Wednesday, March 7, 2012

India bans cotton exports

Cotton production this season ending September is projected to be a record 35.5 million bales against 32.5 million bales last year.

Reports that India had banned the exports of cotton were reported here, here and here. The ban was notified by the DGFT, India.The reason for the ban was to ensure availability of cotton yarn to domestic users.

Normally disputes relating to import bans are taken up more seriously in the international fora since producers from one's countries are affected by the ban. Export bans are rarely challenged (The case against the ban on export of minerals in case of China is one example).An interesting array of issues relating to export restrictions have also been discussed in the IELP blog here. Reuters has brought out various issues relating to export bans in this piece.

Are export bans permitted by the WTO rules? As per Article XI of GATT clearly states:
"1.No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licences or other measures, shall be instituted or maintained by any contracting party on the importation of any product of the territory of any other contracting party or on the exportation or sale for export of any product destined for the territory of any other contracting party."
However it goes on to create several exceptions, including:

"2.The provisions of paragraph 1 of this Article shall not extend to the following:
(a)      Export prohibitions or restrictions temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting contracting party;"
This study titled "Export Controls: An overview of their use, economic effects, and treatment in the global trading system" by the US International Trade Commission provides an overview of export restrictions that are employed by countries to further domestic interests.
"Export controls are measures that, regardless of form, limit export volumes. When employed for economic reasons, they are used to raise revenue, control prices, or provide downstream industries with inexpensively priced inputs. In other contexts, political or social motivations, including transboundary issues like environmental protection, spur the use of export controls. Export taxes on agricultural products and raw materials appear to be the most common types of control, used mainly by lower-middle and low income economies. The economic impacts of export controls are varied, affecting the country applying the tax and its trading partners, often in unintended and undesirable ways. Although export restrictions have not traditionally been a central focus of trade negotiations, they have received increased scrutiny in recent years. Where export controls have been addressed in the Doha Round negotiations, regional trade pacts, and WTO accession agreements, the trend is generally toward restricting or eliminating their use."
An interesting insight into the various domestic interests that determine a decision on the ban is brought out by this edit in the Financial Express,
"Spinning is the only sector where 90% of output is in the organised sector—there are all manner of reservations in other sectors—and in this sector, India is the second-largest exporter in the world. Which is why the Confederation of Indian Textile Industry (CITI) even asked the government not to interfere in the cotton market, arguing that industry does well in sectors where the government role is minimal. Indeed, while making this point, CITI pointed out that the industry didn’t even have enough money to buy all cotton produced as the mills were reeling under a host of other problems including large power cuts. It added that government intervention would hurt long-term supplies of cotton as well. So this is a move which, while benefiting no section, will harm everyone."'
Does the ban on export of Indian cotton yarn fall under the exception provided under the GATT provision? Is the ban to prevent or relieve critical shortages essential to India? The decision again brings to the fore competing domestic interests - cotton farmers, local industry dependent on cotton, traders in cotton exports as well as consumers in India. 

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