NCTO

National Council of Textile Organizations (NCTO) is the national trade association representing the U.S. textile industry and its stakeholders. On behalf of U.S. yarn, fabric, industry suppliers and U.S. fiber producers, NCTO represents the textile industry on issues of national interest regarding the manufacturing of textile products in the United States.

ACSA

American Cotton Shippers Association is the spokesman for private cotton merchants of the United States on national and international mat­ters. Organized in 1924, its members perform the essential function of risk-taking from purchasing cotton from producers through delivery to consuming mills. ACSA consults with other industry segments in developing sound cotton legislation and programs, participates in the formation of contracts and trading rules in domestic and foreign markets and provides to its members immediate information on world cotton events.

Its programs are carried out by volunteers on standing committees covering various facets of the industry. Relations with the National Council of Textile Organizations are handled by ACSA’s Domestic Mills, Warehouses and Overland Transportation Committee.

Amcot

Founded in 1971, Amcot is an international sales force working directly for American cotton growers. With a global network of offices and textile mill contacts, and the support of over 40,000 cotton growers, Amcot offers mills a year-round, dependable cotton supply in all volumes and qualities.

The United States’ four major cotton marketing cooperatives are the owner/members of Amcot. They are Calcot, Ltd., PCCA (Plains Cotton Cooperative Association), Staplcotn (Staple Cotton Cooperative Association) and SWIG (Southwestern Irrigated Cotton Growers).

FOREWORD

In 2002 a joint meeting of the Cotton Committee of the American Textile Manufacturers Institute, Inc., succeeded by the National Council of Textile Organizations, Inc. in 2004, the SMR Study Committee of the American Cotton Shippers Association, and Amcot authorized a reprinting of the Southern Mills Rules (including the American Pima Rules), the Rules and Regulations of the Cotton States Arbitration Board, and an Outline of Services Available under both sets of Rules.

These have been combined into this single booklet for the convenience of members.

This 2004 edition of Southern Mill Rules incorporates the previous 2002 edition.

This edition also incorporates amendments to the Procedures of the Board of Appeals pertaining to changes in procedures, effective on and after August 1, 2004 as agreed upon by the NCTO, ACSA, and Amcot.

Ratified and Adopted by

ACSA

88 Union Ave., #1204

Memphis, TN 38103

PH: (901) 525-2272

FX: (901) 527-8303

www.acsa-cotton.org

SOUTHERN MILL RULES

With the organization of the American Cotton Shippers Association in 1924, the American Cotton Manufacturers Association agreed to jointly sponsor trading rules for the shipment of cotton to southeastern mills. The Southern Mill Rules were agreed to in 1925. Previously, trades were governed by the Carolina Mill Rules of 1915, or by individual mill terms.

In the early 1900’s, most cotton textile manufacturers were located in New England. Contracts between merchants and mills were made under the New England Mill Terms and quality arbitrations were handled by the New England Cotton Buyers Association located in Boston, Mass. With the movement of textile manufacturers to the southeastern states and the merger of the American Cotton Manufacturers Association with the northern Cotton Textile Institute in 1949, creating the American Textile Manufacturers Institute, Inc., the New England Mill Terms were rescinded in the 1950’s.

The Southern Mill Rules are under constant study by the sponsoring organizations. Revisions to meet changed conditions of trade are considered yearly in a meeting between the Cotton Committee of NCTO, the Executive Committee of the Domestic Mills Committee of ACSA, and Amcot.

SOUTHERN MILL RULES

I. CONTRACTS

1. The following rules shall be known and designated as Southern Mill Rules, and where Southern Mill Rules are referred to in any con­tracts for the sale of cotton, it shall be conclusively presumed that the rules referred to are those herein set forth. When no rules are specified, these rules are to apply on transactions between buyers and sellers who are members of the National Council of Textile Organizations, the American Cotton Shippers Association, and Amcot.

2. A clear understanding of contracts in every particular must be had at the time of sale by both buyer and seller, and all contracts for the sale of cotton must be confirmed promptly in writing by both parties to the con­tract.

II. BIDS AND OFFERS

3. All bids and offers shall, unless otherwise specified, be subject to immediate acceptance.

4. Bids and offers “good for the day” shall expire at 5:00 p.m. at the place from which they are made, unless rejected and/or canceled in the meantime expressly or by a counter bid or offer.

