Ports’ right to bar imports needs review

Last Monday, Adani Ports and Special Economic Zones (APSEZ) issued an advisory saying that with effect from November 15, it will not handle containerised cargo originating from Iran, Pakistan, and Afghanistan. The advisory applies to all terminals operated by APSEZ and third-party terminals at any of its 13 domestic ports in seven maritime states. This decision raises a number of issues.

APSEZ did not give any reasons for its action. A few weeks earlier, the Department of Revenue Intelligence (DRI) seized at the Mundra port run by APSEZ nearly 3 tonnes of heroin allegedly originating from Afghanistan and shipped through Bandar Abbas port in Iran. Investigations are on and some persons have been arrested, but in the meantime, many malicious posts against APSEZ appeared on social media. APSEZ explained that its role is limited to running the ports and not examining what the containers contain.

That is a solid defence because various entities involved in the transport of containers from one place to another, such as railways, roadways, port operators, vessel operators, or warehouse operators, normally concern themselves only with safe handling and movement of containers and have no idea what goods are stuffed in the containers. Even where a bill of lading mentions the description of goods, it does not mean the vessel operator knows that the same goods are being shipped. It only means “said by the shipper to contain the goods as described”.

So, APSEZ needs to have only maintained the same position that it does not police the containers or millions of tonnes of cargo that pass through the terminals in Mundra or any of its ports. However, it has decided not to allow container cargo from the three countries in its terminals, apparently without taking the government into confidence. Iran has reacted sharply calling it an “unprofessional and imbalanced move” and has taken up the matter with the government. Hopefully, the matter will be resolved in the next few days.

The broader point is whether a port operator can have unfettered discretion to bar imports/exports through its facilities from/to any country to whom the national government gives ‘most-favoured nation’ treatment. Apparently, APSEZ has not violated any law and, as a commercial entity, has freedom to decide with whom it wants to do business. But its location does give advantages to traders from nearby countries that when denied force the consignments to be routed through other ports that are far away from the destination to which the goods have to be transported after unloading, rasing the costs and transit time.

Taking the point a little further, a port operator can even decide whether to deal with a particular party or not and use that discretion to his own advantage. For a domestic party, recourse against any such abuse of discretion may be available under the Competition Act, 2002. That may not be available for a party located abroad. Another possibility is that the national governments may try to influence the port operators to discriminate where their own ability to do so may be constrained by international treaties.

The government must examine the implications of allowing port operators to disrupt global trade and discuss the issue with other countries also with a view to developing suitable disciplines.