Of palm oil tariffs and politics
The Edge Markets (17/01/2020) NEW DELHI (Jan 16): India's high tariffs were in focus last year when the United States (US) President Donald Trump called New Delhi "the king of tariffs".
But navigating the non-tariff zone can be equally formidable for those trying to access the Indian market, as Malaysian palm oil exporters are discovering, due to the fact that it is full of political landmines.
In the past one year or so, Malaysian companies and trade officials have been in and out of a state of suspense with regards to the Indian palm oil import rules and tariffs.
The year 2019 began on a good note as New Delhi had cut import tax on the Malaysian refined palm oil to 45 percent from 54 percent.
Meanwhile, the import duty on non-Malaysian origin refined palm oil and crude palm oil (CPO) of any origin was reduced to 50 percent and 40 percent, respectively.
The concession on refined products was granted to Malaysia under the bilateral Comprehensive Economic Cooperation Agreement (CECA).
However, the move was strongly opposed by the domestic Indian oilseed crushers' group, which complained about a surge in imports of RBD palmolein (refined, bleached and deodorised form of palm oil).
India relied on imports for 70 percent of its edible oil requirements, and palm oil from Indonesia and Malaysia constituted almost two-thirds of its annual imports of 15 million tonnes.
One obvious question then was whether the Indian Government would be able to withstand the pressure from the Mumbai-based Solvent Extractors' Association of India (SEA).
In September, the Government yielded to lobbying efforts and raised the import duty on Malaysian refined palm oil to 50 percent as a "safeguard" measure to support the local refiners.
India should have been aware of the strong trade lobby and negotiate accordingly to avoid the rethink so soon.
The deal was good for the average Indian consumers, but SEA kept making regular dire warnings about the survival of local refining businesses.
Trade issues do mix with local and international politics, but the Malaysian palm oil exporters are experiencing more than what might be considered “normal".
The Kashmir dispute acquired a new dimension in August when New Delhi ended the troubled Himalayan region's autonomous status, but it had not figured immediately as an inconvenience in Malaysia-India relations.
India is playing the trade card to avoid wider public and diplomatic scrutiny.
However, the strategy is fraught with risks and would be severely tested if Malaysia decided to respond through tariff or non-tariff measures.
Although India had diplomatically protested against Malaysian Prime Minister TunDr Mahathir Mohamad’s remarks on Kashmir at the 74th session of the United Nations General Assembly in New York in September, it had not linked its palm oil purchases to the foreign policy issue.
However, the media leaks and statements from the palm oil importing lobby clearly showed that the commodity trade had been caught in politics.
Attempts to introduce uncertainty in the business came from SEA on Oct 21, 2019.
"It would be in fitness of things, as responsible Indian vegetable oil industry, (that) we avoid purchasing palm oil from Malaysia till such time (when) clarity on the way forward emerges from Indian government," read one statement issued by the trade body, which issued the call for the boycott to its members, "in your own interest as well as a mark of solidarity with our nation."
At stake is US$1.65 billion; the value of Malaysia palm oil exports to India in 2018.
News agency Reuters recently reported that importers have been told not to buy palm oil from Malaysia.
"Officially there is no ban on CPO imports from Malaysia, but nobody’s buying due to government's instructions," a leading unnamed refiner said in the report.
These refiners are paying US$10 extra to buy from Indonesia, which is already India's top CPO supplier.
On Jan 8, India's Ministry of Commerce issued a notification to place restrictions on importing refined palm oil.
The government may issue permits to import refined palm oil for public distribution, but SEA wanted the imports not to exceed 50,000 tonnes per month.
Since it is not a straightforward trade, it would be interesting to see what India's expectations from Indonesia are in buying palm oil at higher prices.
Malaysia, on its part, will have to find new markets as well as boost exports to its existing top markets, which include China and Pakistan.
Last year, Primary Industries Minister Teresa Kok expressed Malaysia's willingness to buy more buffalo meat and raw sugar from India to address some of the issues in bilateral trade, but things seemed to be a bit more complicated than they appeared.
It is beyond doubt that palm oil and bilateral trade friction, in general, will continue to tax the minds of Malaysian officials in the days to come.