5. An offer “good until canceled” shall be good until advice of cancel­lation is received, but in no event longer than ten business days.

III. CLASSIFICATION

6. All contracts for the purchase and sale of cotton shall be based on Official Cotton Standards of the U.S.A., unless bought or sold on actual samples or types. In sales of even running grades, five percent of the cotton may be a grade below the grade specified, if offset by an equal percentage of the cotton a grade above the grade specified.

7. Where a contract is for an average grade and the contract expresses that no cotton is deliverable below a grade specified, there must not be an excess of the lower grade over the higher grade specified, and the buyer may reject any excess. The seller must not include in any shipment any cotton below the lowest grade specified.

8. When cotton is bought or sold on type or actual samples, the buyer may reject any bales not equal to the specified type or samples in all re­spects. On cotton due within the next 45 days, buyer to approve samples within 10 business days of receiving samples. When cotton is bought on HVI data, buyer to approve the data within five (5) business days of receiving data.

9. Long staple cotton shall be defined as cotton of a staple 1-1/4 inch and longer. Short staple cotton shall be defined as cotton of a staple shorter than 1-1/4 inch cotton, regardless of the territory from which it is shipped.

10. When long staple cotton is bought or sold on a grade specification, unless otherwise specified, the “B” preparation of the grade specified, as promulgated by the Department of Agriculture, shall govern as to preparation. When cotton is bought or sold on color of one grade and leaf of another grade, unless otherwise specified, the “B” preparation of the lower grade specified shall govern.

11. When short staple cotton is bought or sold of one grade standard for color and leaf of another, unless otherwise specified, the preparation is to be equal to the lower grade standard specified.

12. No cotton of irrigated growth can be delivered against contract unless sold as such, and no cotton of irri­gated growth can be delivered against contract when sold on actual samples or type unless described as such.

Where the terms “raingrown” or “irrigated” are used without more detailed growth specifica­tion, the first shall be interpreted to mean all cotton of U.S. growth other than that grown in Califor­nia, Arizona, New Mexico (excepting cotton grown in Lea County, New Mexico), and the Pecos and El Paso Valleys of Texas, which shall be regarded as irrigated.

12A. No cotton that has been reginned, recleaned, blended or reprocessed, nor cotton that has been sledded nor cot­ton that has been ma­chined after the first ginning process, can be deliv­ered against contract unless described as such.

13. When cotton is sold subject to approval of samples, before shipment, seller must submit samples to the buyer for approval according to the contract. Samples are the property of the seller until the buyer approves them. If they are not approved, they are to be returned immedi­ately. If the buyer fails to approve samples, sell­er may demand arbitration, in which case samples must be put up with both buyer and seller, or their

representa­tives, present and sent to Cotton States Arbitration Board for arbitration, their finding to be final save when the cotton passed by the Board arrives at desti­nation, the buyer may have samples drawn and sent to the Board for comparison with samples originally passed by the Board, and the buyer may reject any cotton that, on comparison of samples, the Board finds not equal to original samples in all respects.

IV. SHIPMENTS

14. Cotton sold for prompt shipment must be shipped, and bills of lading or mutually accept­able equivalent issued therefore, within fourteen busi­ness days from date of sale. Cotton sold for immediate shipment must be shipped, and bills of lading or mutu­ally acceptable equivalent therefore issued within seven business days from date of sale.

All cotton sold for shipment in one or more months or fifteen business days subsequent to date of contract shall be known as forward shipment cotton.

15. When a sale is made for shipments in a given month, cotton must be shipped and bills of lading, or mutually acceptable equivalent therefore, issued within the month specified.

16. The seller is not to be held responsible for non-performance caused by act of God, fire, war, riot, strikes, floods, embargo, car shortage, or quarantine which affects the cotton contracted for by him for fulfilling his sale. In all cases where the seller claims that the non-performance is due to these causes mentioned, the seller shall give notice to the buyer on the expiration of the shipment period, and within two business days after the end of the specified shipment period, by registered mail, or otherwise deliver to the buyer an affidavit showing positive reasons for the non-performance. If such affidavit is not furnished, the buyer may close the contract in accordance with Rule 54.

