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2010

Article V of GenerAl AGreement on Tariffs and Trade1994: from the PersPective of ensuring Freedom oF TransiT To LandLocked Countries

Authoress Rojina Thapa Kathmandu School of Law LL.B 4th Year

Publisher Business Law Journal, Vol 15, 2010 Commercial Law Society Nepal

1.

Background

The impact of being landlocked is based on the idea of dependence over the transit state.1 International trade often requires the crossing of goods across and through territory of other States. For landlocked countries and regions, the transit across other States' territories to access international markets and transport services is an essential condition for their integration in the international economy. 2 Transit most frequently refers to road transportation to and from landlocked countries.3 Freedom of transit as a principle in international law is derived from the access to the Sea for landlocked countries. Goods, means of transports, and persons, should enjoy freedom of transit in order to access to the Sea. Access to and from the Sea and passage rights across the territories of states have been the subject of various international conferences and several international conventions which form the basis for the principle of freedom of transit; commencing with the Barcelona Statute on freedom of transit (1921)4, Article V of the GATT 19475, the New York Convention on Transit Trade of Landlocked Countries (1965)6, and the United Nations Convention on the Law of the Sea (UNCLOS III) (1982)7.8 Assuredly, the freedom of transit is not the principal concern of the GATT, but

J F Arvis, G Raballand, and J F Marteau, The Cost of Being Landlocked: Logistics Costs and Supply Chain Reliability World Bank Policy Research Working Paper No. 4258/2007, 5 <http://ssrn.com/abstract=995079> accessed 14 Feb 2010.
2

UNCTAD, Freedom of Transit, (UNCTAD Trust Fund for Trade Facilitation Negotiations, Technical Note 8, Rev2, 2009) 1.
3

J F Arvis, Transit and the Special Case of Landlocked Countries in L D Wulf and J B Sokol (eds), Customs Modernization Handbook (The World Bank 2005) 244.
4

Convention and Statute on Freedom of Transit, 1921 (entry into force 31 October 1922).

General Agreement on Tariffs and Trade (GATT), 1947, now part of GATT 1994 (provisional entry into force 1 January 1948).
6

Convention on Transit Trade of Land-Locked States, 1965 (entry into force 9 June 1967). United Nations Convention on the Law of the Sea, 1982 (entry into force 16 November 1994). UNCTAD (n 2) 2.

it is inseparable from the system that has the ambition of regulating international trade.9 Many treaties, particularly bilateral ones, designate only negotiating parties as beneficiaries. For example, the benefits of both texts of GATT Article V, though widely in force, are limited to members and Contracting Parties, respectively.10 The existing Article V requires WTO members to operate national transit schemes but does not recognize the issue of transit at the regional level.11 Active cooperation between and among transit and landlocked countries can help ease trade barriers.12 2. Barcelona Convention, New York Convention and Article V of GATT 1994 As each of the above-mentioned legal instruments addresses issues of a different nature, there are naturally some differences in their definitions of transit. Whereas GATT, in its article V, and the Convention on Transit Trade of Land- Locked States only include goods (including baggage) in the definitions of transit, the Convention and Statute on Freedom of Transit and the United Nations Convention on the Law of the Sea also include passengers.13 The Barcelona Statute on freedom of transit mentioned in Article 2 that traffic in transit by rail or waterway shall be organized on routes in use convenient for international transit. Article 5(2) of the GATT ensures freedom of transit throughout the territory of contracting parties for the traffic in transit to or from the territory of other contracting parties via the routes most convenient for international transit. The New York Convention is more timid than the Barcelona Statute. Article 2(1)

K Uprety, Right of Access to the Sea of Land-Locked States: Retrospect and Prospect for Development (1995) 1 J. Int'l Legal Stud. 21,11.
10

E A Laing, Equal Access/Non-Discrimination and Legitimate Discrimination in International Economic Law (1996) 14 Wis. Int'l L.J. 246,10.
11

P De, S Chaturvedi, and A R Khan, Transit and Border Trade Barriers in South Asia in S Ahmed, S st Kelegama and E Ghani (eds), Promoting Economic Cooperation in South Asia: Beyond SAFTA (1 edn The World Bank 2010) 154.
12

Arvis (n 3) 259.

