WASHINGTON, September 27, 2012 – Cotton industry leaders reported to federal government officials this week that export contracts worth nearly $1 billion, covering sales of more than 4 million bales, are either in default or are at risk of default with little sign of resolution.
In a joint statement, National Cotton Council (NCC) Vice Chairman Jimmy Dodson, a Robstown, Tex., cotton producer, said, “The defaults are threatening the ability and the willingness of cooperatives and merchants to enter into forward contracts with producers, thereby reducing competition for cotton fiber and resulting in lower prices for farmers.”
The delegation from the National Cotton Council (NCC), the American Cotton Shippers Association (ACSA), AMCOT and the National Council of Textile Organizations (NCTO) met on September 25-26 with USDA Secretary Thomas Vilsack, U.S. Trade Representative (USTR) Ron Kirk, and Assistant Secretary of State William E. Craft, Jr. The sessions followed up previous meetings with Administration officials and leading Members of Congress in August and March.
The delegation said too many foreign mills have refused to honor eventual awards and that, in many cases, the host governments appear to be protecting the foreign mills from enforcement of awards, a concern exacerbated in cases in which the mills themselves are state owned.
NCTO’s Dan Nation, division president of Parkdale Mills in Gastonia, N.C., noted, “U.S. textile mills honor their commitments or face quick legal action in U.S. courts. International mills operate under fewer judicial constraints and gain a competitive advantage by their ability to default without penalty, reducing their relative raw material prices and allowing them to undercut prices for yarn, fabrics, and garments offered by non-defaulting mills.”
They urged the U.S. officials to pressure foreign government counterparts and noted that other U.S. commodities, such as grains and oilseeds that are currently enjoying record prices, could be at similar risk in the future if the United States doesn’t take a strong stand in defense of contract sanctity.
ACSA Chairman Ricky Clarke, a merchant with Cargill Cotton, a division of Cargill Inc., in Cordova, Tenn., said textile mills in several countries, including Bangladesh, Indonesia, Thailand and Vietnam, have defaulted on millions of dollars of raw cotton contracts that resulted in severe economic losses for U.S. cotton merchants and marketing cooperatives.
"Contract sanctity is a fundamental building block of trade relations and widespread disregard of the principle should sound a loud warning to the extension of trade preferences,” Clarke said. “The U.S. government should carefully consider a foreign government’s record of enforcing commercial commitments when granting eligibility to a U.S. trade preference program.”
AMCOT’s Mike Quinn, president of Carolinas Cotton Growers Cooperative in Garner, N.C., agreed saying, “Contract defaults ultimately mean lower prices and reduced returns for producers. In addition, merchant and cooperative losses jeopardize U.S. jobs and threaten the fragile commodity banking system.”
The cotton delegation suggested that U.S. officials pressure foreign government officials on the importance of honoring contracts. They further suggested that if U.S. government agencies are sourcing products from suppliers in default that future purchases from those sources should be terminated.
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