16A. If, for any reasons except those mentioned above, the seller fails to make shipment or delivery within the time specified in the contract, the buyer may close the contract in accordance with Rule 54.

16B. If the buyer refuses to accept delivery of cotton within 20 business days from the end of the shipping period, the seller may give the buyer a written “intent to ship” which shall include a tag list of the cotton to be shipped. If the buyer continues to refuse delivery or fails to respond to the seller’s notice of “intent to ship”, the seller may, at 20 business days after the end of the shipping period or 20 business days after the receipt by buyer of the written “intent to ship”, whichever is later, close the contract in accordance with Rule 54.

17. All bills of landing accompanying drafts must show the initials and numbers of the cars, the number and marks of bales therein, and the weights shown on bills of lading must agree with the invoice weight.

18. On contracts of less than 100 bales, the seller may make shipment in lots of five or more bales, but on contracts for 100 bales or more, ship­ments must be made in not more than two lots per 100 bales.

19. All contracts for the sale of cotton must be filled and received by the parties making the contracts. No change shall be allowed in the origi­nal seller or buyer with whom the original contract was made unless written consent is given by such buyer or seller, except in the case of bona fide sale or merger of firms in­volved.

20. All cotton delivered must be properly protected from weather, and delivered to mill or destination Mon­day through Friday during normal mill receiving hours as designated by the buyer. Cotton arriving on a buyer’s scheduled receiving day, but after receiving hours, will be accepted the next cotton receiving day.

V. PAYMENTS

21. Unless otherwise expressed in the contract, seller will draw at sight on buyer or submit invoice for payment with bill of lading attached, or other mutually acceptable equivalent attached for the purchase price of cotton described in invoice; draft to be without exchange or collection charges. Any demurrage accruing from cotton arriving before the draft or bill of lading must be paid by the seller. Any demurrage accruing where proper documentation and delivery arrangements have been followed must be paid by the buyer.

22. In cases where buyer elects to specify a particular bank through which payment is to be effected, the buyer shall be held liable for any loss the seller may sustain in that bank, or due to any action of that bank on account of routing payments through same.

23. Buyer not paying drafts within five (5) business days, or invoices within five (5) business days after delivery of cotton at specified destination shall pay the then current prime cotton interest rate on face of same until paid and an additional penalty of one-half cent per pound for cotton represented by draft or invoice. This clause does not give buyer any right to delay payment and any failure to pay within the pre­scribed period will entitle seller to relief for breach of contract pursuant to all remedies available at law or equity, including injunctive relief and the right to close the contract for cotton scheduled for later shipment.

VI. WEIGHTS

24. On sales with weight settlement on arrival of cotton at destination, should such weights show an excess or loss as compared with invoice weights, settlement shall be made by each party for such excess or loss.

25. All contracts for immediate or prompt shipment must contemplate the shipment of cotton of the running weight in the territory of origin. Contracts for forward delivery shall be based on a net weight of 500 pounds per bale at destination with privilege of a variation of one-half of one percent either way, adjusted on each mon­th’s delivery, and if necessary to bring the actual weight of cotton delivered within the total weight of contract thus calculated, the seller shall deliver more or less bales than the number stated on the contract as the case may require. No bales of cotton under 325 pounds net weight shall be delivered under any contract. Dissatisfaction with weights delivered to buyer must be reported by buyer to seller or his agent, within fifteen business days from receipt of shipment. The seller must furnish the buyer with invoice and detailed weight sheet showing weight of each bale of cotton shipped.

VII. CLAIMS FOR LOSS IN WEIGHT

26. The buyer must weigh all cotton as promptly as possible, but not later than seventy-two hours after receipt at destination, unless precluded from doing so by unavoidable delay such as an act of God, riot, strikes, etc., before samples or bands are removed or unless too damp or wet to be weighed with reasonable accuracy, in which event seller must be notified so that he may send representative to inspect cotton if he so desires. Buyer must furnish seller promptly with statement, certified and signed by the weigher, showing mark and weight of each bale by tag numbers invoiced, except in cases where impossible to do so on account of bales having lost tags, and when trucks are weighed “full” and “empty”, provided buyer furnishes seller weights by fax within one business day after arrival of truck at destination. Buyer’s failure to weigh and produce weight statements in accordance with the above provisions shall constitute Buyer’s approval of Seller’s invoice weights as final.

