to Tibet, and the removal of obstructions on the trade

through Sikkim and Darjeeling. The abrupt end to the Mission occurred early in 1886,

when negotiations broke open with China concerning the status of Upper Burma, which

was recently annexed by the British Government (Richardson, 1962). At this point, the

British policy towards Tibet took a rude awakening. The era of optimism came to an

abrupt end when it became clear that the Tibetans not only did not welcome British

commercial interests in their territory, even after it was sanctioned by the Yamen – the

Court of Peking – but they were prepared to resist a British Mission with force. The

British Government conceded to the Chinese that in future matters relating to Tibet

would be discussed with them, and that no attempts would be made to establish direct

Anglo-Tibetan relations; in return for this the British position in Upper Burma was

recognized. However, the Tibetan troops, under the instruction of the monastic party in

Tibet, had occupied a large section of Sikkim territory and established a fortified post in

Lingtu – twenty kilometers east of Gangtok.

At this point, it is important to note that, out of the four methods to open Tibet only one

was not put into practice, i.e., the opening of a trade mart at some point convenient to

both Indian and Tibetan merchants; and the mart was seen to be most favourable in the

39
Darjeeling-Lhasa route. Trade estimates (see Table 1) also reveal that Bengal-Tibet trade

was consistently growing in volume.

The British Government maintained restraint and expected the Chinese to influence upon

the Tibetan Government to pull their troops back. On the contrary, the Tibetans

strengthened its claim and also planned, as was discovered later, to go an offensive and

occupy territories up to the hills of Darjeeling. 12 Moreover, the dissidence shown by the

Sikkim Raja, evident from the Galing treaty (refer to footnote 5), warranted British

reaction. Lord Dufferin, the eighth Viceroy of India, waited two years to let the Tibetan

advance be solved diplomatically through the British Minister in Peking before resorting

to use force to expel the Tibetans from Sikkim. From March 1888, both the countries

were at war and peace was restored only in 1890-91 when the Convention between the

British Government and China relating to Sikkim and Tibet was signed.

Another phase of diplomacy and trade relations between India and Tibet began with the

Convention of 1890 and the Trade Regulations of 1893 which is reviewed in the next

section. The British Government till 1890, in order to establish the protectorate status of

Sikkim, had to play out a careful strategy. The importance of Sikkim in British relations

with Tibet, as compared to the other Himalayan states of Nepal and Bhutan, arose from

the belief that Sikkim could not stand on its own might, and once it fell to Nepal or Tibet,

would prove detrimental to British Himalayan and trans-Himalayan interests. Hence,

following the ‘Sikkim Expedition of 1888’, Mr. Claude White was appointed Political

Officer in Sikkim and the Sikkim state was placed under British tutelage; and from June,

1889 up to April, 1918 the State was administered under the general guidance and control

12
Risley accounts that a remarkable map was found by a soldier of the Derbyshire in the house of a Tibetan
General, during the Anglo-Tibetan War, that ‘purports to show the tract of country extending from Phari [in
Chumbi Valley, Tibet] to Darjeeling’ (Risley, 1973; p. viii).

40
of the Political Officer; the Durbar (Court of Sikkim), exercising only limited

administrative and executive control. 13 However, the emergence of Sikkim during this

period, of which one author likens to as the ‘Belgium of Asia’, as a disputed territory and

also as the favoured route for British commercial interest in Tibet and Central Asia

played out in two different directions towards the end of the nineteenth century and most

part of the first half of the twentieth century- trade thrived while the three-dimensional

diplomatic relations between British India-Tibet-China went through violent motions.

13
Sikkim State, General Department, No. 3513/G, 29/03/26, Correspondence Regarding Customs Tariff.

41
 Table 1: Value of Trade between Bengal and Tibet via Sikkim

Imports Exports to
Year from Tibet Tibet Total (in Rs.) Remarks
1885-86 372735 245714 618449 Tibetans occupied part of Sikkim
1886-87 213385 296026 509411
1887-88 190427 174799 365226 Hostile occupation continue
1888-89 3168 4181 7349 Anglo-Tibetan War
1889-90 149254 131458 280712
1890-91 180893 199788 380681
1891-92 618146 203131 821277 Peace conditions restored
1892-93 351519 229217 580736
1893-94 358799 331613 690412
1894-95 701348 447802 1149150 Yatung was proclaimed an open mart
1895-96 625543 348895 974438
1896-97 589181 311194 900375
1897-98 498125 188280 686405 Trade estimates for nine months only
Chinese goods start to be trans-shipped
1898-99 1121019 1017685 2138704 through Calcutta
1899-
1900 1154104 1052301 2206405 -do-
1900-01 620000 667000 1287000 Post Boxer Rebellion in China
1901-02 793000 724000 1517000
1902-03 963000 811000 1774000
1903-04 356800 392400 749200 Younghusband Mission to Tibet
1904-05 410800 739000 1149800 Post-1904 Treaty
Source: Reports on the External Trade of Bengal with Nepal, Sikkim and Bhutan 1880-
1905.

Trend Analysis of Exports and Imports between Bengal and Tibet

(1885-1905)

2500000
Amount (in Rs.)

2000000

1500000 Imports from Tibet

Exports to Tibet
1000000
Total
500000

0
98

02

04
92

94

96
86

88

90

00
-

-
-

-
-

19
97

01

03
89

91

93

95
85

87

19

19
18

18

18
18

18
18

18

99
18

Years

42
2.2.5 Notes on Trade between Bengal and Tibet:

Analyses of the trade pattern show a steady growth of Bengal-Tibet trade in the period

1885/86-1904/05. Prior to this period, data on trade with Tibet were not maintained

separately from the trade with Sikkim. The trade estimates were largely restricted to two

points on the Bengal-Sikkim frontier prior to the opening of the Yatung mart after which

records were maintained only for trade passing through the trade mart; hence, a clear

under-estimation of the actual trade that took place.

Physical Infrastructure: The opening of the cart-road to Jelep la in 1879 and of the

railway to Darjeeling had only a slight impact in improving the trade volume till 1885-86.

The impact of the opening of the Yatung Trade Mart from May, 1894 however, saw a

considerable increase in total trade.

Border Skirmishes and War: The occupation of Lingtu in Sikkim by Tibetan forces from

1886 to 1888 had a steady declining impact on trade as merchants from Sikkim and Tibet

were prevented from crossing the border; much of the trade was carried by the inhabitants

of Chumbi Valley. With the Anglo-Tibetan War trade altogether halted and began to

improve only after the Convention of 1890 in Calcutta. The same trend could be seen

during the years before the Younghusband Mission in 1903-04.

Treaties and Conventions: The 1890 Convention and the 1893 Trade Regulations had a

favourable impact on cross-border trade. The same trend could be seen after the Treaty in

Lhasa in 1904 as trade picked up in 1904-05. The increase in trade for the years 1898-99

and 1899-1900 could be attributed to Chinese goods being trans-shipped through

Calcutta. However, the Boxer Rebellion in China and increasing British weariness with

China halted this trade (Lamb, 1960, p. 346).

43
2.3 1890-1914: Formalization of Trade, the Younghusband Mission and the Shimla

Agreement

Lord Landsdowne, the ninth Viceroy of India, was satisfied with the Convention of 1890

and the Trade, Communication and Pasturage Regulations of 1893. For the British it

served three purposes- a) the status of Sikkim as a British protectorate had been settled;

b) sufficient progress had been made in improving Indo-Tibetan trade (see Table 1); and

c) in paper, the boundary was to be demarcated along the Himalayan watershed between

Tibet and Sikkim. The instrument of 1890 was designed to solve the frontier problem

while the instrument of 1893, which was appended to the 1890 treaty, was designed to

take care of such issues like Trade, Communications and Pasturage between India and

Tibet. The 1893 Trade Regulations was the first draft that formalized Indo-Tibetan trade

relations. The most important component, given in Article I, relates to the establishment

of a trade mart at Yatung on the Tibetan side of the frontier and was to be open for all

British subjects for purposes of trade from 1894. This also meant that the British policy

of opening Tibet was ultimately realized, even if on paper.

A discussion on the trade of tea becomes pertinent at this juncture. Article IV of the

Agreement of 1893 mentions, ‘Indian tea may be imported into Tibet at a rate of duty not

exceeding that at which Chinese tea is imported into England, but trade in Indian tea shall

not be engaged in during the five years for which the other commodities are exempt

[referring to the exemption on duties for five years on commodities traded except on a

prohibited list]’. The duty imposed in England was 6d per pound but the Chinese brick

tea drunk in Tibet was very inferior. It was in reality, imposition of an ad valorem duty of

44
150 to 200 per cent. This concession was therefore of the slightest value for the Indian tea

industry that wanted to explore the strong market of no less than three million tea

drinkers in Tibet and Central Asia (Deb, 1984). However, the aspect of Indian tea into

Tibet was not negotiated thoroughly with the Chinese counterparts partly due to the

importance of the frontier policy and largely due to the absolute embargo on Indian tea,

based on protectionist principle.

Table 2: Chinese Exports to Tibet in 1881

Chinese Exports to Tibet in 1881 (Hosie)

Value in Taels. 5 Taels=1 Pound

100000, 14%
15000, 2%
10000, 1%
10000, 1% Brick tea
Chinese cotton goods
Foreign manufactured goods
Ceramics
Felt caps, silk etc.

600000, 82%
Source: FO 228 698, Hosie to Grosvenor 6 Dec. 1882 enclosing Memo on Chinese Trade with Tibet
(1881). Data given in Lamb, 1960; 330.

This finds basis, if one were to look at the exports of China to Tibet (see Table 2);

Chinese Pu’er tea (brick tea) forms more than 80 per cent of the value of exports to Tibet,

and it has been historically so. The Tibetans traded in Pu’er tea with the Southwestern

province of Yunnan and Sichuan since the T’ang Dynasty’s rule in the seventh or eighth

century, through the Tea-Horse Road (Cha Ma Gu Dao) – so known because the trade

45
was essentially barter whereby Tibetans supplied war horses to the Chinese military in

return for Pu’er tea (Gartner, 2007). The entry of Indian tea, which by then was

substantially produced in Darjeeling, the Dooars and Assam, would have flooded the

Tibetan and Central Asian markets ending the monopoly of Chinese tea and the British

Government even after strong remonstrance in Peking could not trade freely in tea.

Given these developments on Anglo-Tibetan relations through Chinese mediation, an

analysis of the situation on ground clears the stage to the Younghusband Mission of

1904. It must be noted that the Tibetans were completely excluded from the 1890

Convention. It therefore turned out to be a mere paper convention and in practice was not

implemented. The correspondences of the British officials in the later part of the 1890s

highlight the following; 14

1) Reports mentioned that there were repeated hesitations on the part of the Tibetans

to resolve the boundary question owing to their refusal to accept the terms of the

Convention and to their claiming tracts of land in the north of Sikkim resulting in

the trade regulations being inoperative.

2) Efforts to demarcate the boundary as laid down in the Convention of 1890 were

repeatedly thwarted by the Tibetans and they also removed pillars that were

erected along the boundary in 1899.

3) Although British traders were allowed to travel freely up to Yatung, the Tibetan

officials did not allow their traders to meet British traders at that place preventing

14
Correspondence between the Secretary (Government of India) – letter (dated 6th of October, 1898), and
Chief Secretary (Government of Bengal) – letter (dated 20th February, 1899).

46
 any business to take place but for registering goods that passed between Tibet and

India. The Tibetans had prevented Yatung from becoming a real trade-mart.

This seemed the net result after five years of the operation of the Trade Regulations of

1893. There were strong apprehensions amongst British officials regarding the Anglo-

Tibetan relations as was then current and as regards the assertions of British treaty

Rights. The major source of such apprehensions stemmed from Tibetan dissidence on the

demarcation of the frontier.

2.3.1 The Younghusband Mission, 1904

Much literature is available on the events and policy thinking that preceded the

Younghusband Mission of 1904 with as many interpretations. 15 However, most

authorities agree, in varying degrees, as to the reasons that culminated into the Mission to

Tibet led by Colonel [and later, Sir] Francis Younghusband. The Mission was the

mastermind of Lord Curzon, the eleventh Viceroy of India (1899-1905), known for such

vehement acts as the forceful control of the tribes in the north-west frontier of India and

the partition of Bengal in 1905; and in the Mission to Tibet, he has been accused of

undertaking “one of the least justifiable of England’s ‘little wars’ forced upon an

essentially pacific and practically unarmed race” (Panikkar, 1953). However, the Viceroy

could not have gone ahead with the Mission without the explicit consent of the Council

that he represents, and the approval of the Secretary of State (Foreign Office) besides the

15
See Asia and the Western Dominance, by K. M. Panikkar, London, 1953, pp.161-3; The Younghusband
Mission: An Interpretation, by P. Mehra, New York, 1968; Britain and Chinese Central Asia: The Road to
Lhasa 1767 to 1905, by A. Lamb, London, 1960.

47
approval of the Cabinet (Younghusband, 1910). Thus, the culmination into the

Younghusband Mission was based primarily on the following grounds;

1) The apprehensions of Tsarist Russia’s influence in Tibet. The ‘Great Game’ that

Russia and Britain involved themselves in Central Asia, including Persia,

Afghanistan and Tibet, where the British intelligence perceived there were

conflicts of interest and influence. These apprehensions were deepened by the

‘rumours’ of various Russo-Chinese and Russo-Tibetan treaties.

2) The disputes between the Indian Government and Tibet which had arisen from the

Anglo-Chinese convention of 1890 and the Trade Regulations of 1893.

