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Government may approve mandatory Indian arbitration

Sudha Swaminathan - Coimbatore

The government of India may approve mandatory Indian arbitration of cotton in lieu of the Liverpool Cotton Association (LCA) arbitration in order to put an end to the hassles faced by Indian importers. While there is already a consensus among the user industry, the government may approve arbitration in India if the ongoing negotiation with the LCA with regard to addressing the problems of Indian importers does not turn out in favour of India, said industry sources.

The domestic textile industry, which has resorted to importing huge quantities of cotton for meeting the quality requirements in certain select counts of yarn, have been facing a plethora of problems like shortages in cotton shipments, delay in shipments, difference in quality of cotton samples and cotton shipped, high negligence in settlement of claims, etc. Importers have found the rules and regulations of the LCA inadequate and could not solve these problems effectively. The LCA rules have been drafted with a view to solving disputes arising between traders, and does not consider the consumers’ point of view. When it comes to arbitration owing to default on account of any of the problems, the importers are facing hassles in terms of high cost of reference to arbitration, discrepancy in the fees between members and non-members, etc.

The matter was referred to the Indian Cotton Mills Federation (ICMF) through the South India Mills’ Association and South India Cotton Association (SICA). It was in this background the standard Indian cotton imports contract, which has provisions for mandatory Indian arbitration was drafted by SICA.

With no respite in sight for the growing row between the shippers and the importers despite the representation made by the trade associations to LCA, the issue was taken to the government of India. The government is more concerned over the issue as there are a growing number of importers and any problem concerning the user industry would affect the stability of the textile industry. On an average, India imports 20 lakh bales of cotton involving 4,000 individual contracts valued at Rs 2500 crore in foreign exchange. Last month, a delegation was led by Mr Atul Chaturvedi, joint secretary, ministry of textiles, who met up with the LCA members and deliberated the issue. LCA has accepted in principal to make some peripheral changes subject to the approval of 75 per cent of the members. If LCA does not concede to the pleas made by the Indian counterparts, there are indications that the government may approve mandatory Indian arbitration.

The situation would be more spinner-friendly if the rules and regulations are brought under the Indian Arbitration Act 1996, feels the industry. With India becoming a major player in international cotton trade, there is an underlying need for standard Indian cotton import contract. Some of the leading countries like China, Egypt, France, Germany, Italy are not part of the LCA and have their own cotton arbitration.

If mandatory Indian arbitration comes into effect, there is a possibility that the American cotton growers, mostly LCA members would stop selling cotton to India.

With India being the second largest importer of cotton, experts have ruled out such possibility. In such a situation, Indian mills can effectively manage the problem as crop (domestic) in the current season is expected to be huge, opined Mr D K Nair, general secretary, ICMF.