13

UNCTAD, Regional cooperation in transit transport: Solutions for landlocked and transit developing countries, (Note by the UNCTAD secretariat, TD/B/COM.3/EM.30/2, 2007), 5.

mentions that the contracting states shall facilitate the transit traffic on routes in use mutually acceptable for transit.14 Loic Marion has noted an important difference between GATT and the Barcelona Statue: "the word sovereignty does not appear at all in the seven paragraphs of the Article [V of the GATT], while at each moment, the draftsmen of the Barcelona Statute recall the sovereign right of states."15 With regard to the peculiar nature of the freedom of transit, the observation of the United Nations Secretary General concerning some provisions of the Barcelona Statute and the GATT is significant. The Secretary General noted during the 1958 Conference on the Law of the Sea that these two texts considered the freedom of transit more as a subject for international treaties than as a rule of customary international law. This remark remains valid regarding the New York Convention, where the right of access depends essentially on the consent of states and is granted by means of bilateral treaties.16 3. Provisions Contained Within Article V of GATT

[T]he GATT Article V on freedom of transit provides for freedom of transit for all member countries without specifically mentioning landlocked countries.17 It regulates the conditions a Member may impose on goods transported through its territory by another party to a foreign destination. The basic objective is to allow for freedom of transit through the territory of each Member for transports to or from the territory of other Members.18 The Panel in the Colombia-Indicative Prices case, at para.7.387, noted: As its title indicates, Article V of the GATT 1994 thus generally addresses matters related
14

Uprety (n 9) 11.

15

K Uprety, The Transit Regime for landlocked States: International Law and Development Perspectives (Law Justice and Development Series, The World Bank, Washington DC 2006) 58.
16

Uprety (n 9) 19.

17

See, K P Kaphley, Trade and Transit Transport Facilitation in Nepal (Report) (September 2007) Enhancing Nepals Trade-related Capacity (ENTReC) (NEP/05/006), Government of Nepal /Ministry of Industry, Commerce and Supplies and United Nations Development Programme.
18

WTO, Article V of the GATT 1994 Scope and Application (Note by the Secretariat, G/C/W/408, 2002)

4.

to freedom of transit of goods. This includes protection from unnecessary restrictions, such as limitations on freedom of transit, or unreasonable charges or delays (via paras 2-4), and the extension of Most-Favoured-Nation (MFN) treatment to Members goods which are traffic in transit (via paras 2 and 5) or have been in transit (via para.6).19 It stipulates the following principles of freedom of transit:20

(i) Equal treatment independent of flag of vessel, origin, departure, entry, exit, destination or ownership of the goods, vessels,;

(ii) Prohibition to make traffic in transit subject to unnecessary delays or restrictions;

(iii) Prohibition to levy customs duties, transit duties and other transit related charges (except for charges for transportation or those commensurate with administrative expenses entailed by transit, or with the cost of services rendered);

(iv) Level of charges levied should be reasonable to the conditions of traffic,:

(v) Most favoured nation treatment with regards to charges, regulations and formalities.

The UN Secretariat, in its study on Question of free access to the sea of LLS [Land Locked States], summarized the principal provisions of GATT Article V as related to LLS this way:21 (a) Goods including baggage and also vessels and other means of transport shall be deemed to be in transit when the passage across the territory of one of the

19

As cited in F M Abbott, Seizure of Generic Pharmaceuticals in Transit Based on Allegations of Patent Infringement: A Threat to International Trade, Development and Public Welfare (2009) 1 World Intellectual Property Organization Journal (WIPO), 43; FSU College of Law, Public Law Research Paper No. 416; FSU College of Law, Business & Economics Paper No. 10-1, 46 <http://ssrn.com/abstract=1535521> accessed 16 Feb 2010.
20

UNCTAD (n 2) 1. Uprety (n 15) 58-59.

