Global Cotton Summit 2015: Critical analysis of ICA rules, bylaws and their implications on Bangladeshi cotton importers

Bangladesh has done tremendous progress in the wake of plunged and substantial investment in textile industry during the reign of global textile expansion. The breadth and width of textile business was the unprecedented Investment and different fiscal and non fiscal support and commitment from Government of Bangladesh (GoB). The backward linkage Industry of Textile has grown tremendously over the past decades despite Bangladesh has been fully a cotton importing country. And so the world is realizing the importance of the sector in Bangladesh. The capital of the country, Dhaka recently has hosted ‘Global Cotton Summit 2015’ on March 20 & 21. The summit was organized by Bangladesh Cotton Association in co-operation with Bangladesh Textile Mills Association. Many issues have been discussed in two day long summit. Among them there were a session for discussing International Cotton Association (ICA) rules and bylaws. This paper explains some of the discussion points.

Great Britain has long held Industrialization base and origin evolved from jenny Cotton in James Hargreaves invented a new machine that was capable of spinning eight threads of cotton yarn, instead of the spinning wheel’s one. The new machine was called the spinning jenny in 17^th century. After more than two hundred years, the new history of Textile has opened up a new era where Bangladesh and other Asian countries have established their dominant and incredibly outstanding positions leaving many countries far behind.

ICA, previously named as Liverpool Cotton Association, UK formed a set of rules to safeguard the cotton importers in UK which gradually extended and got recognized across other cotton producing and trading nations in 18^th century and continue to act as the arbitrational body over 170 years with credential, recognition. Cotton became the fundamental and crucial raw materials to erect the base of Primary Textile driven by large demand. Bangladesh has made incredible growth in cotton import, the second largest importer especially rely on India, Western Africa, CIS and Australia, USA, China and Asia pacific countries and other growing countries. Severe external dependence on import quite often trigger various challenges, constraints posed by the exporters violating the given terms and conditions of internationally recognized contract under Contract Act as well sellers and shippers negligence and purposeful malpractice and ignorance of trade deal which end up with lowering and disgraceful bilateral trade relations. Cotton users i.e. spinners are the primary victims and stakeholders of this trade. In order to ensuring free and impartial trade promotion, ICA brought in effect a number rules and bylaws to encompass the trade rules of cotton and bylaws to address issues of trade disputes among trading nations and parties from underperformance of trade. A set of bylaws are effectively enforceable in trade dispute resolution and avoidance of disputes through mutual agreement of both parties in dispute.

However, these rules have been noticed and found vague and irrationally equivocal. Great Britain does not harvest nor sell any longer but retained and made widespread these rules and bylaws throughout the world for longer than century. Though some of the rules amidst of much of criticism changed over the past decades, but it is the high time the present laid in rules require more rationale and analysis to get rid of alleged favoritism.

Below have been outlined a handful number of ICA rules and bylaws where Bangladeshi spinner and cotton importers expressed their concern as these bylaws were found and observed confusing, irrational, unilateral and more on shippers/sellers side and in most cases fail to address the equality of interest in practice. That is why most importers fail to adhere to and comply with laid terms of contract or ICA rules in practice.

1. General bylaws: In the general bylaws, bylaws no.102- If any change of the bylaws or rules after the date of the contract, the change will not apply to the contract unless the buyer and seller agree otherwise with the exception of those bylaws in section 3 covering arbitration timescales, notices, fees and other procedures. Post contract changes in bylaws section 3 should not be applicable in predated contract.

2. Bylaws 103: Bylaws and rules must not be translated into any other language unless the directors have agreed. Many Importing countries have their own language other than English predominantly every single non-English speaking national should have the right to interpret the rules and bylaws as of their convenience in understanding of legal provision and appropriate terminologies.

3. Rule 239: No consequential loss or damage will be accepted or granted. The consequential losses are both sided. However, Importers have much of consequential loss if seller cancels the contract and this rule need to be addressed with priority.

