On 28th September 2019, in a speech in United Nations General Assembly speech, Malaysian Prime Minister Mahathir Muhammad said that India had “invaded and occupied” Kashmir by scrapping off Article 370 of Indian Constitution. In retaliation, Indian Govt. threatened to ban, or impose high tariffs on, palm oil trade with Malaysia.
Through this paper, the researcher attempts to show how a single political statement can influence the trade relations between countries and in turn their economies.
The researcher has undertaken the research on the assumption that Indian Govt. will highly increase the import tariffs on import of palmoil from Malaysia. In this paper, researcher analyses the impact on Indian and Malaysian economy under two conditions –
-Indian traders continue to purchase from Malaysia despite an increase in palm oil tariffs.
-Indian traders shift to other countries for purchasing palm oil.
It is important to know that for the fiscal year ending 31st March 2019, Malaysia’s imported from India goods worth $6.4 billion, while exported to India goods worth $10.8 billion. Thus, Malaysia is in trade surplus with India of $4.4 billion. This is because India imports high-priced goods such as petroleum and palm oil at a large scale while India exports commodities such as sugar, wheat, rice, meat, etc.In 2018, India imported palm oil worth $5.5 billion of which $1.3 billion was imported from Malaysia. This trade between the two countries constitutes 0.05% of India’s GDP and 0.41% of Malaysia’s GDP (GDP of Malaysia is $314bn while that of India is $2.5tn.).
A major limitation of the paper is the paucity of scholarly articles on the subject since the incident in question happened in October 2019.Therefore, the researcher has primarily relied upon newspaper articles to substantiate his arguments.
India Continues To Purchase From Malaysia Despite Increase In Tariffs
Indonesia and Malaysia constitute 85% of the total palm oil production, therefore the first response of Indian buyers is to buy palm oil from Indonesia but that may be improbable. The reason being CPOPC (Council of palmoil Producing Countries) which is an organisation and both Malaysia and Indonesia are a part of this and their goal is to fight together against nations that increases tariffs on import of palm oil. This opens a possibility that Indonesia may not sell to India and Indian buyers have to buy from Malaysia for want of alternatives. In this chapter, the researcher will analyse the impact on both the countries when Indonesia refuses to sell to India, whereas in the next chapter, the researcher will look into the impact when Indonesia agrees to sell to India.
Impact On Indian Economy
Due to an increase in import tariffs, it would now be expensive for Indian buyers to buy from Malaysia.This tax would not be borne only by the buyers of palm oil from Malaysia but also by its final consumers in India. The burden of tax increase will almost be equally borne by both consumers and sellers because of in inelastic supply as well as an inelastic demand.
Inelastic supply means that the supply of palm oil is not dependant on price in short run while inelastic demand means the demand of palm oil is not determined by the prices of palm oil in the short run. The elasticity of demand and supply play a major role in determining the prices of the goods and services. For Example- The demand for medicine is inelastic the price doesn’t come in the way of purchasing medicines. Also, the supply of water is inelastic as its availability doesn’t change with the change in prices. It is the elasticity of both demand and supply that determines the price.
The supply is inelastic as the palm oil trees bear fruits after 30 months of planting and continue to do so for next 20-30 years. Therefore, it is not possible to see a change in supply when tariffs are imposed on the import of palmoil. The demand is also inelastic because of no alternate nation to get supplies from and there is lack of availability of economically viable substitutes. On one hectare of land, there is a yield of 3.7 tonnes of palmoil as against just 0.38 tonnes and 0.48 tonnes of soybean and sunflower oil respectively.Though some consider soybean oil to be a substitute, data shows otherwise.
Palm oil and soybean oil are cross-price inelastic.Their cross price elasticity at 0.103 shows that for 1% decrease in demand forpalm oil, there need to be approx. 10% reduction in the price of Soybean oil, thus Soybean oil is not a good substitute in lieu of palmoil.
The extent of the taxes borne by the sellers will reduce the profits and revenue of the businesses. The increase in cost of production will affect most of the FMCG companies, whether big or small, as they use palm oil as a raw material. This can also lead businesses to reduce the no. of workers they employ. As of now, the FMCG sector is 4th largest in our economy and provides jobs to 3 million people and 5% of the total factory employment in the country. Recent government reports have shown that unemployment rate in India is at its four-decade high. It can get aggravated by purchasing palm oil at increased tariffs.