27. Claims for loss in weight or payment for gain in weight must be made within seven business days from receipt of the cotton, or of the last portion of the shipment. This time may be extended to ten business days where conditions render such extension necessary. Sworn certifi­cates of buyer’s weigher, as well as the serial numbers of both boxcar

seals and whether broken or not upon arrival, shall be forwarded when requested by seller.

28. Cotton shall be kept intact by buyer for five business days after receipt of notice of claim for loss in weight, and shall be reweighed within ten business days in the presence of the representative of each party upon the demand of the seller, and the entire lot shall be reweighed unless the parties shall mutually agree upon some satisfac­tory method of averaging the weight of a representative portion of the lot. If the reweights of the cotton show a gain of weight in excess of three pounds per bale over the buyer’s receiving weights, the buyer shall pay the actual cost of reweighing, otherwise seller pays same. If buyer fails to keep the cotton intact in accordance with this Rule, seller’s invoice weights shall be final. Final payment based on arbitration weights or weights determined in accordance with this section.

29. Samples shall not weigh over one-half pound per bale. When cotton is reweighed, this allow­ance shall be made for samples; and allowance shall be made for actual tare removed.

VIII. TARE

30. The sale of American Upland cotton will be on the basis of net weights. The net weight of each bale is to be determined by deducting its actual tare. Sellers are to furnish the buyer, before arrival of the cotton at its destination, a tag list showing the bale number, tare and either the gross or net weight of each bale. The buyer shall furnish the seller a receiving weight sheet showing the seller’s bale number, actual tare deducted and ei­ther the gross or net weight of each bale, or each bale may be weighed with the net weight of the total ship­ment determined by subtracting the total weight of the tare from total gross weight. The invoice allowance, on bales covered with tare approved by the Joint Industry Bale Packaging Committee and by the Commodity Credit Corporation, shall be that agreed upon by the Joint Industry Bale Packag­ing Committee and the Commodity Credit Corpo­ration.

31. Notice of claims for variations in invoice tare allowances must be given seller by buyer within twenty business days from receipt of cotton. If seller wishes to make test of tare he must, within five business days of receipt of such notice, advise the buyer in writing of his purpose to do so and must, within ten business days of receipt of such notice, send his representative to the place where the cotton is situated and with the representative of the buyer apply the official tare weights schedule specified by the Joint Cotton Industry Bale Packaging Committee to determine the variations, if any. Where the delivery of cotton is accepted by the buyer at some other warehouse than its own, notice of variations in invoice tare allowances herein before provided for must be given within twenty business days after arrival of cotton from such warehouse at the place where it is to be used.

32. All claims for variations in in­voice tare allowances must be filed within nine months from receipt of cotton.

IX. CLAIMS FOR DEFECTIVE GRADE, STAPLE OR CHARACTER

33. When shipments of cotton arrive at destina­tion, large and fair samples of each bale shall be taken by the buyer after the cotton is weighed, and from well within the bales, and shall be properly held for future inspection.

34. Claims as to quality excluding contract averages must be made within ten business days from the date of the receipt of the shipment except, when cotton is deliverable in monthly installments, the claims shall be made on or before the tenth (10th) day of the calendar month following a shipment. This time may be extended to twenty business days, where conditions render such extension nec­es­sary, but no claim shall be extended after twen­ty business days.

35. The seller must notify the buyer, within five business days from receipt of the buyer’s notice of claim for defective quality, of his desire to investigate the claim and must, within ten busi­ness days from the date of such notice, either personally or by his duly authorized represen­tative, inspect the cotton in dispute or make such examination of the buyer’s claim as he may desire, with the view of making a voluntary and friendly set­tlement or adjustment of the claim.

X. DAMAGED COTTON

36. Gin cut cotton is not deliverable on any contract unless sold on actual samples or against type; nor can dam­aged cotton be delivered. If there should be any disagreement as to whe­ther or not cotton is merchantable, the official con­troller under the Southern Mill Rules shall make the determination on the basis of the Joint Cot­ton Industry Bale Packaging Committee’s “Guide for Cotton Bale Standards,” which shall be bind­ing on the seller and buyer.