21

contracting parties constitutes only one portion of the complete itinerary starting and terminating beyond the borders of the said country. (b) There shall be freedom of transit throughout the territories of contacting parties for goods going to or originating from the other contracting party. The principle of non-discrimination is clearly established. (c) Although a declaration at the customs for goods in transit may be asked for, these properties shall be exempt from customs duties and all other transit rights or duties except the transportation charges corresponding to the administrative expenditures made by the transport or to the cost of services rendered. (d) The duties and the regulation applied on transit traffic must be equitable. (e) The contracting parties mutually guarantee MFN treatment on transit traffic and applicable traffics. (f) Without being applicable for aircraft in transit, the above mentioned rules shall be applicable for goods transiting by air including baggage.

In the WTO context, goods are defined to be in transit when the crossing of the territory of another WTO Member constitutes only part of the journey between departure and final destination country, whether or not trans-shipment, warehousing, breaking of bulk or change in transport mode are involved. GATT Article V therefore only refers to socalled through-transit, i.e. transit in the GATT context, normally involves at least three states.22 Article V ensures that goods shipped from Country A to Country C may pass through Country B on their way to Country C. This guarantee is particularly important for landlocked countries.23 Freedom of transit also covers means of transport. Whilst some conventions and legal texts exhaustively list means of transport others, such as GATT Article V dont.24

22

UNCTAD (n 2) 1.

23

K Kennedy, GATT 1994 in P F J Macrory (eds), The World Trade Organization: Legal, Economic and Political Analysis (Vol. IA, Springer Science+Business Media, New York 2005) 140.
24

UNCTAD (n 2) 3.

Article V of the GATT 1994 (Freedom of Transit) provides for the freedom of transit of goods, vessels and other means of transport across the territory of Member States, via the routes most convenient for international transit, with no distinction based on flag of vessel, origin, departure, entry, exit, destination, or ownership of the goods, vessels or other means of transport involved.25

Furthermore, transit Members shall not be subject to any unnecessary delays or restrictions and shall be exempted from any duties and charges relating to transit.26 An exception is made in regard to charges for transportation or those that are commensurate with administrative expenses entailed by transit or with the cost of services rendered. All charges and regulations imposed on traffic in transit have to be reasonable with regard to the conditions of the traffic. Under GATT Article V, WTO members are also obliged to treat such traffic to, or from the territory of any other member, no less favourably than traffic in transit to or from any third country with respect to transit charges, regulations and formalities.27

The GATT accord also outlines that in the case of transit, member states shall grant treatment "no less favorable than that which would be accorded to such products had they been transported from their place of origin to their destination without going through the territory of such other contracting party." Moreover, GATT articles point out no distinction shall be made based on the nationality of the means of transport, the place of origin, departure, entry, or destination "or on any circumstances relating to the

25

United Nations, Technical Notes on Essential Trade Facilitation Measures (Part II, Trade Facilitation Handbook, New York and Geneva 2006) 73.
26

D J Lewis, Integration of Landlocked Countries into the Global Economy and Domestic Economic Reforms: The case of Lao Peoples Democratic Republic (August 2008) Asia-Pacific Research and Training Network on Trade, Working Paper Series No 58, 18.
27

AITIC, Evolution of Proposals on GATT Article V in the WTO Trade Facilitation Negotiations (October 2009) Trade Facilitation Briefs.

ownership of goods."28 It appears that the obligation in Article V is that goods in transit are not to be unduly interfered with, nor discriminated against, by the transit state.29 Paragraph 7 exempts the operation of aircraft in transit from the application of Article V. Air transit of goods (including baggage), on the other hand, does fall within the scope of Article V.30 4. Interpretation of Article V of GATT

From its inception, the GATT/WTO has recognized in GATT art.V the principle of freedom of transit for goods moving through ports and airports in international trade. This fundamental principle has been so widely and consistently implemented that there has been virtually no controversy about it in the history of the GATT/WTO, despite the fact that goods are constantly moving in transit through its Members. It is simply a given in international trade law that the customs authorities of a country do not seize or detain goods passing through their ports and airports en route to foreign destinations without a good reason.31 The WTO Panel in Colombia-Indicative Prices and Restrictions on Ports of Entry,32 for the first time interpreted Article V of GATT.33 The Panel notes that neither "freedom" nor "transit" are defined anywhere in Article V or the WTO Agreement.34 [T]`he Panel

28

J Zarocostas, Swiss Must Tread Lightly to Ensure Truck Ban Adheres to Accords[1994] Journal of Commerce, 1.
29

T L McDorman, Regional Port State Control Agreements: Some Issues of International Law (2000) 5 Ocean & Coastal L.J. 207, 6.
30

WTO (n 18) 7. Abbott (n 19) 45-46.

