Prime Minister's visit to Malaysia: palm oil diplomacy

South Asia Analysis Group

Paper no.245

25. 05. 2001

Prime Minister�s Visit to Malaysia: palm oil diplomacy

by C.S. Kuppuswamy

Prime Minister Vajpayee�s visit to Malaysia (13- 16 May 2001) had special significance in view of the thrust of the Indian government�s �Look-East� policy evidenced since the beginning of this year 2001. Malaysia happens to be the �coordinating country� for India�s dealings with ASEAN and the PM on the eve of his departure pointed out that the focus of this visit would be on economic and commercial ties with Malaysia and through it with the ASEAN.

The high level official delegation and the 70-member strong team of Indian business leaders which accompanied the PM highlighted the importance attached to this visit. Malaysia is India�s largest trading partner in ASEAN. India is the largest market for Malaysian palm oil. Malaysia exports around 1.3 million tonnes of palm oil to India valued at $1 billion a year. The balance of trade between the two countries during1999-2000 was in favour of Malaysia with India exporting goods worth $434 million and importing products worth $2056 million.

The recent imposition of a 75% duty on palm oil has irked Malaysia and Dr. Mahathir went to the extent of bringing it up in his speech at the state banquet hosted by him. PM Vajpayee in his formal banquet speech had to give an assurance that the duty on palm oil would be reduced. Before leaving Malaysia the PM was expected to announce the reduction of the import duty from 75% to 65% but presumably gave up the idea because of possible domestic pressures.

During the visit the PM participated in the India-Malaysia Business Forum meetings and attended the India-Malaysia Technology Show along with the Malaysian Prime Minister. By the number of bilateral agreements, memoranda of understanding and the business to business agreements signed, it is evident that India and Malaysia had laid a foundation for stronger commercial ties. PM had announced that a target has been set to double the India-Malaysia trade in the next three years from the present level of $2.5 billion. Some of the significant bilateral agreements, MOU, and business agreements signed were:

Bilateral Agreements

* Agreement between the Governments of Malaysia and India on exemption of visa requirement for diplomatic and official passport holders.

* Agreement between the Governments of Malaysia and India for avoidance of double taxation and prevention of fiscal evasion with respect to taxes and income.

Memoranda of Understanding

* MoU between Governments of Malaysia and India on mutual cooperation relating to investment, construction, privatisation and management of seaports in India.

* MoU between Governments of Malaysia and India on cooperation in information technology and services.

* MoU between Governments of Malaysia and India on cooperation in the field of civil services, personnel management and public administration.

* MoU between Governments of Malaysia and Ircon International Ltd for double-tracking and electrification of Ipoh-Padang Besar section of the railway line. (palm oil will be swapped in exchange for the cost of construction of the railway line).

* Mou between the Malaysian Securities Commission, and Securities Exchange Board of India in relation to assistance and mutual cooperation.

Business Agreements

* Malaysia has won contracts worth more than $184 million to build two highways in India.

* Business agreements were signed for two joint ventures by India�s Antrix Cooperation Ltd with Malaysia�s Binariang Satellite Systems and Astronautic Technology.

* Malaysia allowed direct banking facility with India by agreeing to India�s request for Bank of Baroda to operate in that country. (India had four commercial bank branches, three decades ago, operating in Malaysia but closed down subsequently).

* CII (Confederation of Indian Industries) entered into an MoU with ASLI (Asian Strategy and leadership Institute)

What is India seeking by forging such strong ties with Malaysia? These could be:

* To woo Malaysia and use it as a gateway to ASEAN.

* To pave the way for an ASEAN-India summit for which the efforts till date have proved unsuccessful.

* To join the informal yearly summit of ASEAN+3 (China, Japan and Korea). Earlier efforts in this regard by Jaswant Singh, the External Affairs Minister during his visits to Vietnam, Cambodia and Thailand in the end of 2000 failed because of China�s veto..

* To secure membership in the APEC (Asia Pacific Economic Cooperation) and the ASEM (Asia-Europe meeting ) fora.

* To eventually become a member of ASEAN. (India is at present a full dialogue partner of ASEAN and a member of the ASEAN Regional Forum).

* As a by product, seek the cooperation of some powerful South East Asian Muslim nations on the issue of Kashmir and to exhibit that the Indian policy is more than Pakistan-oriented.

* India with a population of more than 180 million muslims- the second largest muslim population in the world after Indonesia is also seeking entry into the organization of Islamic Conference (OIC).

These are ambitious objectives, but achievable over a period of time if India continues with the momentum now seen in interacting more with south east Asian countries.

Dr. Mahathir Mohamad, who is 75, is in power for the last two decades and is the longest serving elected Asian leader. He has announced that this is going to be his last term (next general election due in 2004). All is not well with the ruling coalition and the fundamentalist opposition party, which is promising to make Malaysia an Islamic nation, is gaining strength since the last general elections (1999). Even though the Indian origin people of Malaysia constitute about 9% of the population they own only 1% of the national wealth and hence the Indian origin political or business leaders have no clout to make things favourable for India. India�s attitude itself towards ASEAN in general and Malaysia in particular has been ambivalent in the yester years. MGG Pillai, a Kuala Lumpur journalist, writes that �Malaysia is uncertain about New Delhi because in the past it would not come to its assistance even as it unstintingly supported India�s causes � against China (in 1961) and against Pakistan (in 1965). In contrast India stayed away from the 1963 dispute between Indonesia and Malaysia and turned down Kuala Lumpur�s request in tackling ethnic riots.� The visit of Prime Minister Vajpayee has come not a day too soon. What needs to be done is to sustain the relationship in the interest of both countries.

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