Continuation of heavy subsidy on cotton by the US and subsequent depression of global prices have been openly opposed by West African countries like Benin, Burkina, Faso, Mali and Chad. The revised draft text of September 13 not addressing the plight of West African cotton growers was one of the causes for enmass walkout of the African Carribean and Pacfic (ACP) countries, leading to the failure of the Cancun meet.
Speaking to FE, DK Nair, secretary-general, Indian Cotton Mills Federation (ICMF), alleged that the US being the largest producer of cotton is heavily subsidising its cotton growers to the extent of $3 billion to $4 billion and this has resulted in depression in global prices affecting cotton growers in other countries who cannot even recover half the cost of production. He said that this situation had also affected the domestic textile industry.
According to Cotlook Indices, global prices of cotton is presently around 61 US cents per pound, despite a downtrend in production.
He said that countries, which procure cotton from the US at cheap prices, are at an advantage of producing cheap textile products for exports. This has eroded the competitiveness of the Indian textile industry, he said.
Mr Nair, however, said that Indian cotton growers are not much affected as about 90 per cent of the industrys requirements are met by cotton produced locally. The domestic prices of cotton are higher than the global prices and the industry is, therefore, at a disadvantage as compared to its counterparts in other countries which are dependant on imported cotton. When asked as to why the domestic industry do not excercise the option of importing cheaper cotton, Mr Nair said, It is a difficult option for mills to import cotton. Only under compulsion we are importing 10 per cent cotton as the cotton produced in the country are not enough to cater to the total needs of the industry.
Explaining the import situation, Mr Nair said almost all cotton exporting countries including the US trade cotton on basis of the standard cotton contract of the Liverpool Cotton Association (LCA). LCA contracts mandates that any dispute in transaction will be subject to arbitration by LCA. The arbitration rules are favour mostly the exporters and the importing mills are often placed in a difficult situation. he said. Mr Nair said that Indian mills import cotton from different countries like the US, Australia, Egypt and other African countries and CIS countries. He said that the proposed phasing out of bilateral export quota under multifibre arrangement (MFA) by 2004 will benefit the Indian textile industry. He said Indian textile exports would rise. He said that countries like Bangladesh, Sri Lanka, Nepal, Vietnam, Cambodia and Gulf and African countries are importing cheap fabrics and yarns and exporting garments by taking advantage of the bilateral quotas. In event of bilateral quotas being phased out, countries like India, Pakistan, China, Turkey which have strong textilie manufacturing base would be at an competitive advantage in trade, he said. Mr Nair, however, cautioned that African countries may be one with India in demanding drastic reduction on cotton subsidies, but they not support India if it demands phasing out of bilateral quota under MFA. African countries are demanding a fundamental change in the supply management of cotton that is depressing the global prices and are in favour of retention of bilateral quotas under MFA as they do not have integrated textile industry bases.