3) The realization in the Indian Government and the India Office that matters

regarding Tibet would be futile if approached through Chinese authorities in

Tibet. The Chinese were powerless in Tibet, and the British realized this after the

events regarding trade and frontier issues between 1894 and 1899. Moreover, the

increasing self-assertions by Tibetans to shrug off Chinese supervision was

apparent following the Sino-Japanese War in 1894-95 and the Boxer Rebellion of

1899-1901, that considerably enfeebled the Manchu Dynasty and its influence in

Mongolia, Manchuria and Taiwan (Richardson, 1962).

On June 1903, the Younghusband Mission reached Khamba Jong (a village, north of

Sikkim) to meet Chinese and Tibetan Officials to negotiate issues regarding mutual non-

aggression and trade agreements. What was initially a diplomatic mission turned into a

military expedition to Lhasa, following ‘Tibetan intransigencies’ to negotiate, and armed

resistance against the Mission’s advance to Lhasa. The Younghusband Mission ended

48
with the signing of a Convention between Great Britain and Tibet on 7th September,

1904, in the Potala Palace, Lhasa. The terms of the treaty were unilaterally imposed by

the British Government and above all it also demanded a Tibetan apology for “starting

the war”. 16 The terms of the Convention between Great Britain and Tibet, are highlighted

below (Younghusband, 1910);

1) Articles I to IV, relate to various aspects of Anglo-Tibetan trade, including new

trade marts to be opened in Gartok, Gyantse along with Yatung; that the Tibetan

Government will place no restriction, physical or through duties and tariffs, on the

free intercourse of trade.

2) Article V, relates to the appointment of a British Trade Agent in each of these

marts and their roles and functions.

3) Articles VI and VII, relates to the indemnity that was placed on the Tibetan

Government – a sum of rupees seventy-five lakhs – payable in seventy-five

installments and as security, British occupation of the Chumbi Valley [adjacent to

Sikkim].

4) Articles VIII and IX, relates to the demarcation of the political boundary between

India and Tibet and the restrictions placed on Tibet and its foreign affairs; it holds

that Tibet will not engage either diplomatically, or as an independent sovereign

entity with any ‘Foreign power’. 17

16
The Ti-Rimpoche (The Regent) who governed the city in the Dalai Lama’s absence agreed to all articles
of the treaty, reportedly cryptically commenting, “When one has known the scorpion (meaning China) the
frog (meaning Britain) is divine” (Carrington, 2003; p.85).
17
The question of whether the British considered the Chinese a ‘Foreign Power’ remained ambiguous, but
manifestly, it was directed towards Russia. The reference to this is found in the tripartite Agreement

49
The outcome of the Convention could well have made Tibet another British protectorate

had not diplomatic considerations obliged the British Government to modify the terms

and the treaty. In the following years the British Government had to make considerable

concessions to China and Russia – through the Anglo-Chinese Convention of 1906, and

through the Anglo-Russian Convention of 1907 – whereby the separate articles relating to

British extra-territorial rights were repudiated and the indemnity was reduced to three

annual installments paid by the Chinese Government, to reiterate their authority over

Tibet (Younghusband, 1910; pp.348-54). In 1908 British troops were withdrawn from

Chumbi and fresh trade regulations were negotiated with China in which the British

gained less then expected; Indian tea was still excluded from Tibet. After 1904, the trade

marts still did not function to the British Government’s satisfaction and the Chinese

obstructed the permitted relations between the British Trade Agents at the mart and the

Tibetans. 18

2.3.2 The Tripartite Convention in Shimla, 1914

Thus, the only apparent outcome of the Younghusband Mission and the events that

followed was that, British Government reverted back to the old policy of recognizing

Chinese suzerain rights over Tibet, until the outbreak of the Revolution of 1911 that lead

to the collapse of the Manchu Dynasty’s rule over China. Tibet declared independence

through the Shimla Convention, 1914, where in the Article VI, it is mentioned that the term ‘Foreign
Power’ does not include China.
18
Correspondences between the Political Officer in Sikkim and the Secretary (Foreign department,
Government of India) regarding trade through the Nathu la trade route show that the quarter ending June,
1907, saw total trade of Rs. 9612 only.

50
from China in 1912 and the ‘Priest-Patron’ relationship between them was revoked.

History took a cruel turn of fate (faith?) in the relationship between Tibet and China, and

the British had to mediate between them for the first time through the tripartite

conference in Shimla, 1914.

The Shimla Convention of 1914 had to take into account the extreme positions that Tibet

and China brought to the table; the Tibetan plenipotentiary wanted the acknowledgement

of the independence from China, while his Chinese counterpart put forward China’s

claim to sovereignty over Tibet. The British plenipotentiary, Sir Henry McMahon, had to

mediate, for most part of the conference, and put forward the concepts of ‘autonomy’ and

‘suzerainty’ in an attempt to find some common ground (Richardson, 1962). Although

the Shimla Convention was initialed by the Chinese plenipotentiary, it was not signed or

ratified by the Chinese Government subsequently, and was accepted as binding between

Tibet and Great Britain.

Regarding trade, Article VII of the Shimla convention, cancelled the Tibet Trade

Regulations of 1893 and 1908 and fresh Regulations were negotiated in the Anglo-

Tibetan Regulations of 1914, to give effect to Articles II, IV and V of the Lhasa

Convention of 1904, between Great Britain and Tibet. The Regulations, without any

Chinese interventions, were different from the former Regulations in detail and also in

principle. Restrictions on trade, such as the duty on Indian tea imported into Tibet and the

creation of monopolies, were removed; British control over the areas of Trade Agencies

was strengthened. The new Regulations were also negotiated without any Chinese

concern, either in any supervisory or mediatory capacity whatsoever. The Trade

Regulations that was set forth in 1914, governed the trade activities between India and

51
Tibet until Indian independence, and as given in Article IX, were revised after every ten

years, if both parties agreed.

52
2.4 1914-1962: The Interregnum and Post-Independence Trade

The period since the Shimla Convention of 1914 is one of sharp increase in cross-border

trade and relative peace in the frontier between India and Tibet, but it also marks a near

black hole in terms of literature and understanding of the Indo-Tibetan trade. However, a

qualitative assessment is attempted here based on certain authorities (Bell, 1924;

Richardson, 1961; Lamb, 1959) and certain unpublished correspondences between

British and Sikkim officials in the interregnum period.

British policy towards Tibet in the period after 1914 worked on naturalizing trade flows

and boosting diplomatic and inter-cultural exchanges. Two important Missions to Lhasa

were sent – Sir Charles Bell’s Mission to Lhasa in 1920 and Sir Basil Gould’s Mission to

Lhasa in 1937 – both successful in forging closer Anglo-Tibetan ties. The role of Sikkim,

in general, and the office of the Political Officer in Sikkim, in particular, becomes

noteworthy as both the Missions were led by the then Political Officers to Sikkim.

It may be recalled that ensuing the Sikkim Expedition in 1988, the British Government

had forced the then Maharaja Tothub Namgyal of Sikkim to reside in Kalimpong in

North Bengal while Claude White, the first British Political Officer in Sikkim in 1889,

acted like a de facto ruler. He was answerable to the Government of Bengal and neither

to the Maharaja or the Government of India; this practice was followed as the

Government of Bengal was responsible for the administration of Sikkim and the Tibetan

frontier (Lamb, 1959). In 1906, control over Sikkim state affairs was handed over to the

Government of India and only in April, 1918, were full powers invested to the new

Maharaja, Tashi Namgyal, who ruled over Sikkim for 50 years.

53
2.4.1 Correspondences between Sikkim Durbar and the Government of India: 19

In May 1923, on the request of the Canadian High Commission, the Political Officer to

Sikkim, Major F.M. Bailey, enquired about the nature of customs tariff that were in force

in the state of Sikkim. To this, the Durbar replied that no customs duties were levied upon

goods entering the state either from British India or from Tibet and Bhutan. Following

this, there were many correspondences between the Sikkim Durbar and the Government

of India regarding levying of customs duties on goods entering the state of Sikkim; these

correspondences provide a sketch of the trade that took place in the interregnum period.

In a letter dated 8th July 1925, the Sikkim Durbar expressed their desire, in exercise of

their right as mentioned in the Article XI of the Sikkim Treaty of 1861, 20 to levy a

customs duty on all goods passing through Sikkim to or from Tibet, Nepal and Bhutan.

After certain clarification and further correspondence, a letter dated 14th of June 1930

from the Political Officer in Sikkim, Lt. Col. Weir, to the Maharaja of Sikkim informed

that;

The Government of India is of the opinion that the imposition of the proposed customs
tariff would be prejudicial to the Indo-Tibetan trade as a whole… It has been observed
that the proposed levy of tax will be misunderstood in Lhasa. They [Tibetan Government]
have recently been informed that the Government of India find it impossible to agree to
an import tax on trade with India… If Sikkim now levy a duty they will feel that their
interests have been sacrificed for the benefit of Sikkim… The strongest argument in
favour of the Government of India for dissuading the Durbar from pursuing the question

19
Sikkim State, General Records, 194, 16/24 (XXIII) - Correspondence Regarding Customs Tariff.
20
Article XI of the Sikkim Treaty of 1861 states, “On all goods passing into or out of Tibet, Bhootan, or
Nepaul, the Government of Sikkim may levy a duty of customs according to such a scale as may, from time
to time, be determined and published without reference to the destination of the goods, provided, however,
that such a duty shall, on no account, exceed 5 per cent. on the value of goods at the time and place of the
levy of duty. On the payment of the duty aforesaid a pass shall be given exempting such goods from
liability to further payment on any account whatever.”

54
 is that Government have spent considerable sums of money on the construction and
maintenance of the arterial roads from British India to Tibet… that the whole position
will be reviewed at the end of three years.

This episode can be seen in the broader light of the Indo-Tibetan relations that transpired

after the Charles Bell’s Mission to Tibet in 1921. The major issue regarding the status of

Tibet, post-1914, was handled by the British Government with critical diplomacy; they

advised, listened and demonstrated that the British Government intended to treat Tibetan

autonomy as a reality and strengthen Tibet’s ability to defend itself through military

training and arms assistance, and also to help develop the country’s resources

(Richardson, 1962). However, there was a decline in the cordial relationship between

both countries after 1925, chiefly because the monastic parties in Tibet viewed the British

intentions with much greater skepticism than the nobles. With this understanding, Lt. Col.

Weir’s letter regarding the British Government’s position on the subject becomes clearer.

Another round of correspondence was opened in 1937, regarding the issue of imposing

customs tariff by Sikkim between the Sikkim Durbar and the Government of India. It was

proposed that incase the Government of India was not ready to allow the Sikkim Durbar

to impose a customs tariff on the trade, an arrangement could be worked out similar to

the princely states of Kashmir, Bhootan and Nawanagar; the alternative arrangement

being,

The total annual value of all imports and exports into and out of Tibet from Sikkim
territory may safely and modestly be estimated at a crore of rupees; a 5 per cent. duty on
such goods would therefore return an annual revenue of five lakhs with considerable
prospect of an increase… it is suggested that, in the event of the Government of India
being unwilling to agree to the first alternative suggestion detailed above [regarding
imposition of a 5 per cent. duty on transit trade], the Government of India may yet be

55
 persuaded to consent to the payment of an annual subsidy of five lakhs of rupees until
such time as the relationship of the Government of India with Tibet permits of the levy of
a Customs duty by the Sikhim Durbar without causing serious embarrassment to the
Government of India.

This correspondence show that a considerable increase in cross-border trade occurred

post-1914. As further correspondence show, Calcutta emerged as an important port

through which European, Chinese and Japanese goods were traded in Tibet, Chinese

Central Asia, Kashmir and Nepal. Most of these goods destined for Tibet passed through

the passes in Sikkim (Nathu la and Jelep la). However, the Government of India

dissuaded Sikkim to tax the transit trade as it would mean that Tibet cannot be denied the

privilege as regards her own exports and imports. The effect of the double taxation would

be disastrous on the trade relations between both the countries.

The Government of India, suggested that Sikkim develop Gangtok as a trading centre and

offered that no restrictions would be placed on the duty-free import of foreign goods by

Sikkim, which it could then supply to Tibet and meet its own needs. The goods, if

reasonably priced, would further induce the Tibetan traders to purchase their goods at

Gangtok rather than take the arduous journey to Calcutta. Since Sikkim was a poor

mountainous country with limited agricultural and industrial enterprises, developing

Gangtok as a commercial center will augment the State’s revenue in a sustained and

permanent manner. Thus, the Government of India argued that Gangtok be made into an

‘important emporium by attracting all traders and merchants interested in both export and

import trades of Tibet’. 21 The gain from this scheme for the Durbar was worked out at an

average of 15 per cent. on the total value of the goods, and allowing 5 per cent. for
21
Correspondence between the Political Officer and the General Secy. of the State of Sikkim, Draft 1936,
General Records, 368 23/6/1926.

56
overhead expenses and middlemen’s profit, net gain would work out to 10 per cent of the

estimated value of 1crore, i.e., 10 lakhs, which would have been a considerable amount

for a poor state like Sikkim.

