According to Chinese trade data, India's exports in cotton and yarn to China have seen no unexpected surge

The Indian government's claims that an unexpected surge in demand from China was behind the move to issue a ban on cotton exports were inconsistent with Chinese trade figures that show a steady increase in imports that stretch back to over three years, trade groups have said.

Importers' displeasure

Chinese importers on Tuesday also expressed their displeasure with Monday's notification, which the government termed as revoking the March 5 ban although it still barred the issuing of new export registration certificates — a restriction that has angered industry groups.

The government's moves would “severely undermine the reputation of India as a serious trading country” and result in merchants “finding more reliable trading partners,” warned Gao Fang, Secretary-General of the China Cotton Association (CCA), in a letter sent to Union Commerce Minister Anand Sharma on Tuesday.

Worryingly for India, the letter has been backed by the 18-nation Committee for International Cooperation between Cotton Associations (CICCA). It was co-signed by CICCA Chairman Manu Taevernier, according to a copy available with the CCA. It warned that the ban would result in many contracts being violated and Indian firms being placed on the CICCA default list. This would prevent firms from the 18 CICCA countries, which include Australia, Brazil, Japan and the U.S. besides India and China, from trading with India.

According to Chinese trade data, India's exports in cotton and yarn to China have seen no unexpected surge. They have, in fact, risen steadily over the past three years, up from $642 million in 2009 to $2.1 billion in 2010 — a more than 200 per cent rise when the biggest surge occurred. Since then, however, exports grew by a much lower 47 per cent, reaching $ 3.1 billion in 2011.

Falling global demand

The single biggest cotton export, non-carded or combed cotton, increased from 172,000 tonnes in January, 2010, to 198,000 tonnes in January, 2011, before falling to 150,000 tonnes this January with falling global demand coupled with increasing concerns over coming restrictions.

Chinese cotton imports overall fell in January by 58.7 per cent to 3.27 lakh tonnes, but imports are expected to rise in coming months because of increased government buying. Imports may increase by 54 per cent to four million tonnes this year, Bloomberg quoted an estimate by the U.S. Department of Agriculture as saying, before adding that China was likely to increasingly turn to the U.S. and Australia and away from India.

The Indian government's concerns that many of the import orders from China were either motivated by fictitious transactions or hoarding have also carried little weight here, with analysts suggesting that it made little sense for Indian exporters to ship consignments to far-away Chinese ports for such a purpose when closer options were available.

Govt's flip-flop

Beyond the debate about the merits of the ban, the government's flip-flop is likely to set a bad precedent on two fronts, officials and industry analysts have warned. For one, future moves to impose restrictions in any sector are likely to be taken less seriously in China and elsewhere, with an increasing perception that the Indian government could be pushed to go back on its obligations.

This extended beyond cotton, and was also reflected in the absence of any concern here so far over the move to introduce a 19 per cent import duty on power equipment.

“The moves are simply not being taken seriously, if only because there is a view here that India can go back on it,” said one source, adding that Chinese power companies themselves simply saw no way India could make its fast-growing shortfall in power capacity without Chinese equipment.

The decision to impose the ban, and then reconsider it under political pressure, had also reinforced perceptions of India as an unreliable source for imports. “A unilateral decision by the Government of India, which has been put in place without adequate warning,” the CCA warned, “had damaged the reputation of India as a cotton trading nation.''

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