President International Cotton Association (ICA)
There should be no room or tolerance towards anyone who trades with a defaulter
Mr. Mohit Shah talks about the current scenario of the global cotton trade with Fibre2Fashion correspondent Mary Christine Joy.
ICA is one of the most renowned associations for cotton trading. Its rules and by-laws are followed almost everywhere in the world. It strongly promotes equitable trading practices in the world cotton market, and its rules and by-laws are in accordance with this philosophy. Almost 80 percent of the world trade of cotton is carried out under the rules and by-laws proposed by ICA.
Mr. Mohit Shah is an expert in cotton trading, and has over 20 years of experience in this field. Other than being the President of ICA, Mr. Shah is also the Director and Co-owner of Gill and Co. Pvt. Ltd. Gill and Co. Pvt. Ltd. is one of the oldest cotton companies in India. He joined the Board of Members of ICA in 2010, and has done a remarkable job in the association since then. He is a famous figure in the international cotton market.
Can you explain a bit about the role played by ICA in ethical cotton trading in the global market?
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.
Majority of trade in the global cotton market are carried out under the ICA rules. How does that help the cotton traders and buyers in the global market?
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.
What kind of dispute is most likely to occur in the global cotton trade? Can you give some examples?
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.
What are the major risks involved in cotton trade? Can you elaborate?
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.
How can not trading with defaulters create a safe trading environment?
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.
How can one know of the companies associated with defaulters?
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.
Published on: 07/07/2014
DISCLAIMER: All views and opinions expressed in this column are solely of the interviewee, and they do not reflect in any way the opinion of Fibre2Fashion.com.