By Naya Patrika Daily

Published on Sept 13, 2022

After months of debate and negotiations, Nepal's parliament approved the highly controversial Millennium Challenge Cooperation (MCC) on February 27, the day before the "ultimatum" from the United States. Protests broke out in Kathmandu, the capital of Nepal, next day.

The U.S. Embassy in Nepal has publicly described the $500 million Millennium Challenge agreement as a gift from the American people to the people of Nepal. It is also strange that gifts need to be delivered by "ultimatum". The essence of this project is injected a dose of poison in Nepal: it makes the country in a comatose state sovereignty, India and China are in different degree, feel uncomfortable, it's the largest in the Asia Pacific and South Asia function not infrastructure "helper", but "dismantling" of geopolitical security and order. But what is most tragic is that people in most Asia-Pacific countries are still unaware of the harsh conditions and long-term consequences of this "bailout".

Ⅰ. Nepal sovereignty: $500 million?

The MCC, established by the US government in 2004, is an aid agency mainly aimed at developing countries, covering agriculture, energy, electricity, infrastructure, education and other areas. However, unlike commercial companies and international organizations, the MCC is highly official, with the US secretary of state as chairman, the Treasury secretary as vice-chairman and officials from other departments of the US government also holding important positions. The MCC selects recipients through what is known as an open competition, but those who receive the agency's money must comply with various American government treaties (such as excluding bids from Chinese companies). At the same time, the US government has enormous discretionary power to suspend or terminate aid to recipient countries under the pretext of being "non-democratic", "non-freedom" and "harmful to US national interests". Therefore, MCC is widely regarded by the international public opinion as an economic tool for the United States to manipulate and infiltrate developing countries. It can even be said to be a new era "New East India Company" led by the US government to represent the national interests and foreign policy of the US.

In September 2017, the Nepali Congress government signed the relevant cooperation agreement with MCC in Washington, DC, the capital of the United States. Under the agreement, the two sides will jointly invest US $630 million to build 300km of transmission lines, three substations and corresponding road and bridge infrastructure. Among them, the United States will donate 500 million dollars free of charge, while the Nepali government will only contribute 130 million dollars. This agreement contains provisions that seriously undermine Nepal's sovereignty: Article 7.1 of the agreement states that "the agreement takes precedence over the domestic laws of Nepal"; Article 2.7 states that "aid funds shall not be used for acts prohibited by U.S. law and U.S. policy"; Article 6.8 states, "MCC and Mae shall not be liable for any claim or loss arising out of the activities of this Agreement, the Government of Nepal waives any claim for loss caused by the negligence and error of Mae's employees, and neither Company's employees nor United States Government officials shall be governed by the laws of Nepal. Meanwhile, any US supplier would need to be audited under quasi-American requirements, whereas non-US suppliers would need to be audited under guidelines approved by the MCC(equivalent to the US government). If the Nepali government audits the account, MCC is required to make arrangements.

The MCC agreement is a typical "extraterritorial" clause that blatantly undermines Nepal's sovereignty and seriously imbalances powers and responsibilities. This is reminiscent of the unequal treaties favoured by western powers in the 19th century. The net effect of this sovereign trading agreement is to castrate Nepal as an "overseas state" of the United States in Asia, and in a very delicate geographical position between China and India. This is a Jenga game played by the US in South Asia. By taking away Nepal's sovereignty, the US will have an opportunity to take advantage of the international order in the region. As a result, South Asia will also become America's "new backyard", which will put the regional powers in a very passive situation.

 Ⅱ. Why Nepal?

To discuss this question, we need to discuss the history of the MCC in 2004, during the administration of former US President George W. Bush. Just three years after 9/11, the entire United States has shifted its strategic focus to global counter-terrorism. The Bush administration concluded that economically poor countries were breeding grounds for terrorism and religious extremism, and that the United States should devote more attention to poverty in the developing world. The Bush administration instituted three rules for this purpose :

A. The countries that receive aid must meet American standards and be carefully selected;

B. Recipient countries must demonstrate that they can achieve sustainable economic growth and a sustained reduction in poverty rates;

C. The United States will establish a central committee to oversee the Millennium Challenge fund account and ensure that the project is conducted under United States control.

