To MCC or not to MCC

What was once just a small flame has now been kindled into a full-blown inferno. I wish I could say this has been a civil discourse about legitimate concerns over hegemony, but unfortunately, it has been an embarrassing display of political fraud with wilful mischaracterizations for short-term political gain. The entire ‘debate’ over the MCC has been a tad bit shameful for our public discourse. Conspiracy theories propounded by political hacks have been given free air time on national television, and reproduced wholesale in print without so much as a rejoinder. Legitimate voices, even while raising relevant concerns, have too easily succumbed to personal attacks and mischaracterizations in their arguments.

And as politicians and ‘experts’ bicker on television, the radio, and newspaper columns, the people have gotten more and more radicalized by blatant disinformation circulated by political actors with vested interests. Death threats have even been issued against government officials. A taxi driver casually remarked to me recently that politicians were preparing to “sell the country”. In every chiya pasal, chautara and bhatti, the conversations appears to be that the MCC will allow American troops to build a base in Nepal and will turn Nepalis into American slaves.

For any democracy, widespread debate and discussion over a foreign grant is a good thing. It is a sign of democracy in action. I only wish that the discussions were over matters of consequence rather than conspiracies cooked up wholesale by partisan political actors.

Here, I am not going to argue over whether the MCC should or should not be passed by Nepal’s Parliament. Rather, I want to lay out the facts about what the MCC is and how it came to be, and the various concerns, however legitimate or illegitimate, that have been raised. Hopefully, for those who still do not understand what the whole fuss is about, this will serve as a primer.

What is the MCC?

The MCC is an American foreign aid agency that is independent and separate from the US’ traditional aid agency, USAID. It was created in 2004 by the George W Bush administration as an alternative to USAID’s largely bureaucratic and ‘soft development’ focused approach. The MCC would provide time-bound grants that would be administered by the grant-receiving country itself through an independent agency (as opposed to a USAID country office) and focus largely on physical infrastructure.

In order to be eligible for the grant, countries have to be low-income, as classified by the World Bank, satisfy certain criteria, including economic freedom, rule of law, corruption control, and ‘investment in people’. You can see how Nepal fares on these criteria here.

Countries who wish to receive the grant also have to apply for themselves, as opposed to being chosen by the US. They have to present their priority areas for investment and ‘compete’ for funding. So far, 25 countries have signed and completed their MCC compacts; eight are currently in development; seven are being implemented; two have been terminated by the MCC itself, and one (Sri Lanka) has been discontinued. The full list is here.

When did Nepal sign up for the MCC?

Nepal began working with the MCC to identify priority areas for investment in 2011. Multiple governments, including that of the Nepali Congress, the CPN-UML, and the Maoists, all worked and negotiated with the MCC in order to present Nepal’s proposal. The MCC’s Nepal office, Millenium Challenge Account-Nepal, was established in 2015 under the Finance Ministry, and an agreement between the Government of Nepal and the MCC was signed in September 2017. Then Finance Minister Gyanendra Bahadur Karki, who is currently the Law Minister, signed the MCC Compact on behalf of Nepal.

You can read the entirety of the MCC Nepal Compact here.

How much money is Nepal getting and where will it go?

Nepal will receive $500 million as a grant for two projects — an Electricity Transmission Project that will “build around 315 kilometers of double circuit high capacity 400 kV transmission lines and three new electricity substations”, and a Road Maintenance Project that will work on over 70 kilometers of road on the East-West Highway in Dang district. The electricity project will receive $398.2 million while the road maintenance project will receive $52.2 million.

Nepal itself will also have to chip in $130 million of its own for administrative, logistical, and other costs.

Why does the MCC require Parliamentary ratification?

The MCC requires Parliamentary approval in any country that it operates in. The US has argued that Parliamentary ratification will allow “transparency and an opportunity for Nepalis to understand the project.” But many believe that the US is attempting to safeguard against political instability that is common in low-income countries like Nepal. Frequent changes in government tend to land large-scale infrastructure projects in limbo (see Melamchi) and as the MCC Compact is a five-year contract, the projects need to be completed in time.

