What the Malaysia-India palm oil spat reveals about nationalism and trade

Photo:Angela Sevin

As India and Malaysia attempt to settle a dispute over palm oil, the bout shows how quickly nationalists are willing to threaten international norms, from accountability for human rights abuses to trade relations.


The recent dispute between the Malaysian prime minister and the Indian palm oil industry shows how quickly nationalist language can threaten to derail trade relations and prevent conversations about human rights abuses. If the bout continues, it could jeopardize the Regional Comprehensive Economic Partnership (RCEP), a sweeping new trade deal.

In late September, Malaysian Prime Minister Mahathir Mohamad said in front of the UN General Assembly that India has now “invaded and occupied” Kashmir and Jammu.

Kashmir is a disputed Muslim-majority territory on the border of India and Pakistan and in early August, India revoked its region’s status as a semi-autonomous state. The Indian government detained thousands of citizens and imposed new restrictions on freedom of movement and communications.

In response to Mahathir’s comments, on October 21, a major trading body in India called for its members to stop purchasing palm oil from Malaysia. The Solvent Extractors’ Association of India (SEAI) echoed nationalist sentiments and suggested that New Delhi might soon impose its own measures against Malaysia.

Malaysian Prime Minister Mahathir Mohamad.
Photo Credit: Kremlin

“As responsible Indian vegetable oil industry [sic], we avoid purchasing of palm oil from Malaysia till such time clarity on the way forward emerges from Indian government,” read a statement from SEAI President Atul Chaturvedi.

In mid-October, a number of Indian traders said they were temporarily avoiding Malaysian palm oil for the rest of the year out of concern that the Indian government might raise import taxes or impose a quota.

The Indian government has yet to officially comment on the dispute but the threat of economic sanctions sends a message to other leaders who might call attention to human rights abuses by major economic powers.

If the dispute expands and stymies RCEP negotiations, the spat could spill over and affect the whole of Southeast Asia, and a third of the global economy involved in the potential deal. The Indian and Malaysian governments have both expressed their reluctance to let this happen.

Mahathir’s comments fueled a fire that had already sparked

Behind the nationalist reaction to Mahathir’s Kashmir comments lies a fundamental economic dispute. Palm oil trade between the two states was already a hotly debated issue.

A worker loading oil palm fruit.
Photo Credit: Craig Morey/Flickr

Back in August, India’s trade ministry recommended raising import taxes on Malaysian refined palm oil in order to protect domestic producers and refiners. The proposal was backed by the SEAI in an effort to end a special agreement that had cut tariffs on refined palm oil from Malaysia to a lower rate than that from other countries. 

Malaysia is the world’s second-largest palm oil producer and India is the world’s largest palm oil importer. In 2018, India was the third-largest purchaser of Malaysia palm oil and palm products, importing around US$1.63 billion in 2018.

Under a Comprehensive Economic Cooperation Agreement signed by the two nations in 2010, India cut taxes on refined oil from Malaysia, prompting a 727% jump in imports over the following six months. This bolstered Malaysia’s share of the Indian palm oil market and made it the country’s largest supplier, outpacing Indonesia.

The decision from Indian palm industry leaders to shroud a fundamentally economic debate in nationalist rhetoric is a clear example of using nationalism to promote a trade agenda and sets a dangerous precedent that threatens any leader who might call out an economic superpower for violations of international law.

But if the dispute grows and impacts a sweeping new trade agreement, it could have far-reaching impacts on the region as a whole.

Hindu nationalism and palm oil threaten to stop a trade deal that affects a third of the globe

The bout between India and Malaysia also comes amid ongoing negotiations for the RCEP, a 16-nation trade deal involving all ASEAN member states as well as India, Australia, China, Japan, New Zealand and South Korea. The deal would connect markets representing 3.4 billion people and account for around a third of the global economy.

China is the deal’s biggest backer and some countries have voiced concerns that the terms of the free trade agreement will lead to a deluge of cheap Chinese imports and undercut domestic producers.

Former Malaysian international trade and industry minister Rafidah Aziz has warned that the parties to the RECP would do well to avoid “politicising” the agreement, whether over issues of sovereignty or some Indians’ objection to Mahathir’s comments.

“You have to talk to them about palm oil, to ask them to keep the palm oil separate,” she said, referring to those in India who took issue with the comment.

Malaysia’s current International Trade and Industry Minister Datuk Darrell Leiking has assured onlookers that the comments by the Indian industry body won’t derail the RCEP process.

The party states are expected to announce the results of the RCEP talks at the 35th ASEAN Summit in Bangkok in November.

While heads of state and trade ministers may check the damage to RCEP, the possibility that the Indian palm oil industry could stop the talks shows the power of a protectionist agenda.

The dispute is likely to blow over because Mahathir isn’t alone

The Indian palm oil industry has targeted Malaysia because it’s one of the few ways they can push back against international pressure on India to end its human rights abuses in Kashmir.

Mahathir’s comment at the UN was not the lone international objection to the crackdown in Kashmir. The UN High Commissioner for Human Rights has called for India to restore the rights of people in Kashmir to freedom of movement, peaceful assembly, health, education and religion.

The US Congress has held a hearing on the issue: civil society groups highlighted human rights abuses and experts drew parallels between Hindu nationalism in India and Nazism.

There is also pushback inside India. The Tamil Nadu Congress Committee, a political group in the south Indian state of Tamil Nadu, called for Prime Minister Narendra Modi to avoid cutting imports of Malaysian palm oil. It argued any move against the Southeast Asian nation would negatively impact the hundreds of thousands of migrant workers from Tamil Nadu working in the country, as well the large Malaysian Indian community.

Though the SEAI may not back down, the Indian and Malaysian governments are likely to work out a deal to avoid sanctions. While this may include levelling the playing field and ending Malaysia’s special privileges for palm oil, neither country is interested in letting nationalist disputes derail RCEP.

Mahathir has referred to the conflict between the two as a trade war, but he later offered to increase imports of sugar and buffalo meat from India in a bid to smooth over tensions. Notably, he has not offered to revise his stance on the ongoing rights abuses in Kashmir.