A Step Ahead - Revival Of India-China Border Trade Via Nathu La

1. Introduction

With changing geopolitical forces, the trade partnership between India & China is crucial. The route that resumed commercial activity on 1 August 2026, after a six-year suspension, is the “Nathu La Pass” trading point in the East of Sikkim, at approximately 14,140 feet on the India-Tibet Autonomous Region border.¹

It is often loosely referred to as the “Doklam route” because Nathu La sits in the same broader sector as the Doklam plateau, the site of the 73-day India-China military standoff of June-August 2017, triggered by China's road-building activity in territory disputed between China and Bhutan. Doklam itself is not, and has never been, a notified border trade point. Businesses should keep this distinction clear: the trade corridor is legally and administratively “Nathu La,” governed by a specific bilateral framework, while “Doklam” remains a live boundary and security question involving a third state (Bhutan) that is not part of the trade pact.

2. Foundation of Nathu La Trade

Border trade through Nathu La does not rest on ordinary customs and foreign trade law alone; it sits on a distinct bilateral treaty architecture built up over three decades:

• Memorandum on Resumption of Border Trade (December 1991) and the Protocol on Entry and Exit Procedures for Border Trade (July 1992), the foundational instruments between India and China on border trade generally.
• Memorandum on Expanding Border Trade (23 June 2003), which formally recognised Nathu La as the third designated trading point, alongside Lipulekh Pass (Uttarakhand) and Shipki La (Himachal Pradesh).
• The trade was opened on 6 July 2006, but halted in 2020 due to the deterioration of bilateral relations after the Galwan clash and the Covid-19 pandemic, and resumed only after various diplomatic efforts till 2025-26, including the understanding recorded on 19 August 2025 and Foreign Secretary Vikram Misri's visit to Beijing in July 2026.

Businesses should note this is barter-and-permit trade under a bilateral government-to-government framework, not a Free Trade Agreement, not a bonded warehousing arrangement, and not subject to the ordinary tariff schedule in the same manner as trade through a notified sea or land customs port. This distinction has generated real disputes in the past: in earlier trading seasons, Chinese customs authorities at times sought to levy duty on consignments that Indian traders regarded as duty-free under the 1991-92 Memorandum, prompting intervention by the Ministry of External Affairs. Traders should bear in mind that duty-free treatment, while intended, has historically been contested at the ground level and is not self-executing.

3. Framework for operations in 2026

According to the agreed-upon Standard Operating Procedures for the season, outlined at the first function, which took place at the Nathu La on 1 August 2026, the following are critical aspects.

• Trading window: May to November of every year (Running season about 6 months, depending on the weather at the given altitude).
• Trade days: Monday to Thursday only.
• Trader Cap: A capped number of registered traders will be allowed passes in a season (up to 400 as of the re-opening); if not now, then on a rolling basis thereafter, after verification.
• Value ceiling: Currently, each registered trader can sell a maximum of goods worth ₹2 lakh daily, which traders and the Sikkim government had formally requested the Centre to increase.
• Security posture: The Indo-Tibetan Border Police has deployed security forces at the Nathu La Integrated Check Post to guard it, including the first all-women ITBP unit deployed at the check post during the season.

4. Permitted Goods

The trade operates on a closed, notified list currently reported in trade press as comprising 36 items on each side, though the last officially confirmed list on record ran to 20 items, last revised in 2012, rather than an open tariff line structure. This is the single most important compliance point for any trader: goods outside the notified list cannot lawfully move through this channel, however commercially attractive².

Exports permitted from India presently include handicrafts and handloom products, blankets and textiles, ready-made garments, agricultural implements, processed food products, dried vegetables, rice, barley, spices and herbs, utensils, and traditional religious articles.

Imports permitted from the Tibet Autonomous Region (China) side presently include ready-made garments, footwear, yak products (including yak tail), raw silk and wool, sheep and goat skins, borax, salt, sugar, butter, quilts, and, reflecting the list's colonial-era vintage, livestock such as horses, sheep, and goats.⁵

Traders have historically been critical of this list as outdated (the reference to livestock trade being a recurring complaint), and both the Sikkim state government and trader associations have formally petitioned the Directorate General of Foreign Trade to expand and modernise the schedule. Any business has to be careful about the permitted goods list and the ₹2 lakh daily ceiling, which are under active representation for revision and should be re-verified against the current DGFT/Ministry of Commerce notification proactively before a business commits to a season's trading plan.

