India’s tea exporters are publicly supporting any government retaliation against Pakistan following a suicide attack that killed 40 central reserve police officers last week.
On Feb. 14 an SUV carrying explosives rammed a police convoy on the Jammu-Srinagar highway in the Pulwama district of the Indian state of Jammu and Kashmir, causing more than 100 casualties including 40 deaths. The caravan of 78 vehicles carried 2,547 Central Reserve Police Force personnel (the largest of India’s Central Armed Police Forces). The attack was believed to have been carried out by a Pakistan-based terror organization. Jaish-e-Muhammad (JeM) claimed responsibility. The government of Pakistan condemned the attack but refused to accept any blame.
In protest, India immediately withdrew Most Favored Nation (MFN) trading status, an agreement that lowers barriers to trade. The MFN status was first granted in 1996. Pakistan has not fully reciprocated.
India is also imposing a 200 percent duty on any goods imported from Pakistan. Anshuman Kanoria, who chairs the Indian Tea Exporters’ Association (ITEA), said members of the association are willing to sacrifice a market over principle.
“The nation and the security of our forces and fellow countrymen come first and commerce is secondary,” Kanoria explained. “We are not even thinking of trade with Pakistan now. We stand firmly behind the government and are waiting for direction from the government,” he said. “Exporters are not refusing shipment to Pakistan, but the mood among Indians is one of extreme anger. Exporters are adopting a wait and watch attitude and looking for direction from the Indian Government.”
The India Tea Association (ITA) supports restrictions. ITA chair Vivek Goenka told the Economic Times, the industry will look for other destinations like Egypt, the Middle East and Russia to export Indian tea. “What is more important is to protect our country from this sort of ghastly terror attack,” he said.
“Whenever there are tensions between the two countries, exports get impacted. We have seen that in the past also,” said Goenka. If Pakistan were to impose putative tariffs (tit-for-tat 200 percent levy) it would quickly lead to a cut off in supply. Pakistan is the world’s third largest tea importer and would likely turn to suppliers in Kenya and Sri Lanka.
“No decision has been taken on this…we are awaiting a government decision,” the Tea Board India chairman Prabhat Kamal Bezboruah told World Tea News.
Tea Board data reveals that tea exports to Pakistan during 2018 stood at 15.83 million kilograms, up by about 7.5 percent from 14.73 million kilograms shipped in 2017. Exports to Pakistan are estimated at $21 million (INRs154.71 crore) during the calendar year 2018 against $19.9 million (INRs142.44 crore) the previous year.
Impact of Withdrawing Favored Status
Apart from tea, India also exports rice, cotton, cement, powdered milk and fruits to Pakistan. Pakistan permits only 138 products to be imported from India through Wagah/Attari border land route.
Withdrawing MFN status will severely impact trade between the two countries. Currently India maintains a substantial trade surplus. Pakistan’s exports to India have consistently been about a fourth of what it imports from India, the MFN concessions notwithstanding.
Article 1 of General Agreement on Tariffs and Trade (GATT), 1994, requires every World Trade Organization (WTO) member country to accord MFN status to all other member countries.
India accorded MFN status to all WTO member countries, including Pakistan, from the date of entry into force of the so-called Marrakesh Agreement, establishing the WTO. The WTO is the only global international organization dealing with the rules of trade between nations. The 164-member countries of the WTO represent 98 percent of world trade. Only a handful of very small countries do not belong to WTO.
The primary purpose of the WTO is to open trade to benefit all. In that sense, “most favored” sounds like a contradiction. But even though it suggests special treatment, in the WTO it means non-discrimination — that is treating virtually everyone equally. In effect, then, every WTO member is supposed to be “most-favored” for all other WTO members.
Pakistan has yet to transition fully to MFN status in trading with India. The country maintains a Negative List of 1,209 products that are not allowed to be imported from India.
In November 2011, the Pakistani cabinet decided formally to accord India MFN status. But that decision has not been unimplemented. In March 2012, Pakistan substituted a “Positive List” of a more than 1,950 tariff lines permitted for import from India, along with a “Negative List” of 1,209 lines that could not be imported. This meant that the default setting had moved from ‘no import’ to ‘import’, and instead of listing only items that could be bought from India, Pakistan had listed items that could not be bought, with everything else allowed. But this was still not the same as according India MFN status.
This intransigence has periodically triggered anger in India, and demands have been raised, especially during times of heightened tensions and terrorist attacks sponsored by Pakistan, to withdraw the MFN status that New Delhi has granted to Islamabad.
Source: Times of India, Economic Times