ASEAN Trade Agreement Troubles Tea Lands
Hong Kong and trade ministers from the 10-member Southeast Asian Nations (ASEAN) in November signed two remaining free trade investment deals putting in place the last elements of a decade-long effort to lower trade barriers.
The agreements grant better access to markets, create new business opportunities, and enhance flow of trade and investment with several countries actively trading with the ASEAN block. This group of nations, whose combined economies are valued at $2.7 trillion, are working with six non-affiliated trade partners, including India. Japan is the ASEAN block’s biggest partner. It does $543 billion in business annually with ASEAN countries. China is second with $345 billion in trade.
India does about $76 billion in trade with ASEAN countries, and recently has run trade year deficits. In 2009 India agreed to eliminate tariffs on 4,000 product lines by 2016 and to phase out tariffs on certain special products by 2019. These include tea, coffee, palm oil, and pepper. While easing tariffs is generally greeted with approval, plantation industries and tea growers have petitioned their government to retain a tariff on tea.
India’s domestic tea industry is sheltered from foreign competition by tariffs as high as 110%. A $10 kilo of tea imported from Kenya or Malaysia, China, or Japan, for example, is taxed $11 bringing the cost to $21 for wholesalers or larger retailers. Nepal is an exception, and not every type of tea is included, but the barrier remains formidable.
The new free trade agreement seeks to reduce import tariffs on agricultural goods by 50% by 2019. India is negotiating a separate agreement with Sri Lanka.
India tea planters fear that going forward with the agreement would flood the Indian market with cheap tea from ASEAN countries, making Indian tea no longer competitive due to its relatively high cost of production. The treaty, however, would also open foreign markets that protect their own domestic tea industries. This could be of benefit to larger plantations already engaged in foreign trade. Smallholders do not export appreciable quantities of tea.
At the biannual general meeting of North-Eastern Tea Association (NETA) this month, the chairman of Tea Board of India, Prabhat Bezboruah, explained that the ASEAN free trade agreement was signed in 2007-08. “The government has referred the matter to the Tea Board for our comments and inputs and we have sent our reply objecting to the same with emphasis on the potential risks to our industry,” Bezboruah said.
NETA advisor Bidyananda Barkakoty articulated the basic concern: “Our land and labor productivity are low; we have high input costs. We as planters do not have control over the input cost. Cheap tea from foreign countries will flood India. Bangladesh, Vietnam, and Indonesia can sell tea at a very much lower price.”
Kenya represents a significant threat, said Barkakoty: “There will be threat from African countries — particularly Kenya — in the event import tariffs are lowered.”
“The agreement must include appropriate measures to not only check cheap imports from ASEAN countries but also prevent entry of Chinese tea into Indian markets. Experts underscored the need to revisit the provisions regarding the rules of origin to avoid the Chinese imports taking advantage of the lower tariff envisaged under the Trade in Goods Agreement,” according to news reports in the Assam Tribune.
Paras Desai, executive director of Wagh Bakri tea and president of the Western India Tea Dealers’ Association (WITDA), disagrees. “In the era of globalization, we cannot stop a commodity form coming to another country. Reducing the tariff is an international commitment made by India and that must be honored. Initially, there will be apprehension, but we are strong enough to withstand the competition. It is a time to strategize and make ourselves strong before the tariff is lowered. Let people have a choice,” he said.
India’s tea exports to ASEAN countries have traditionally ranged from 1.6% to 2.5% of total exports. That increased to 10% in 2016 but “opportunities for India to expand its tea exports to ASEAN countries are limited,” according to a report titled Trade with Association of South East Asian Nations (ASEAN) prepared for the Commerce and Industry Ministry.
Manoj Jallan, chairman of NETA, said that the tea industry would formally notify the commerce ministry that lowering the import tariff will adversely affect local tea industry. “We will ask the government to reconsider the decision,” he said.
The Economic Times reported that Mrigendra Jalan, chairman of Bharatiya Cha Parishad (BCP) said, “Personally I feel lowering of tariff will not impact the local tea industry. Our tea prices are lowest, and tea consumption is annually growing at the rate of 3%. Orthodox tea from Sri Lanka can pose some challenge to our orthodox variety. Barring that, I do not see any major threat.”
ASEAN was established in 1967 as a regional inter-governmental organization that now includes Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei, Vietnam, Laos, Myanmar, and Cambodia. The organization, staffed by 500, encourages cooperation and facilitates economic, political, military, educational and cultural integration among its members.
Additional reporting by Pullock Dutta in Assam, India.