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NCC: India distorts cotton trade

During a late April hearing of the International Trade Commission, Gary Adams, a National Cotton Council economist, highlighted some of India’s “increasingly trade-distorting activities: increases in internal support prices, new export subsidy programs, and a continuing governmental assistance to the textile industry.”

The trade-distorting trends “need to be halted and reversed, whether through consultations or formal trade disputes,” said Adams in a later press conference.

Pointing to a World Trade Organization decision against the United States in a case brought by Brazil, Adams said the issue with India is one of fairness. Because of the WTO ruling, “the United States changed our cotton programs and eliminated some provisions. Since then, we’ve seen U.S. production decline significantly. Exports have also declined.”

However, as U.S. cotton production has dipped, “other countries such as India have stepped into the void with increased production, increased exports and increased subsidy programs. Because of all these developments, there’s been no real or lasting recovery in worldwide cotton prices. As a result, we see smaller producers like those in western Africa that continue to suffer from a lack of profitability.”

Recent actions

Adams highlighted several recent actions by India regarding cotton.

• Minimum support prices for cotton as high as 48 percent.

• Using current exchange rates and converting them to a cents-per-pound basis, “that comes to about 72 cents per pound for the most commonly-produced qualities of cotton. Compare that to international prices ranging between 55 and 58 cents per pound.

• The discrepancy between Indian support prices and world prices has led the Indian government to authorize purchases of up to 11.7 million bales of the 2008 cotton crop, said Adams. “India is now a major exporter of cotton fiber and directly competes with the United States in many significant markets.”

• A new export subsidy scheme for Indian cotton — equal to 5 percent of the export’s value.

“It was already the case that Indian cotton is often offered at a 3- to 5-cent discount compared to similar growth in other countries. Now, the addition of an export subsidy allows India to increase this discount relative to its competitors.”

The NCC, said Adams, doesn’t believe India, under the WTO, has the authority to apply cotton export subsidies. Plus, despite WTO membership requiring it to do so, India hasn’t reported its support levels since 2002.

“We believe the United States should press India to make those submissions and make them current.”

Will a formal case have to be filed against India in order to have action taken? Not necessarily, said Adams.

“Oftentimes, there will be some initial stages the countries can go through. Before a case is launched, formal consultations can occur. Countries can decide if some resolution can be reached without launching a formal dispute settlement proceeding.”


Asked about recent statements by U.S. Trade Representative Ron Kirk regarding the need to revisit trade positions taken by the Bush administration, Adams was encouraged. “We’ve seen some of Kirk’s statements as well as some broader statements from the Obama administration about a thorough review of U.S. trade policy and where things need to go. Some of those statements we find encouraging because they’ve talked about the potential for rebalancing, particularly with regard to the Doha trade negotiations.”

The NCC is concerned with the focus of the Doha negotiations — “particularly in the way of domestic support. The restrictions and limitations on domestic support aren’t met with equal ambition on the market access side.”

NCC representatives were scheduled to meet with Kirk during the last week of April. “Obviously, we’ll touch on India. But we’ll (also) touch on China, the broader WTO negotiations, the Brazil case. I’d think other commodity groups are doing likewise.”

Brazil case

Considering the abrupt reversal of the globe’s fortunes — along with the changes in U.S. cotton policies — will the Brazil case against the United States be revisited?

“As much as we’d like to interject some of these new developments into the Brazil case, because of the structure and way those cases are handled, there’s no way to do that formally. … Even though we’re in 2009, they’re still tied to the facts of the case from several years ago. That’s a frustrating aspect. There isn’t credit, or a full appreciation, for the current economic environment both in general and in the world fiber market. There’s no appreciation, or acknowledgment, of the changes in both U.S. policy as part of 2008 farm bill or in India’s policies.

“That isn’t to say there is no remedy to the situation. But with the Brazil case, at a later date, a new compliance panel would have to be established so you can get the new facts fully incorporated into the arguments. So, there is some recourse down the road. But, in the short-term, the Brazil case won’t show any credit or formal acknowledgement of what’s going on in the fiber market and in U.S. and other countries’ policies.”

Another issue, said Adams, is that there have been “so many loopholes for developing countries that we don’t see them stepping up to the plate offering additional access or making the same level of commitments and concessions required of the United States. India is a perfect example because they’ve gone through the negotiations (while) trying to stay under the radar and not make any commitments.”

Why does the United States get the blame for West African cotton farmers’ woes when India is obviously manipulating the markets?

Saying the blame on U.S. cotton has become “tiresome,” Adams claimed the “focus by the West Africans and other cotton-producing countries on the United States is misplaced. We’ve been saying that for a number of years and it’s even more evident now when you look at U.S. production declines and U.S. export declines and the fact that other countries have stepped into the void. And we haven’t seen any real, or lasting, price recovery.

“An unfortunate and somewhat frustrating part of this for U.S. cotton farmers is, when you get right down to it, the United States is an easy target. We’re a developed country that developing countries can take a united stance against. And, frankly, we’re much more transparent in the support we supply to our growers. Add all that together and it makes us an easy target.”

Adams is unsure what India’s response will be to the ITC investigation. “My guess is, before the Indian government does anything they’ll wait to see what the ITC comes up with. …The ITC has a date of Nov. 12 for submitting the results of their study to the Senate Finance Committee, which requested they launch the investigation.”


TAGS: Cotton
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