TWN Info Service on WTO Issues (June04/11)

17 June 2004

Third World Network


The commodities crisis was highlighted by a side event at UNCTAD XI on 15 June

when the UNCTAD Secretary General reminded participants of French President Chirac’s remark about the conspiracy of silence on the commodities problem, and participants urged UNCTAD to take the lead in breaking the silence on commodities.

Below is a report on the UNCTAD XI event on commodities which was co-organised by UNCTAD and the Common Fund on Commodities.

With best wishes

Martin Khor




TWN Report by Goh Chien Yen, Sao Paulo 15 June 2004


Participants at an UNCTAD XI event today called on UNCTAD and other agencies to “break the conspiracy of silence” on the commodities crisis and to take comprehensive action.

At the same event, UNCTAD Secretary-General Rubens Ricupero announced that UNCTAD will set up a global partnership for commodities to deal with a diverse range of commodity issues and problems. The partnership, he said,  will take the form of an international task force on commodities involving “all interested stakeholders.”

Ricupero said there were different problems relating to different commodities, so no single agency had a recipe for solutions. “The time has come for a global partnership for commodities,” he said, adding that the idea comes from a recent initiative of the UN General Assembly to establish an independent expert group on commodities.

Following the report of the expert group, UNCTAD is suggesting the establishment of a partnership on commodities using a networking approach, which will also involve the Common Fund for Commodities, the World Bank, ITC, ILO, Commonwealth Secretariat, and civil society groups and the private sector.

It will deal with a diversified range of subjects, including production, diversification, improving value added of products, and re-evaluation of old compensatory mechanisms.

Ricupero was speaking at a UNCTAD XI side-event organized by UNCTAD and the Common Fund on Commodities (CFC) on Commodities, Poverty Alleviation and Sustainable Development and chaired by Brazilian Agriculture Minister Roberto Rodriguez.

An UNCTAD speaking note for Ricupero distributed at the meeting states that UNCTAD’s proposal to establish an International Task Force on Commodities, with a view to putting together the efforts of all interested stakeholders and direct them to pragmatic solutions, has met with widespread support. “We are sure that this support will be translated into active participation and that this will bring both focus and priority to breaking the cycle of poverty in which many commodity producers and commodity-dependent countries are now locked.”

Many speakers and participants at the session highlighted the seriousness of the commodities crisis and the plight of commodity-dependent countries and producers.

Ricupero said he was thrilled last year when President Chirac of France spoke of a “conspiracy of silence” on commodities and tried to launch a special initiative on commodities at the Evian G-8 meeting.  However Chirac did not get a response from the other leaders.

Some developed countries had said there was nothing to be done about commodities and that the market would take care of the problems.  “This is very curious as the same countries are spending $3 to 4 billion a year in subsidies to support their cotton.”

They could start by completely withdrawing support from cotton, if they believed what they said, added Ricupero. But there was no basis in economic science for leaving it to the market to solve the commodity problem. Even neo-classical economists had recognized the need for action on commodities, which had been a prominent topic at the meetings to set up an International Trade Organisation (at Havana).

Ricupero recalled that later there had been the commodity agreements. The coffee agreement had been the result of President John F. Kennedy’s wisdom in wanting to help the Latin American countries. When the political support was no longer there, the agreement collapsed. This was not because it was inherently wrong. What happened after the collapse was much worse than the situation at the time of the agreement.

“Whatever the shortcomings of the coffee agreement, the producers were incomparably better off then than they are today,” said Ricupero. “We have not solved the problem, and there is no way we can avoid facing the problem.”

Commenting on criticisms that supply management was a wrong policy, Ricupero said that if this was so, why then were the OECD countries negotiating a steel agreement to manage supply, and why did the US a few years ago take the lead to manage the supply of aluminium.

“We have to distinguish between ideology (and rightist ideology can be as dangerous as communist ideology) from facts.”

Martin Khor of the Third World Network, said the “conspiracy of silence”, that President of Chirac had exposed, was unfortunate, as the commodity crisis was probably the biggest trade problem for many developing countries.

From 1980 to 2000, world prices for 18 major commodities fell 25% in real terms, with the decline being steep for cotton (47%), coffee (64%), cocoa (71%) and sugar (77%). The effects were devastating: Sub-Sahara Africa was losing an average of 16% of its GDP in 1987-89 from terms of trade decline (compared to 1980), while the situation worsened much further in the 1990s.

Khor said he hoped UNCTAD’s relative silence on the issue in recent years was not because of  immense pressure on it. Referring to Ricupero’s announcement of establishing a partnership on commodities, Khor said UNCTAD “should not be shy” of taking the lead on the issue and the lead to “break the silence on commodities.”