31

32

Panel Report, Colombia-Indicative Prices and Restrictions on Ports of Entry, WT/DS366/R adopted on 27 April 2009, hereinafter Colombia-Ports of Entry.
33

Colombia-Ports of Entry, para 7.388 states: As was the case with the Customs Valuation Agreement, Article V has never before been interpreted by the Appellate Body or a GATT/WTO panel.
34

Colombia-Ports of Entry, para 7.456.

nevertheless notes that preparatory work to Article V does not offer any conclusive guidance regarding interpretation.35 4.1 Article V: 2

In the Panel's view, the definition of "traffic in transit" provided in Article V:1 seems sufficiently clear on its face. When applied to Article V:2, "freedom of transit" must thus be extended to all traffic in transit when the goods' passage across the territory of a Member is a only a portion of a complete journey beginning and terminating beyond the frontier of the Member across whose territory the traffic passes. Freedom of transit must additionally be guaranteed with or without trans-shipment, warehousing, breaking bulk, or change in the mode of transport.36

4.1.1

Article V: 2 First Sentence

In light of the ordinary meaning of freedom and the text of Article V:2, the Panel concludes that the provision of "freedom of transit" pursuant to Article V:2, first sentence requires extending unrestricted access via the most convenient routes for the passage of goods in international transit whether or not the goods have been trans-shipped, warehoused, break-bulked, or have changed modes of transport. Accordingly, goods in international transit from any Member must be allowed entry whenever destined for the territory of a third country. Reasonably, in the Panel's view, a Member is not required to guarantee transport on necessarily any or all routes in its territory, but only on the ones "most convenient" for transport through its territory.37

4.1.2

Article V: 2 Second Sentence

35

Colombia-Ports of Entry, para. 7.469. Colombia-Ports of Entry, para. 7.396. Colombia-Ports of Entry, para. 7.401.

36

37

[T]he Panel considers that Article V:2, second sentence further prohibits Members from making distinctions in the treatment of goods, based on their origin or trajectory prior to arriving in their territory, based on their ownership, or based on the transport or vessel of the goods. Accordingly, the Panel concludes that Article V:2, second sentence requires that goods from all Members must be ensured an identical level of access and equal conditions when proceeding in international transit.38

4.2

Article V: 6

The Panel notes that the phrase incorporates the present perfect tense of the verb "to be". No other provisions in Article V employ the present perfect verb tense, instead relying on the term of art "traffic in transit", which is defined in Article V:1, when discussing the applicable goods regulated by the provision.39

4.2.1

Article V: 6 First Sentence

The Panel considers the obligation in Article V:6 first sentence is straightforward: all treatment extended to goods that were transported from their place of origin to their destination without going through the territory of other contracting party, must be extended to goods that have been transported from their place of origin, and passed through the territories of such other contracting countries as "traffic in transit" prior to reaching their final destination. Such "treatment" must strictly be "no less favourable".40

4.2.2

Article V: 6 Second Sentence

[T]he second sentence of Article V:6 is intended to clarify that, in complying with requirements of the first sentence of Article V:6, a Member is nevertheless permitted to
38

Colombia-Ports of Entry, para. 7.402. Colombia-Ports of Entry, para. 7.453. Colombia-Ports of Entry, para. 7.477.

