Political positioning . . .
India issued heavy restrictions on imports of Malaysian palm oil in early January. The ban is a strong reaction to criticisms by Malaysian Prime Minister Mahathir Mohamad. Mahathir has continually sided with fellow Muslim state Pakistan over its Kashmir dispute with India, and has continually censured Indian Prime Minister Narendra Modi’s already controversial citizenship bill. Even though both countries signed a trade agreement in 2018, relations have grown tense since Mahathir’s election, beginning with the refusal of India’s request to extradite Zakir Naik, a contentious Muslim preacher New Delhi accused of spreading hate speech.
Malaysia’s loss, Indonesia’s win . . .
India’s ban places the Malaysian palm oil sector in dire straits since India is its main market, importing 28 per cent of Malaysia’s palm oil exports in 2018. Indian importers have switched to buying palm oil from Indonesia after receiving ‘unofficial’ instructions from New Delhi. Jakarta’s palm oil businesses stand to make windfall profits from the surge in demand and the additional bonus of being able to charge an average C$30 premium per tonne of crude palm oil. Malaysian traders and refiners estimate exports to India will hit their lowest point in a decade, from approximately 350,000 tonnes per month on average in 2019 to just 10,000 for February 2020. Malaysia has attempted to appease New Delhi by promising to import more Indian sugar, but positive results have yet to materialize.
Multilateralism separating like oil and water . . .
This latest politically-motivated trade spat is yet another example of weaponized trade tactics made popular by the Trump administration. Modi’s administration is also increasingly adopting Beijing’s playbook in using trade to punish critics on ‘domestic’ matters. Middle powers like Malaysia and Canada have to navigate an increasingly hostile international environment and watch what they say to avoid sparking severe trade retaliation. This erodes trust in international trade, corrodes relationships between larger and middle economies, and undermines efforts for multilateralism like the Regional Comprehensive Economic Partnership. Canada, Malaysia, and other middle powers, finding themselves with less space to manoeuvre on trade and human rights issues in countries like India, face a long road to asserting themselves.
- Al Jazeera: Malaysia’s PM defends criticism of India despite palm oil curbs
- Free Malaysia Today: India’s January palm oil imports from Malaysia could hit 9-year low, says report
- South China Morning Post: Modi thinks he is Xi Jinping, but protests show India is not China