Don’t Play the Game Without Setting The Standards
January 27, 2009 When South Africa and England faced off in the World Rugby Cup last October, the teams didn’t need to agree on rules or the size of the field, nor were there disputes over the type of ball to be used or the length of the game. That would be preposterous; the World Rugby Championship has standardized rules.
Whether it’s the World Rugby Cup, the Super Bowl or tennis championships at Wimbledon, athletes agree to a uniform set of rules. The standardization of rules makes for a level playing field — a necessity when international entities come together for any sporting event. But less than a week after the rugby championships, delegates from the world cotton industry met in Turkey for the International Cotton Advisory Committee (ICAC) Plenary Meeting, and several industry stakeholders spoke to the immediate need for trading rule standardization in the cotton industry.
American Cotton Shippers Association (ACSA) Executive Vice President Neal Gillen explained that because of the unique organization of the international cotton industry — hundreds of international merchants and thousands of textile mills — universal standards of trading rules were necessary to alleviate a complex trading environment.
“This is a truly unique process where the members of the cotton network, utilizing transparent market information, serve one another by producing a commodity, adding value to it, offsetting price, contract performance and other risks, protecting the commodity’s value, shipping it for manufacturing and then creating it into new products which stimulate additional production,” Gillen said.
“Such a system can function efficiently and affordably only with a universal set of rules, common contract provisions that reflect the customs and usage of the international trade, uniform letters of credit and bills of lading, and a fair, impartial and affordable system to resolve disputes when they do arise. The system cannot function with a hodgepodge of rules for each individual market.”
Gillen said the International Cotton Association (ICA) in Liverpool was the logical nexus to unite international trading partners as 75% of all internationally traded cotton is subject to these rules. With a growing acceptance of ICA rules from textile mills in China and India, more cotton will be traded under these rules in the future. “The ICA has now fully integrated representatives from throughout the world in its governance — its board is composed of international representatives. But long before the LCA (Liverpool Cotton Association) transitioned into the ICA, its mill and merchant members were continually redrafting the rules to reflect the constant changes in trade patterns, finance, shipping innovations, quality criteria, bale packaging, insurance coverage, contracts and other factors,” Gillen said. “The formation of the ICA is full recognition that our business is more flexible, resilient, transparent and self-correcting than it ever was; and most importantly, it is an acknowledgment by the world cotton industry that only one set of rules will do.”
European Rules
Other cotton associations see the need for standardization as well, most notably Bremen Baumwollbörse, which agreed to adopt ICA trading rules in 2006. While Bremen has adopted the same rules, it currently operates under its own arbitration system which follows German law. In exchange for cooperation and acquiescence to ICA rules, Bremen Baumwollbörse was given a seat on the ICA Rule Committee (held by Executive Director Jan Wellmann). Former ICA Director General John Beck said this cooperation and active participation by Bremen was a boon for the ICA and the global cotton community at large.
“Bremen was allocated one seat on the ICA Rules Committee which gives them a voice in the ongoing development of the ICA Rules. This is not just ‘window dressing’ as Jan has taken full part in committee discussions and has had a noticeable influence on the direction of the debate,” Beck said. “ICA has indicated that a similar offer of a place on the ICA Rules Committee would be granted to any other association opting to adopt the ICA Rules.”
Poland, Belgium and France abide by the European Cotton Rules, while other notable countries such as Italy and Spain have delayed adoption. According to Beck, “preliminary discussions began with AFCOT in mid-2006 but did not really progress until September 2007 with extensive discussions in Paris, led by Didier Mercier for AFCOT and Fritz Grobien for ICA.” Since then, a consensus has been reached that standardized rules would benefit the industry, and the two organizations — along with the other European associations — are working together to that end.
Gillen sees the adoption of the European Cotton Rules by these countries as a step toward international rules standardization, but he also understands the desire for countries and regions to maintain certain traditions and identities. A similar compromise to the Bremen agreement would benefit the entire world cotton trade while maintaining these efforts.
“The officials in Gydnia, Ghent and Le Harve understand that one set of rules is better than three. I view this as an interim or temporary step towards the adoption of the ICA Rules,” Gillen said. “Having participated in the U.S. debate in the 1970s when ACSA decided to abandon its own rules and uniform contract in favor of the now ICA rules, I fully understand the desire to maintain national or regional identity. The next logical step for these countries is to follow the German model by revising their rules to comport with those of the ICA and by conducting their arbitrations in Gydnia, Ghent and Le Harve by applying these revised rules as Bremen is now doing.”
Standardization in Asia
Standardized rules to govern trade with Asian and the Indian Sub-continent markets are needed now more than ever, and Gillen said headway has been made in this arena. In 2006, the ACSA/Amcot China Committee reached agreement that Chinese mills could arbitrate disputes pursuant to ICA Rules, planting the seeds of standardization with the world’s largest consumer and producer of cotton.
“Evolving markets in the Indian Subcontinent, Asia and Southeast Asia are gradually acclimating themselves to the ICA Rules, and their use is expanding within those markets,” Gillen said. “Why? Because these universal rules are the best guarantee to a textile mill that it will receive timely delivery of the cotton specified in the contract at the contract price; allow it to make effective use of appropriate risk management tools; and have access to the sanctions that the ICA places on those who fail to comply,” he continued.
“It is the responsibility of the cotton industry to intensify its outreach and educational efforts in the emerging markets by stressing these benefits in order to encourage, promote, and maintain a sound cotton economy through equitable universal rules and an impartial arbitration system that serve the common interests of buyers and sellers of raw cotton.”
Editor’s note: Cotton International Managing Editor Drew Harris attended the ICAC Plenary Meeting in Izmir, Turkey, last year. The following article includes statements from presentations by ACSA Executive Vice President Neal Gillen and former ICA Director General John Beck.
Captions (photos):
John R. Beck
Neal Gillen
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