NAIROBI, Feb 16: Kenya's weekly tea auction suffered a serious lack of demand this week, pushing prices lower, as buyers from its largest tea market Pakistan stayed away, traders said on Wednesday.

Traders said about 18 per cent of the main catalogue's 127,809 packages did not find buyers and were withdrawn. "It was a very, very weak market yesterday," Norman Wilson, the managing director of Africa Tea Brokers (ATB), told Reuters. "The Pakistan Bazaar were not there, they were showing much less interest."

Pakistan officials have complained bitterly after Kenya sharply increased duty tariff on rice imported to Kenya from about 35 per cent to 75 per cent. The duty increase has led to a blockade of about 300 containers of Pakistan rice at the Kenyan port of Mombassa, as officials from the two countries spar over tariffs.

Kenya says it has been forced to hike the import duty on rice to comply with new tariffs under a new East African Community (EAC) custom union, which came into effect in January.

Traders said most Pakistan retail buyers had withdrawn from the tea auction held on Tuesday, concerned about a threat by Pakistan authorities that they are going to retaliate by raising duty on Kenya's tea from 10 per cent to 75 per cent unless Kenya reverts to the previous duty.

"The East African customs union increase of the external tariff on rice imports specifically from Pakistan to the East Africa states was a contributory factor to the declining market," the ATB said in a statement.

Kenyan officials say they can do very little because any review of the new tariffs is likely to upset Uganda and Tanzania, its partners in the EAC's trade bloc, and lead to the collapse of the new customs union.

But tea industry players say Kenya stands to be the biggest loser in case Pakistan goes ahead and increases duty or slaps a ban on Kenyan tea. Tea is Kenya's top export earner and Pakistan is by far the biggest market for it. Last year Pakistan bought tea worth $132.8 million out of a total of $548 million Kenya earned last year from tea exports.

Pakistan has been looking to raise its rice exports to Kenya hoping to narrow a wide trade imbalance which is hugely in favour of Kenya. Traders said if the duty issue was not sorted out, Kenya could lose its Pakistan market to India after the two countries signed favourable trade agreements last year due to a thawing of their political relations.

The local tea trade has been badly hit before by an on-and-off trade dispute between Kenya and Egypt, Kenya's second biggest tea market, over tariffs. "We need this to be sorted out like yesterday," said one senior trader. -Reuters