Treaty of Trade: The bilateral trade between India and Nepal is regulated by the Treaty of Trade. The current Treaty has been in force for a period of Seven years with effect from 27.10.2009. Both sides have signed the amended Treaty of Trade which comes into force on 27.10.2009. Under this Treaty, there is free trade on mutually agreed to primary products from each other as indicated in Protocol to Article IV of the Treaty. In the case of industrial goods produced in Nepal, Article V of the Treaty provides for India to give, on a non-reciprocal basis, duty-free access to Nepalese goods without any quantity restriction. This is subject to fulfilling the twin criterion of four-digit tariff head change and value addition of 30% at ex-factory price in Nepal. This duty-free access is, however, restricted to annual quotas on four sensitive items in the interest of the domestic industries in these sectors. These are vanaspati (one lakh metric tones), Copper products and Acrylic Yarn (Ten thousand metric tones each) and Zinc Oxide (2500 metric tones). The routes for bilateral trade can be mutually decided; in the present Treaty, twenty Seven mutually agreed routes are prescribed for bilateral trade. The Treaty provides for setting up Joint Committee in the event the imports under the Treaty result in injury to the domestic industry in each country.

Treaty of Transit: India provides transit facilities to the landlocked Nepal under the Treaty of Transit. 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. This Treaty provides for free movement of traffic-in-transit across territories of each other through mutually agreed routes for trade with third countries subject to taking measures to ensure that this does not infringe legitimate interests/security interests of each other. Traffic in transit is exempted from customs/all transit duties. The Treaty provides for exit/entry points as may be mutually agreed upon. India has allowed 15 transit routes to Nepal but so far not availed of this facility from Nepal. Merchant ships of Nepal is accorded treatment no less favourable than that accorded to ships of any other foreign country. Presently Kolkata/Haldia are the operational entry points for Nepal’s trade with third countries. They have requested for similar facilities at Mumbai and Kandla.

Agreement of Cooperation to Control Unauthorized Trade: India and Nepal have also signed an Agreement of Cooperation to Control Unauthorized Trade between the two countries. This Agreement was last renewed for Seven years with effect from 27.10.2009. The objective of this Agreement is to check illegal trade (smuggling) between the two countries. This Agreement has also been renewed w.e.f. 27.10.2009 in its present form.

Inter- Governmental Committee (IGC) at Commerce Secretary-level: Both countries have established a forum known as Inter- Governmental Committee at Commerce Secretary-level to address the problems relating to bilateral trade, transit facilities and prevention of Unauthorized Trade which meet as often as required.