Stand United or Suffer the Consequences
February 22, 2012 “May you live in interesting times” is often referred to as a Chinese curse, and it seems to have fallen upon me during my tenure as president of the ICA.
At press time, the number of open arbitrations at the ICA has surpassed 200, almost doubling the record set in 2008 and quadrupling the annual average – and the pace isn’t slowing down. The current situation begs the question: How can the ICA promote a safe trading environment and reduce counterparty exposure risk?
One way is to emphasize an internationalization process as we have in recent years, not only in our board structure, but also in our membership base.
One new idea for 2012 is to introduce an ICA membership category specifically for agents. This will ensure that our principles and values are adopted by these key players in the contractual process.
The ICA Bylaws & Rules act as guidelines for the cotton industry for how cotton should be traded, as well as the consequences of not adhering to them. Our already equitable and effective arbitration process is constantly being reviewed and strengthened, and defaulters’ names are posted and circulated so they are marginalized from the normal course of business. We are also in pursuit of strengthening award enforcement capabilities.
As part of its internationalization process, the ICA has been reaching out to associations all over the world.
Our relationship with the China Cotton Association (CCA) has been strengthening, and an ICA training course has been developed jointly with CCA. Both the Gydnia and the Bremen Cotton Associations have adopted ICA Rules, and with Bremen in particular we have set up a joint venture, ICA Bremen, to deliver a world-class cotton testing and research facility. We have had several meetings with cotton industry associations in Brazil, Turkey, India, Pakistan, Bangladesh and Vietnam, among others, and will continue this process. We have an ongoing working relationship with the Better Cotton Initiative, which has incorporated the concept of contract sanctity into principles for sustainability.
We have also developed ICA training courses for spinners and agents, and multiple overseas workshops are being developed. The training courses are designed to promote responsible contracting by educating the industry on ICA Bylaws and Rules, risk management tools, and the behavior of the cotton market.
In addition, the ICA has revamped its annual training program, Complete Cotton, to include advanced training modules in Futures and Options, Arbitration, and Cotton Classing via ICA Bremen.
Regular board meetings have been held abroad to increase our reach, and on Nov. 1-2, 2012, the annual ICA trade event will be held in Hong Kong.
The cotton supply chain is long and not very transparent. We believe getting closer to retailers is an important avenue to promoting cotton price stability, so our board is also looking to activate and strengthen the Spinners Committee of the ICA and to work closely with The International Textile Manufacturers Federation. Other entities that we can approach to support contract performance are banks, insurance companies and rating agencies.
The cotton industry is at a crossroads. Our attitudes toward contract performance will shape the industry for years to come. The cotton industry needs to stand united or we will all suffer the consequences. It is easy to succumb to the attraction of short-term gains, but history shows that in the end, they create irreparable damage that foul the long-term economic sustainability of the cotton supply chain.
United we rise; divided we fall.
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