As could be made out from certain traders’ accounts of the post-independence period,

Gangtok was a bustling trading centre by then, where Tibetan, Nepalese and Indian

traders conducted much business (see next section). However, regarding the imposition

of a customs duty, the Sikkim Durbar was only allowed the privilege in May, 1947. In a

letter dated 9th May 1947, the Sikkim Durbar wrote to the Political Officer that they

would levy a duty at 5 per cent. ad valorem on cloth, sugar, kerosene-oil, jaggery and

yarn passing through Sikkim at Gangtok (for the Nathu la route) and at Kalimpong, a

town in North Bengal (for the Jelep la route) towards Tibet; this was put into effect from

15th May 1947. 22

22
Letter dated 9/5/1947, from the General Secy. to H.H. The Maharaja of Sikkim to Political Officer in
Sikkim, 153/G.

57
2.4.2 Analysis of Indo-Tibetan Trade in the Post-Independence Period 23

As much as 80 per cent of the Indo-Tibetan trade flowed through the twin passes of

Nathu la and Jelep la during the peak trading years in the 1940s and 1950s. 24 This meant

that trade was well regulated and the commercial conditions induced trade and a host of

other activities like banking, transport, warehousing, contracting, postal and other

ancillary services. On a normal trading month as many as five thousand mules traveled

through Sikkim. 25 Black marketeering was also noticed through the Jelep la route

between merchants and muleteers. 26 As against the popular notion, Nathu la was as

important a trade route as Jelep la; in fact, during 1953 the trade through Nathu la far

exceeded trade through Jelep la. 27

Both Indian and Chinese currency were legal tender, although, trade transactions were

also done through barter system. Tibetan paper currency, Srang and coins, Chokya were

in use till the late 1940s, when the Chinese influence in the economy became

overwhelming and the use of Chinese silver dollar, dyang gained prominence (See Plate).

Due to its intrinsic value being higher than its face value (1 Chinese dollar = Rs. 3;

although, it was made of pure silver), Indian traders started trading in dyang. The present

rate of dyang in the market is over Rs. 800 per piece.

As can be seen from Table 3, trade was not seasonal but was carried across the year.

23
The following analysis is based on unpublished sources and interviews. Some traders’ accounts have
been collected from local magazines and reports.
24
http://news.xinhuanet.com/english/2006-07/05/content_4797931.htm
25
Sikkim State, General Records, File No. 11/5/1929, 155.
26
The then Political Officer of Sikkim, in a draft letter, gave the following instruction, “I also found during
my visit that there was extensive black marketeering by merchants of Rongli Bazaar [through Jelep la].This
black market must be effectively crushed. This is a task for Rhenock P.S.”
27
The proportion of trade conducted through Nathu la for most of the year was, 87, 76, 54, 87, 67, 52 and
47 per cent. of the total Indo-Tibetan trade. Sikkim State, General Records, 833 5/6/1948

58
 Table 3: Trend Analysis of Indo-Tibetan Trade through Nathu la and Jelep la:

1948-53

Exports from India to Tibet (through Nathu la and Jelep la) 1948-1953
Volume in Maunds (1Maund=36.3 kgs)

45000
40000
35000 1948
30000 1949
25000 1950
20000 1951
15000 1952
10000 1953
5000
0
y

ril
ry

ay

ne

r
ly

st

r
ch

r
er

be
be
ar

be
Ju
Ap

gu
ua

ob
M

Ju
ar
nu

em
em

em
Au
br

ct
Ja

Fe

pt

ov
O

ec
Se

D
Months

Imports to India from Tibet (through Nathu la and Jelep la) 1948-1953
Volume in Maunds (1 Maund=36.3 kgs)

25000

20000
1948
1949
15000
1950
1951
10000
1952
1953
5000

0
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ne

ly

r
st

r
ch

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er

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be
ar

be
Ju

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Ap
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Ju
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em
em

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Au
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Ja

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pt

ov
O

ec
Se

Months

59
The pattern of trade suggests that during the winter months trade, both export and import,

was vigourous. The imports to Tibet increased in the winters on account of need for

provisions and other low value essential goods, in exchange for wool. 28 In the monsoon

season, trade declined, as land slides and heavy rainfall made it difficult for long

journeys. The sudden increase in exports in the years, 1952 and 1953, could be attributed

to the ‘Peaceful Liberation of Tibet’ by China; as most Chinese, Japanese and European

goods started to be trans-shipped via Calcutta port. Export trade boomed as Chinese

demanded more manufacturing and luxury goods. However, imports trade in the

corresponding period suffered, as the Chinese diverted the flow of trade directly towards

China and also started to nationalize trading activities to the detriment of the trading

communities and Tibet’s southern neighbours (Ginsburgs and Mathos, 1960).

The Traders’ accounts: suggest that Gangtok and Kalimpong emerged as the

major trading centers where the ‘orders’ from Tibetan traders were placed and goods

were loaded and carried en route to Yatung through Nathu la and Jelep la respectively. A

trend emerged where the Nathu la route had higher imports while the Jelep la route saw

higher exports to Tibet. The increased use of the Nathu la route later could be attributed

to the extra facilities provided in the route and a metal road from Gangtok to Nathu la,

but for the last 30 odd miles. 29 Yatung was the Trade Agency, through which all Indian

trade had to pass through. From Gangtok, it took a minimum of 3-4 days to reach Yatung.

Although trade was free and transparent, various articles of trade were declared to have

28
N. C. Sinha notes, “The present writer had learned while journeying in Central Tibet in 1955-56 that no
rice or conchsheel would be accepted in the monasteries as well as orthodox households unless it was from
Phagyul (Land of Buddha). It was also learned that if available Varanasi silk was preferred to the best from
China for making garments for icons and spreads for altars even in 1955-56” (Sinha, 1984).
29
Political Officer to Secretary, Ministry of External Affairs, 20/01/51.

60
been ‘prohibited items’ for trade by the Indian Government. 30 Exported items were also

checked in 15th Mile [from Gangtok] and Sherathang.

Old documents in Kalimpong sub-divisional office show that trade ties between India and

Tibet were so strong that three Kalimpong-based private banks – Kuber Bank, Das Bank

and a third bank that belonged to one Rai Bahadur Ramchandra Mintry – operated in

Tibet till the early 1950s (Chaudhuri, 2003). A branch of the People’s Bank of China was

also located in Kalimpong with its office in Calcutta (Wangchuk, 2006). The bank started

issuing cheques and accepted local ‘hundis’. Post offices operated throughout the route.

The bulk of the trade consisted of essential goods. India used to import mostly raw wool

from the Tsang province; from Tibetan traders in Yatung, Gyantse and Phari [the latter

two marts were added after the Panchsheel Agreement, 1954]. In return the demand for

finished woolen and cotton products were high. The traditional demand pattern for Indian

exports changed considerably after the Chinese came to Tibet and drastically so since

1951. The trade also got a major fillip after the Panchsheel Agreement [statistics or trade

data are unfortunately unavailable].

The regional economy of Sikkim and North Bengal was hinged around the direct and

indirect linkages of the Indo-Tibetan trade. After the borders were closed down in 1962,

Kalimpong, the major trading center, was called a ‘ghost town’, along with its other

infamous nickname, Nehru’s ‘nest of spies’.

30
For instance, on the import of Chinese silver dollars, dyang, a customs duty of Rs. 1.50 per piece was
levied.

61
 Table 4: Exports to Tibet from India in 1953

Exports to Tibet in 1953 Amount (in Rs.)

Cotton Goods 7644000
Dyes 2373756
Iron 864262
Sugar 324360
Jaggery 194520
Metals 2200688
Narcotics (Cigarette, Tobacco
leaf) 3572100
Teapods 2369052
Hides and Skins 1274000
Provisions 5957616
Miscellanous 3953516
Total 30727870

Exports to Tibet from India (Nathu la and Jelep la) December, 1953

Cotton Goods
Dyes
Iron
3953516, 13% 7644000, 24% Sugar
5957616, 19% Jaggery
Metals
2373756, 8% Narcotics (Cigarette, Tobacco leaf)
1274000, 4% Teapods
3572100, 12% 864262, 3%
2369052, 8% Hides and Skins
324360, 1% Provisions
Miscellanous
194520, 1%
2200688, 7%

Notes;

1) Main products: Cotton products; Manufacturing goods; Miscellaneous items included

watches, shoes, religious items, stationery etc.; Metals (other than iron); Tobacco
products and Tea.
2) Provisions were hugely demanded during winter months as Tibet is largely barren land
not suited for agriculture.
3) Trans-shipped goods from China via Calcutta formed a major part of the commodities
exported. According to certain accounts, cars, jeeps and trucks were also traded to Tibet.

62
 Table 5: Imports to India from Tibet in 1953

Imports from Tibet, 1953 Amount (in Rs.)

Miscellaneous 5600
Yak tails 258720
Carpets 4480
Hair Animals 56000
Provisions 200928
Raw Wool 8489880
Total 9015608

Imports from Tibet to India (through Nathu la and Jelep la) in 1953
5600, 0%
258720, 3%
4480, 0%
56000, 1%
200928, 2% Miscellanous
Yaktails
Carpets
Hair Animals
Provisions
Raw Wool
8489880, 94%

Notes;

1) Tibetan raw wool formed more than 90 per cent of the imports all throughout the year.
The wool was processed and stocked in Kalimpong; orders were largely from Calcutta,
Bombay and also large consignments to the U.S.
2) Traditional Tibetan goods like religious items, artifacts and thanka paintings also formed
part of the imports.
3) Total Trade in 1953 : Rs. 390, 37,878
a. -Imports: 23.1%
b. -Exports: 76.9%

Trade grew throughout the 1950s until 1959 when the Tibetan uprising in Lhasa

precipitated volatile relations between India and China.

63
2.4.2. a Trade Agent’s Account:

Sir Yab Tashi Tsering Tonyat, 84, now based in Gangtok; was the Chief Officer, Indian

Trade Agency, Yatung, Tibet, for the Government of India, 1959-1962.

He was the last Trade Agent for India in Yatung Trade Agency when the frontier closed

down on 2nd June, 1962. All Indian trade was regulated via the Indian Trade Agent who

issued permit to the traders, particularly in the case of high value commodities like that of

petrol, diesel, automobiles, liquor and import of gold and Chinese silver dollars [customs

duty were levied on these goods]. Trade was generally free and that of an open market.

The Trade Agency’s main function was to put the Indian traders’ interest foremost and

work closely with Tibetan and Chinese officials on issues concerning trade; like permits,

security, communication and regulation. Indian traders could trade in Yatung and Phari [a

small town near Yatung] but permit was required for the latter. Traders could rent, hire or

lease warehouses according to the local rules and regulations.

Transactions were made in Chinese currency although Indian currency was legal tender.

The main traders belonged to the Marwari community, who were around 80 per cent, and

the Nepali Newar community. They had around 80-90 shops in Yatung and supplied to

Chinese and local demands as well as imported Tibetan goods to Kalimpong and

Gangtok.

The period from 1959-62: During the Tibetan uprising, which lasted for 10-15

days, he was in Lhasa, as Vice-Counsel, to the Consulate-General in Lhasa. The Dalai

Lama escaped quietly through Nathu la in 1959 and the Chinese had no idea till the next

64
day. The Indo-Tibet trade was so intense that it took place despite the political uneasiness

created after the Dalai Lama sought asylum in India. However, trade dwindled

throughout this period. The tri-podal trade between Sikkim-Tibet-Kalimpong suffered as

the Chinese restricted movements and a nagging discord was visible at the governmental

level. The 1954 Panchsheel Agreement, which was to be renewed in 1962, was passed to

lapse and trade closed down overnight on 2nd June, 1962. Many traders escaped leaving

their consignments and without collecting the outstanding payments. The Trade Agency

in Yatung, and reciprocally, the Chinese Trade Agencies in Calcutta and Kalimpong were

closed down.

2.4.3 Panchsheel Agreement and Sino-Indian Relations

Much of the post-independence relation between India and China, particularly after the

‘Peaceful Liberation of Tibet’ in 1951, hinged on the ‘boundary question’ and could be

summed up in Chinese Premier, Chou En-Lai’s note of September, 1959 as an

“outstanding issue left over by History”. 31 To discern issues related to cross-border trade

or any other bilateral co-operation from this overarching issue of the boundary would

have to be understood through the Agreement between the Republic of India and the

People’s Republic of China on Trade and Intercourse between Tibet Region of China and

India, in 1954 (See Appendix). Commonly known as the “Panchsheel Agreement” 32 , this

31
Indian White Paper No. V, Cited in, Pringshiem, 1963.
32
Panchsheel stands for the Five Principles of, 1) mutual respect for each other's territorial integrity and
sovereignty, 2) mutual non-aggression, 3) mutual non-interference in each other’s internal affairs, 4)
equality and mutual benefit, and 5) peaceful co-existence. These five principles bound India and China
through the Panchsheel Agreement.

65
was basically a trade pact between China and India streamlining their bilateral trade

operations in Tibet. The negotiations for this agreement were held in Beijing between

December 31, 1953 and April 29, 1954 at the end of which this agreement was finally

signed in Beijing. India gave up its rights over Tibet that was inherited from the British

and recognized Tibet as a “region of China”. This as most political scientists and

bureaucrats felt was a concession India had to make to be a modern nation, ‘a concession

to realism’, out of the clutches of imperialism. However, Nehru instructed the delegation,

led by H.E.N. Rahgavan, not to raise the boundary question during the negotiations over

Tibet; “… it is a settled issue… It is not an issue to be discussed at all”. 33 Some

revisionist scholars, like Swaran Singh, felt that the Panchsheel Agreement presented a

rare opportunity to resolve the rest of the border dispute which remains the only basic

problem between India and China even in the present times (Singh, 1998). The articles of

the agreement are highlighted below;

Article I and II: Specified the Trade Agencies and Trade marts in India and Tibet;

Trade Agencies in Tibet- Yatung, Gyantse and Gartok and Trade Agencies in

India- New Delhi, Calcutta and Kalimpong. The functions and powers of the

Trade Agents were given.