There is also a clause (Section 7.1) in the MCC Nepal Compact that states:

• The Parties understand that this Compact, upon entry into force, will prevail over the domestic laws of Nepal.

This clause is related to, and in part derived from, Section 6.4 which states:

• This Compact is an international agreement and as such will be governed by the principles of international law.

All international treaties signed by the Nepal government prevail over domestic laws in case of conflict, as per the Nepal Treaty Act, and require Parliamentary ratification. The relevant portion of the Nepal Treaty Act states:

• In case of the provisions of a treaty, to which Nepal or Government of Nepal is a party upon its ratification accession, acceptance, or approval by the Parliament, inconsistent with the provisions of prevailing laws, the inconsistent provision of the law shall be void for the purpose of that treaty, and the provisions of the treaty shall be enforceable as good as Nepalese laws.

The MCC, in its response to a series of questions forwarded by the Nepali Finance Ministry, said:

• Based on MCC's experience in other countries, a compact's status as an international agreement is critical to ensuring that implementation can proceed without delay, which is particularly important given the limited five-year implementation period of a compact.

Seems fairly straightforward, how did the controversy come about?

The MCC has been used largely as a political bludgeon by various politicians, most notably Bhim Rawal of the CPN-UML. Rawal, a fierce opponent of his party chair KP Sharma Oli, began to object to the MCC while Oli was prime minister. He has since consistently claimed that the MCC Compact is against Nepal’s national interest and harms Nepal’s sovereignty. Although Oli was reportedly in favor of getting the Compact passed by Parliament during his tenure, some in the Maoist party, led by Dev Gurung, were reportedly against the Compact and placed pressure on then House Speaker Krishna Bahadur Mahara not to introduce the Compact for ratification.

Since the Oli government fell and Sher Bahadur Deuba of the Nepali Congress came to power, the controversy has ratcheted up in tone and frequency. Criticism is now coming from all sections of society, including former Attorney General Yubaraj Sangraula and infrastructure beed and Sajha Party spokesperson Surya Raj Acharya. The latter two, however, have made specific criticisms of certain clauses, refraining largely from conspiracy theories. The specific points of issue (IPS) they have raised are — the MCC’s relationship with the US’ Indo-Pacific Strategy, the clause that allows the MCC Nepal Compact to prevail over domestic laws, the alleged immunity for MCC officials from Nepali laws, and auditing and intellectual property rights. Let me try to address these controversies one-by-one.

If you’d like to read the MCC’s response to these and many other issues, you can find its FAQ here.

What is the MCC’s relationship with the IPS?

After much speculation over this point, in May 2019, a visiting US State Department official said that the MCC was “very much” a part of the IPS, sparking a firestorm of criticism and controversy. This is a point that former Attorney General Sangraula has raised, referring specifically to two documents — the Trump administration’s 2017 National Security Strategy and US Department of Defense’s June 2019 Indo-Pacific Strategy Report. In particular, Sangraula quotes from the National Security Strategy’s Page 39:

• The United States will use diplomacy and assistance to encourage states to make choices that improve governance, rule of law, and sustainable development. We already do this through the Millennium Challenge Corporation, which selects countries that are committed to reform and then monitors and evaluates their projects.

Sangraula connects this particular mention of the MCC in the National Security Strategy with the Department of Defense’s 2019 IPS report, stating that the US’ Indo-Pacific Command has twice held talks with Nepal over the creation of a “land army”. The specific Nepal portion of the report is reproduced below:

• The United States seeks to expand our defense relationship with Nepal, focused on HA/DR, peacekeeping operations, defense professionalization, ground force capacity, and counter-terrorism. Our growing defense partnership can be seen in the establishment of the U.S. Army Pacific-led Land Forces Talks in June 2018, our seniormost military dialogue with Nepal. This year has already seen several senior level visits to Nepal by the USINDOPACOM Commander and Deputy Assistant Secretary of Defense for South and Southeast Asia to further advance our defense relationship.

