As a small, landlocked country wedged between two larger and far stronger powers, Nepal seeks good relations with both India and the People's Republic of China. Nepal formally established relations with the PRC in 1956, and since then their bilateral relations have generally been very good. Because of strong cultural, religious, linguistic, and economic ties, Nepal's association with India traditionally has been close. India and Nepal restored trade relations in 1990, after a break caused by India's security concerns over Nepal's relations with the PRC. A bilateral trade treaty was signed in 1996.

Nepal has played an active role in the formation of the economic development-oriented South Asian Association for Regional Cooperation (SAARC) and is the site of its secretariat. On international issues, Nepal follows a nonaligned policy and often votes with the Nonaligned Movement in the United Nations. Nepal participates in a number of UN specialized agencies and is a member of the World Bank, International Monetary Fund, Colombo Plan, and the Asian Development Bank.

Human rights issues
Police forces sometimes use excessive force in quelling violent demonstrations. In addition, there have been reports of torture under detention and widespread reports of custodial abuse. In 2000, the government established the Human Rights Commission , a government-appointed commission with a mandate to investigate human rights violations. To date, the Commission has investigated 51 complaints. The government is sometimes slow to follow the Commission's recommendations or to enforce accountability for recent and past abuses.

Some restrictions continue on freedom of expression. Trafficking in women and child labor remain serious problems. Discrimination against women and lower castes is prevalent.

Disputes - international: joint border commission continues to work on small disputed sections of boundary with India; India has instituted a stricter border regime to restrict transit of Maoist insurgents

Illicit drugs: illicit producer of cannabis for the domestic and international drug markets; transit point for opiates from Southeast Asia to the West