Article III and IV: Mentions the places of pilgrimages that were customarily

visited by pilgrims of both countries; the routes and passes that pilgrims and

traders could travel through.

33
Note to Secretary-General, December 3, 1953, SWJN, Vol 24, pp 598-99; Reply in Parliament, December
24, 1953, ibid, pp 577-78. Quoted in, Raghavan, 2006; p. 3884.

66
 Article V: Specify the requirement to hold passports issued by their respective

countries for nationals, diplomatic personnel or official to visit across the border

except for traders, muleteers and porters, inhabitants of the border districts,

pilgrims whose requirements are issued by local authorities and registered at

border check posts.

In the negotiations, India conceded more than it gained. While India wanted the

agreement to be valid for 25 years, the Chinese demanded to ratify it every 5 years; they

settled for 8 years. India voluntarily gave up its military, communication and postal and

other rights which New Delhi had inherited from the British on account of the Anglo-

Tibetan Treaty of 1904. There were also objections to a certain trade route- Demchok in

Ladakh, that China considered disputable and to avoid disagreement India sought to term

it as the “customary route” in Article IV. India’s non-insistence on reciprocal concessions

while recognising China’s suzerainty over Tibet by India had to be understood in the

context of the ‘Hindi-Chini Bhai Bhai’ spirit of 1950s where China’s leaders swore of

‘eternal peace and friendship’ and Indian leadership felt satisfied to have a written

guarantee of good behaviour from China on account of Panchsheel being a part of this

Agreement’s Preamble.

Defending this Agreement in Indian Parliament, Nehru said, “It was the recognition of

existing situation there. Historical and practical considerations necessitated the step”

(Raghavan, 2006; p.3889) The then Foreign Secretary, K.P.S. Menon talked about the

accommodation of the Chinese belief that all ethnically and historically linked region

should form a part of a nation, noting, “Irredentism, has always played a part in the

67
policy of the Chinese Government, whether, Imperial, Koumintang or Communist”

(Ibid.; p. 3886). The impact of this ‘Irredentism’ of Communist China on Tibet could not

have been favourable for India, Nepal or the other Himalayan states, who had been

historically and culturally linked with Tibet. After 1950, China’s commercial policy in

Tibet may be said to have had three aims (Ginsburgs and Mathos, 1960):

1) Gradually to eliminate all foreign influence in the area and re-orient the flow of

Tibetan trade towards China;

2) To gain control in this fashion over an important segment of Tibetan economic

life and, in the process, impose a State quasi-monopoly over most commercial

activities; and

3) To use the lever of economic power thus gained to further its political aims in

Tibet.

The diversion of Tibetan trade (at first gradually but at an increasing tempo after the

Tibetan uprising of March 1959) was illustrated by the statistics quoted by Prime

Minister Nehru in his announcement of August 1959, to the effect that the value of

imports into India from western Tibet alone had dropped from $315,000 in February

1959, to $42,000 in May and that exports for the same period had declined from

$210,000 to $63,000. 34 In 1961, there remained no alternative for Nehru but to declare

that only after China withdrew from Ladakh (the territory of Aksai Chin that China

‘occupied’), would India agree to renew the 1954 Trade Agreement or to discuss the

34
Nehru’s statement, August 31, 1959, Prime Minister on Sino-Indian Relations (PMSIR): Parliament, Vol
I, p 100.

68
boundary question. This position brought trade and the frontier issue under an inseparable

foreign policy instrument and on 2nd June, 1962 the Agreement on Trade and Intercourse

was permitted to lapse. The two major causes that most scholars unanimously hold for

this bilateral standstill before it culminated into the 1962 war are:

1) Dalai Lama’s arrival in India, post the Tibetan uprising in 1959; this was largely

perceived by China as India’s interference in Chinese internal affairs, thus a

violation of the third principle of the Panchsheel; and

2) Chinese claims in Indian territory, initially in Ladakh (the region of Aksai Chin)

and later in NEFA (North East Frontier of Assam) that triggered what James

Fearon terms the “commitment problem” (Fearon, 1995), in India; leading to a

refusal of India to negotiate without Chinese withdrawal from Indian territory.

However, this was a violation of the first principle of the Panchsheel (Pringsheim,

1963) (Norbu, 1979) (Mansingh, 1994) (Singh, 1998) (Raghavan, 2006).

This portended for a downward trend, gradually resulting in deteriorating relations and

later leading to the 1962 war. This completely changed the context in which the

Panchsheel Agreement had been signed and their relations remained frozen for the next

two decades or so.

69
2.5 Conclusion and Emerging Themes

The above review of Indo-Tibetan trade brings forth an intertwined interaction of socio-

economic-political processes, out of which the following broad themes emerge;

2.5.1 British Foreign Policy and Trade

The ‘Hobson-Lenin’ framework provides the first understanding of imperialism, based

loosely on the thesis that ‘under consumption’ at home created the need for outlets of

European manufactured goods, and more particularly for European capital, which lay at

the basis of late-Victorian imperialism; thus it brought forth the close relationship

between the metropolitan economy and overseas expansion (Cain, 1978). Although,

critics later have showed that the theories, rather then broad narratives, were explanations

of their contemporary changes; Hobson tried to explain, through imperialism, the British

involvement in the political turmoil of Europe that led to World War I, while Lenin,

expounding on Hobson, critiqued imperialism as a heightened form of capitalism, that

provided a framework for later Marxist works (Stokes, 1969). Later scholars have also

tried to explain imperialism through a political economy approach whereby the

examination of the structures and performances of the British economy, prior to British

expansion overseas, becomes the foci to understand the changing dynamics of the

metropolis and the colony (Cain and Hopkins, 1980). The discourse on “New

Imperialism” – the violent phase of European imperial expansion in and after the 1880s –

becomes pertinent to understand the basis of British interests in a relatively ‘peripheral’

region, like Tibet (Fieldhouse, 1961-2). 35

35
Fieldhouse explained British participation in the “New Imperialism” primarily as a political
phenomenon.

70
Although British interests in Tibet prior to the 1880s was one of non-interference and

based strictly on improving trade relations, it took a violent turn post the abandonment of

the Macaulay Mission in 1886. The thesis of “New Imperialism” holds that the monopoly

position of British goods, but especially capital, in the colonies and the overseas market

were increasingly threatened by the rise of Continental European and American capital

on one hand and the rise of Russian influence on the other. The theory purports that

British expansion was designed, a) to maintain the security of the existing Empire against

a new threat from the Continental Powers; thus explaining the various treaties to

demarcate ‘spheres of influence’ between the ‘Great Powers’, and b) to maintain the

existing British trade and financial positions in the overseas market, which meant a

deviation from the laissez faire attitude towards cut-throat diplomacy (Platt, 1968). As

history unfolded, the British sphere of influence greatly expanded by the late 1800s and

early 1900s, although empirical analysis show that there was no corresponding increase

in overseas trade volume, explaining that even to maintain the existing levels of overseas

trade, territorial expansion became a necessity (Cain and Hopkins, 1980).

British foreign policy towards Tibet, based on liberalizing trade between India and Tibet,

became alarmed by the increased Russian influence and protectionism in West and

Central Asia by the mid and late 1800s. Thus, thrusting back Russian influence and

extending British trade connections became one and the same thing in Tibet, which

Britain achieved through the Younghusband Mission in 1904. These aggressive trade-

cum-diplomacy policy were behind the British Government’s attempt to extend its formal

and informal influence over various territories like China, the Malay States and Burma on

the face of increased competition from Japan, Russia, France, United States, Germany,

71
Italy and Austro-Hungary (Ibid., 1980). Although, unlike many other territories, Tibet for

most part of its history since the late eighteenth century, became a contested sphere of

three ‘Great Powers’ – China, Russia and Britain.

2.5.2 Centrality of Tibet

By 1642, Tibet was under the unique religio-political system which came to be known as

Choe-si-nyiden form of government. This form of government, in which religious and

secular affairs were intricately intertwined, also laid the cultural foundations of the

Tibetan society based on economic self-sufficiency and sustainability. It was not a static

system but rather it gradually evolved according to the changing times. There were forces

within the society that felt the need of modernization and change in the existing system.

Some Tibetan scholars believed that if Tibet were left to itself, it would have evolved into

a modern nation-state competent to play its role in the comity of nations, which

unfortunately was not to be (Norbu, 1979) (Choeden, 1996) (Shakya, 1999).

The political history of Tibet had always borne witness to the shifting basis of power and

influence. This had been manifestly so since the beginning of the nineteenth century

when the dominant powers, China, Russia and Britain tussled, in varying degrees, to

create its ‘sphere of influence’. At the turn of the twentieth century, it was the arena of

the “Great Game” between Russia and Great Britain. And by 1950, when two nationalist

regimes had emerged in China and India, Tibet became a matter of acute contention

between the two countries (Norbu, 1979). The emergence of Tibet in the ‘margin’ of both

India and China’s borders became the ‘central’ issue in their bilateral relationship. While

India, guided by Nehruvian ideology, portrayed to the world as a modern, anti-

72
imperialist, anti-colonial nation, it sought to befriend China by making, as one author

puts it, “the biggest concession to China in modern Asian history”, not only by giving up

the extra-territorial rights in Tibet that it inherited from the British, but by putting India’s

seal of legitimacy on the Chinese occupation of Tibet at a time when most nations

condemned it (Norbu, 1997). What seemed to India a ‘concession to realism’; meaning,

after India gave up Tibet, China would extend its acceptance of the Indo-Tibetan frontier,

in bilateral diplomacy meant India recognized Tibet as ‘terra incognita’. Pitch this

position against China, who considered Tibet as ‘terra irredenta’ and the crux of the

problem becomes visible. With India’s legitimacy of Chinese claim in Tibet behind,

China went ahead to claim, what it considered ‘historical’ territories of Tibet in Kashmir

(in the Western front of India) and in NEFA (in the eastern front of India). 36 This also

remained the basis of Chinese claims in the Tibet-Sikkim frontier where China claims

that the “local government [Tibet]” consistently exercised its jurisdiction over. Finally,

by 1962, China emerged with its elaborate political stratagem to bring about a

Confederation of Himalayan States to include Nepal, Sikkim, Bhutan, NEFA and

Nagaland, that would effectively remove them from India’s sphere of influence and

incorporate them into China’s camp of “peace and socialism” (Patterson, 1962).

From an effectively weak position in Tibet in the early 1950s, China went on to pursue

one of the most strategically sound bilateral diplomacy of recent history. Although, India

did not give up its position in the Himalayas, it failed to recognize the gravity of the

‘Tibet question’, on account of its anti-imperialist rhetoric and the importance accorded

to the ‘boundary question’ (Pringsheim, 1963). The territorial dispute could have been

36
Premier Chou En-lai’s Letter to the Leaders of Asian and African Countries on the Sino-Indian
Boundary Question, Beijing, Foreign Language Press, 1962, pp. 3-4.

73
resolved – China signed border agreements with Burma and Nepal in 1960, and Pakistan

in 1963, and it ran along the lines that British colonial officials suggested – but the main

dispute remained the McMahon line, which was ratified by Britain and Tibet in the

Shimla Convention of 1914; or as China viewed it- as an imperial British policy of

aggression foisted upon China’s Tibet region. The Chinese objection was not so much to

the physical details of the McMahon Line location as to the legal foundations of the line

itself. The Shimla Convention implies that Tibet had treaty-making powers and,

therefore, was somewhat independent before 1950. If China accepted this boundary this

would have shaken the legal and moral foundations of the communist takeover of Tibet

(Norbu, 1997). Thus, a bilateral solution regarding Sino-Indian boundary could have been

achieved without reference to the Shimla Convention in which Tibet had participated,

and the McMahon line was drawn.

Regarding trade, Peace researchers like Richardson, Smoker, have shown how trade

could be regarded as opposite to war (Smoker, 1964). Smoker has shown that there exists

an inverse relationship between trade and defence expenditure when two nations are

considered, even after taking into account high-level communication and cultural and

historical linkages (Ibid., 1964). The cross-border trade between India and Tibet (China,

after 1951) was closely integrated with the bilateral relations between the two countries,

and had drastically fallen after the Tibetan uprising and the subsequent escape of Dalai

Lama into India in 1959. By June, 1962 most Indian traders had fled Tibet and once the

1954 Agreement was passed to lapse, the borders were closed down for any further

intercourse. Most Indian traders based in Kalimpong and Gangtok, who belonged to the

Marwari community, shifted their bases to Kathmandu, Nepal, from where they carried

74
their businesses in Tibet. 37 Thus, Indo-Tibetan trade suffered immensely with the rising

tensions in the frontiers and the ensuing Sino-Indian war in 1962 that brought it to a

standstill.