4. Rule 211: Payment must be paid off within 3 days of receipt of shipping documents, bill of lading first presentation but payment should be made within 49 days or receipt of bill of lading, whichever is earlier. Claims that are made in accordance with the terms of the contract must be paid within 21 days of the claim date. If the party responsible for the payment does not do so, they will also have to pay interest on the final amount of the claim at a rate agreed by both parties. If the parties cannot agree, the claim amount and interest rate will be fixed by arbitration under bylaws.

5. Rule 212: Claims for clerical errors in invoices will be accepted if there is evidence to support. This kind of claim has no point to be demanded and require to be omitted.

6. Rule 220: When contracts are made for shipments or deliveries of specified quantities during various shipment periods, each shipment or delivery should fall within the allowed variation. Each month’s shipment or delivery shall form one weight settlement, even if shipped or arriving by more than one conveyance. Proof of any variation in weight, must be sent to the other party within 7 (seven weeks) of the date of arrival. If the contract does not specify an allowable variation, the variation allowed will be 3%. The variation limit should be less than 3 percent. 

7. Rule 207,208,228: To claim the country damage by the buyer, the time span to go through from claim to survey by Lioyds or any other party is maximum of 56 days and survey will take maximum to 56 days, consequently this entire process will cause more damage to entire cotton stock and consequential loss. The buyer must give notice of any claim for country damage as detailed in Rule 207 or Rule 208 and the survey shall be completed within 14 days (two weeks) of the notice of the claim, or within 56 days (eight weeks) of the date of arrival of the cotton, whichever is earlier. The delayed survey and action following the survey result takes longer than 8 weeks which result in severe damage the production chain and financial loss.

8. Rule 224: (1) A sample from a bale of cotton should weigh about 150 grams. (2) For manual classification claims and/or arbitration, American and Australian cotton must be sampled 100%. The industry here recommends the sampling 10% regardless of American and other Cotton.

9. Rule 233: This Rule applies to all quality disputes regarding testing of cotton samples of any origin by instruments. (1) High Volume Instrument testing or classification shall be carried out in accordance with the approved practices and procedures listed in the latest version of the Universal Cotton Standards Agreement between the United States Department of Agriculture and the international signatories. (2) At least two tests shall be made on each sample. The average result of the tests shall be the test result. (3) If sealed samples have already been taken for manual arbitration in accordance with Rule 223, the same samples can be used for the tests, provided they have been resealed. (4) A first set of tests will be done in a laboratory agreed between the buyer and seller. If there is no agreement, the tests will be undertaken in a certified laboratory selected by the party applying for the test. The process of instrument testing requires a laboratory test which is commonly preferred in some labs located outside Bangladesh, inclusion of local Science and technical laboratory is essential to perform the tests in reasonable time.

10. Rule 234: (1) The Rules apply to all disputes relating to micronaire, including disputes relating to American cotton. Its terms are intended to be consistent with a micronaire agreement between Bangladesh Textile Mills Association (BTMA) and the American Cotton Shippers Association, but if there is any conflict between the two, the terms of this rule will take priority after the terms of the contract. (2) If the contract states ‘micronaire’ but does not say whether it should be the ‘minimum’ or ‘maximum’, it will be taken to mean ‘minimum micronaire’. However, both parties can agree otherwise in writing before they send the samples for testing. (3) A contract may say how much variation is acceptable in the other fibre characteristics that can be determined by recognised laboratories. This provision should be addressed for further generalization and simplification.

11. Arbitration Bylaws-Bylaw 316: Technical arbitration not more than $25000 Disputes which fall to be determined under these bylaws shall be restricted to all disputes related to a total value not exceeding US$ 25,000 but excluding those disputes for any contract that has not been, or will not be performed, and is to be closed by being invoiced back to the seller under our rules in force. This is apparently lengthy and causing more actual loss.

12. Bylaws 337: In Quality Arbitration both manual and instrumental, the sample reaches in 70 days and 91 days for respective case which delay the entire arbitration process and can be delayed by the discretion of director. This length of time disappoints the claimant and cause more financial loss.