36A. The buyer must claim for externally damaged bales within 3 business days after bales are unloaded at destination. Claims shall be made in writing by fax to the seller showing mark and bale number of damaged bales. Any externally damaged bales not claimed on by buyer in writing within three business days after arrival shall be considered

accepted by the buyer for packaging, bale condition, and density.

37. Claims for fraudulently packed bales of cotton shall be made within ten business days of the discovery of such fraudulent packing, but must be made within one year from the time cotton is received at destination.

XI. ARBITRATION

38. All claims and controversies between the seller and buyer arising out of contracts for the sale of cotton, such as claims or controversies relat­ing to quality, on request of either party to the contract, shall be arbi­trated under the rules of the Cotton States Arbitration Board and by this Board, and their finding shall be final. (Cotton States Arbitration Board is that Board set up by the National Council of Textile Organizations, the American Cotton Shippers Association, and Amcot for the arbitration of all differences as to quality.)

39. All disputes between buyer and seller, except as to quality, shall be referred to the Board of Appeals upon request of either party, and the decision of the Board of Appeals shall be final. In addition, the Board of Appeals shall render a decision, which decision shall be final, upon re­quest of either party, in case of a dispute between two shippers or be­tween two mills as to the matters listed in the previous sentence where either party is a member of at least one of the organizations listed in Section I and where both parties have agreed in written contract to abide by the Southern Mill Rules and to abide by the decision of the Board of Appeals in the event of a dispute. No person interested in the matter involved shall serve as a member of this Board. The Board is set up by the President of the National Council of Textile Organizations, ap­pointing one member; the President of the American Cotton Shippers Association, in consultation with Amcot, appointing one member, and these two members, if in disagreement, shall appoint a third member, and the members shall also appoint a secretary.

40. If the claim or controversy shall relate to quality, the samples drawn by the buyer under the provisions of Rule 38, shall be submitted to the arbitrators unless the seller claims the right to have new samples drawn, in which event samples of the cotton shall be drawn by or in the presence of the buyer and seller, or their duly authorized representatives. If through the action of the buyer, it shall be impossible to draw samples as herein provided, the cotton shall be presumed of the quality invoiced.

41. Expense of the arbitration shall be borne by buyer and seller in the same proportion as the respective parties may win or lose in the award made by the arbitration.

XII. REJECTIONS

42. All cotton rejected by buyer against contract must be replaced by delivery of an equal quantity as the cotton rejected, and of the quality of cotton specified in the contract, within fourteen business days of mutual agreement regarding rejections, or of final decision by arbitration as herein provided for. Should any portion or all of the rejected cotton not be replaced, or should the cotton replacing rejections not be according to contract, then the buyer shall have the right to close the contract pursuant to Rule 54 as to the rejected bales not replaced.

43. When all or any part of shipment or delivery is rejected, cotton may be arbitrated only for the deficiency for which cotton is rejected.

44. For handling and warehousing rejections, it shall be the privilege of the buyer to charge the seller $4.50 per bale or minimum wage, whichever is higher, and in addition to charge the prime cotton interest rate in effect on August 1 of each year on all rejections from date pay­ment is made by buyer to date of reimbursement by seller

45. Seller must give buyer shipping instructions on rejections and reim­burse buyer for rejections within ten business days after receiving arbitration outturn or date of mutual agreement as to the quality deficient. It shall be the responsibility of the buyer to exercise all reasonable care of rejected bales until such time as they can be moved. If a total shipment is rejected because micronaire and/or individual HVI specification average falls outside the contractual limits, buyer shall, at his option, reject enough bales outside the limits to bring the rest of the shipment into the contractual limit, if the number of bales to be rejected does not exceed 25%.

XIII. PRICE FIXATION

46. On cotton sold for forward shipment, unless otherwise specified, buyer shall have the right to fix price at any time up to the first notice day for month on which price is based. Sellers option thereafter. A clear understanding of fixations must be held at the time of fixation by both buyer and seller and that all execution orders to fix must be confirmed immediately in writing by seller and acknowledged immediately by buyer.