2.5.3 Trade Routes as Public Sphere

In an anthropological study on the trade routes of the Garhwal region to Tibet, Manju

Kak brought out the functions of these routes besides trade. She noted,

[The routes were used] To wield, to maneuver, to navigate, to dialogue, to partake, yes to
partake of the mountains, yet never to confront them was the way of these settlers. The
routes had different connotations for each of the groups that encountered them. They
became the public sphere in which they were interpreted and re-interpreted to play
significant and varied roles in the history of the region and that of larger nations (Kak,
2004)

Here the concept of ‘Public Sphere’ ought to be understood in a broader sense than its

Westphalian/nationalist conception (Fraser, 2005). That borders were fluid regions, with

identities of their own, and a great degree of interdependence on both sides have been

observed by various colonial travelers and ethnographers (Manning, Edgar, Das, Rawat et

al). For centuries these borders were manned by the interlocution between the border

communities to foster fraternity and the creation of a living space through the intertwined

activities of commerce, religion and culture. If ‘Associationalism’ is one of the major

features of public sphere (Hauser, 1998) (Fraser, 2005), then the cross-cultural

associationalism across the Indo-Tibetan borders testify that the trade routes not only

37
According to one trader, Mr. Mishra, “Almost 90 per cent of the families moved out” (Wangchuk, 2006;
p. 34).

75
economically integrated these communities, but also through the spread of a common

faith, cultural exchanges and similar environmental conditions brought these

communities together into a discursive space that spawned across political spaces.

Monasteries acted as seats of religio-cultural discursive spaces; for instance, the Gossains

(Hindu pilgrims), who were highly revered trading pilgrims took distant pilgrimages and

their accounts of unknown countries and fascinating cultures were a major source of

information and knowledge for the Tibetan monasteries, where they were not only given

ready admittance but were also endowed with great favours. Another such group of

travelers, in the British period were the ‘scholars’. Their interest was fired by Alexander

Csoma De Koros, a Hungarian philologist, and the journey of Babu Sarat Chandra Bose

who returned to Calcutta with a yak load of books about the ancient Bon faith of the

Tibetans in the year 1874 through the Nathu la route. The interest in Tibetan Buddhism

and culture, that remained for centuries in the domain of the monastic milieu, over due

course of time, became a field of enquiry in itself, and ‘Tibetology’ evolved. 38

The trade routes also gave rise to various interest groups and associational actors who

advocated their demands to the local and central authorities through conventions,

memorandums and appeals. Thus, it was common for a Tibetan Association in Sikkim or

in Lhasa to forward their appeals regarding issues as diverge as trade concessions, rest

house facilities or pasturage to the higher authorities. Many informal networks that

spread across regions provided information on diverse subjects such as political

occurrences, new supply chains, demands in new markets, local conditions etc. These

38
Alexander Csoma De Koros (1784-1842), is regarded as the founder of the studies in Tibetan history,
religion, politics, language and art- or Tibetology. He was the author of the first Tibetan-English Dictionary
(Sakya, 1999).

76
non-institutional frameworks played a prominent role in the dissemination of information

that was required for the smooth functioning of trade related activities. Thus, the entire

network of trade routes, across Tibet, Bengal and the Himalayan states became a hub of

activities and intercourse that fostered not only the traditional communities and their

cultures but also brought them closer to the gates of modernity.

2.5.4 Cross-Border Trade and Regional Development

Cross-border trade for most part of the nineteenth century did not account for much. J. W.

Edgar, in his report of 1873, mentions that traders from Tibet came down with family and

herds of yak to trade in coarse blankets, milk products etc. and like wise traders went

from Sikkim and Darjeeling with their products to the villages in Chumbi Valley [Tibet].

Gangtok, which later became the capital of Sikkim, was not an important trading center

till then. The trade of Tibet was mainly carried through Nepal and Ladakh, by Kashmiri

and Nepalese traders. Only after formalization of trade in 1890 and 1893, did Indo-

Tibetan trade become a well-developed trading network through the passes of Sikkim.

Kalimpong and Darjeeling had already emerged as two important trading centers by the

beginning of the twentieth century. As physical infrastructure, including roads and

bridges, developed under British patronage, and as trade relations took concrete shape

with the building of trade marts along the Darjeeling-Lhasa route in Yatung and Gyantse,

trading activities along the route became pronounced and sustainable from the early years

of the twentieth century. The emergence of Gangtok as a trading center, through the route

via Nathu la fostered development in Sikkim. The population growth of Sikkim from

77
1901 to 1951 has also been the most among the Himalayan state; from a population of

30,458 (available only for 1891) it grew to 137, 725 in 1951- a growth rate of 352 per

cent in the five decades (Karan, 1987). This could largely be attributed to the emigration

of Nepalese and other non-Sikkimese population into Sikkim. Trade and allied activities

provided sustainable livelihoods to porters and muleteers and the traders and

entrepreneurs of that time. To improve the physical conditions of Sikkim, the

Government of India maintained the roads and archival records show that a ‘Kalimpong

road-Gangtok railway connaissance survey’ was carried out in 1919.

The traders’ accounts also show that Kalimpong and Gangtok together accounted for

most of the wool imports from Tibet. This gave rise to a flourishing business in

Kalimpong where the wool was stocked and sent to Bombay, Calcutta and other cities in

India. Many bazaars and roads where hectic activities of trade carried unabated came up

during the 1940s and 1950s. Thus, Gangtok and Kalimpong together became the major

centers of trade around which many activities took place. These centers of growth

brought about, almost spontaneously, the economic development of the entire East

Himalayan regions and also of Bengal from where the commodities of the plains were

procured for trade in Tibet.

78
 3. THE REOPENING OF NATHU LA: A FIELD STUDY

3.1 Introduction:

In the 1990s three notable agreements were ratified by India and China regarding their

border that have encouraged the thawing of bilateral relations in the post-Cold War era;

a) Memorandum on the Resumption of Border Trade, 1991;

b) Agreement on the Maintenance of Peace and Tranquility along the Line of

Actual Control in the India-China Border Areas, 1993; and,

c) Agreement on Confidence Building Measures in the Military Field along the

Line of Actual Control in the India-China Border Areas, 1996 (Singh, 1998)

(Singh, 2005).

While the second two Agreements are regarded as Confidence and Security Building

Measures (CSBMs), relating to mutual security, the first Agreement on the resumption of

border trade, marks a watershed development in Sino-Indian bilateral relations. Both the

countries agreed to open their borders for trade, after three decades of protracted impasse,

through Lipulekh in Uttarakhand (erstwhile Uttar Pradesh). A Protocol on Entry and Exit

Procedures for Border Trades was signed on 1 July, 1992 and a second one was signed

in Beijing on 7 September, 1993 between the two governments for extension of border

trade across Shipki la in Himachal Pradesh. Since then their negotiations on border trade

had come to a virtual halt and only after ten years a Memorandum on Expanding Border

Trade was signed on 22 June, 2003 to open their third border trade route through Nathu

la, in Sikkim.

Given the fact that boundary dispute has been one most decisive factor defining the

nature of Sino-Indian ties, their border trade has been one most politically driven. But this

79
also makes their border trade as one that promises to have a critical impact on their

political visions. It is also an area that remains open to bold initiatives and

transformation, one that would have to take stock of the prospects and challenges of

market forces and their mutual political perceptions. Thus, the following is an exploratory

study that attempts to understand this phenomenon of cross-border trade across Nathu la

in Sikkim. It attempts to understand the stakeholders involved in cross-border trade;

examine the direction, volume and scope of trade; and to understand the modalities of

such trade exchanges and practices. This would help in locating the relevance of cross-

border trade in the broader domain of regional cooperation.

3.1.2 The Nathu la Trade Route: Its Reopening

The reopening of the Nathu la trade route over the other historic route, Jelep la, has been

a long drawn process of geo-strategic, politico-economic and bilateral negotiations. The

abrupt closure of the twin passes in 1962, ensuing non-renewal of the Panchsheel

Agreement, meant a serious loss of livelihood for many people of Sikkim and the

adjoining district of Darjeeling. A large number of business houses collapsed overnight

and traders do recall to have lost their properties and bank accounts. 39 For many others,

family ties were severed, and as a prominent official from North Sikkim district recalls,

the Tibetans who came down annually in the summers with their herds of yak for

pasturage had to stay back as fences were put up and land mines planted all along the

frontier overnight. The Sikkim Government not only had to face sharp erosion in revenue

base but also had to cope with a large number of economically displaced people from

39
Mr. Mundra, 55, a business man from Gangtok recalls that much of their property was lost in Yatung and
Phari in Tibet, where they had extensive business links. Moreover, as their investments were sunk in Tibet,
they had to pay off their bank loans by selling their godowns.

80
various sets of activities along the Nathu la and Jelep la trade. 40 Moreover, the border

skirmishes along the Nathu la frontier in 1967, and the non-recognition of Sikkim’s

merger with India by China in 1975 halted all bilateral ties.

However, India and China revitalized their bilateral relations through CSBMs and other

instruments beginning in the late 1980s that became more pronounced in the early

1990s. 41 The 1991 Memorandum on Resumption of Border Trade was viewed by the

state of Sikkim as an opportunity to bring the issue of the reopening of Nathu la to the

Central Government’s notice. After many political fallouts, the issue was raised during

Prime Minister Atal Behari Vajpayee’s visit to Sikkim by the Chief Minister of Sikkim,

Pawan Kumar Chambling in 2003. The MoU on the reopening of Nathu la on 22 June,

2003 was thus seen as the most important achievement of the Prime Minister’s visit to

China that year (Singh and Gancheng, 2003).

The reopening of the route had the following political and socio-economic connotations;

1) Some commentators believed that China finally recognized Indian sovereignty

over Sikkim, since its merger with India in 1975. Although, many saw it as a

diplomatic necessity and China’s focus on its ‘Western Development Strategy’.

(Hasan, 2003) (Bhattacharya, 2003).

2) For the state of Sikkim, it appeared to open up its historic links with Tibet, albeit,

in a restricted manner. It also meant that Sikkim’s economy had opened up to

newer prospects and challenges that trade brought.

40
A Report headed by the then District Officer, R. B. Mukhia, was submitted to the Government of Sikkim
on the economic impact of the closure of the border trade between Tibet and Sikkim. However, this Report
could not be traced.
41
The then Prime Minister, Rajiv Gandhi’s visit to China in 1988, and Chinese President, Deng Xioping’s
advocacy of a comprehensive zhoubian zhengche (periphery policy), must be viewed in the broader light of
the changing international realities in the post-Cold War era.

81
 Map 1: Gangtok-Lhasa Trade Route via Nathu la

Source: Lama, Mahendra P, Sikkim-Tibet Trade via Nathu la : A Policy Study on

Prospects, Opportunities and Requisite Preparedness, prepared by Nathu la Trade
Study Group for the Government of Sikkim, August 2005.

82
3.2 Cross-border Trade through Nathu la

The Memorandum on Expanding Border Trade, 2003 designated Changgu in Sikkim

as the border trade mart on the Indian side (although it has been shifted upto

Sherathang) and Renqinggang in Tibet Autonomous Region on the Chinese side

(Article I). Nathu la, which would be used as the pass for entry and exit of traders,

will come under the purview of all the relevant provisions under the Memorandum of

1991, and the Protocol on Entry and Exit Procedures of 1992 (Article II and III).

Cross-border trade across Nathu la began on the 6th of July, 2006.

3.2.1 Nathu la Route:

Nathu la (literally, pass of the listening ear), 14140 ft (4310 m), lie in the Chola mountain

range of the Sikkim ‘amphitheater’, that separates Sikkim from Tibet and Bhutan in the

east. In winter, the pass is blocked due to heavy snowfall (data from BRO show an

average of 3600 mm of snowfall between September and May). There are no permanent

human settlements in the region, although defence personnel man the border on both

sides. A small number of nomadic Tibetan graziers or Dokpas herd yak, sheep and pashm

goats in the region and the nearby hamlets in Changgu.

From the capital town of Gangtok, Nathu la is 50.6 kms by road. Since road conditions

are vital for cross-border trade, it has been accorded a high priority in the overall

infrastructure development plan. 42 The road in the Gangtok-Nathu la stretch was built in

the late 1960s and was developed to district road specifications in the 1970s; the present

42
A Feasibility Report on the road conditions was submitted by Archtech Consultants Pvt. Ltd. Of India
and Halcrow Group Ltd. Of UK on behalf of the Sikkim Industrial Development and Investment Corp
(SIDICO) to the State Government in 2004, that surveyed the present road condition along the National
Highway 31A and the road to Nathula from Gangtok, and future improvements required on account of
trade.

83
formation width along this stretch is between 6.10 to 5 metres and entirely black topped.

The gradient of the road in this stretch is gentle to steep in most parts, rising from 1800

metres in Gangtok to 4130 metres in Nathu la, which makes its upgradation into a

doubled-laned road technologically challenging (most of the stretch is single laned). The

carrying capacity of the road at present is 8 metric tonne, however, the Director of the

Ministry of Commerce and Industries believed that this would be upgraded to 10 metric

tonne in the near future. About 90 per cent of the road passes through forest area, with

siking areas and landslides recorded in the monsoon months. The improvement and

upgradation of the Gangtok-Nathu la stretch into the proposed double-laned national

highway standard road could affect a lot of private and public properties that are situated

within the right of way (ROW). The cost of rehablitation and resettlment is estimated to

be Rs. 2.78 crores. 43 The road is at present maintained by Border Roads Organisation

(BRO).

43
Compiled from the Final Feasibility Report for all three Segments, by Archtech Pvt. Ltd. of India and
Halcrow Group Ltd. of UK on behalf of SIDICO, 2004.

84
3.2.2 Trade Mart at Sherathang:

Sherathang, which is identified as the trade mart, is 4 kms before reaching Nathu la

border. Certain specifications in terms of operations in the trade mart were put in place

before it opened to public trade on the 6th of July, 2006 (Department of Commerce and

Industries, Govt. of Sikkim, 2006);

i) The trade marts shall be open from 1st of June to 30th of September every year

[this has been later revised to, 1st May to 30th November every year, beginning

2007].

ii) Border trade marts will be open from Monday to Thursday every week – four

days in a week and from morning 7.30 am to afternoon 3.30 pm Indian

Standard Time (IST) or 10 am to 6 pm Beijing time.