The extent of the taxes borne by the buyers will make the goods costly for them. Palmoil is used in products like soaps, shampoo, ice-cream, detergents, lip-stick, etc and increase in price of these daily-use products will adversely affect the expenditure budget of the households. Therefore household savings will reduce. Also such an increase in price of a bundle of goods may also lead to inflation.
During FY 12 and FY 17, India’s saving rate (the percentage of GDP saved) has been constantly declining and the main reason is the reduction in household savings. During the same time, the share of the households in total investment also dropped. There is a direct correlation between the household savings rate and household investment rate.Thus, a further decrease in household savings due to increase in prices of those products manufactured using palmoil will leave people with less money to save and invest in banks, stock market, mutual funds, etc. it will decrease the investment in India to some extent which in turn leads to less infrastructural development. This will hinder the growth of small and new businesses and will lead to reduced economic growth in India.
In the current scenario, when the Indian economy is badly hit and growth rate is very low, doing something that will increase the cost of production of almost entire FMCG sector which is 4th largest sector in India’s economy will be detrimental to Indian economy.
Indian Traders Shift To Indonesia To Purchase Palm Oil
When Indian govt. increases tariffs on the import of palmoil from Malaysia, it makes such a trade with Malaysia less attractive for the buyers in India. They would thus import from Indonesia as it is the only viable option after Malaysia as both of them together produce 85% of the palmoil production. As regards the CPOPC, there is no formal agreement and there are high chances that Indonesia will sell the oil to India. In this chapter, researcher shall analyse the impact of the same.
Reduced Foreign Exchange Reserves
The impact on the Malaysian economy will be very detrimental as India buys palmoil worth $1.3 billion annually and total exports of Malaysia are only $240 billion. When this trade shifts to Indonesia, it will lead to a reduction in exports and foreign exchange reserves in Malaysia by $1.3 billion.
As of 15th Nov 2019, Foreign Exchange Reserves of Malaysia stands at $103.2 billion. And losing 1.25% of their Foreign Exchange reserves can have serious impacts on the economy in long run. These reserves are used for making payment outside the country and thus is important for payment of imports. Having sufficient reserves also help in preventing a country from external crisis. If Malaysian foreign exchange reserves were to fall, it would reduce its ability to pay for making payment for imports without incurring debt. Also, it would minimize the capacity to mitigate external shocks such as fluctuations in currency rate as selling or buying foreign exchange reserves can change their currency’s value. Foreign Exchange reserves help to maintain international confidence which may take a hit if the reserves level reduces in Malaysia.
Reduced Trade Surplus
With a reduction in exports by $1.3 billion due to India not purchasing palmoil from Malaysia, the Balance of Trade surplus will fall by 5.7% of the 2017 level. The graph in annexure 5 shows the imports and exports of Malaysia from the period between 2007 and 2017.The graphin annexure 6 shows the Balance of Trade in Malaysia. Malaysia is one of a few countries whose balance of trade runs in surplus i.e. exports exceed imports.
A trade surplus is beneficial for an economy as it provides the nation with competitive advantages. Since the country is running in ‘profits’, they produce more which leads to more employment, a reduction in unemployment and generation of more income. This increases the standard of living of the people residing in the country. Also, the country has the capacity to import more. The 5.7% reduction will not be detrimental to the Malaysian economy as it already is enjoying trade surplus but can reduce these perks of being in trade surplus.
The analysis by the researcher shows how a political statement can influence the trade relations among countries and also their economies. In the given case when India threatened Malaysia, it is analysed that the Indian economy will suffer if India purchases from Malaysia due to increase in cost of production and decrease in household savings but if India purchases from Indonesia, it will prove to be detrimental to Malaysian economy due to reduction in foreign exchange reserves and trade surplus.
This is not the first time there has been international trade affected by politics. The government’s intervention in trade is not uncommon despite the growing trends of globalisation. In fact, political factors have a huge impact on such trades. After Pulwama attacks took place, India imposed 200% custom duty on all imports and took off the status of Most Favoured Nation (MFN) from Pakistan. Ideally, India should not have taken that step considering the stance it took in 1991 to open up the economy to the world and imposing such harsh import conditions on one nation is a blatant violation of the same. But considering the history of Indo- Pakistan relationship and to improve your political standing as a daring country, India took that step. It shows us how much international trade is intertwined by politics that is seems almost impossible to be able to separate them.
