Wedged between India and China, Nepal has historically followed a policy of nonalignment, both regionally and globally. The country's dependence on India for trade and transit routes to the south, however, and both nations' reliance on common water resources, make Nepal's relations with India especially sensitive. Since 1950, these relations have pivoted around a Treaty of Peace and Friendship that gives India significant leverage over the kingdom on economic and security matters. Historically, the NC has advocated closer ties with India, but the communist parties, particularly the ML faction, have resisted accommodating India's influence in the kingdom. Tapping into popular resentment against perceived Indian hegemony, "nationalists" have urged maintaining equal distance between India and China.
There has been bitter debate over the provisions of the 1996 Mahakali River Treaty between Nepal and India. This treaty, which provides for joint development and utilization of the river's irrigation and hydroelectric potential by the two countries, has drawn fire as a sellout of Nepal's sovereignty and interests. The Pratinidhi Sabha has ratified this treaty, but agreement on its implementation remains elusive. Other ongoing issues include the border dispute over the strategic Kalapani territory in western Nepal and the fate of the over 100,000 ethnic Nepalese refugees from Bhutan.
Nepal's Maoist rebels have been listed as a terrorist group by the U.S. government, and President Bush pledged US $20 million in aid to Nepal for the fight against them. The Maoists, led by Pushpa Kamal Dahal (known as "Prachanda"), believe that the United States is pushing for a military solution instead of peace talks and reconciliation.
Nepal plays an active role in the South Asian Association for Regional Cooperation (SAARC) and hosts the organization's secretariat. SAARC promotes regional cooperation, including trade expansion and economic and social development among South Asian member nations. Nepal is also a member of several multilateral organizations, including the World Bank, the International Monetary Fund (IMF), the Colombo Plan, and the Asian Development Bank; the country continues to participate in various specialized agencies within the United Nations, voting with the nonaligned movement. In May 2000, Nepal began the process of accession to the World Trade Organization (WTO), a membership which remains controversial as many Nepalese believe that new trade regulations may do more harm than good.