The Sherathang trade mart has a built up area of 9.50 acres in a relative flatland adjacent

to a lake called the Manju Lake. The mart houses the following facilities; The Customs

Post, Immigration Post, Indo Tibetan Border Police (ITBP), BSNL telephone exchange, a

post each of the Power Department and Ministry of Industries and Commerce, a State

Bank of India (SBI) sub-branch*, Post Office, a post for the Animal Husbandry and

Quarantine Department*, an Internet café* (the world’s highest!), a Medical facility,

Warehouses*, parking facility and the shopping centre with 12 stalls. 44

The shopping units are ordinarily for display of exportable and importable items, out of

which ten stalls are allotted to the Indian traders and two stalls to the Tibetan/Chinese

traders. Few of these stalls were still not occupied.

44
The (*) mark represents that these facilities were still non-functional at the time of the field visits, in
June, 2007.

85
The Land Customs Station (LCS) in Sherathang is in its initial stages without many

amenities or mechanization, involving x-ray machines or computerization of records.

The security aspect of the trading operations is overseen by a number of intelligence

agencies like the Military Intelligence (MI), Intelligence Bureau (IB) and the Research

and Analysis Wing (RAW) from federal intelligence. The frontier police force, ITBP, is

involved with the policing concerns of the trading operations. As an Intelligence official

stated, the involvement of the intelligence agencies are to prevent;

a) Espionage or Spies; infiltration/intrusion through the mart;

b) Arms trafficking; Drugs and Chemical weapons trafficking,

c) Fake currency,

d) Sleeping informants; dead-dropping, say, a case of sensitive information being

transferred in a pen-drive or floppy disc put into a thermos flask.

The Animal Husbandry and Quarantine Department is stationed to issue certificates

regarding trade in livestock or their products like wool, tails and ascertaining whether

they are fumigated or sanitary. However, currently the samples are sent to Calcutta for

tests and the process could take up to two weeks.

The current infrastructure in place is admitted to be a ‘stop-gap arrangement’ and the

Sikkim government, in one of its reports states that it has submitted a detailed plan to the

Union Government regarding development of the Trade Mart, at an estimated cost of Rs.

230 crores, to be incurred in a phased manner by 2012.

86
3.2.3 Traders and Traders Movement:

The cross-border trade is at present open only to citizens of Sikkim state, for a period of

five years from the date of re-opening of trade in 2006, after which it would be reviewed.

This follows the definition given by the Ministry of Commerce and Industry regarding

Border Trade, “Border trade is overland trade and exchange of commodities by the

residents along the border”. 45

The office of the District Magistrate is invested with the authority to screen and issue

passes to the traders. The requirements for a trade pass are the following;

1) COI/ SSC/ Citizenship document/ R.C. (any one)

2) Voters Identity Card

3) Birth Certificate/ SSC (for birth proof)

4) Trade License (Complete)

5) 4 Nos. P.P. photographs

Table 1: Details of Trade Passes and Trader Movements

Particulars 2006 2007 (Until June)

Applications for Trade Pass 2100 400

Trade Passes Issued 570 45

Traders visiting Renqinggang mart regularly 25 -

Traders visiting once or twice (June-Sep) 353 -

Source: District Magistrate’s Office, East Sikkim District, Sikkim.

45
Press release, dated 26 July, 2006. http://commerce.nic.in/pressrelease/pressrelease_detail.asp?id=10

87
For the first season of trading in 2006, there was a limit of Rs. 25000 on Indian traders

per transaction. This had been raised to Rs. 1 lakh for the season 2007 onwards, by a

directive from the DGFT. Another point of contention was the Import-Export Code (IEC,

essential for engaging in foreign trade), for which a PAN card is necessary. However,

Sikkimese residents are exempt from paying income tax, which complicated the issue.

Thus, for the initial month of July, 2006 not many Sikkimese traders could engage in

trade and the requirement was subsequently waived.

Traders’ Accounts: As trade picked up by September, 2006 in the first season of

trade, as many as 80 Indian traders per day crossed over to Renqinggang mart in Tibet.

As many as 92 Chinese traders per day crossed over to Sherathang mart during the same

period. However, the movement of traders in May, 2007 was very low; on an average

only 6 traders crossed from the Indian side and 16 traders from the Chinese side. This is

mainly due to the late announcement in Sikkim that the trading season would begin

earlier in May rather than June.

Traders state that the reopening has been as much about trade as about building networks,

both formal and informal. The researcher, during the field visit in June, 2007 observed

that the reopening of the border also reunited families and relatives who were affected by

the closure of the pass in 1962. On 6th June, 2007, Nishe Thomo, 65, from Darjeeling in

India, met with her sister, Yixi Guomo, 67, Shigatse in TAR, and broke bread after 45

years (preparing a dish called chamba, eaten in Sikkim and Chumbi region). As a military

official observed, one tends to think of the partition of India in 1947 as generating such

societal loss, but “the effect of the closure of the Indo-Tibetan border had an equally

damaging effect”.

88
The traders are working to regain the lost networks of trade. A trader stated that his few

visits to the Chinese mart in the 2006 season had been basically to find wholesalers or

traders who were inclined on high-scale trade on a sustainable basis. 46 He recounts that

he met with a lady whose father was the landlord of the shop that his elder brother hired

in Yatung, TAR, prior to 1962. He admitted that currently trade is minimal and many

traders are running at a loss, however, the main reason for going to the Chinese side has

been to gauge the demand and production conditions in Tibet. During September, 2006

he had bought a consignment of 150 kgs of wool from a trader in Tibet as a sample at Rs.

100 per kg. He took a sample to Ludhiana where a woolen goods manufacturing factory

liked the quality but were willing to pay only Rs. 80 per kg. He did not sell the wool and

it remained at his house. These trials and misses would continue for sometime until the

networks of production, demand and distribution are established. He felt that the trade is

bound to increase manifolds once the process is normalized.

On another occasion, he enquired about the production of Assamese silk, muga pat. He

had come to know that Assamese silk is of great demand in Lhasa and other parts of

TAR, however, the trade in Assamese silk is carried on by Nepalese traders via

Kathmandu (which boasts of a far more open trade with TAR). He felt that the

restrictions on tradable items need to go and so does the limit on trade. The traders met

up with the Union Commerce Minister for State, Mr. Jairam Ramesh and appraised the

46
Mr. D. P. Mundra, 55, is the Vice President of the Indo-China Trading Association in Sikkim. The
researcher carried on extensive rounds of interview with him, accompanying him to the Sherathang mart,
from where he carried on towards Renqinggang mart in TAR. Mr. Mundra is a businessman in Gangtok,
with businesses in garments and footwear. His is a third generation business in Gangtok, and his father had
extensive trade networks in Yatung and Phari in Tibet prior to 1962. Interviews conducted through 28th
May to 3rd June.

89
trade conditions after which the limit on consignment was increased to Rs. 1 lakh and the

trading period was extended.

He provided a good sketch of the trade at the Renqinggang mart. Once a trader crossed

over, information from the Chinese immigration post at Nathu la is sent to the

Renqinggang mart about the number of vehicles en route. An official is designated to act

as an usher and also remind the traders about the time to leave. The mart is located about

17 kms from Nathu la and is much larger than Sherathang. The road towards the mart is

double-laned and the facilities at the Mart are in a more developed condition. A shop is

given to three Indian traders and counters are provided for display of goods. A volunteer

is also there who can sell the goods in the absence of the traders. Trading is currently

done in Chinese currency, Yuan (1 ¥ = Rs. 6). The Bank of China branch had not become

operational, however, once it becomes operational the Yuan could be converted into US

$. The limit on the Chinese traders, at present is ¥ 3000 per consignment which is much

lower than the Rs. 1 lakh limit on the Indian trader. There is a duty beyond the purchase

of ¥ 3000 per consignment. An Indian trader can also spend the night in Reqinggang mart

unlike a trader from Tibet who had to leave the same day.

Focused Group Discussion with Tibetan Traders: The FGD was carried with a set

of Tibetan and Chinese traders, who had come down to Sherathang for trade on the 7th of

June, 2007. The main aim was to learn about their expectations and opinions on

‘improving the cross-border trade’. The interpreter in the FGD was a customs official

who knew how to speak Tibetan. Amongst the traders was also a Chinese trader who did

not understand Tibetan and the discussion had to be further translated. Although cross-

border trade had just started, the exercise was to get an understanding of the scope of

90
trade. The following question schedule proved helpful in moving from one opinion set to

the other;

• How often did they trade?

• Commodities that they traded.

• Goods that were demanded but not on the list.

• How did they rate the infrastructure and conditions for trade?

• Expectations from cross-border trade.

The Discussion:

The following were the participants in the discussion;

Name Sex City/Town Age

Yuzhen F Shigatze 47

Louzhen F Shigatze 52

Basang Lamu F Shigatze 26

Basang M Shigatze 24

Ying Wu Gao M Shigatze 25 (Chinese trader)

Mimah M Yatung 42

Interpreter: Sonam Gyatso, Customs Inspector.

The discussion was carried in the waiting room of the Customs post. The participants had

come from Shigatze, a town in the Xigaze Prefecture, around 250 kms from Nathu la.

They were freshening up with tea and snacks. The time was around 11.30 am.

• While it was the first time for one trader, the others had visited the Sherathang

mart before. The frequency varied from regular to occasional visits in a month.

91
• One trader was a supplier of yak tails and wool to the Nepalese merchants who

visited Yatung and Phari. However, not everybody engaged in trade. One of the

traders owned a grocery shop and bought most of the goods of Chinese

manufacture; she was looking to buy some Indian rice and other provisions like

noodles, oil etc. Another trader was interested to trade in Chinese goods like

electronic items, footwear and clothing. All the items that they got, like religious

curios, beads and cutlery items, which were not in the trade list were detained by

the Customs official and would be returned to the traders on their way back.

• The traders agreed on the fact that all the items that they wanted to trade in or the

items that were demanded from Tibet/China were not on the list. Wool was the

only commodity that the traders could trade in. One trader who supplied yak tails

said that this was the only commodity, other than wool, that had some demand.

He had sold a consignment worth Rs. 48,000 of Yak tails in the last season to an

Indian trader in installments. The other goods that they could export were

religious items, and other high value religious curios; household items like

cutlery, thermos flask, stationery items; electronic goods; clothing items and

leather products. They agreed that trade should be made free and did not mind

paying a small duty on the exports. One trader was ready to ‘export even cars and

motorbikes if the list expanded’. From the Indian side, they wanted to import

necessary items and better quality provisions like canned products, sauces etc;

medicines and pharmaceutical products; cotton yarn and any other item that a

demand arose for.

92
 • They were satisfied with the trade mart facilities in Sherathang. However, few of

them felt that unlike in Renqinggang, where Chinese tourists came in great

numbers to buy goods and see the items on display, en route Nathu la, they did

not notice many Indian tourists or people who came to visit the mart. One trader

said that the Indian Customs officials were strict and did not allow anything to be

brought to the mart that was not in the list of tradable items. They also expected

the opening of a cafeteria and a rest house in the near future.

• The expectations of the traders varied regarding border trade. Few of the traders

came from rural areas near the border and their interest was to procure items from

India and sell it in their local markets, while also selling a few of their local

products. One trader however expected the cross-border trade to grow into an

international trade between China and India in the near future. He wanted to study

the demand in the Indian market for Chinese goods. However, all the traders were

excited when they had come to know the border was reopening as they had heard

of accounts of a flourishing trade between Tibet and India ‘back in the days’.

Their main objection was on the list of tradable items which they considered as

old and not reflecting the needs of the border areas. One trader was of the opinion

that a ‘local trading list’ must be made keeping in account the local needs and

demands.

It was observed that there was heterogeneity in the participant set. Women traders from

Tibet were as involved in trading activities as the men. It was also observed that the rural

background of the traders also meant that these traders were uneducated, and only one

93
trader had formal education up till class 8. Few of them were small traders who came

with Chinese goods that were not in the list of items. These items were detained by the

customs, and when told about the list, the traders would respond that the Chinese officials

had no problem with it.

Another observation regarding import of Chinese items was made. There was no import

from China in May, 2007. Although, on an average around 16 traders crossed over to

India, they all bought goods from the Indian counterparts as they could not sell anything

that was on the list. The demand for wool would only arise in the later months and no

other commodity on the list was demanded by the Indian traders. Thus, the list of items

played a crucial role in the extent and volume of cross-border trade [However, they did

sell some items that they ‘slipped in’ along with their personal goods; like selling a

leather jacket that one trader wore to the mart].

Lastly, quite a few of the traders were interested in building trade networks with local

Indian traders. There was agreement that trade would improve in the subsequent years but

the traders had to build networks based on trust and sustainability. They expected to gain

from the early mover advantage by moving into trade now, although at a minimal level.

The scope for improvement of trade in the subsequent years depended upon the

understanding of the markets at the present juncture.