39

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maintain any direct consignment requirements that existed in 1947 (when commitments among Members were negotiated) without violating the obligation in the first sentence.41 For all of the foregoing reasons, the Panel concludes that the obligations in Article V: 6, first and second sentences apply to Members whose territory is the final destination for goods in international transit.42

4.3

Most Favoured Nation Treatment in Article I: 1 and Article V: 6

Although other standards are set forth in the GATT 1947 and 1994, MFN is given priority in the first Article of both GATT Agreements.43 Whereas Article III GATT is there to ensure that domestic products will not be afforded any extra protection beyond the multilaterally negotiated tariff protection, Article I GATT is there essentially, to guarantee that no distinctions between like products originating in two WTO Members will occur.44 GATT Article I: 1 contains the core MFN obligation.45 Article I: 1 of the GATT 1994 contains the Most-Favoured Nation (MFN) principle, considered as "a cornerstone of the GATT and ... one of the pillars of the WTO trading system"46. Correspondingly, GATT 1994 Article V on freedom of transit requires transit Members to recognize and protect the other Members freedom of transit and provides for MFN on trade in goods through traffic in transit.47 The WTO Panel in Columbia-Ports of Entry explained in a footnote 783 that:

41

Colombia-Ports of Entry, para. 7.465. Colombia-Ports of Entry, para. 7.475. Laing (n 10) 8. P C Mavroidis, The General Agreement on Tariffs and Trade: A Commentary (OUP, Oxford 2005) 119. Kennedy (n 23) 102.

42

43

44

45

46

Appellate Body Report, Canada-Certain Measures Affecting the Automotive Industry, WT/DS139/AB/R, WT/DS142/AB/R, adopted on 31 May 2000, para. 69.
47

Lewis (n 26) 18.

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Article I:1 of the GATT 1994 broadly ensures that any advantage extended to a product of a particular origin must be extended immediately and unconditionally to the like product originating in or destined for the territories of all other Members. Thus, Article I:1 ensures MFN treatment to like products of all origins, whereas Article V:6 ensures MFN treatment based on its transit trajectory regardless of the existence of a like product of a different origin. In the Panel's view, the obligations in these two provisions are not the same and should not be treated as redundant.

4.4

Most Favoured Nation Treatment in Article V: 2, V: 5 and V: 6

Article V:2, second sentence imposes an MFN obligation by prohibiting Members from making distinction based on the flag of vessels, the place of origin, departure, entry, exit or destination, or on any circumstances relating to the ownership of goods, of vessels or of other means of transport of "traffic in transit". The definition of "traffic in transit" from Article V:1 include those goods "when the passage across such territory, ... is only a portion of a complete journey beginning and terminating beyond the frontier of the contracting party across whose territory the traffic passes". Thus, Article V: 2 extends MFN protection to goods in transit through Member countries, while Article V:6 extends MFN protection from discrimination based on the geographic course of goods in transit upon reaching their final destination.48 Article V: 6, first sentence requires Members to extend MFN treatment to all goods that have been in international transit, except with respect to specific, pre-existing direct consignment commitments.49

The Panel additionally notes that Article V:5 extends MFN protection to "traffic in transit" "[w]ith respect to all charges, regulations and formalities in connection with transit" (emphasis added). In accordance with the Ad Note to this provision, MFN protection extends to "like products being transported on the same route under like conditions" in relation to transportation charges. Setting aside transportation charges, the protection under Article V: 5 broadly extends to all regulations and formalities for all "traffic in
48

Colombia-Ports of Entry, para. 7.467. Colombia-Ports of Entry, para. 7.465.

49

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transit". As Article V: 6 extends MFN protection broadly to "treatment" (i.e. "Each contracting party shall accord to products which have been in transit through the territory of any other contracting party treatment no less favourable..."), an interpretation that Article V:6 governs treatment extended to "traffic in transit" would overlap with the broad protection already ensured by Article V:5.50

In particular, Article V:5 addresses MFN protection requiring parties to accord "treatment no less favourable" to "traffic in transit through the territory of any other contracting party" "[w]ith respect to all charges, regulations and formalities in connection with transit". The text of Article V:6 does not provide that each contracting party shall accord treatment no less favourable to traffic in transit through the territory of any other contracting party. Moreover, Members are not obliged to accord MFN protection to products which are in transit, or to products which were in transit. Instead, Article V:6 requires Members to extend MFN protection to "products which have been in transit through the territory of any other contracting party".51

5.