Blue Economy and its potential in Pakistan
Blue economy refers to the sustainable use and management of ocean and coastal resources for economic growth, improved livelihoods, and the preservation of the marine environment. It encompasses a wide range of economic sectors, including fisheries, aquaculture, tourism, shipping, renewable energy, and biotechnology, among others.
The concept of blue economy recognizes that the ocean and its resources can contribute significantly to the global economy and the well-being of coastal communities. However, it also acknowledges the need to ensure that these resources are used in a sustainable and responsible manner, considering the fragility of the marine ecosystem and its crucial role in supporting life on Earth.
The blue economy concept has gained prominence in recent years, with several countries and international organizations promoting policies and initiatives to harness the economic potential of the ocean while preserving its health and biodiversity.
Pakistan has a long coastline of approximately 1,046 kilometers, which presents immense potential for blue economy development. The country’s coastal areas are rich in marine resources, including fish, shrimp, crab, lobsters, and other seafood, which can be exploited sustainably for economic growth and job creation.
Pakistan’s fisheries sector is one of the main contributors to the country’s economy, providing livelihoods to millions of people. The sector can be further developed by introducing modern fishing techniques, improving the quality of seafood, and promoting export-oriented fisheries.
Pakistan also has significant potential for the development of mariculture, which involves the cultivation of marine organisms such as seaweed, shellfish, and finfish. The country’s warm waters and favorable climatic conditions provide ideal conditions for mariculture, which can help diversify the economy and reduce pressure on wild fish stocks.
In addition, Pakistan’s coastal areas are rich in mineral resources, including oil and gas, which can be extracted sustainably to contribute to the country’s energy needs and economic growth.
Furthermore, Pakistan has significant potential for developing the tourism sector along its coastal areas, including beaches, historical sites, and marine parks. This can attract both domestic and international tourists, creating job opportunities and generating revenue.
Moreover, Pakistan has great potential for developing its blue economy, and it is important to ensure that this is done in a sustainable and responsible manner to protect the marine environment and ensure long-term benefits for the country’s economy and people.
There are several ways to ensure the sustainable development of the blue economy in Pakistan. Here are some key steps that can be taken:
Implement and enforce regulations: Pakistan should adopt and enforce strong laws and regulations to ensure sustainable use of marine resources, protect the marine environment, and promote responsible business practices. This can include measures such as catch limits, gear restrictions, and protected areas.
Strengthen research and monitoring: Adequate research and monitoring of marine ecosystems are crucial for effective management and conservation. Pakistan should invest in scientific research and monitoring programs to better understand the marine ecosystem and the impacts of human activities.
Promote sustainable fisheries practices: Pakistan should promote sustainable fishing practices, such as using selective fishing gear, reducing bycatch, and implementing closed seasons and areas, to ensure that fish stocks are not depleted and the ecosystem is protected.
Encourage responsible tourism: The tourism sector can have both positive and negative impacts on the marine environment. Pakistan should promote responsible tourism practices, such as limiting tourist activities in sensitive areas, reducing waste and pollution, and educating tourists about sustainable behavior.
Support innovation and technology: Innovative technologies can help reduce the impact of human activities on the marine environment and improve resource management. Pakistan should invest in research and development of new technologies, such as offshore aquaculture, renewable energy, and waste management systems.
Foster public-private partnerships: Public-private partnerships can play a critical role in developing sustainable blue economy practices. Pakistan should encourage collaboration between government, businesses, and civil society to promote sustainable practices and ensure that economic development is balanced with environmental protection.
Overall, ensuring the sustainable development of the blue economy in Pakistan will require a collaborative effort from all stakeholders, including government, businesses, civil society, and local communities. By taking a holistic approach and prioritizing sustainable practices, Pakistan can unlock the economic potential of its marine resources while safeguarding the health and well-being of its people and the environment.
China-Russia summit: What economic goals ahead?
The visit of Chinese President Xi Jinping to Russia to meet Russian President Vladimir Putin is likely to feature a wide range of issues for discussion, with bilateral economic cooperation being one of the most critical areas that will need an in-depth analysis and an ambitious action plan.
