IMPRESSIONS from a Cross-section

There are organisations that focus on the ethical side of cotton trading such as Fairtrade and the Better Cotton Initiative (BCI). At the ICA, our main remit is arbitration - we are the world's largest and most recognised arbitral body for the raw cotton trade. Our core principle is to promote safe trading so that contract sanctity may be preserved - essential to having a sound and sustainable cotton trade. Being a member of the ICA shows the world market that you support contract sanctity and that you want to operate in a safe trading environment.

The reasons why disputes occur are numerous and complex: price volatility, government export bans, floods, droughts, speculators, liquidity, quality of cotton, late opening of a letter of credit, late shipment, etc. There are also many reasons why contracts are defaulted on. Cotton has a significant volatility in terms of price, which saw a significant increase in the number of defaults in the world-wide market in previous years.

As with any commodity, there are risks involved in the trade. For cotton I would say that the main ones are price risk, counterparty risk - the reliability and credibility of your trading partners, currency and financial risk, government risk - export bans or taxes, competing crops and competing fibres - both natural and synthetic.

Most of the international cotton trade today takes place under ICA rules. The rules were developed over 170 years ago to help regulate the sale and purchase of raw cotton. They have changed with time to adapt to the trading environment, but their aim remains the same - to create a safer trading environment. Creating a safer trading environment does not discriminate between the buyer and the seller. It's about protecting the rights of everybody in the market. Our aim at the ICA is to protect the legitimate interests of all those who trade cotton - whether they are buyers or sellers, mills or merchants. ICA rules provide a framework to support equitable trading and promote an orderly, commercial process between buyers and sellers. Without this trading framework the market for buying and selling raw cotton would be chaotic and the associated increase in risk would be reflected in cotton prices. You do not have to be a member of the ICA to trade under ICA Bylaws & Rules - they are designed to be applied to contracts covering the purchase and sale of cotton between any two companies (buyers and sellers), anywhere in the world. In the event of a contract dispute those companies have the right to apply for ICA arbitration. One of the many benefits of being a member of the ICA is that application for arbitration is free and members pay reduced stamping charges for awards. Any arbitration award produced by the ICA is internationally recognised and legally enforceable under the New York Convention.

Trading with defaulters is a high risk strategy for any business. We believe that trading with defaulters, even if it is by association, compromises contract sanctity and creates incomprehensible injustice. There should be no room or tolerance towards anyone who trades with a defaulter. This is paramount to me, and it should always remain in the forefront within our industry circles in order to maintain cotton's global prominence. It will create the safe trading environment that the industry is seeking.

We have been able to expose the firms involved in dishonourable trading practices and reveal their links with defaulters through the introduction of our business intelligence team. The team uses a wide variety of resources to verify the links and then shares that information with our members so that they can make 'safer' trading choices.