India becomes China’s largest cotton exporter, New Delhi imposes duty on cotton exports
April 15, 2010

Cotton is the new iron ore. Just as a spurt in the domestic demand of iron ore jolted Indian tax authorities to up duties on iron ore exports to China, similarly following rising domestic prices, duties have been imposed on cotton exports to the middle kingdom.

With effect from April 9, New Delhi imposed an export duty of 2,500 rupees (US$56.47) a tonne on all varieties of raw cotton in order to cool domestic prices. A strengthening rupee added to the additional burden of export duties will hopefully curtail overseas sales, the government report said.

According to a report by the China Cotton Association, China, the world’s largest cotton importer, recently signed deals to import 100,000 tonnes of cotton as well as cottonseed and cotton yarn from India this year, making India, China’s largest exporter of cotton. During his visit to India, Chinese Vice-Premier Hui Liangyu last month also agreed to look into the establishment of joint venture cotton mills and sales agents in both countries to help boost Indian exports to China.

India replaced the US, as China’s largest exporter of cotton when it exported 265,460 tonnes or 1,694 percent higher cotton in the first two months of this year, as against last year. India’s cotton exports are expected to double to 8 million bales (1 bale=170 kg) this year following a high demand from China and Bangladesh. Besides India, China also imports cotton from the US, Africa and Australia.

Although domestic production is high, China imports additional cotton as the price of cotton in the domestic market is higher than the price of imported cotton. The quality is also better. Nonetheless, analysts say that the impact of importing cotton cannot be ignored within China. The domestic market is getting hit, with farmers from the cotton growing region of Xinjiang, West China, being affected the most.

Besides boasting of increased exports, the larger picture paints a different view. India’s bone of contention with China is that India’s basket of trade consists mainly of raw materials and China’s trade basket mostly finished products. This creates a huge budget deficit favoring China – another reason why every time demand of commodities rises in China, India first complies, then imposes duties – a minimal stop-gap method of curtailing the budget deficit from bleeding further. This however, often doesn’t work too well for China, which in turn imposes quality restrictions on imports from India, such as has been done in the recent case of iron ore filings to China. Ultimately, the two countries need to decided to an over-arching, long-term view of trade between the two nations, as stop-gap measures never seem to benefit anyone in the long run.

The largest producers of cotton, currently are China and India, with annual production of approximately 34 million bales and 24 million bales, respectively. Most of this production is consumed by domestic textile industries. The total international trade is estimated to be US$12 billion.

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