Flip-flops mark cotton export policy

Last Updated: Fri, Mar 09, 2012 19:20 hrs

Today’s concession on the recent and much-criticised ban on cotton export is the latest of frequent changes in this regard in the past two years.

Exports were restricted in May 2010, allowed again from October 2010, then had their registration permissions shifted from the textile commissioner’s office to the Directorate General of Foreign Trade (DGFT), leading to quotas, and so on.

Dhiren Sheth, president of the Cotton Association of India, said, “Frequent changes in export policy hurts India’s credibility in overseas markets and leads to disputes. Consistency and clarity are always preferred.”

He said disputes arise when exporters enter into arrangements with ginners for providing cotton meant for export and then do not lift the quantity. Today, for instance, after ordering a total ban, the government allowed exports for which orders had been issued by the DGFT till March 4. This is expected to release an additional 600,000-700,000 bales (a bale is 170 kg) for exports. Around 9.5 million bales have already been shipped this year.

However, a total of 12.5 million bales have been registered till now. Of this, export of around two million bales may not happen, said an exporter. This much was understood to have come for registration in the two days prior to the ban. DGFT allows registration only when letters of credit (LCs) have already been opened or money received by exporters.

When an LC is opened or buyers have remitted money to Indian exporters and after that if exports are not completed, disputes arise. Shirish Shah, partner, Bhaidas Kursondas & Co, said, “In 2010, when cotton export was banned, similar disputes arose and some of these are still under arbitration.” Some settlements were inked at 50 per cent of the loss amount, an industry source said. This means both parties shared the losses equally.

According to an industry veteran, the government panicked this time when there was a sudden rush for export registration. This followed China stocking up cotton to build up reserves. According to a research report from Barclays Capital, “China’s imports of Indian cotton have risen sharply, especially through the second half of 2011 and into early 2012. Indeed, an analysis of China Customs trade data reveals that in 2011, China imported one million tonnes only from India, 17 per cent of its total 3.36 mt of cotton imports, with India overtaking the US as the biggest source of China's cotton imports.”

India’s cotton yarn policy has been equally inconsistent. Several changes were made in the past two years. An industry leader said, “Rather than reacting in panic, government should have first suspended registration. Even now, export duty or such other measures could have been considered.”

China, Bangladesh react
Agencies add: China’s cotton industry association has criticised India’s decision to ban cotton exports, saying it was “irresponsible” and would disrupt the global market. India, the world’s second-largest cotton producer, said on Monday it had stopped exports with immediate effect to ensure supplies for domestic mills, fuelling speculation main consumer China would have to turn to other sources.

The China Cotton Association urged a review of the decision.

“As a member of the international trading family, we hope the Indian government will rectify this market-disrupting and mistaken policy in a timely fashion and comply with global trade rules,” the statement said.

It said a previous Indian attempt in 2010 to ban cotton exports had resulted in “heavy losses” for Chinese textile producers and had also hurt local Indian producers.

India has already exported about 9.5 million bales in the current cotton year beginning October 1, higher than the projected export surplus quota of 8.4 million bales set in January, due to strong demand from China.

Bangladesh also today termed India’s ban on export as “unfortunate”, saying the move is against the norms of international trade. Its commerce ministry said the repeated ban on cotton trade by India was threatening Bangladesh’s textile industry. “India imposed a ban on the export of main raw material, leaving aside trade rules and regulations. We think it (ban) is against the norms of international trade,” commerce secretary M Ghulam Hossain told reporters.

Also, Morgan Stanley lowered its cotton price forecast to 90 cents per pound from $1 for the 2011-12 marketing year, saying global demand would remain weak. It also said it was recommending a short position in the July 12 contract, currently trading at $0.91 cents per pound, on expectation the removal of the minimum support price would prompt Chinese, as well as global, prices to fall.

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