From what I can glean, these talks have little to do with the creation of a land army but rather, talks between the Nepal Army and the US Indo-Pacific command regarding bolstering relations between the two armies. Although I am not privy to any inside information regarding the Army, it is quite inconceivable that a new land army would be created in Nepal under the command of the US. For one, it would be a major incursion into a country that has no hostilities or formal base agreements with the US. And for another, any such incursion would invite the wrath of both India and China, neither of whom would welcome a US military presence in the region.

So while Sangraula adroitly connects the dots, I fail to see how this would translate into a US military presence in Nepal. This assessment in particular has drawn the ire of the Nepali public, which appears to believe that the MCC will lead to the US invading Nepal or at the very least, establishing a military base here.

To me, this perception is not just misguided but farcical. The US simply cannot establish a base in another country on the basis of a grant agreement. Any such action would require authorization and agreements with the Ministry of Defense, the Home Ministry, the Foreign Ministry, and the Office of the Prime Minister, not to mention heated debate in Parliament.

In fact, the US’ MCC Act 2003 categorically states:

• PROHIBITION ON MILITARY ASSISTANCE AND TRAINING—Assistance under this section may not include military assistance or military training for a country.

So if the MCC Nepal Compact is a clandestine ruse to bring in American troops, it would have to be in conflict with the US’ own law regarding the MCC. The US would be violating its own legislation, passed by its Congress. That would open up any such action to not just international rebuke but legal challenges in the US itself.

Furthermore, the IPS is the US’ foreign policy strategy. It is not an agreement or a compact that any country signs up to. The US conducts its foreign policy on its own and does not require any country, even its allies, to take part in its foreign policy. Its strategy is merely that, a ‘strategy’, i.e., a plan. Although the MCC has categorically stated that it is not a part of the IPS, it could very well be a part of the economic wing or the governance wing; it does not necessarily have to be a military part.

Will the MCC Nepal Compact prevail over domestic laws, including the Nepal constitution?

Yes and no. The MCC Nepal Compact, as an international treaty, will prevail over any conflicting domestic laws. The keyword here is ‘conflicting’. This is standard for any international agreement or treaty. This does not mean that Nepal is giving up its sovereignty. In fact, Nepal has signed up to numerous international treaties that prevail over domestic laws. Almost all of the UN treaties and the Vienna Convention on Diplomatic Relations prevail over domestic laws. The latter is what gives diplomats immunity from domestic law. It is important to understand that this does not mean MCC officials will be immune to all laws and can run roughshod over Nepali laws. They will only be immune to claims arising from the MCC’s activities.

This, of course, does not mean that the Compact will supersede the constitution. The constitution is not so much a set of specific laws as a guiding document for the creation of laws. It is frankly embarrassing for Nepal to have to ask the MCC whether the Nepal compact will prevail over the constitution because that is really not how constitutions or international agreements work. In its reply to the Finance Ministry, the MCC states bluntly: “The Constitution of Nepal prevails over the MCC Nepal Compact.”

You can read the MCC’s response to a whole litany of questions from the Finance Ministry here.

Will Nepal’s Auditor General be allowed to audit the MCC’s activities in Nepal?

This is among the most bizarre of claims made by both Sangraula and Surya Raj Acharya. I do not know whether this is a wilful misrepresentation or whether both these eminent personalities missed the part of the Nepal compact that explicitly states:

• The requirements of this Section 3.8(a) do not preclude the Office of the Auditor General of Nepal from conducting audits of MCA-Nepal.

Here is the question put forward by the Finance Ministry and the MCC’s reply:

What about Intellectual Property rights?

This is one area where the MCC Nepal Compact is quite unclear. The Nepal Compact states:

• The Government grants to MCC a perpetual, irrevocable, royalty-free, worldwide, fully paid, assignable right and license to practice or have practiced on its behalf (including the right to produce, reproduce, publish, repurpose, use, store, modify, or make available) any portion or portions of Intellectual Property as MCC sees fit in any medium, now known or hereafter developed, for any purpose whatsoever.

But the MCC’s reply says:

• The Government of Nepal owns all intellectual property created in connection with the compact program. MCC has no ownership right to any such intellectual property.