As stated by the Chinese president in his article titled “Forging Ahead to Open a New Chapter of China-Russia Friendship, Cooperation and Common Development,” published in the Russian media on March 20, both countries “need to raise both the quality and quantity of investment and economic cooperation and step up policy coordination to create favorable conditions for the high-quality development of our investment cooperation.”
The track-record of intensifying the China-Russia economic cooperation in 2022 will need to be assessed with due consideration with regard to both the achievements as well as those areas where there remains substantial scope for boosting bilateral ties.
On the bright side, there is the record-high trade turnover between China and Russia posted in 2022. A figure of around $190 billion in trade turnover comes close to the newly established $200 billion target for bilateral trade set for 2024. With annual growth in trade turnover reaching 34.3 percent in 2022, the momentum appears strong for the $200 billion target to be reached well ahead of schedule.
China’s optimization of COVID-19 measures and the liberalization of transportation regulations (including with respect to direct flights between China and Russia) will likely boost bilateral trade further, including in the services sector (most notably in the tourist segment).
On the other hand, figures on investment from China to Russia, most importantly long-term foreign direct investment (FDI) flows, show a significantly more moderate growth pace compared to the above-mentioned trade growth figures. The FDI data published by the Eurasian Development Bank suggests that the stock of FDI from China to Russia grew by 27.4 percent from 2016 to mid-2022, implying an annual average growth rate of a little over 3 percent. According to the forecasts coming from the Eurasian Development Bank, growth in FDI inflows from China into Russia is likely to continue, albeit still at a moderate pace.
Against the backdrop of these trends in trade and investment, the use of national currencies will very likely be another point of discussion at the China-Russia talks. Last year saw a substantial rise in the use of the rouble and the Chinese yuan in bilateral trade transactions. In the course of 2022, the share of the rouble and the yuan in Russia’s export operations increased from 12 percent and 0.5 percent to 34 percent and 16 percent, respectively; the share of the U.S. dollar and the Euro declined to less than 50 percent by end-2022.
As regards Russia’s imports the share of the yuan increased from 4 percent to 23 percent, while that of the Russian rouble declined from 29 percent to 27 percent, the share of the U.S. dollar and the Euro declined from 65 percent to 46 percent.
In spite of the impressive scale of de-dollarization in bilateral trade, there is still ample scope to further increase the use of national currencies. This should be made possible by greater use of national and regional payment systems – not only on a bilateral basis, but also in the broader framework of BRICS via the introduction of the long-awaited BRICS Pay system.
Another possible venue to de-dollarization that may be discussed at the summit may be the launching of a new BRICS reserve currency – a project that Putin unveiled in mid-2022. The future of this new currency dubbed R5 (all five currencies of BRICS countries start with a letter “R”) to a significant degree will depend of the readiness of both China and Russia to pursue a coordinated approach to launching such an undertaking that may prove to be critical not only for the BRICS proper, but for the broader realm of the developing world.
To forge ahead with greater de-dollarization, it is critical to ensure greater coordination in international economic organizations. This is particularly important for the advancement of the global role of such groupings as BRICS that have taken on a rising prominence on the international arena, particularly after the successful BRICS chairmanship of China in 2022. Both countries play a crucial role in making BRICS a dynamic, open and inclusive platform, with one of the near-term issues being that of BRICS expansion and the possibility of the inclusion of new large emerging markets into the BRICS core.
In the end, the meeting between the leaders of China and Russia will present an opportunity to build on the strong momentum in boosting bilateral economic cooperation. Apart from the rising prominence of Global South, there is the resurgence of economic concerns in the West – against the backdrop of rising fragilities in the financial sector in the U.S. and Europe, boosting bilateral economic ties between China and Russia may be seen as lowering the susceptibility to the rising frequency of crisis waves emanating from developed economies.
Author’s note: First published at CGTN
Is the Western Moral Triumph still possible? Of Jeffrey Sachs and Edges of Globalization
“It feels like I imagine 1912 to feel” stated US Columbia Professor Jeffrey Sachs during an extraordinary zoom conference on the 8th of March. The discussion about the current geopolitical state with Geneva participants, concepted and hosted by professor Anis H. Bajrektarevic, was held on an emblematic day, the International Women’s Day, celebrating female achievements in social, cultural and political fields. As Professor Sachs reminded, to remember this occasion is of the highly importance to maintain human rights at the core of our engagements in a froth and difficult geopolitical situation.
