The International Cotton Association is cracking down on cotton contract defaulters – going after those who do business with them.
The defaults occurred after world cotton supplies dwindled in 2011, and end users in foreign countries bought hundreds of thousands of bales of high-priced U.S. cotton – it had surged to $2.27 a pound in March 2011 – to insure ample supplies. Then later, after cotton prices receded, buyers walked away from signed contracts in record numbers.
American Cotton Shippers Association said the defaults cost U.S. exporters nearly $1 billion. Over 400 arbitrations were conducted by the International Cotton Association in 2011-12.
The ICA publishes a list of defaulters and prohibits its members from trading with any firm on the list. But this hasn’t been enough. Defaulting firms often circumvent the list, purchasing under a new name or with the help of other firms and individuals.
So the ICA’s Business Intelligence Team tracked down companies doing business with the defaulters and compiled another list. ICA recently approved changes in its bylaws and rules that prohibit ICA members from trading with firms that have a proven link with a firm that has defaulted on a contract and has an outstanding arbitration award against them. Any ICA member who does, risks expulsion from ICA. ICA did not release a list of those companies, but the list is available to ICA members. The rules became effective on June 1, 2014. See a news release on the changes at http://bit.ly/1m3lAzA.
ICA President Mohit Shah said, “Trading with any defaulter, even by association, completely compromises the ICA’s principles of contract sanctity and creates incomprehensible injustice. This Association was set up as an association of people epitomizing trust and integrity. The aim of this change is to stamp out dishonorable trading across the supply chain.
“There should be no room or tolerance towards anyone who trades with a defaulter. This to me is paramount, and it must always remain in the forefront within our industry circles if we are to maintain cotton’s global prominence and create the safer trading environment that the industry is seeking.”
A list of defaulting companies, (http://bit.ly/1lEPlYC) updated through June 10, 2014, includes companies from Argentina, Bangladesh, which has the largest number of defaulters at 96, Brazil, with over 50 defaulters, China, Greece, Germany, Hong Kong, India, Indonesia, Italy, Mexico, Pakistan, Peru, Portugal, Switzerland, Thailand and Turkey.
The ICA’s bylaw changes, if taken seriously, should provide at least some incentive for defaulters to make good on unpaid arbitration awards, and just as importantly, to start playing by the rules.