Liverpool cotton body urged to improve rules

JAKARTA (JP): Indonesia has urged the Liverpool Cotton Association Ltd (LCA) in England to improve its arbitration and trading rules in anticipation of contract disputes in the cotton trade with ASEAN countries.

Husein Aminuddin, chairman of the Indonesian Spinners Association (Sekbertal), said at the annual meeting of LCA in Liverpool recently that Southeast Asia was now facing one of its toughest challenges, due to the impact of the currency and stock market turmoil since July.

"Set against this background, it is clear that there is every likelihood that contract disputes will increase in the cotton trade with ASEAN countries," said Aminuddin, who is also an associate director of LCA for Southeast Asia.

Aminuddin anticipated that LCA arbitration procedures would be in greater demand and LCA should therefore be more alert to ensure that its procedures were accessible and relevant to the needs of the marketplace.

LCA, set up in 1842, is the world's leading international cotton trade association with over 400 members in 60 countries. LCA trading rules and arbitration procedures govern around 60 percent of all raw cotton traded internationally.

Indonesia and other Southeast Asian countries depend largely on imported cotton to feed their textile industries. Indonesia itself imports more than 850,000 bales annually, or 98 percent of its needs.

Aminuddin urged LCA to review its rules on both delayed shipments and delays in the opening of letters of credit because spinning mills mostly operated on a just-in-time basis.

"Delays in shipment can be disastrous if they are longer than the coverage provided by the smaller inventories that mills prefer to hold," he said here over the weekend.

Citing Indonesian experiences, Aminuddin said that if a shipper encountered a delay, then the buyer had no choice but to accept it as something that was irreversible.

"LCA should therefore consider amending its rules to limit shipment delays to a certain period of time after the agreed upon shipment period. After this time, which I believe should be two weeks, automatic penalties should result," he added.

Conversely, he argued, the same rules should be adopted for the opening of letters of credit by buyers so as to protect exporters from late payments.

Aminuddin also suggested that in order to speed up the dispute resolution process, the buyers and sellers identify in their contract and in the letter of credit the name of the surveying company they would assign should a dispute arise regarding shipment.

"This enhancement of LCA's standard contract should cut down time delays, communication problems and paperwork involved in the dispute resolution process," he said.

In a related development, Aminuddin urged Indonesian companies to master LCA's trading rules and arbitration procedures to prevent disputes or to minimize costs in case of a dispute.

"Sekbertal has just published a book on cotton trading contracts and arbitration based on the proceedings from a seminar in Jakarta in July held in cooperation with LCA," Aminuddin added. (vin)