305. Report Prepared by the Commodity Policy Coordinating Committee1
At the UNCTAD IV meeting in May, in Nairobi, a resolution on commodities was adopted by consensus, and a second resolution proposing a study of the U.S. proposal for an International Resources Bank was defeated in a close vote. All countries, including the U.S., supported the commodities resolution, although the U.S. and several others made reservations on some aspects of the resolution, principally on the issues of the Common Fund, a program of commodity negotiations, interference with the market system, and the question of indexation of commodity prices. The U.S. stated there was no U.S. commitment to particular results of preparatory work on commodities and buffer stock financing arrangements, nor a commitment to participate in the negotiation of any agreements. The U.S. also indicated in its statement its regret at the rejection of the IRB study proposal and indicated in a joint Kissinger/Simon statement two days later2 its intention to pursue the IRB proposal in other fora.3
The issues for U.S. consideration during the coming months are the following:
I. International Resources Bank (IRB)
The CPCC in its June 8 meeting decided to follow up immediately with our IRB proposal by having the U.S. delegation to the Paris CIEC meetings this week and next week submit an expanded description in written form to the other participants on the purposes and workings [Page 1049] of the proposed IRB. Our intention is to ask for detailed consideration of the proposal at a later date in CIEC and in other appropriate forums.
The CPCC also noted that the IRB is primarily an investment vehicle to facilitate a more rational flow of private capital into LDCs, and that having the IRB provide supplemental financing for buffer stocks was a function added to respond to pressures for the improved financing of buffer stocks in negotiating at UNCTAD IV. With the conclusion of UNCTAD IV and consensus agreement to study common funding, the function of providing supplemental financing for buffer stocks should not be included in our presentations on the IRB.
II. Common Fund
In the U.S. statement of reservations made at the Conference, the U.S. made it clear that it was committed only to participation in the preparatory meetings for the Common Fund and that the purpose of such meetings should be to consider whether further arrangements for financing of buffer stocks, including common funding, are necessary. Nevertheless, the question of the general U.S. approach and strategy to this meeting is an open one which needs urgently to be addressed.
Options Available to the U.S.
The underlying basic position for all three options is U.S. opposition to the Common Fund.
In this option, we would take a strong negative position on the Fund while reiterating our view that consideration of buffer stocks and their financing should take place on a commodity-by-commodity basis. We could state this position in writing to the UNCTAD prior to September 30 and again in the later preparatory meetings on the Fund in which we participate.
The basic advantage of this approach is that it leaves the U.S. position unambiguous, and it heads off any misunderstanding further along in the negotiating process about the fundamental position of the U.S. on the Common Fund. Its basic disadvantage is that it will clearly identify the U.S. as the chief contributor to any failure of the Common Fund, thus in all likelihood deepening the split between ourselves and the LDCs not only on this issue but on the whole range of North-South issues, of which this has particular symbolic importance.
The U.S. would continue to make its position known when in the process of discussion, but we would not actively lobby against the proposal. It would not submit any proposals to UNCTAD prior to the September 30 deadline specified in the commodities resolution. It would attend, but not participate actively in the preparatory meetings. It probably would not (although this would have to be examined early next [Page 1050] year) participate in any eventual negotiating conference on the Fund. The U.S., however, would make some efforts to gain agreements for its opposition among our developed and developing countries allies.
The major advantage is that we would not be committed to any particular outcome, nor be clearly identified with attempts to undermine the Fund. The major disadvantages are that we would forego opportunities to reshape the Fund in a form less objectionable to the U.S., and it could also be difficult for the U.S. successfully to play a low profile role. Other developed countries and the more moderate LDCs would apply intense pressure on the U.S. to play its customary leadership role.
Attempt to Reshape the Fund to Our Own Purpose
As in the first option, the U.S. would submit by September 30 its own proposal. In this case, we would express our fundamental position of opposition to the Common Fund, but offer alternative suggestions of our own. The U.S. would participate actively in later preparatory meetings on the basis of opposition to the Fund but we would support some sort of loose mechanism to link the various individual buffer stock financing mechanisms in an effort to arrive at a rational alternative to the Common Fund. Our position, of necessity, would need to go beyond that of endorsing financing of buffer stocks on a case-by-case basis.
The major advantage would be to allow us to claim at a later stage that the U.S. did indeed make a serious effort to discuss (and possibly negotiate) on the issues raised by the Common Fund and that there may in fact be some advantage in pooling resources for several buffer stocks for financial reasons only. The major disadvantage of this approach is that in all likelihood, whatever emerged as the U.S. position on “common” or “linked” financing mechanisms would in LDC eyes not come close to meeting their own minimum position on common financing and thus, would be rejected out of hand. It would even run a good chance as being regarded, along with Option I, as an attempt to undermine the Common Fund. This option would need to be reevaluated if a decision were made to change in a significant way U.S. policy on linkages among stocks or common financing.
III. Commodity Consultations
One way to demonstrate that the Common Fund proposal is unnecessary is active U.S. participation in discussing and agreeing on specific measures which are likely to improve conditions for individual commodities. The forthcoming series of UNCTAD commodity consultations gives the U.S. an opportunity to do that. To the extent that significant measures are actually taken on individual commodities—and these could involve buffer stocks or other price stabilizing measures, [Page 1051] but could entail a wide range of other measures—this will also help undermine the case for the Common Fund. Such case-by-case discussions are also likely to chip away at LDC unity as the specific interests of individual countries are dealt with. The U.S. should take an active role in each of these discussions and arrive prepared to present action proposals.
We should also continue to press for commodity-related action in other forums, including the multilateral trade negotiations, the IMF (where we still have new proposals on compensatory finance on the table) and the CIEC.
In its reservations at UNCTAD IV, the U.S. underlined its commitment to the use of already-existing producer/consumer commodity groups in carrying out the authorization given to the UNCTAD Secretary-General to convene meetings called for under the resolution. We should relinquish control to the UNCTAD Secretariat over existing groups outside UNCTAD only under exceptional circumstances. In those cases where the work in commodity groups has not been active, the U.S. will make efforts to revive them into viable discussion forums.
- Source: Ford Library, U.S. Council of Economic Advisers Records, Alan Greenspan Files, Box 39, Subject File, Economic Summit (Puerto Rico) June 1976 (4). No classification marking. Attached to a June 11 memorandum from Parsky to the EPB that reads: “The attached paper reports the consensus of the Commodity Policy Coordinating Committee’s discussion at its meeting on June 8, about the appropriate U.S. response to the commodities work program that was agreed at Nairobi. The CPCC agreed on the approach that should be taken to the International Resources Bank, and on the appropriate approach to the commodity-by-commodity discussions. It also agreed that there are essentially three options for the U.S. approach to the preparatory negotiations on common funding.”↩
- See The New York Times, June 2, 1976, p. 1. For the text of Kissinger’s and Simon’s June 1 joint statement, see Department of State Bulletin, July 26, 1976, pp. 133–134.↩
- The U.S. statement of the reservations on the Commodities resolution is attached. [Footnote is in the original. The statement is attached but not printed. For the text of Boeker’s May 31 statement of reservations and explanations concerning the commodities resolution, see Department of State Bulletin, July 26, 1976, pp. 134–135.]↩