I understand this to mean that while Nepal owns the IP, it still grants the MCC the right to use that IP in any way the MCC deems fit. This does not mean that the MCC owns the IP, just that it is able to make use of it. For instance, a musician can grant a film the right to use their piece of music but that does not mean the filmmakers now own the music; the IP still rests with the musician.

How long will the MCC remain in Nepal?

In his debate with former Foreign Minister from the Nepali Congress Prakash Sharan Mahat, Surya Raj Acharya repeatedly claimed that the current Compact allows the MCC to remain in Nepal indefinitely, even past its five-year tenure. You can watch the debate (in Nepali) below:

The debate is a poor showing for Acharya as he attempts multiple times to mischaracterize Mahat’s points in order to take personal offense. But that aside, Mahat’s response is that Nepal will only be responsible for assessment, auditing and evaluation after the five-year period and that the MCC will definitely not be remaining in Nepal indefinitely.

The MCC itself clarified:

Why is the US hell-bent on passing the MCC in Nepal?

This final question is one that has been circulating of late, especially with the arrival of senior MCC officials and the MCA-Nepal itself putting out a television advertisement touting its benefits. Nepalis are asking, if this is a grant and there is so much controversy, why doesn’t the US just withdraw? After all, it will be Nepal that will lose out on $500 million, not the US.

Well, the US too has something to lose here — international standing. The US is still the most powerful superpower in the world and that status is not just dependent on its military. The US employs soft power as much as hard power, and it cannot allow a tiny country like Nepal to reject it, especially when the US and Nepal have been friends for so long. A rejection of the MCC’s Nepal Compact would be a slap in the face of the US, a clear rejection of the dominant superpower. And even if Nepal claims that it is acting in its own interest, many would believe that Nepal chose China over the US. After all, the Finance Ministry’s letter to the MCC mentions concerns about China and the Belt and Road Initiative. This would not be a good look for the US. Power doesn’t mean much when even largely inconsequential countries like Nepal start to brazenly reject the US. This, I believe, is why the US wants the MCC Nepal Compact to succeed.

In conclusion,

I am not an infrastructure expert or a lawyer. I am simply a journalist who is exercising his critical faculties to assess the ongoing debate, and in my humble opinion, a mountain has been made out of a molehill. A debate such as this is necessary, of course, and should continue to take place in the future. But it would’ve been helpful had this debate focused on what is real, rather than a fanciful interpretation of what could happen. The Nepali public, political class, and intelligentsia appear to have a grossly inflated sense of self, especially when it comes to geopolitics. Nepal is not as important as many of us believe it to be.

Further, lost in the debate over the inconsequential have been numerous issues that do need to be engaged with. If Nepal is truly a socialist country, as stated in the constitution, then it needs to reevaluate its relationship with the kind of neoliberalism that is being promoted around the world by the US and the Bretton Woods institutions. Larger questions of foreign aid, especially when it comes packaged with the mantra of privatization, deregulation, and liberalization, need to be raised and debated.

The MCC is a grant with few strings attached and in that regard, it is largely benign. The same cannot be said about the numerous loans and packages that Nepal currently subscribes to from the World Bank, the Asian Development Bank, and even Chinese entities like the BRI and the Asian Infrastructure Investment Bank. There is a danger when grants are contingent upon privatization or deregulation of critical industries like electricity, health, and education. There is equally a danger of falling into a debt trap, which, let’s be honest here, is not just a Chinese practice; in fact, the International Monetary Fund and the World Bank have both long been accused of predatory lending and employing debt-trap diplomacy long before China entered the global order as a major player. These issues, unfortunately, cannot be debated animatedly on talk shows, and there are few political points to be scored.

Whether the MCC Nepal Compact will be passed by Parliament or not remains to be seen. Whatever happens, Nepal’s diplomacy and its wherewithal to hold intellectual discussions and debates over matters of import will have taken a beating. Perhaps a few politicians will score political points and bolster their rastrabadi credentials, but it will come at a heavy cost.

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