5. ^{Compliance Checklist for Traders}

• Registration and Security clearance of traders

The participation is limited to the local residents who are living in the border regions of Sikkim, historically known as border traders. Registration is subject to verification by the District administration and the State Intelligence Branch before a trade pass is granted. This is not open to any commercial entity that has been incorporated through another part of India.

• Trade pass

The operative authorisation document is a valid and current trade pass issued during the border gate/cross-border trade ceremony and protocol, which is in addition to and apart from any DGFT Importer-Exporter Code that may apply to regular cross-border trade.Note that the Foreign Trade Policy itself exempts the persons trading through Nathula (amongst various border points) from obtaining an IEC with a CIF value ceiling per consignment.

• Product-list conformity

Each delivery should be verified, consignment by consignment, with the existing list of notifiers. The concept of "similar goods" does not have a general latitude.

• Value-limit tracking

A hard administrative limit of daily transaction amount per trader needs to be monitored and not just indicative of ₹2 lakh³. The CIF value of a single consignment through Nathula has been capped as ₹2, 00,000 in the DGFT Handbook of Procedures⁴ for the IEC exemption purposes, but this is not the same as the trader level daily CIF value cap set by the SOP.

• Window compliance (seasonal and weekly).

The SOP does not allow for movement of goods and/or personnel outside of the May-November season and the Monday-Thursday trading days.

• Duty treatment

The bilateral Memoranda consider duty-free treatment of listed goods, but traders must keep full documentation (list conformity certificates, pass records) as there is a history of disputes regarding duty demands at the Chinese counters. In case of any dispute, they should have a possible escalation process through the Sikkim Department of Commerce and Industries and the MEA.

• Domestic tax treatment

In addition to border-trade duty issues, the GST implications of goods within this channel (place of supply – whether or not the transaction has been regarded as an export/import for GST purposes in the past, outside the usual customs framework of containerised trade) require specific advice.

• Foreign exchange treatment.

Such trade has been traditionally done in barter or controlled currency, so the timing of payment is not left to the bona fide foreign exchange settlement guidelines of the RBI/FEMA, as these differ from the general current account guidelines.

6. Conclusion:

The reopening of Nathu La should not be interpreted as a general reopening of Indian-China trade, but rather as a confidence-building move of symbolic and border-livelihood value, and clearly not as any form of opening a path to a solution to the Doklam issue. The more significant near-term developments that could impact businesses with cross-border trade and investment interests in the broader India-China relationship are the parallel talks for resuming direct flight connectivity, an updated Air Services Agreement, and visa facilitation — in addition to any steps in the two other notified areas, Lipulekh and Shipki La. Nathu La is presently a narrow, permit-controlled, list-driven trade route, and any client mandate based on Nathu La should be similarly narrowly designed, taking the list of goods and the ceiling on the value of those goods into account and confirming these before the trade is executed with the live DGFT notification.

 The following official sources were relied upon or should be checked for the current position. Given the pace of developments in this trading season, primary sources (3), (6) and (7) in particular should be re-verified against the live notification for any legal/business decisions.

1. Ministry of External Affairs - Press release on the inaugural function for the resumption of border trade at Nathu La (1 August 2026) - https://www.mea.gov.in/press-releases.htm?dtl%2F4189%2FOn_the_inaugural_function_for_the_resumption_of_border_trade_between_India_and_China_held_at_Nathu_La=
2. The details of items which have been allowed to be traded through Nathu La border from both sides are as under- Trade from Nathu La Border in Sikkim
3. General Provisions Regarding Imports and Exports-,https://content.dgft.gov.in/Website/dgftprod/6978673f-9c59-4aac-a612-084df7b47e39/HBP2023_Chapter02.pdf
4. DGFT Handbook of Procedures - https://www.dgft.gov.in/CP/?opt=ft-procedures

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.