13. If the Association receives written advice from a party to an Award, (“the reporting party”) or from their representative that an award has not been complied with by the other party to the Award (“the alleged defaulter”), the directors are to be informed. Before acting on such advice, the Secretary shall write to the alleged defaulter notifying them of the directors’ intention to list their name unless, within a period of 2(two weeks), the alleged defaulter provides them with compelling reasons not to do so. In this situation, the defaulters should be allocated more time as realistically to go through response and entire process for defaulters as claimant and respondent from different location require reasonably more time.

14. Bylaw 315: Technical Appeal time table: The appellant must submit notice appeal in 2 weeks of award received and respondent can comment in another 2 weeks. Time span of appeal and response need to be more for both parties’ comfort and diverse location.

15. Bylaw 100: In the given bylaw 100, there are wide range of outlined and briefed general trading terms and administrative terms, registration terms which gives different meaning, and implication in different context if interpreted. For instance, institute cargo clause, combined transport operator is unfamiliar in the context of Bangladesh.

16. Rule 217, Rule 218: All cotton must be weighed ‘gross weight’ on a bale by bale basis unless otherwise agreed. The tare is to be deducted from the gross weight. Gross Shipping Weights – must be established by an independent weighing organisation or other organisation as determined in writing between the buyer and seller within 28 days, or any other time period as agreed between buyer and seller, after sampling and before shipment. Gross Landing Weights – all cotton must be weighed by the buyer (for buyer’s cost), under the supervision of the seller’s representatives (for seller’s cost) at the agreed point of delivery or other location as determined by the buyer and seller, in any event within 28 days (four weeks) of the date of arrival of the cotton. If the cotton has already been sampled, a weight allowance must be made for the samples taken. (3) Both the buyer and the seller can appoint representatives at their own cost to supervise any weighing. The party arranging the weighing must advise the other party where and when it will take place, allowing a reasonable time to enable the representative to attend. In most instances buyers don’t find the sellers representatives on site or importing countries or alternatively finding a person/representative mutually accepted is very unusual.

These aforementioned rules and bylaws and other clauses in it need to be looked into in order to making importers feel rational, timely so that it gets more recognition, reliance for all parties.

Recommendations to improve Cotton Trade perspective:

Here are some recommendations which are likely to endeavour to find way out of existing predicament and disagreements within the cotton trade among local buyers and foreign sellers and head towards a congenial and participative, fair trade environment for all stakeholders in this regard:

• Training, workshop on ICA bylaws and rules for agents, importers, stakeholders in Cotton Trade.
• Review of trading regulations and respective cotton trading country trade law to align with ICA laws if any commonality or contrast found to reform the ICA laws.
• Informal settlement procedure Mediation is expected to be alternative and tool of settlement of default as mediation is very flexible and convenient, cost effective to get rid off default.
• Technical, quality appeal service should be extended into Bangladesh for prompt and effective dealing of appeal.
• Extension of arbitration and mediation service from ICA in Bangladesh is pressing requirement since ICA operates several branch offices across UK and some countries as added convenience to locations/regions where regional customers may be beneficiary.
• More consultation with ICA senior management to embed new provision with amendments for international traders other than EU traders taking into account other contemporary laws outside EU.
• All stakeholders have to be encouraged to operate under the framework of (ICA) rules and bylaws. Non-member and member cotton seller, shipper, agent of cotton merchants, association should be under the direct purview of ICA regulations with strict observations.

The intricate challenges posed the international regulatory agency is alleged holding back and slowing the growth of Primary textile sector, the integral organ of the textile industry as import of cotton will be absolutely hampered and restrained hampering our supply chain management efficiency and dwindling our expected productivity in backward linkage industry of textile business. Twisted and screwed supply trend of woven fabric and yarn will cause a great deal of dead loss to the manufacturing and export target of RMG to global destinations and new markets and very likely to fall apart the glorious and superb apparel vision of $50 Billion export earnings by 2021 if the backward linkage industry fail to reequip, absorb itself to streamline towards the common goal.