94
3.2.4 Trade Pattern and Composition:

In the trading season 2006, three Tibetan traders sold raw wool worth Rs. 5 lakhs in

September to various Indian traders in many installments, as the daily limit per

consignment was placed at Rs. 25,000. This remained the biggest consignment in imports

from Tibet during the season. The following is the trade composition for the season

ending 30th of September, 2006;

Table 2: Statement showing Import and Export along with the name of the

Commodity from Sherathang L.C.S. for the period 06.07.06 to 30.12.06

Month Export Import

Commodity Quantity Amount Commodity Quantity Amount

(in Rs.) (in Rs.)
July -N.B. Rice 4020 kgs 115710 - Raw wool 198 kgs 29250
-Flour 630 kgs 8150

August -N.B. Rice 3840 kgs 153600 - Raw wool - -

-Blankets 247 nos. 36000 - Yak tails 7 nos. 5600
-Canned food 5 cartons 28890
Sept. -N.B. Rice 6225 kgs 249000 - Raw wool 11610 kg 1024450
-Blankets 250 nos 48000 - Yak tails 53 nos. 42400
-Canned food 7 cartons 32500
-Oils & Spills 110 kgs 15500
Total 687285 Total 1107700
Source: Office of the Superintendent of Customs, Sherathang L.C.S., Yearly Records of

Cross-Border Trade through Nathu la, 2006.

95
Almost all the imports in 2006 were raw wool. Whereas, three quarters of the exports

were non-Basmati rice. The overwhelming composition of these two items in the exports

and imports suggest that a high demand exist for these two traditional items, with or

without the restrictions in the list of tradable items put in place. One Indian trader 47

explains that the margin on rice is high as Tibetans prefer the rice from the plains of

India. He gets the stock from Siliguri in North Bengal, and puts it in packages of 5 or 10

kgs and sells it at the rate of Rs. 40 per kg. In the month of May, 2007 he already did

brisk business of around Rs. 2 lakhs.

The traders in Sikkim have traditionally been importers of raw wool during the pre-1962

period. From Gangtok, they would send it to Kalimpong which was the main wool center.

However, due to the limitations in place in the current trade scenario, the traders could

not exploit any economies of large scale trade. As one trader notes 48 , ‘the trade in wool

has largely been speculative with a view to establish business relations, and was not

profitable with the limits on consignment [Rs. 25000 per consignment]’.

The pattern of trade in the early months of May and June in 2007 has remained relatively

similar to trade in 2006; however there were no recorded imports from Tibet. As a trader

asserts that for trade to improve, the list of items has to be in relation to the local

demands and production. A Tibetan trader satirically comments that he hoped the people

who prepared the list of items has seen Borax, or Szaibelyite (a kind of mineral), because

he had not.

47
Anil Kumar Gupta, 44, was one of the leading traders in 2006 and already has a market for his ‘brand’ of
rice, Taj Mahal, amongst Tibetan traders. Interview conducted on 6th of June 2007.
48
Uttam Gurung, 35, is a trader from West Sikkim district. He was one of the traders who bought a large
consignment of raw wool to sell in Kathmandu, Nepal. Interview conducted on 3rd of June 2007.

96
 Table 3: The Director General of Foreign Trade, India, Public Notice: In terms

of the provisions contained in the Foreign Trade Policy, import/export of the following

locally produced commodities by the people living along both sides of the Indo – China

border as per the prevailing customary practice will be allowed freely : 49

Export Items Import Items

1. Agricultural implements 1. Wool

2. Blankets 2. Goat Cashmere (Pasham)
3. Copper Products 3. Goat Skins
4. Clothes 4. Sheep Skins
5. Textiles 5. Yak Tails
6. Cycles 6. Goats
7. Coffee 7. Sheep
8. Tea 8. Yak Hair
9. Barley 9. Horses
10. Rice 10. Salt
11. Flour 11. Borax
12. Dry Fruit 12. Szaibelyite
13. Dry and fresh vegetables 13. China Clay
14. Vegetable Oil 14. Butter
15. Gur and Misri 15. Silk
16. Tobacco
17. Snuff
18. Cigarettes
19. Canned Food
20. Agro Chemical
21. Local herbs
22. Dyes
23. Spices
24. Watches
25. Shoes
26. Kerosene Oil
27. Stationery
28. Utensils
29. Wheat (Ua & Buck).

49
Government of India, Ministry of Commerce and Industries, Department of Commerce, PUBLIC
NOTICE NO. 20 (RE-2006)/2004-2009, 13th of June, 2006.

97
3.2.5 Role of the State and Union Government:

Officially, cross-border trade comes under the purview of the Ministry of Commerce and

Industries and the Ministry of External Affairs. Thus, the regulations and operations of

cross-border trade is a Union Government affair. This is, as such, no different from

international trade conducted through sea-ports or airports, however, there remain critical

differences. The agencies of both the ministries are listed below:

Table 4: Union Ministries in Nathu la Trade

Ministry of External Affairs Ministry of Commerce and Industries

Army and ITBP Director General of Foreign Trade (DGFT)
Intelligence Agencies (RAW, IB, MI) Dept. of Commerce and Industries (State
Govt.)
Customs/Immigration Director, Dept. of Commerce and
Industries (Gangtok)

Customs Provisions:

The Gangtok Customs Preventive Unit supervises the customs related aspects of the

trading operation. It sends its officials to the Sherathang post during the trading season.

They maintain records of the quantity and price lists of the goods passing through either

side and also supervise the commodities traded.

Foreign trade either through sea-port or airport, are carried on through a Letter of Credit

(LoC). Here, the exporter makes a demand order through a trade agent to prospective

importers from a foreign country. The importer if after settling on a price gives his

consent, the exporter submits a LoC to the bank, and the importer invoices the goods.

Here, the Customs check the order and give a clearance certificate and the exporter

98
receives the goods. The bank is intimated and the transaction is completed by crediting

the importer with the amount. This is also supposed to be the mode of operation through

Land Customs Station (LCS). However, in the special case of cross-border trade, like the

border marts at Sherathang, the operation is a free flow of goods and people up to a

certain designated area, where the marts are situated, and they can either sell their

consignments in whole to an importer or display it in the mart for buyers to come and see.

The exchange is supposed to be done in US$, but due to the nature of trade now, it is

usually barter or in the local currencies (the rate of exchange is, 1 ¥ = Rs. 6). The

exchange modalities also state that goods can be exchanged in freely convertible

currencies which would be possible once the banks on both the trade marts start to

become operational.

On the issue of informal trade the Customs officials assert that there is very minimal to

no informal trade through the trading point. Three possible reasons emerge;

i) Due to the topographical difficulties- as other border regions are open and in

plains the possibility of informal trade is high, however, since Nathu la is

situated at a much higher plane that possibility seems less.

ii) The pass being heavily manned not only by customs officials but also the

army, ITBP and Intelligence agencies means ‘there are hundred eyes on the

traders’.

iii) The volume of trade being low means that the consignments are well checked

to conform to the norms.

99
However, as the researcher observed, informal trade does occur that are not recorded by

the Customs. These are mainly items such as household goods, clothing and provisions

which are not on the list. The existence of this informal trade, however, cannot be much.

The State Government of Sikkim plays an executive role in the conduct of cross-border

trade through Nathu la. It sends proposals and measures to the Government of India that

it thinks would improve the operations of cross-border trade. The Union Ministry

concerned passes the decisions that are implemented by the Sikkim Government. For

instance, the proposal to increase the limit on consignment from Rs. 25000 to Rs. 1 lakh

was passed by the Ministry of Commerce and Industries after consultation with the

Sikkim Government.

The development of infrastructure at the Sherathang mart was undertaken by the Sikkim

Government with financial assistance from the Department of Commerce. The

Government of India provided a total amount of Rs. 18.88 crore to the Government of

Sikkim for the development of infrastructure at Nathu la during the year 2006-07, out of

which Department of Commerce provided Rs. 2.16 crore. Similarly, Ministry of Home

Affairs and DONER (Ministry of Development of North Eastern Region) have also

provided Rs. 7.74 crore and Rs. 9.08 crore respectively for the development of

infrastructure at Nathu la

Thus the role of the Sikkim Government is to facilitate and act as an advisor to the

Government of India on the prevalent issues concerning cross-border trade through Nathu

la. A proposal has been sent by the State Government on the establishment of an ‘Export-

Import Trade Centre’ in Gangtok, to enhance and coordinate trading activities. According

to the Director, Department of Commerce and Industries (Sikkim Government), the

100
facilities such as weights and measures, warehouses, inspection posts etc., if established

would improve the conditions of trade by making Gangtok an entrepot for trade.

However, the State government is unable to carry forward any concrete steps towards

improving trade, as it is dependent on the Centre for finances as well as the passing of

proposals. As the decision-making powers lie with the Union Ministries concerned, the

State Government, although more aware of the local issues, has to wait for a considerable

time before it could intervene. This process of delay leads to encumbrance on trade

activities. For instance, during May, 2007 the traders complained of harassment by Army

officials and undue interference in trade activities, which does not fall in the Army’s

purview of functions. The State Government raised the issue with the Ministry of

External Affairs and after a month’s delay, and calls for boycott by Trade Associations,

the Army maintained non-interference. It is expected that the Army will hand over the

function of border policing to the ITBP, who is specifically constituted for this function;

the Indian Army is required to retract thirty kilometers from the border but they still

maintain their vigil in and around Nathu la. According to Indian traders, there is no Army

interference in the trading route on the Chinese side.

101
3.3 An Analysis of the Cross-Border Trade across Nathu la:

Besides the limited period of trading, a rather hostile topographical and climatic

condition, the trade has not really taken off due to certain other prevalent constraints.

There are also some important considerations to be made for the trade, which is expected

to grow immensely in the subsequent periods, to become a sustainable phenomenon.

Below is an analysis of the socio-economic conditions of the state, potential for trade and

the considerations that need to be made.

3.3.1 Sikkim’s Socio-Economic Profile:

Sikkim was a princely state with close links with Nepal, Bhutan, Tibet and India and as

such it could be likened to as the ‘Belgium of the Himalayas’, prior to its merger with

India in 1975. However, with the merger, Sikkim embraced democracy after more than

three centuries of theocratic monarchism. Along with the political absorption of Sikkim,

the merger also integrated the Sikkimese society and economy in a permanent way with

India.

The people of Sikkim comprise of the Nepali, Lepcha and Bhutia ethnic groups. Of

which the Lepcha-Bhutia combine forms the Scheduled Tribe population of the state.

According to the first census report in 1891 (Risley, 1972), the percentage of the Lepcha-

Bhutia combine was 35.1, but it came down to 22.8 in 1931 and 21.3 in 1951. In 1981,

the Scheduled Tribe population of Sikkim, which also included the naturalized Tibetan

population that migrated into various parts of Sikkim, increased to 23.3 per cent.

According to the 2001 census, they formed 20.6 per cent of the population. The in-

migration of Nepali speaking population increased throughout the last century and

102
currently forms more than three fourth of the population. There is also a considerable

population of plains people from Rajasthan, Bihar and Bengal who had migrated to

Sikkim since the turn of the twentieth century. They form part of the business community

and have assimilated with the rest of the people of the State.

According to the State Government statistics, literacy rate is 75 per cent, in 2005-06

(Government of Sikkim, 2007). Thus there is a large pool of literate population. The state

has taken other strides in the recent decades to emerge as a fast developing state.

However, a qualitative assessment of the livelihood patterns show that more than half of

the working population engage in Agriculture and allied activities. Other occupations

include self-employment and Government employment. Most of the people engaged in

business and commerce however, are from the non-ethnic community, like the Marwaris,

Biharis and Bengalis. The lack of entrepreneurial activities in the state is cited as one of

the reasons why Sikkim is classified as an industrially backward state (Ibid.). The often

attributed basic handicaps and constraints relate to inadequate infrastructure facilities like

power, roads and communication, lack of knowledge of the entrepreneur regarding

manufacturing activities, lack of raw material, inadequate land availability, and absence

of proper manpower. Logistically, poor marketing network, lack of enabling laws for

private investment by both foreign and domestic participants and serious technology,

credit and financial constraints are often seen as bottlenecks. These have built a negative

“perception” about Sikkim within the institutional investors.

However, Sikkim was declared the best state in the small state category for investment

climate by the India Today group of publications in 2005. Over the past couple of years,

the State Government has invited and organized Investment Forums in major cities as

103
well as Gangtok to attract private investments into the state. The Economic Survey of

Sikkim 2005-06, points out that out of the total investment of Rs. 4376 crore in the State

in 2005, almost 95 percent has been the government. A lion’s share of this investment has

been in micro and major Hydel Power Projects to harness the 8000 MW hydel potential

of the State. This natural advantage must be augmented by investments in human

resources, through setting up of higher Institutions of Excellence, and investments in

sectors like horticulture and floriculture where Sikkim has a clear advantage.

The per capita income of a Sikkimese is marginally higher than the average Indian. There

are more Sikkimese who can read and write than the corresponding Indian figure; lesser

babies die in Sikkim then the rest of India; more children have access to education

compared to rest of India. Sikkim is also the most peaceful State within India, with the

lowest incidence of murder, rape or violence. While Sikkim has been able to achieve

good social development, based on select indicators, its economy suffers from the

‘laggard syndrome’, and much of it needs to be corrected by the State Government

facilitating and providing the conditions for entrepreneurial activities through optimum

utilization of its resources (Government of Sikkim, 2005).

