Local textile firm brings complaint to arbitration

JAKARTA (JP): Earlier this year, textile companies complained they were hit by defective cotton imports from the United States. Their claims were solid, the evidence was there and the importer even admitted the inferior quality of the cotton.

The Indonesian firms, however, preferred to deal with the issue on a bilateral basis -- through negotiations -- and avoided arbitration, which they claimed would be disadvantageous to them.

Observers justified this, saying that the Liverpool Cotton Association (LCA) -- the international arbitration body for cotton trade disputes -- was controlled by the seller's interests, with little influence from the buyer's side.

One of the companies, PT Putra Sejati Spinning Mills Ltd., however, decided to "brave" the LCA by bringing the case to arbitration. Under the contract, the LCA is authorized as the only body to handle any disputes which may occur between cotton sellers and buyers.

Heinz Schadach, an adviser to the board of Putra Sejati, said the company was pursuing a quality arbitration for one item and a technical arbitration for three items.

"Negotiations are currently underway, but the seller has refused to compensate (for defective cotton delivered last year), although the samples indicate the cotton is bad and the seller has admitted to its poor quality," Schadach told The Jakarta Post in a recent interview.

The total value of Putra Sejati's claim is around US$300,000.

"It is a clear-cut case and the evidence is there ... if Putra Sejati does not win, there must be something wrong with the system, and we should reconsider how to carry out cotton trade in a fair way," he said.

Schadach, whose company has hired a foreign lawyer to handle the case, said that the other seven companies which complained of similar problems should also go to arbitration, as this was not the first time they had received off-grade cotton.

Chairman of the Indonesian National Board of Arbitration Priyatna Abdurrasyid was not surprised at the reluctance of Indonesian companies to bring the dispute to the LCA.

"Many Indonesian companies feel uneasy about moving in foreign territory and facing unfamiliar rules, which often poses communication and cultural problems," he said.

Priyatna said Putra Sejati's decision to hire a foreign lawyer familiar with Liverpool laws was appropriate.

He said, however, that the company would have to spend a lot of money for the arbitration process, as it would have to be conducted outside Indonesia.

"To make things easier, the parties in the dispute could agree to arbitrate in Indonesia or in a third country such as Singapore. This would be an advantage for the Indonesians, not only because it would mean a lot of money saved, but also because they would be more comfortable dealing with things in a familiar atmosphere," he said. (pwn)