The shift in US trade policy has sent ripples across the global economy, significantly impacting many countries, including Nepal. In response, several nations have begun revising their trade strategies, tailoring them to their capacities and priorities, while engaging in new trade negotiations with the US government. For a country like Nepal, where the trade balance has remained unfavorable since 2007, this global realignment offers valuable lessons for. The government must now prioritize the development of an independent, Nepal-centric trade policy that reflects its national interests and economic realities.

Entrepôt Trade Policy

Nepal’s trade policy is shaped by five key factors: historical experience, geographical location, geopolitical context, population structure and societal perceptions. While history does not directly dictate future policy, it offers valuable lessons and guidance, serving as a foundational reference. A notably successful aspect of Nepal’s past is its role in intermediary (entrepôt) trade, which contributed significantly to national prosperity during the Lichchhavi, Malla and unification eras. In light of these historical and strategic considerations, Nepal should make intermediary trade a central pillar of its trade policy.

Nepal's geopolitical position offers two distinct advantages. First, as a buffer state between two major powers India and China, Nepal has historically faced minimal security obligations. Strategic diplomacy has allowed the country to maintain stability while keeping defense expenditures relatively low. Second, global economic and political pressures tend to dissipate or slow as they pass through its larger neighbors. With modest global ambitions, Nepal neither expects major concessions from great powers nor faces intense external pressure—an uncommon strategic advantage. Countries in similar positions often adopt streamlined bureaucracies and low-tax or no-tax regimes, as their limited security and administrative needs reduce the demand for large national budgets. For such nations, an entrepôt trade policy is especially well-suited. From an environmental standpoint, intermediary trade offers a sustainable alternative aligned with both ecological constraints and strategic potential.

Nepal’s prosperity during the Lichchhavi and Malla periods was rooted not in industrial production but in entrepôt trade. Positioned along a branch of the ancient Silk Road, the country flourished by facilitating regional commerce. Prithvi Narayan Shah’s declaration in the Divyopadesh—that he would "block the East-West route and open the Nepali route"—reflects a clear strategic vision of self-reliance, inland trade and export promotion. This historical insight underscores the relevance of reviving such a model in Nepal’s current trade strategy.

Rationale for Entrepôt Trade Policy

Regional and international sentiment is increasingly favorable toward Nepal adopting an entrepôt trade policy. Chinese academic circles see this model as ideally suited to Nepal’s geography and size. As China seeks deeper engagement with Nepal, Chinese strategists acknowledge that any sustainable arrangement would be more viable with India’s active participation. Similarly, Indian scholars are calling for approaches that enhance economic ties with China through constructive diplomacy. In this evolving regional context, Nepal is uniquely positioned to serve as a key conduit for economic cooperation between its two powerful neighbors.

When viewed through the lenses of strategic responsibility, environmental sustainability, historical precedent and regional perspectives, a trans-Himalayan trade model based on entrepôt principles appears both appropriate and advantageous. A Hub-and-Spoke model—similar to the North American Free Trade Agreement (NAFTA)—could potentially take shape in the Himalayan region. If Nepal successfully concludes free trade agreements with both India and China, it could help catalyze broader regional cooperation along similar lines.

Given this potential, Nepal should proactively pursue bilateral FTAs with China and India. Advancing such discussions with clarity and confidence will help lay the foundation for a future Trans-Himalayan Free Trade Agreement. This would not only ease rules of origin but also position Nepal as a strategic trade hub linking India and China.

Steps Required to Promote Entrepôt Trade

To establish itself as a regional trade hub, Nepal must undertake several critical reforms. First, all imports should be exempt from customs duties. Second, strategically located trade centers must be developed across Nepal to facilitate access for Indian, Chinese and other international traders. Third, trade-related infrastructure should be upgraded to meet international standards and facilitate seamless logistics.

Fourth, Nepal must pursue separate FTAs with China and India, to ensure exemption from tariffs and additional fees, and introduce new provisions to reduce non-tariff barriers. Fifth, a joint mechanism for quality control and regulation must be established to ensure mutual recognition of certifications and regulatory compliance.

If implemented effectively, these measures could enable Nepal to revitalize its historical role and usher in a second golden age of trade akin to the Lichchhavi period. Realizing this vision will require coordinated efforts from political leadership, civil service, academia and diplomatic corps. A strong national consensus is essential to make this happen.

Entrepôt Trade: A Tool for Trade Diversification

Nepal’s core trade diversification policy seeks to strengthen the connection between exports and imports—an approach first envisioned during the Second Five-Year Plan. The original aim of foreign aid in industrial development was to support self-reliance in specific products and integrate Nepali exports into global value chains, laying the foundation for long-term trade sustainability.

This industrial strategy envisioned Nepal forming collaborative networks with countries that had already achieved product-specific expertise. Notable examples include the Janakpur Cigarette Factory and the rosin and turpentine industries developed with Russian assistance; cement, paper and leather industries with Chinese support; agricultural and dairy-based products—particularly cheese—promoted through Swiss cooperation; and beverage industry developed with help from Northern European countries.

To reverse the current stagnation in trade and address Nepal’s chronic trade deficit, policy must realign with these foundational principles. Deviations, such as promoting export commodities without strong value chain linkages—have resulted in only short-term gains. Integrating Nepal’s exports into global value chains must become a central pillar of trade policy.

Nepal’s recent transport and transit agreement with China has opened a northern gateway to global markets. The Asian Highway No. 219, which runs parallel to Nepal’s northern border and connects to Kashgar and Khorgos—strategic entry points to Central Asia, offers significant promise. This route could link Nepal to markets in Afghanistan, Kazakhstan, Kyrgyzstan, Uzbekistan, Turkmenistan, Tajikistan and Pakistan, potentially ushering in a new era of trade.