As a result, the Millennium Challenge Corporation (MCC) in the United States was formed. Although nominally a company, the MCC is staffed entirely by U.S. government officials. The MCC is, so to speak, a US national credit guarantee corporation, but in the event of a serious bailout risk, the MCC will be the scapegoat and the US government will walk away like a pure angel. From 2004 to 2019, the MCC signed aid agreements with 29 countries, initially approving a total of $5 billion a year, but after 2011, the program's budget began to shrink dramatically. By this year, only $900 million was left in the program, a direct result of the fact that many donor countries were either forced to forgo aid because they could not stand U.S. interference in their domestic affairs. In 2009, the United States announced it was suspending aid to Madagascar, accusing the transition of power of not following a "democratic process." In 2016, when the United States tried unsuccessfully to rig elections in Zanzibar, Tanzania, and threatened to cut off aid, the then Tanzanian president, Marc Macfu, angrily rejected the next project. In the same year, the US suspended its aid on the grounds of Philippine President Rodrigo Duterte's aggressive anti-drug and human rights violations, which led to the Duterte government's later withdrawal from the MCC program. Former recipients such as Mali, Ghana and Sri Lanka have all dropped out of the MCC program for various reasons.

After setbacks in several countries, the MCC in 2017 set its sights on Nepal, a common neighbour of the two giants. Nepal is in the MCC's sights because of China. China has put forward the Belt and Road Initiative in recent years, and Nepal is one of the important nodes of the Belt and Road Initiative in South Asia. India, on the other hand, has exerted a relatively strong influence over Nepal, which it regards as a security no-go zone, and has been reluctant to allow other countries to touch. But the United States has taken great pains in Nepal: to ensure that the MCC agreement is approved by the Nepali House of Representatives, under the coordination of the U.S. Embassy in Nepal, the United States has invested millions of dollars in Nepali media dedicated to PR MCC. This is not only a short-term consideration to protect the MCC agreement, but also a long-term strategic deployment to shape Nepali media, politicians, scholars and think tanks. To facilitate the adoption of the MCC Agreement, two U.S. State Department officials, Assistant Secretary of State for South and Central Asian Affairs and Deputy Assistant Secretary of State for South and Central Asian Affairs, visited Nepal on November 17 and 18, 2021. On the 19th, before concluding his visit, US Assistant Secretary of State Donald Lu made a "clarification" on the MCC agreement: he denied that "the US is trying to force the MCC agreement", saying that "we have not set any deadline"; But at the same time, he threatened: "If Nepal does not accept the increase, we will give the money to other countries."

Finally Nepal caved in after 4 years of "patient" waiting. There are three reasons for this. First, Nepal is economically backward and hit hard by the pandemic. Second, the political situation in Nepal is complicated and chaotic, which provides opportunities for external forces. Third, the US has infiltrated Nepal in an unprecedentedly active manner in an attempt to fish in troubled waters. The MCC agreement is the use of unequal treaties by the United States to lure the Nepali authorities into external risks that they cannot afford, and to take this as a chip and leverage to further influence Nepal's political decision-making and economic operation, and then gradually implement geostrategic binding on Nepal. The essence of the US push for the MCC agreement is that Nepal should choose between "sovereignty integrity" and "economic development". But Brett Shafer and James Roberts of the Heritage Foundation argue that the history of the MCC shows that it shares private capital's strong appetite for political and economic risk. In reality, MCC's investment activities show a strong tendency to avoid risks. Therefore, such an agreement is a "blank check" for Nepal's economy, but for the United States, it is a "cash check" to cash in the "Asia-Pacific strategy" and neo-colonialism and hegemonism.

