The Economic Bureau in State and our Commodities Office are cooperating in
drafting a paper which defines U.S.
commodity policy in rather specific terms. The paper is intended primarily
for interagency use but it ultimately could form the basis of a public
Administration statement on International Commodity Policy. Current policy,
which is essentially a case-by-case examination of international commodity
problems, is less forthcoming than in the previous Administration. That
policy acknowledges that reducing extreme fluctuations in commodity prices
can be beneficial to both exporting and importing countries and that
international commodity agreements can contribute to greater stability. Some
elements of this policy tend to stray from recent policy statements on
international economic policy. For example, the United States views on
government intervention in exchange markets seem at variance with the policy
of membership in price-stabilizing commodity agreements.
To ensure that the State/Treasury paper accurately reflects the
Administration’s overall economic policy we are requesting your comments on
the attached paper summarizing the essential elements of commodity policy
and likely upcoming issues. If major inconsistencies are apparent, we will
follow up to get interagency agreement on suitable corrections.
That Treasury continue support of the commodity policy in the attached paper
and pursue U.S. positions on upcoming issues
consistent with that policy.2
Attachment
Paper Prepared in the Department of the Treasury and the Department of
State3
U.S. COMMODITY POLICY AND
ISSUES
Commodity Policy Elements
The Administration generally favors international trade in commodities
through free markets which respond to changes in fundamental supply and
demand conditions. This allows both producers and consumers to adjust
their activities according to market signals, thereby promoting the
efficient allocation of resources.
The United States will reject any agreement whose major role is the
continuing transfer of resources to developing countries through price
support mechanisms. With regard to bona fide price stabilizing
proposals, this Administration, like previous administrations, takes a
pragmatic approach. Such agreements must be workable, have adequate
financing, and provide a balance of benefits to consumers and producers.
Markets for many commodities are already quite efficient, so
stabilization agreements have been appropriate in only a few cases.4
The United States believes that economically and financially sound
international commodity agreements can be effective for a limited number
of commodities in reducing severe fluctuations in market prices around
long-term trends.5 Increased stability can lead to a
smoother flow of investments, more stable income for producers and
greater security of supply for commodity importers. Such agreements
should not attempt to eliminate market
fluctuations, but aim at more efficient operation of the market.
Existing commodity agreements generally have not inflicted great harm on
the U.S. economy, but neither would
their absence.6
LDC exporters believe they do much to
help their economies.
The United States now belongs to three major commodity agreements—rubber,
coffee, sugar7—but has declined to join the current
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agreements for cocoa and tin. We have not
closed the door to participation in these latter two, if renegotiated on
acceptable terms. For a number of other commodities, we will consider
alternative arrangements which support research and development and/or
market promotion measures designed to enhance the competitiveness of the
commodity; an agreement for jute was recently concluded along these
lines, but the United States has not yet ratified it.
The U.S. officially continues to support
the Common Fund for Commodities, the new
institution aimed at facilitating the financing of commodity buffer
stocks. No steps have been taken thus far to ratify the Common Fund
Agreement because the pace of other countries’ ratifications has been
going slowly (only 35 of the 90 required),8 because no operating
commodity agreement has definitively stated it intends to associate with
the Fund, and because a request for $75 million in budget authority will
likely face tough sledding in Congress.
A number of proposals for stabilizing export earnings of LDCs have been
put forth. These range from liberalization of the compensatory finance
facility in the IMF to a global system
in a separate institution to a special facility for the least developed
countries. The U.S. position is that 1)
stabilization of export earnings is a balance of payments problem and
therefore is within the competence of the IMF, 2) specialized schemes such as the European Stabex
discourage the necessary adjustments to changing supply and demand
conditions, and 3) most proposals require large new funding which is out
of the question for most countries.
Upcoming Issues
The major action-forcing event in the commodities area during 1983 will
be the UNCTAD VI meeting in Belgrade
in June.9 The U.S. will have to
decide what proposals, if any, it can support including:
- —
- A new facility for export earnings stabilization;
- —
- A commitment to ratify the Common Fund Agreement at an early
date;
- —
- Authorization for UNCTAD
to pursue an aggressive work program aimed at increasing LDC shares in the processing,
marketing, and distribution of commodities; and
- —
- Commitments to negotiate new agreements for lesser commodities
such as tea, bananas, hard fibers, etc.
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Decisions on related issues in 1983 will include:
- —
- Ratification and implementation of the new Coffee
Agreement;
- —
- Renegotiation of the Sugar Agreement;
- —
- Possible renegotiation of the Cocoa Agreement to meet U.S. objectives; and
- —
- A U.S. decision on continued
membership in the Rubber Agreement if exporters take unilateral
actions to restrict exports.
