Chinese firm sues Sri Lanka in dispute over $49.7m fertilizer deal

A ship loaded with 20,000 tons of fertilizer from Shandong-based producer Seawin Biotech meant for export to Sri Lanka is on its way back after failing to reach any constructive agreement with Sri Lanka, despite relentless efforts to solve the dispute, sources close to the matter told the Chinese Global Times on Tuesday.

The ship is to arrive in Singapore, where the company has launched an international arbitration procedure to settle a growing dispute over fertilizer export contract to Sri Lanka, according to the sources. The dispute, which started in early November, centers on Sri Lankan officials' rejection of the Chinese fertilizers, citing what Chinese sources call shady claims of quality issues. Another arbitration procedure will soon take place in Colombo, Sri Lanka, which together with the contract to be arbitrated in Singapore, is totally worth $49.7 million.

New information obtained by the Global Times and interviews with sources and officials showed that Sri Lankan officials backtracked on the deals and lacked any sincerity in solving the issues, even after the Chinese company sought third-party certificates to prove the quality of its products, which resulted in the launching by the company of the arbitration procedure in Singapore.  

"A notice of arbitration has been issued to Sri Lanka about the international arbitration in Singapore, and the arbitration procedure has been initiated," a source close to the company told the Global Times on Tuesday.

In a statement to the Global Times, the company stated that the bidding involving the dispute over imported fertilizer from China was dubious and shady, and it involved breaking business rules and hiding the truth from the public.

The Economic and Commercial Office of the Chinese Embassy in Sri Lanka said in a statement to the Global Times on Tuesday that it attached great importance to this trade dispute, given that Sri Lanka's imports of organic fertilizers this time are a government procurement project, and the amount is relatively large.

"The Sri Lankan Ministry of Agriculture has backtracked and has no sincerity in solving the problem, therefore, enterprises can only use judicial and arbitration channels," the Embassy said, extending its hope that the matter can be resolved satisfactorily as soon as possible.

Despite the embassy's joint efforts to promote the settlement of the dispute by guiding and assisting enterprises to deal with the issue, as well as communicating and coordinating with the senior levels of the government of Sri Lanka, including the Ministry of Trade, the Ministry of Agriculture and other relevant departments, the issue remains unsolved, according to the embassy.

The Sri Lankan Embassy in China did not respond to the Global Times request for comment as of press time on Tuesday.

Sri Lanka barred the Chinese ship carrying desperately needed organic fertilizer, saying that "harmful bacteria - Erwinia" had been found in the batch, according to media reports.

But in the statement, Seawin Biotech strongly denied. In response to the allegation, the Shandong-based company has been very cooperative with the Sri Lankan side, including sending the same batch of samples to the China Customs Testing Center and the internationally renowned Swiss third-party testing institute SGS for retesting.

The China National Plant Quarantine Service investigated Seawin's products according to the International Plant Protection Convention agreement, and it confirmed that the products do not contain Erwinia, according to the company.

According to the bidding documents and the contract, the product quality shall be tested and confirmed by a third-party testing institute designated by the Sri Lanka Standards Institute (SLSI) before sailing.

SLSI appointed the German testing institute Schutter Group. Schutter audited Seawin's production line and took samples from the production line and warehouse.

Although the products did not contain Salmonella and Coliform when they were tested, the test report of the National Plant Quarantine Service of Sri Lanka still claimed that Erwinia was found in the product, according to Seawin Biotech.

Moreover, several meetings were held under the active coordination of the Chinese company and the Chinese Embassy in Sri Lanka in a cooperative and dispute-solving manner with the Sri Lankan side, but no substantive progress was made.

In bidding for the fertilizer import, the People's Bank of Sri Lanka issued an irrevocable letter of credit to Seawin, the Shandong company said, indicating the irrational move by the bank has made the situation difficult.

Seawin Biotech suggested several conditions, such as having the Sri Lankan side pay 70 percent of the claim, alongside Seawin Biotech's demand for the Sri Lankan agriculture ministry to issue a statement that the shipment was rejected because of an import permit dispute and not because of the quality of the fertilizer. But none of the conditions have been met by the Sri Lankan side so far.

"Because no discussed conditions have been met, we decided to take our ship back from Sri Lanka and head to Singapore for a lawsuit," the person with the Shandong company told the Global Times on Tuesday.

Chinese Foreign Ministry Spokesperson Wang Wenbin also commented to the media over the issue previously.

"China attaches great importance to the quality of exports…the fertilizer concerned had passed tests of third-party agencies assigned by the Sri Lankan side before shipping," Chinese Foreign Ministry spokesperson Wang Wenbin said on November 2.

Sri Lanka's economy is dominated by agriculture. Of its approximately 22 million people, more than 70 percent depend directly or indirectly on agriculture, according to media reports.

According to Deutsche Presse-Agentur, the Sri Lankan government previously promised to provide farmers with organic fertilizers and other chemical fertilizer substitutes, but it failed to materialize.

Due to insufficient fertilizers and pesticides, large tracts of farmland in Sri Lanka were left unused.

China is a big fertilizer consumer, but at the same time it is also exporting a large amount of fertilizer to the main grain-producing areas of the world, including regional countries such as India.

Industry insiders fear that the recent trade dispute with the Chinese company is setting a very bad example for Sri Lanka's future trade with China, not just in terms of fertilizers but beyond.