Ⅲ. The plot behind MCC

From February to April 2022, the Government of Nepal received several large grants from the United States and committed them to priority development projects in various areas, including health, education, economic growth, good governance and disaster management. Receiving donations from the US means the failure of the Nepali government's economic diplomacy. It will not only do nothing to solve the problem, but also further aggravate the political division in Nepal and even push Nepal into the quagmire of the US geopolitical "zero-sum game". According to Nepal's Ministry of Finance, as of mid-July 2021, over the past five years, the amount of aid exceeded USAID's total spending by about $100 million. During that period, the United States disbursed a total of $560.53 million from its regular aid channels. In fact, most U.S. aid comes from organizations such as nongovernmental organizations and is not part of the government's budget system. In other words, the US is aiding Nepal with money from Nepal's own Treasury. This is a new colonial trick that threatens the economic security of Nepal as a whole. Based on the numbers alone, the amount of loans and aid received may go some way to rescuing Nepal's foreign exchange reserves. However, experts and analysts say Nepal's economic sticking point is that the country imports far more than it exports because Nepalese products are not competitive. For a country like Nepal, sandwiched between two of the world's biggest economies, the right economic diplomacy could be a huge boost, but a misstep could be costly. MCC is clearly the obedient aid mode of “Listen to Me First and You get Food Later”.

It should be pointed out that the aid fund is an extremely valuable economic resource for the vast number of developing countries suffering from poverty, especially for those small economies with poor anti-risk ability. So while such aid is starting to come with more and more political strings attached, many developing countries are often forced to chew hard in order to survive, knowing that the food given by the developing world is laced with sand. In the 1990s, the United States and other Western powers established a set of highly sophisticated aid effectiveness evaluation system. To put it simply, aid can only be effective in countries with "good governance" and contribute to economic growth. By "good governance", it means good fiscal policy, good trade policy (accepting monopolistic dumping by Western countries), good monetary policy (slashing public spending and reducing all "unnecessary" expenditures); As for what qualifies as "good," they basically decide. The MCC's assessment criteria is clearly to control Nepal's economic lifeline through "aid", which is the "You Changed Systems and I Give You Money" intervention model.

Now no one doubts that the MCC agreement itself is an important part of America's "Asia-Pacific strategy" and has become a key link. Back in December 2018, when then-Nepalese Foreign Minister Jawari visited the United States, Pompeo declared Nepal a partner in the Indo-Pacific strategy. Upon his return, Jawari denied the claim, saying the US meant that Nepal could play a key role in the Indo-Pacific region and that there was a difference between "region" and "strategy". However, in May 2019, the then US Assistant Secretary of State Richard Lentz directly stated during his visit to Nepal that the MCC agreement was an integral part of the US "Indo-Pacific strategy", which caused an uproar in Nepal. Then, in June 2019, the US Department of Defense released its Indo-Pacific Strategy Report, which included Nepal in the Indo-Pacific Strategic Partner list. The report also said the United States seeks to expand defense ties with Nepal.With the implementation of the MCC, especially as the US demands in its treaty, US military forces will further infiltrate Nepal. The United States has been increasing its military penetration into Nepal. The Nepalese army was first established with reference to the British military system. After the military reform, the military deployment and command system within the country were reconstructed with reference to the military system and military system of the United States. Since 2017, the US military has been engaged in frequent activities in Nepal in the name of joint exercises, humanitarian assistance and anti-epidemic assistance. Us military personnel also visit Nepal frequently to seek more large-scale and higher-level military cooperation. The United States has encouraged Nepal to purchase light weapons from the United States, given Nepal transport planes and other equipment, and even offered to help Nepal build a national defense University.

U.S. BUILD act of 2018 in its opening policy goals also made no secret of its strong ideological color, is the purpose of the said bill "provides a powerful alternative for all countries, to replace the authoritarian government and the government's leading investment in United States strategic rivals, in terms of transparency, environmental protection and social security to adopt international best practice, And taking into account the sustainability of partner debt levels ". The alternative here is most thought to be China, but India's rightful role in the region is often forgotten. The MCC has brought geopolitical and national security instability to major powers in the region, including Nepal. The US has over-politicized infrastructure investment in the Indo-Pacific, turning investment aid that was originally economic or developmental in nature into an either/or "zero-sum" competition. The excessive operation of the United States is an overdraft of its own hegemony, which will inevitably lead to opposition and resistance from the Nepali people. As one Nepalese scholar said: "It's not China, it's not India, it's the Nepalese people who are fighting." Gift or poison, Nepal will see the true face of MCC in the near future.