Indo-Nepal Transit Stalemate

Nepal had applied to join the General Agreement on Tariffs and Trade (GATT), predecessor of the WTO, in May 1989.52 India, Nepals sole transit neighbour, blockaded the border between the two countries in 1990, an action cited as a major cause of the overthrow of the Nepalese panchayat government.53 India reduced the number of entry points into Nepal, a land locked country. Nepal claimed that the price of essential goods like food and fuels rose sharply due to the Indian action. Eventually, the entry points were restored but this could have been a subject of dispute under Article V
50

Colombia-Ports of Entry, para. 7.468. Colombia-Ports of Entry, para. 7.453.

51

52

R B Karkey, Note on Cambodias and Nepals Accession to the World Trade Organization: A Landmark Decision (2004) 10 Ann. Surv. Int'l & Comp. L. 207, 1.
53

M L Faye and others, The Challenges Facing Landlocked Developing Countries (2004) 5 Journal of Human Development, 46.

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of GATT 1994. It is another matter that Nepal could not use the WTO as it was not a member of the organization at that time.54 In 1990, there were political changes in Nepal; a multiparty system was restored and a new government came to power, which successfully renegotiated the Nepal-India trade and transit treaties.55 Nepal did not take initiative to become the member of the global trading regime, GATT, a predecessor of WTO, until 1989 following a trade dispute with India. However, the dispute lasted for 15 months, and new treaties were signed in 1991. Hence, the urgency for Nepal to become a WTO member so as to be protected under GATT Article V on transit rights, weakened. It chose for the observer status, and did not convert that into an application to join the WTO until 1997.56 6. Landlocked Nepal and the Freedom of Transit under Article V of GATT

Nepal has got membership of World Trade Organization in April 23, 2004. There are certain obligation and benefit of being a member of WTO. In the outset of getting membership Nepal is assured the right of transit as per WTO agreement among other benefits.57 Nepal, being a landlocked country, has the inherent interest in aligning with the provisions of Article V of GATT, which constitute mandatory requirement by all member countries of WTO provide freedom of transit and access to sea.58

54

A Goyal and N Mohd (eds), WTO in the new millennium (5th edn Academy of Business Studies, Bombay 2001) 99.
55

P R Rajkarnikar, Nepal: The Role of an NGO in Support of Accession <http://www.wto.org/english/res_e/booksp_e/casestudies_e/case30_e.htm>, accessed 15 March 2010.
56

G R Shrestha, Nepal-India Bilateral Trade Relations, Problems and Prospects (June 2003) Research and Information System for the Non-Aligned and Other Developing Countries (RIS), RIS-DP # 54/2003, 40.
57

V N Nepal, Policy Reorientation Study on Transit Trade of Nepal (Report) (October 2006) Economic Policy Network, Policy Paper 20, Government of Nepal/ Ministry of Finance and Asian Development Bank, Nepal Resident Mission, 23.
58

P Ojha, C Ghimire, S R Bhatt, Nepal's WTO Compliance and Resulting Economic Gains: A Critical Assessment< www.man.org.np/uploads/.../WTO%20Paper-Government%20Sector_1.doc> accessed 23 Feb 2010.

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The geographical situation of Nepal provides scope of transit through three countries India, and Bangladesh and remotely China. The Chinese ports are too far and economically unattractive at present and road conditions are not good for frequent use. This is subject of further study in the changing context. Transit through Bangladesh needs trilateral transit agreements. That is why practically Nepal has to depend on India for transit transport at present.59

Nepal and Bangladesh have signed two separate bilateral agreements on Trade and Payment and on Transit on 2 April 1976. The Transit agreement and its Protocol specify ports and entry points along with the procedural and documentation requirements for the movement of Nepals trade with third countries via Bangladesh.60 In order to operate the bilateral transit trade, Bangladesh and Nepal signed an agreement entitled Operational Modalities for an Additional Transit Route between Nepal and Bangladesh, which provides terms for the use of Banglabandha (Bangladesh)Phulbari (India)Khakarbitta (Nepal) as a transit corridor for bilateral trade. India provides transit to Nepal and Bangladesh exclusively for their overland bilateral trade, but not for their extra regional transit trade.61

Formal trade relation between the two countries [India and Nepal] was established in 1950 with the signing of the Treaty of Trade. This Treaty was modified and renewed in 1961 and 1971, and incorporated provisions regarding transit facilities extended by India for Nepals trade with a third country, as well as on cooperation to control unauthorized trade. In 1978, instead of a single Treaty, three different agreements were signed. These treaties were modified significantly in 1991, after the advent of democratic government in Nepal. India signed two treaties on trade and transit with Nepal in 1991. The Treaty of Transit, 1991 came up for renewal in December 1998 and

59

Nepal (n 57) 8. See, Kaphley (n 17). De, Chaturvedi and Khan (n 11) 149.

