The Liverpool, England-based International Cotton Association (ICA) expels members that deal with companies that are blacklisted for defaulting on contracts plans to introduce mediation services to help resolve disputes over reneged contracts that have blocked hundreds of blacklisted firms from doing business. The mediation would be speedier tool to resolve disputes, in addition to the current methods of negotiation and arbitration.

ICA Managing Director Kai Hughes on the sidelines of a trade meeting in Dubai on Wednesday said that this will be available to everyone as of tomorrow (Thursday), even for companies that are on their default list.

Over 700 companies that are listed as defaulters, they had to find some way to help get them off that list, and sometimes negotiation doesn't work out as well. The global trade group was busy with requests to resolve disputes in 2011 and 2012 following a historic run-up that lifted prices above $2 a lb in early 2011, only to fall almost as quickly.

Mills that agreed to buy raw cotton from trade houses when prices were high then refused to honour those deals when prices plunged. While the rate of contract defaults has since slowed, the problem has become common in the industry in periods of high price volatility, market participants.

Hughes said that some defaulting companies had approached ICA, requesting to be removed from the list and that he thought mediation could be a suitable way to achieve that.

Negotiation is one way of doing it, but if the two parties are not comfortable talking to each other, then mediation through a mediator could be another tool. If both sides agree to mediation, ICA can provide a professional mediator to help resolve a dispute. The two parties share the costs, unless they have been through arbitration already, in which case the defaulting side pays the mediator.

The process is quicker than arbitration as most mediations usually take only one day. It provides a forum for the two parties to resolve their disputes where perhaps the relationship has broken down, or one of them is on the default list. The beauty of mediation is that it is a win-win situation as both parties have to agree, and both parties want to find a solution that they are happy with.

With arbitration, one party loses at the end. ICA said that it was the first commodities association to offer mediation services. This is groundbreaking, and so there will be a lot of other commodities watching them and they hope it is going to be a success.