The New Silk Road: Unlocking Trade with Central Asia

Anthropologists identify the Amu Darya and Syr Darya rivers—long considered as the heart of Central Asia—as the cradle of Aryan civilization, the Sanskrit language and the Vedas. With the implementation of China’s ambitious plan to connect Eurasia and Europe, this once-isolated, landlocked region is re-emerging as a vital artery of global commerce. As the modern Silk Road revives ancient trade routes through Central Asia—historically known as Shakabhumi, Nepal has a timely opportunity to reposition its foreign trade strategy by tapping into this corridor, which offers a direct and efficient access to European markets. Historically, Nepal’s trade with Europe has been constrained by its dependence on the Kolkata port of India which has limited disability to engage Central Asian markets. However, the revitalization of the Silk Road under China’s Belt and Road Initiative has brought Nepal closer, both geographically and logistically, to Central Asia than ever before.

China’s plans to develop Kashgar as a regional gateway significantly enhance Nepal’s access to the region. Major infrastructure developments, including the China-Kyrgyzstan-Uzbekistan Highway, the under-constructionstan-Afghanistan Railway, the China-Kazakhstan rail and road network, and 35 Chinese railway lines connecting to Atlantic ports via Central Asia—have firmly reintegrated this region into the global trade system. The growing energy partnership between China and Central Asian countries further strengthens the Silk Road’s role as a vital energy corridor.

Khorgos, located on the Kazakh border, is being developed as a major dry port and regional trade hub. Regular trade fairs targeting Central Asian markets have already begun in Kashgar, and the planned extension of the Qinghai-Tibet Railway to Kashgar is expected to boost regional economic activity.

Nepal, rich in high-value agricultural and herbal products such as tea, herbs, cheese, ginger, cardamom and fruits, has struggled to access international markets due to logistical constraints. Simultaneously, Nepal remains heavily reliant on imports for fuel and textile raw materials. If mechanisms are established to import fuel and textile inputs—such as wool and cotton—from Central Asia, while exporting Nepali goods in return, northern trade corridors could see a surge in activity. One can envision Nepal’s border regions bustling with trucks and tankers transporting tea, herbs, cheese, ginger, cardamom, fruits, wool, cotton and petroleum products—transforming the region into a dynamic hub of trans-Himalayan trade.

Reviving trans-Himalayan trade lies at the heart of the country’s commercial policy—an approach actively pursued until 1923 and, though dormant in recent decades, still present in national consciousness. With Nepal’s unique geopolitical position and the rapid development of road and rail connectivity to the north, the conditions are again aligning for Nepal to reclaim its strategic role in South Asian trade along the historic Silk Road.

In this evolving context, Nepal has the opportunity to establish two distinct types of trade relations with Central Asia. First, by diversifying its import sources, Nepal can position Central Asia as a key supplier—particularly in sectors where current supply chains are currently limited. Simultaneously, Central Asia presents an untapped market for many Nepali goods that are produced in small volumes but have significant potential for scaling up exports.

Second, given the absence of direct trade links between South Asia and Central Asia—largely due to tensions between India and Pakistan and persistent security risks in the Pakistan-Afghanistan border region, Nepal is uniquely positioned to serve as a neutral and strategic bridge between the two regions. By positioning itself as a reliable contact point, Nepal can foster greater economic integration between South and Central Asia and help reshape regional trade architecture.

Charting Nepal’s Future as a Regional Trading Hub

A strong legal framework, secure trade routes, competitive profit margins and guaranteed protections for all parties involved are fundamental to a successful trade ecosystem. To build such a framework, Nepal must take several key steps.

First, Nepal’s road networks connecting to China must be upgraded to meet international standards. Equally crucial is diplomatic engagement with China to secure access to key dry ports such as Kashgar and Khorgos. Second, in addition to physical infrastructure, Nepal must build a foundation of trust underpinned by a comprehensive trade framework that harmonizes the legal systems of Nepal, China and Central Asia. This will require coordinated efforts by Nepal’s bureaucracy, diplomats, business community, academia, as well as national leadership.

Third, trade relations between Nepal, Central Asia and China must follow a win-win model, with equitable benefits for all. This can be achieved through a phased approach: 

• Phase One : Nepal exports tea to Central Asia and imports wool and cotton, with China facilitating transit and logistics.

• Phase Two : Trade relations deepen, expanding Nepal’s imports to include cotton, wool, fruits, leather goods, gas and fuel, its exports broaden to include herbs, ginger, cardamom and cheese.

• Phase Three : Nepal emerges as a regional trading hub, facilitating two-way trade between

As trade expands, tourism can also flourish. A Kathmandu–Kashgar Tourism Corridor could generate new economic opportunities, and strengthen people-to-people ties among Nepal, China and Central Asia. To unlock these opportunities, Nepal must embrace a liberal, forward-looking trade vision—politically neutral, practically implementable, commercially effective, strategically sound and inclusive. If Nepal’s trade institutions and logistic systems modernized and made more trustworthy, the Kathmandu–Kashgar Corridor could become a vital bridge linking the Indian Ocean to the Caspian Sea.

In summary, to position Nepal as a pivotal hub linking South Asia, Central Asia, China and beyond, entrepôt trade must be placed at the heart of the national trade policy. All other sectoral strategies should align with this vision of prosperity through connectivity. The first step toward developing Nepal as a hub for entrepôt trade should begin with fully liberalizing the trade of precious metals, gems and jewelry by removing customs duties and exempting all taxes and fees.

(This opinion article was originally published in  May 2025  issue of New Business Age Magazine.)