60

61

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following bilateral talks, a renewed Transit Treaty was signed on January 5, 1999.62 It was renewed in June 2006 too. The current Treaty which was renewed in 27.10.2009 would be in force for a period of seven years up to 26.10.2016.63

Under the Indo Nepal Treaty of Transit and the Protocol to the Treaty of Transit, the Calcutta-Haldia port complex has been specified as port of entry for Nepals thirdcountry trade by sea.64 Fifteen transit routes to Calcutta/Haldia are specified. It has also been agreed that Nepal can use the facilities at Bombay Port (including the newer container port at Nava Sheva the Jawaharlal Nehru Port Trust (JNPT) - and Kandla Port for third-country trade. No Nepal traffic currently uses either JNPT or Kandla Ports.65 A Protocol attached to the Treaty of Transit specifies detailed operational modalities, including entry and exit points to and from India for the transit trade of Nepal. In addition, both countries signed a Memorandum to the Protocol that specifies the detailed procedures to be applied to imports to, and exports from, Nepal.66 The Rail Service Agreement was signed between the government of Nepal and India in May 2004 for67 Nepals transit trade as well as bilateral trade between the two countries. Specifically, it specifies transit trade between Kolkata/Haldia ports in India and Birgunj in Nepal, via Raxaul in India as well as between stations on Indian Railways and Birgunj via Raxaul, for bilateral trade.68

62

See, Shrestha (n 56) 27-28.

63

See, India-Nepal Treaty of Trade< http://commerce.nic.in/trade/international_ta_current_details.asp> accessed 20 March 2010.


64

See, Shrestha (n 56) 38.

65

UNCTAD, Review of Progress in the Development of Transit Transport Systems in the India, Nepal and Bhutan Subregion(UNCTAD/LDC/114, 2001) 11.
66

De, Chaturvedi, and Khan (n 11) 148. Logistics Services

67

P Ojha, Nepalese Experience in Liberalization of Trade <www.unescap.org/tid/artnet/mtg/tfri_s3ojha.pdf> accessed16 Feb 2010, 7.


68

De, Chaturvedi and Khan (n 11) 148.

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7.

Conclusion

The international community has, over the years, adopted several international legal instruments ensuring freedom of transit thereby facilitating landlocked countries gain access to seaports via transit traffic through neighbouring countries. Many multilateral, regional and bilateral treaties have been signed following the recognition of freedom of transit for the landlocked countries by the Article V of GATT along with other. Article V requires each WTO member to allow for the free movement of goods, vessels and other means of transport through its territory, destined to or coming from any other WTO member. Such traffic must be allowed via the routes most convenient for international transit. Traffic in transit must not be subject to unnecessary delays or restrictions, and must be exempted from customs and transit duties. It also requires that Most Favoured Nation treatment be accorded to traffic in and which have been in transit. As it was only recently that Article V has been interpreted for the first time by a WTO panel, its further interpretation is anticipated in the days to come.

Nepal is a transit receiving country so far and has never experienced the challenges of transit country. Since a long time, bilateral agreement between Nepal and India has been governing the implementation of transit right of landlocked Nepal. Nepals transit policy has always remained within the periphery of securing freedom of transit within the framework of international law and convention for the most convenient, less time consuming and cost effective transit routes with appropriate facilities. In this milieu mutual respect to the freedom of transit guaranteed by Article V of GATT by both of these countries is plausible as both Nepal and India are members of WTO. Even though Nepal is a transit receiving country, there is a prospect of delivering the transit facilities by land linking to the neighbors in future.

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