Jeffrey David Sachs, born November 5, 1954 is a US economist, academic, public policy analyst, and former director of the Columbia’s Earth Institute, where he holds the title of university professor. He is known for his work on sustainable development, economic development, and the fight to end poverty.
Currently, Sachs is Director of the Centre for Sustainable Development at Columbia University and President of the UN SD Solutions Network. He is an SDG Advocate for UN Sec-General Antonio Guterres on the Sustainable Development Goals (SDGs), a set of 17 global goals adopted at a UN summit meeting in September 2015. Previously, from 2001 to 2018, Sachs served as Special Advisor to the UN Secretary General, and held the same position under the previous UN Secretary-General Ban Ki-moon and prior to 2016 a similar advisory position related to the earlier Millennium Development Goals (MDGs), eight internationally sanctioned objectives to reduce extreme poverty, hunger and disease by 2015. In connection with the MDGs, he had first been appointed special adviser to the UN Secretary-General in 2002 during the term of Kofi Annan.
Sachs is co-founder and chief strategist of Millennium Promise Alliance, a nonprofit organization dedicated to ending extreme poverty and hunger. From 2002 to 2006, he was director of the UN Millennium Projects network on MDGs. He is co-editor of the World Happiness Report (co-authored with Helliwell and Layard). In 2010, he became a commissioner for the Broadband Commission for Sustainable Development (developmental effects of broadband in international policy).
For the past three decades, Sachs extensively advised numerous governments in Europe, MENA, and Afro-Asia. He has written number of books and received several awards. He has been criticized for his views on economics, the origin of Covid-19, war in Ukraine and decoupling from China.
During his mesmerizing talk and exchange with the participants, professor Sachs evoked the biased diametrically opposed media information conveyed by the West and Russia, reinforcing the dangerous and froth environment of an escalating and unpredictable war. The honorable guest spoke about the conflict’s real debuts, “33 years ago at the cold war’s sundown under Gorbachev’s leadership and the promise by the US and Germany that NATO would not expand east, as well as the rise of the US as the ultimate superpower”. Giving the admiring audience anecdotes of his career, Jeffrey Sachs explained how the conflict is wrongly portrayed aiming for an Orwellian amnesia, and how things could have been handled strategically differently and with more honesty and empathy, ending in a dissimilar outcome. His principal host, prof. Anis asked him: “Jeff, is the moral triumph of the (political) west still possible?”
He lankly criticized the change of US policy towards China since 2015, labeling the country as an enemy as its economy rose, creating a dangerous environment that leaves no place for diplomacy. Professor shared his worries towards the tensions and the fear of an escalating hot war that could easily lead to a nuclear conflict. To Professor Sachs the aggressive US’ hegemonic policy towards China is senseless and dangerous and weakening diplomacy. “All China wants is to be respected and all America wants is to be told how smart they are”- he stated. He insisted on the fact that we need an open new world where there is no US or Europe leading but a world of acknowledgement, history, justice, appreciation and hope.
Throughout the discussions, the esteemed Professor criticized the lack of communication between Biden and Putin and the huge irresponsibility that he places mostly on the US side. He insisted on the importance of communicating in diplomacy as well as with each other in day to day lives. Further on, distinguished guest engaged audience in a constructive critic of the western positions in contemporary world of slobalisation and attempts of decoupling from the Sino world through the accelerated spiral of violent rhetoric’s and wargames. Finally, he made a reference on the recent hearing at the UN Security Council related to the so-called North Stream issue.
The inspiring yet easy-going talk evolved in a friendly exchange of questions and remarks between Professor Sachs and the participants. Content intensive, inspiring reflective and farsighted, yet amicable and family-like atmosphere with a direct, personal access to the notable guest deeply impressed all. As the event came to an end, with the univocal wish of organizing global teaching, a global seminar to educate people and especially young people on important topics (including human rights and liberties), Professor Anis Bajrektarevic closed the meeting by inviting Professor Sachs to make time on his very busy agenda to visit Geneva soon to continue the discussion, proposition that was kindly welcomed and agreed to.
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