XIV. MARGINS MUTUAL OR RECIPROCAL MARGINS

47. On cotton sold for forward shipment at fixed price or buyer’s or seller’s call and where the price has been fixed but the cotton has not been shipped, with a variation in the market of one cent per pound either way; it is the privilege of either the buyer or the seller to call for margins to offset. However, on any portion of the cotton not shipped within the time limit set forth in the contract, except when the shipment is not yet due or when the non-shipment is due to buyer’s unreasonable delay of appointments, seller shall not be entitled to margin call, but on any cotton not shipped within the time limit specified in the contract, buyer does have the privilege to call for margin to offset.

A request for variation margin should be confirmed in writing by the party making the request. The party receiving the request shall have twenty-four hours to remit, by either wire transfer or overnight mail, the variation margin that is due the requesting party.

48. When the cotton has been shipped and invoiced on provisional price and in possession of the buyer and price not fixed, a variation in the market of one cent per pound either way, margins are to be covered by the buyer or seller as the case may be.

XV. COTTON SOLD“LANDED”

49. When the contract specifies that the cotton shall be landed, the price agreed upon shall include freight to destination and delivery free of cost to the buyer at the place designated; and the risk of the seller shall ter­minate and the risk of the buyer shall attach upon the arrival of the cotton at the destination specified. The seller shall guarantee actual delivery of the cotton at destination. Cotton lost or destroyed in transit shall be replaced with like cotton, which shall be shipped within fifteen business days from the date of notice of such loss or destruction.

XVI. COTTON SOLD “COST AND FREIGHT”

50. Unless the contract specifies that the cotton shall be landed at destination, the cotton shall be at the risk of the buyer from the time of the issuance of bill of lading, and buyer shall pay all invoices accompanying bills of lading covering such cotton whether delivered, lost, or destroyed in transit, and the seller shall not replace such cotton.

XVII. DENSITY

51. When nothing is said as to whether compressed or uncompressed cotton is to be delivered, either may be delivered at the option of the seller, but no so-called high density — that is, cotton that is compressed to a density of 32 pounds to the cubic foot or more — shall be delivered without the consent of the buyer.

XVIII. GENERAL

52. Buyer and seller shall have the privilege of incorporating any other rules, not in conflict with the spirit of the above rules, in their contracts.

XIX. GROWTH

53. In the event of questions of growth, the seller shall, upon and within ten days of such request, furnish the buyer, with his written certification, under oath if required by buyer, of the origin or growth in question. In the event seller fails to furnish the buyer with his written certification within ten days, under oath if required by buyer, or in the event the seller furnishes his written certification, under oath if required by buyer, of growth other than that contracted for and such certification shows the cotton to be of irrigated growth, where raingrown cotton is specified or raingrown cotton where irrigated cotton is specified, the buyer may close the contract in accordance with the terms and conditions of Rule 54.

Further, where seller fails to furnish the buyer with his written certification within ten days, under oath if required by buyer, or in the event the seller furnishes his written certification, under oath if required by buyer, or growth other than that contracted for, the buyer may, at his option, hold the seller in default on that portion of the contract and close the contract in accordance with the terms and conditions of Rule 54.

XX. CLOSURE OF CONTRACT UPON DEFAULT

54. Buyer or seller shall be entitled to close any and all of the contracts that exist between the parties when any of the following has occurred:

A. Breach of Contract as described in Rules 16, 16A, 16B,

21, 23, or 42.

B. Failure to pay margins as required by Rules 47 and 48.

C. Breach of Contract as described in Rules 12, 12A or 53.

D. A party of the contract has filed for bankruptcy,

admits inability to perform as per the terms and

conditions of the contract, or evidence or circumstances

exist requiring either party to the contract to request

of the other sufficient proof of their financial ability

to perform and the failure to produce satisfactory

proof of same.

Buyer or Seller shall give the party committing a breach of contract five business days written notice of his intent to invoke closure.

The party invoking closure shall get three bona fide offers in writing for the identical quality and with identical terms to that contracted. Closure by Buyer shall be at the lowest of the three offers. Closure by the Seller shall be at the highest of the three offers. An additional ONE cent per pound penalty shall be assessed against the party in default.

Within eight (8) business days of the original notice of intent to close, the party closing the contract must provide the other party with a detailed statement, with copies of the offers obtained attached, showing any and all amounts due to either Buyer or Seller. The party owing market differences shall remit with good funds within three (3) business days of the statement date.