104
3.3.2 Trade and its Potential Benefits for Sikkim:

The present trade status has more symbolic values than any sort of economic impact in

Sikkim. The present list of tradable items does not carry any trading weight and

potentials. The ideal situation, as the Economic Survey of Sikkim points out, would be to

have this trade under the most favored nation (MFN) arrangement that India has signed

with China in 2006 (Government of Sikkim, 2006). However, to focus on the benefits

that it could accrue to the state of Sikkim the following two characteristics of trade must

be fulfilled;

Triadic Linkages: As the Chairman of the Nathu la Trade Study Group

(NTSG) asserts, the requirement for Sikkim at the current juncture is to build durable

production processes, based on utilizing its natural resources where it has a comparative

advantage, and linking it up with cross-border trade. 50 This “Triadic linkage”, between

resource base, production and trade, would ensure that cross-border trade ushers in

sustainable development to the people of the state. The resource base of Sikkim lies at a

level in its mountainous and alpine climatic conditions;

i) It has a huge potential in hydel power. The estimated capacity of Sikkim’s

hydel potential is about 8000MW. The NTSG report, recommends that at a

later stage of cross-border trade, Sikkim could trade in energy to the power

hungry regions of West China. Nearly 50 per cent of this hydel potential is

expected to be harnessed in the coming decade or so.

ii) The scope for achieving this “Triadic linkages” lie in the investment potential

of Small and Medium Enterprises (SMEs), who would be venture out, and due

50
Professor Mahendra P. Lama, head of the Nathu la Trade Study Group (NTSG). Interview conducted on
2nd of May, 2007.

105
 to their flexibility in operations, tap the natural resource base of Sikkim’s flora

and fauna. Through efficient production processes, the products would find an

emerging market in Tibet through cross-border trade. However, the State

needs to have special enabling laws and facilities in place that would augment

these enterprises. The Agro-processing sector in the State is already a

fledgling industry that has a huge potential both in terms of private

investments and market availability.

iii) Tourism is another potential sector that could emerge as a potential source of

sustainable development of Sikkim. Sikkim and Tibet together constitute an

unparalleled bio-diversity. Sikkim attracts nearly 3-4 lakhs of domestic and

international tourists every year. Tibet, after the Chinese Government’s

initiatives, attracts huge numbers of Chinese and international tourists. Since,

they form a geo-historical continuity, with deep religious linkages of Lamaist

Buddhism, the Nathu la route could be opened up for cross-border tourism.

However, till such time, the Sikkim Government must institutionalize

processes relating to tourism which are ecologically sustainable and

congruous with local systems.

The State Government must initiate the processes of deepening local production

structures with an outward orientation. One of the crucial bottlenecks is that of ‘factor

immobility’, in terms of labour, capital and technology within the country and within

regions such as Sikkim and other states of Northeast India. Factor immobility occurs

when resources such as labour, capital and technology cannot be moved to a newer

106
location, due to various economic and living conditions but mainly due to lower returns

to inputs.

Economies of Scale: One trader, responding to the question about the number

people he employed after he began trading, said that trade remained so minimal and the

restrictions in place so constricting that there was no scope of providing employment. He

could not even employ a driver, as a trading pass is required to cross the border. 51 An

assessment of the current situation shows that there is minimal gainful employment that

has been derived out of the trade activities. The forward and backward linkages of trade

activities would emerge only after the ‘economies of scale’ of trade begins to arise. Once

the size and volume of trading activities expand and the traders or firms begin to enjoy

better bargains in purchases or marketing the commodities, this would also lead to

forward linkages in terms of direct gains in activities like warehousing, transportation,

banking, packaging etc. and backward linkages like employment in road constructions,

hotels, fuel stations and markets for raw materials.

Trade could only be beneficial to Sikkim when these forward and backward linkages

emerge as a consequent to firms and traders enjoying economies of scale, through

expansion of trade activities and increase in the volume of trade. Moreover, both the

transaction costs and time should be competitive enough for both diversion and creation

of trade. At present, trade or even the state’s production mechanism does not exhibit any

forward or backward linkages which mean there are large diseconomies of scale that are

inherent in the production structures.

51
Uttam Gurung, 35, is a trader from West Sikkim. Interview conducted on 3rd of June, 2007.

107
Constraints to Trade:

What has emerged as the constraints to trade is partly due to the initial experience of

cross-border trade through Nathu la, and partly due to the mismatch of local expectations

and the broader Central policy towards its borders. A major reason for the reduction of

trade activities could also be attributed to changes in the Sikkim economy. Improvement

in connectivity and access to Indian markets in Siliguri, Calcutta and other parts of the

country have led to a considerable integration of the Sikkim economy, even of the rural

markets, with the Indian mainland. These developments over the past three decades have

contributed to a shift in the demand structure of the Sikkim economy away from the

traditional local goods, to modern market commodities. It would also be naïve to believe

that the Tibetan economy is still a market for traditional and religious/cultural goods

alone. Thus, localization of trade to the border communities (as given under the DGFT

notification), with the anachronistic belief that demand patterns have remained at inertia

is to restrict both the quantity and quality of the goods that can be traded and also to

create conditions for institutionalizing ‘informal trade’. However, out of the current

experience of trading the following constraints emerge;

i) List of tradable items: As most traders from Sikkim and TAR admitted,

the list of tradable items does not allow any significant level of trade

activities. The current levels of trade not only dissuades any meaningful

exchange of commodities, but it also fails to achieve the objective of opening

up cross-border trade, i.e., – ‘with a view to promote Indo-China border

trade’. The list of tradable items must be put to review every year, as the

108
 customary practices of trade have nearly died out due to the long hiatus in

Indo-China cross-border trade (Vasan, 2006).

ii) Infrastructural bottlenecks: The infrastructure in place in Sherathang

mart, the carrying capacity of the Gangtok-Nathu la road and the mechanisms

to regulate trade, in terms of customs, immigration and facilities at the mart,

are not conducive for large volume trade. Moreover, the social infrastructure

required for carrying trade, like conditions for entrepreneurial activities,

business networks through formal and informal institutions, professional work

ethics, are yet to be developed to bring about perceptible changes towards

voluminous trade. The physical and social infrastructure not only determines

the levels of trade but also establishes conditions for future growth.

iii) State-Centre relation: There remains a clear divide between what the State

Government expects out of the cross-border trade through Nathu la and what

the Central Government is ready to commit to. The State Government clearly

envisions a thriving trade which at a later point of time could materialize into

an International trade route, where Sikkim could emerge as the ‘Singapore of

Himalayas’ (Government of Sikkim, 2006). The Central Government on the

other hand, guided by macro politico-economic factors, is cautiously

threading along the concept of ‘local integration’. For instance, the Central

Government during the negotiations on the list of tradable items deliberately

restricted the imports list from China, with a fear that there would be dumping

of Chinese products in the market; not only is it a false alarm, but Chinese

goods are easily available through Nepal and Bangladesh in most Indian

109
 cities. The delay in time, from what the State proposes and the Centre

disposes, is another factor that has impeded the growth of trade. The proposal

to extend the season of trade from June-September to May-November was

passed by the Central Government only two weeks before trade began in

2007. These lacks of foresight have contributed in making the cross-border

trade a very minimal affair. The Union Government and the concerned

Ministries are important stakeholders in the cross-border trade through Nathu

la, and the development of trade becomes incumbent upon their proactive role.

Some of the decision-making powers could also be divested with the State

authorities, who are in a better position to understand the local issues relating

to trade.

There are also concerns regarding the environmental degradation and illegal activities of

bio-piracy and trade in illegal animal goods across the border if high-volume trade is

allowed. The capacity and nature of trade in the contemporary time will be unlike the pre-

1962 trade, where mules used to be the mode of transportation. The biggest challenge is

the destruction of the vegetation in the alpine regions which takes a long time in

regeneration. These development led concerns, including the building of hydel projects,

threats of global warming on the Sikkim glaciers and exploitation of the bio-resources in

Sikkim, must be handled with stringent regulatory mechanisms and a view towards

sustainability. The Central and the State Government needs to put these concerns as high

priority and work in tandem to augment development projects with the least possible

environmental degradation in an environmentally vulnerable Himalayan region.

110
 4. CONCLUSION

The Nathula Trade Study Group (NTSG), in 2005, reckoned two projections for trade

through Nathu la. According to the higher projection, trade will grow from Rs. 206 crore

in 2007 to Rs. 2,226 crore by 2010 and Rs. 12,203 crore by 2015; the lower projections

estimated trade flow to be Rs. 353 crore in 2010, Rs. 450 crore in 2015 and Rs. 574 crore

by 2020 (Government of Sikkim, 2005). These figures were projected by calculating

variables such as upgradation of road conditions to national highway status, free flow of

commodities and services, and requisite infrastructure building, thus highlighting the

immense potential of cross-border cooperation (Government of Sikkim, 2005; pp. 145-

208). Trade conditions in Sikkim do not show the likelihood of the trade flow growing to

any such projections. It has remained at a very nascent stage and due to certain prevalent

bottlenecks, conditions for trade continue to be ‘trade-averse’.

If we compare the Nathu la trade route with another Indo-China cross-border trade route,

Shipki la in Himachal Pradesh, which opened in 1993, there emerges some interesting

finds. There exists an extensive illegal trade across Shipki la as trade in the listed

commodities are seen to be unprofitable. Infact Vasan notes, “Another element of

illegality is that official estimates of trader movement and value of imports and exports

are a gross underestimate. Even legal traders carry commodities that are not declared at

the customs post, since legal trade in listed commodities is not particularly profitable”

(Vasan, 2005; 49). Trade in this route had hovered around Rs. 40 lakh a year for most

years since it reopened, with a high trade imbalance, on Indian trade. The restrictive list

of tradable items is cited as a major reason. However, the physical conditions of trade

111
also do not permit trade at even a medium-scale. Furthermore, the increasing integration

of the Kinnauri economy with the plains is also seen to distance the current generation of

traders away from Tibetan markets, as there are no incentives (Ibid.).

Taking another example of the Moreh-Tamu cross-border trade between India and

Myanmar provides a non India-China perspective to assess whether trade is more

sustainable in the other borders. This trade route opened in 1995 and although it initially

saw a high trade of Rs. 3.8 crore in 1997, the trend has been declining ever since. Thomas

notes, “Most of the 22 items listed in the agreement are found not suitable for exchange

by the exporters because of its non-availability. This has resulted in a heavy trade

imbalance with trade deficit in favour of India” (Thomas, 2000; p. 155). Due to many

trade and non-trade conditions, illegal and informal trade is rampant through this

corridor; standing at more than Rs. 2000 crore (Ibid.). The high incidence of illegal trade

suggests that many factors have institutionalized the illegal trade, including corruption at

the government level (Ibid.).

4.1 Need for a Comprehensive Border Regions Development Strategy

Unlike China, who initiated the West Development Strategy in 2000, covering all of its

border provinces, India does not seem to have a long term consideration regarding its

border regions, which happen to fall in the ‘blind spot’ of the Central policy makers. As

we have seen from the cases above, the cross-border trade phenomenon has met with

considerable negligence which resulted in most border points in the North east region

becoming the entrepots for illegal and informal trade, thus ‘institutionalizing illegal

trade’.

112
In India, seventeen states (out of 28) have international land borders. Particularly, the

Northeastern states have another unique geographical configuration with 98 per cent of

its borders shared with neighbouring Asian countries. 52 Most of these states in India have

shared some kind of a historical regional identity with the communities living on the

other side. This shared history could go a long way in creating local integration to take

care of certain development issues (Baruah, 2000). Furthermore, many of these borders

are very porous due to the terrain and the ethnic affinities of the population living on both

sides of the border. It is argued that instead of perceiving the borders as areas of threat

and security concern (due to the high incidences of smuggling, migration, drugs-arms-

human trafficking, insurgency activities), they could be seen as areas of high potential of

improving bilateral relations and other socio-economic advantages (Lama, 2004).

Thus, a re-interpretation towards a re-orientation of the border regions in the Union

policy not only becomes important in the increasing global-local context, but also

because the opportunity cost of not doing so, gets manifestly amplified (Bhattacharya and

De, 2005). A comprehensive Border Regions Development Strategy must be adopted by

the Central Government that would delineate Centre-State roles and functions; look at

border regions from particular genealogies but with an overarching central policy;

promote economic and infrastructure activities both within and with neighbouring

countries, thus, making the border regions economically effective through outward-

orientation; greater regulation of the frontiers so that illegal activities are stopped, as it

leads to greater social and economic unrest. The socio-economic gains from such a

proactive policy would be immense.

52
Government of India, 2000, Report of the Committee on Revitalization of the North Eastern Council,
DONER, p. 13.

113
4.2 India-China Relations and Tibet

India shares 3488 kms of its frontiers with China, which came by with the ascendancy of

British Imperialism in India during the nineteenth and early twentieth century. The

turbulent phase of nation building for both the countries in the 1950s, has left many

unanswered questions. One such critical question to both the countries is that of the Tibet

question. As long as both the countries continue to take a protracted stand, Tibet will

keep impinging in their bilateral relations. The New Regionalism discourse shows that no

longer are security blocs viable options for maintaining either internal or external

security, and regional cooperation has immense potential as an alternative to address

security concerns (Schulz et al, 2000). As Garver notes, “The unresolved territorial issue

remains a fundamental source of instability in Sino-Indian relations…” (Garver, 1992).

However, it must be understood in the historical context that the “territorial issue” itself

was the product of the Tibet issue, and any resolution of the territorial issue needs to be

addressed through the Tibet issue.

India and China have long-term goals both within the region and in the worldwide

context. These goals could be better achieved through regional cooperation rather than

diplomatic offensives. If they work towards reviving the principles of the Panchsheel

Agreement, which is considered as the first Confidence Building Measure (Singh, 1998),

and reach a peaceful solution of the Tibet issue, India and China can engage in a new era

of peaceful and sustainable development; or otherwise, they could find solace in the

pessimism of Robert Frost, when he wrote, “Good fences make good neighbors”.

114
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