NCC: India’s Subsidies Major Impediment to Cotton Trade

The NCC says India’s cotton subsidies coupled with its failure to notify the WTO of those subsidy levels is a major impediment to cotton trade.

April 22, 2009
Contact: Marjory Walker
(901) 274-9030

MEMPHIS – The National Cotton Council says India’s cotton subsidies coupled with its failure to notify the World Trade Organization (WTO) of those subsidy levels is a major impediment to cotton trade.

WTO member India’s raw cotton and textile product subsidies and its lack of transparency were the focus of testimony presented April 21 to the U.S. International Trade Commission (ITC) by Dr. Gary Adams, the NCC’s vice president of Economics & Policy analysis. The ITC public hearing in Washington, DC, was held to investigate the effects of India’s tariff and nontariff measures on U.S. agricultural exports.

Adams said the NCC is “very concerned with the ongoing and expanded subsidies for cotton that Indian farmers are receiving in violation of their WTO commitments. We are also concerned that India's stance in the Doha Round negotiations would result in no increased market access for cotton fiber into India. Further, its textile policies unfairly enhance its textile competitiveness, while contributing to a low level of U.S. imports into India.”

He said India’s government has contributed subsidies and other measures that have helped drive up India’s cotton production – doubled over the past decade – so that it has surpassed the United States and is now the world’s second largest producer.

He noted that India recently announced increases in its Minimum Support Prices for cotton -- up to 48 percent in some instances. Based on current exchange rates, the minimum support price equates to approximately $0.72 per pound for the most commonly-produced qualities of cotton, as compared to international prices ranging between $0.55 and $0.58 per pound. This discrepancy between Indian prices and world prices has led the Indian government to authorize the purchase of up to 11.7 million bales from India’s 2008 cotton crop.

In addition, Adams said, another subsidy scheme is in place whereby cotton is being sold from government stocks to Indian mills at discounted prices – of between $23 and $29 per ton.

“While the discount scheme is available to local mills and local traders, market sources expect that the local trade may also be using the bulk discount scheme for exports,” he said.

Regarding India’s raw cotton exports, Adams testified that the country announced a new export subsidy scheme for cotton exports equal to 5 percent of the value – a move that will support India’s internal prices while artificially increasing its competitiveness in world markets. It was already the case that Indian cotton was often offered at a 3-5 cent discount to similar growths from other countries, he said, so the addition of an export subsidy allows India to increase this discount relative to their competitors.

“While India has been among those who have joined the chorus against U.S. cotton programs, “ Adams said, “it has chosen to increase its own internal subsidy levels and expand export subsidies to cotton, even though it apparently has never filed any export subsidy schedules as part of the Uruguay Round commitments within the World Trade organization (WTO) and has no authority to apply cotton export subsidies without being in violation of its commitments.”

Meanwhile, he said that amid continued attacks by other cotton-producing countries on the U.S. cotton farmer, there has been little appreciation or attention given to the changes in U.S. production and policies. In reference to Brazil’s WTO cotton case against the United States, he noted that U.S. cotton programs have changed while U.S. cotton production has declined significantly and U.S. cotton exports have fallen.

“But, as U.S. cotton production has withdrawn, others, like India have stepped into the void, with increased production, exports and even increased subsidy programs,” he testified. “There has been no real, lasting price recovery. Smaller producers, like African producers, continue to suffer from a lack of profitability.”

The economist also testified about India’s increased position as a net exporter of textile and apparel products – with the United States now the destination for about a fourth of those shipments. Conversely, U.S. cotton textile exports to India are minimal, a situation owing to India’s significant subsidization of its textile industry. Further, given the discrepancy between India’s bound and applied tariff rates, current WTO Doha Round tariff proposals would not increase access for cotton fiber into India, he said.

He added that given India's highly competitive and subsidized textile industry, the U.S. textile industry remains concerned about preferences extended under the Generalized System of Preferences (GSP) program. Currently, benefits to India are limited to certain hand-loomed and other specialized craft products.