It is often claimed that the framework under which diplomacy operates varies from one situation to another which in turn is based on a common understanding of the variables involved that are unique to that scenario. Such deliberations, most often than not, take place behind closed doors given the potentially sensitive nature of the interactions. Nonetheless, the ongoing diplomatic and political episodes regarding the Millennium Challenge Corporation (MCC) provide an opportune moment for one to assess the models of diplomacy being practiced by Washington and Beijing and their averments towards one another.
Diplomacy and war are perceived to be counter-productive. Nonetheless, diplomacy may be used to form alliances during conflicts in order to preserve the balance of power, or, more controversially, to create a scenario in which a war on favorable terms becomes plausible. Wedge states are defined as those small states that are able to enlarge their strategic autonomy and accrue material benefits from the two rival powers due, primarily, to their geographic location, ideological inclination or strategic self-interest. Is Nepal, as a “Wedge state,” likely to become a pawn between Washington and Beijing’s rivalry? Will Nepal benefit materially from its inherent position? This article aims to shed light on these prospects.
MCC and China
The $ 500 million grant proposed to be given by America for the purpose of building electricity transmission lines in addition to improving the road infrastructure, is viewed by many as an attempt by America to counter China’s Belt and Road Initiative (BRI) under which Beijing aims to expand its influence in Asia, Europe and Africa by reviving the silk route. Furthermore, MCC is also viewed as part of Washington’s Indo-Pacific Strategy that has military components to deal with a range of transnational threats and challenges, possibly aimed at countering China. This strategy recognizes India as “a like-minded partner and leader in South Asia and the Indian Ocean” … “a driving force of the QUAD and other regional fora, and an engine for regional growth and development.” Another school of thought views the MCC as a positive step in the direction of the overall development of Nepal, with the reduction of poverty through economic development being the primary objective. MCC had been long debated along these lines within the ruling coalition and politicians were divided over whether MCC ought to be passed amidst apprehensions of it being violative of the sovereign interests of Nepal. Despite such apprehensions, after due deliberations, MCC came to be ratified on February 27, 2022 with the condition that the failure to accept the attached “interpretative declaration” by the US will result in non-implementation of the Compact by the Government of Nepal. The Chinese Ministry of Foreign Affairs has noted the ratification of the same by Nepal’s House of Representatives.
The issue of ratification of MCC was heavily politicized owing to the involvement of national sovereignty. Critics argued that China could be behind the initial opposition to the MCC as Beijing strongly opposes the Indo-Pacific Strategy adopted by America. Another reason being, Nepal shares a border with Tibet, which is yet another contentious issue for China in its engagement with Nepal.
China as a communist state accuses the US of being an imperialist power that is trying to initiate a ‘new war’ by triggering hostilities against China and strengthening ties with India and other allies such as Japan, Australia and the UK. This is owing to the fact that Nepal is viewed as a territory of strategic importance by China as it is situated between the borders of India and itself. On certain issues, such as the deadline issued by America for the ratification of MCC Compact, China appeared like an ally for Nepal by adopting a position that Beijing will oppose any “coercive diplomacy” measures and will support the Nepali people’s right to choose their path towards development independently. China, in its capacity of a developing partner and friendly neighbor of Nepal, has supported and contributed towards Nepal’s socio-economic development in addition to welcoming the international community’s cooperation on the basis of mutual respect and equal treatment.
China may push for BRI implementation as both the nations are exchanging final notes and comments regarding the modalities to finance the projects, after five years of signing the MoU.
India chose to remain silent on the MCC controversy stating that MCC is a bilateral issue between Nepal and the US which is not going to impact Nepal-India bilateral relations. The project under MCC is a cross-border electricity transmission line between Nepal and India, a part of which is to be built on Indian territory and may thus be regarded as a win-win situation for India and Nepal.
China has been criticized by the US for pursuing its own national and political interests by increasing her global leadership and dominance over the world in the guise of providing financial aid and assistance, especially to the third world nations by exploiting International Law. An alternative viewpoint is that Chinese assistance is seen by the low-income countries, such as Bangladesh, as an important source of development when international institutions such as the World Bank and the Asian Development Bank refuse to finance infrastructure projects due to environmental concerns or corruption issues in low-income recipient countries.
Chinese assistance and BRI
At this juncture, it is relevant to note that Chinese assistance to Nepal may be categorized as grants (gratis), interest-free loans and concessional loans. Grants are amounts given by the donor for a specific purpose. Unlike loan, a grant does not need to be repaid. Interest-free loans are loans where no interest needs to be paid, only the original principal must be repaid to the lender. A concessional loan is a loan made on more favorable terms to the borrower that he/she could obtain in any other marketplace. Some of the major ongoing projects under Chinese assistance to Nepal include Upper Trishuli Hydropower Project-Power station and Transmission Line Projects (concessional loan), food/ material assistance (grant) in 15 bordering districts of northern Nepal, Kathmandu Ring Road Improvement Project with Flyover Bridges (grant) and Pokhara International Regional Airport (loan). According to a statement made by an official of the finance ministry of Nepal to the Kathmandu Post, “before negotiations, we have to make our position clear on the financing modality, that is, whether these projects should be developed under loan or grant.” During internal consultations with China with regard to terms and conditions regarding the implementation of BRI projects, Nepal stated that “we should seek preferably grant or concessional loans at less than 2 percent annual interest”. Nepal’s economy is small to be able to afford commercial loans. Against the backdrop of the MCC ratification, China may push for BRI implementation as both the nations are exchanging final notes and comments regarding the modalities to finance the projects, after five years of signing the MoU.
Given Nepal’s geo-strategic location, major nations have had open or covert roles in its domestic affairs. Big powers, in particular, have attempted various forms of influence on the Nepali establishment in order to further their own interests. It may be argued that the conflicting geopolitical interests of the big powers may impact the economic and development projects which in turn may adversely affect the domestic economy of Nepal including its diplomatic relationships with other countries.
It will be interesting to see the mode of implementation of MCC and whether it brings positive or negative consequences with it.
Niyati Adhikari, a lawyer by profession, holds a Master’s degree in International Criminal Law and International Human Rights Law from Bangor University, UK.