When Ricupero replied at this point that UNCTAD could do so if requested by the governments, Khor asked participants in the room if anyone present would object to UNCTAD’s leadership role on this issue. When no one showed objection, Khor said that it was right for UNCTAD to be the lead agency, especially since the very creation of UNCTAD was inspired by the need to combat problems of low commodity prices and of declining terms of trade.

In the 1970s and 1980s, negotiations on commodity agreements under UNCTAD had been the main international trade negotiations. The collapse of many agreements was due not so much to their inherent weakness, but the withdrawal of political support of developed countries.

In the wake of lack of international action, and the ill-advised policy of the Bretton Woods institutions in promoting the export of commodities in many developing countries, and their loan conditionality to these countries to close marketing boards and end subsidies, an over-supply situation had developed for many commodities, leading to the continuous decline in their prices.

Khor proposed an action plan for commodities. He said the UN and UNCTAD in particular should give the highest priority to resolving the commodities crisis, which should not be neglected further just because it was not on the WTO’s agenda. An international UN conference should be convened to discuss comprehensively the wide range of problems faced and possible solutions.

Khor added that many experts, including previous speakers, had identified over-supply as the main factor causing price declines. Thus, it was crucial to find ways to reduce over-supply and align global supply more with demand, to stabilize prices.

He called for a  review of the possible positive role of producer-consumer commodity agreements, drawing on the positive elements of previous and present agreements, and building on them. The political will should be found to revive the concept of agreements, which could however be run differently if necessary.

In the absence of such agreements, producers should cooperate to rationalize their global supply so as to better align it to global demand, and such initiatives should be encouraged and not be frowned upon. It was useful to develop South-South cooperation in this regard, as part of the “new trade geography” announced at UNCTAD XI by Brazilian President Lula the previous day.

Developed countries should also eliminate as soon as possible export subsidies and other subsidized forms of export competition, as well as trade-distorting domestic subsidies, under all boxes in the WTO agriculture agreement, so as to stop unfair competition with developing country commodities.

The Bretton Woods institutions should review and change their policy advice such as requiring countries to expand commodity production even if there is a surplus, and to close state marketing boards without making provisions to fill the void.

Brazilian Agriculture Minister Roberto Rodriguez said the easiest way to reduce the rich-poor gap was for developed countries to open their markets to developing countries.  This was because they had only a small minority dependent on agriculture and they could also afford to pay their farmers not to produce.

Paula Lehtomaki, Finland’s Trade Minister, said several topics in the WTO’s Doha agenda was relevant to better terms of trade and diversification. She stressed, however, that it was the right of local consumers to have locally produced food, and that rich and poor countries had this right, and food security is important for all.

Gobind Nankami, Vice President of the World Bank, said shocks caused by commodity price changes have the most pernicious effects on the poorer countries.  He said in the 1980s countries used mechanisms unilaterally or multilaterally to improve the commodity situation but most did not succeed.  One reason was the long-term trend in commodity prices. He called for measures to tackle tariff escalation so that developing countries could have more market access.

Francisco Thompson-Flores, deputy director-general of the WTO, said that there was no doubt that South-South trade is very important but it was also absolutely essential that the North countries should open up their agricultural markets. The issue of erosion of preferences is also a delicate matter of great concern to the affected developing countries and had to be given deep consideration in the negotiations.

Guyana Trade Minister Clement Rohee highlighted the plight of small vulnerable economies that were commodity dependent, which lacked resources for research and investment and had difficulties with diversification.   He called for a growing alliance between governments, NGOs and academics to “break the silence” on commodities.  As for the issue of preferences, it was important for all to understand the problems and difficulties faced by small countries, instead of merely criticizing them for having an “addiction to preferences.”

Nigeria’s Ambassador to the WTO, Matthew Nwagu, said UNCTAD should take on more roles in the commodity issue as most commodity aspects were under the purview of UNCTAD.  He said poor peasants could not meet the high standards set by the North.  Moreover, developing countries simply could not have a say in the level of commodity prices due to the over-supply situation. The cocoa producers, for example, were helpless in the situation. The World Bank and IMF had also removed the state marketing boards but there was no successor put in their place and this had contributed to the ruin of commodity trade, and there is now a yawning gap.  He urged UNCTAD to consider what it could do on the whole range of issues.

The managing director of the Common Fund for Commodities, Rolf Boehnke, said the meeting had succeeded in stimulating discussion on the many problems, which included low prices, debt, supply constraints, overproduction, market access barriers and limited access to finance, and the market distorting effects of subsidies. Areas that were mentioned for action included enhancing production, improving product quality, improving standards, diversification, enhancing production of emerging products and cooperation among producers. The Common Fund took note of the proposal to hold a comprehensive commodity conference and it would join with UNCTAD, governments and NGOs to develop an agenda for action.