Foreign Relations of the United States, 1981–1988, Volume XXXVIII, International Economic Development; International Debt; Foreign Assistance

340. Telegram From the Department of State to the Embassy in Grenada¹

Washington, August 15, 1985, 1000Z

242130. Quote. Subject: U.S. Decides Not To Ratify Common Fund.

1. The interagency Economic Policy Committee has decided that the U.S. Government will not ratify the Common Fund agreement. We do not, however, intend to announce this decision in Washington. We recognize that the degree of interest in capitals on this issue may vary. Except as directed below, therefore, posts may exercise their discretion on whether to take the initiative in conveying this message to the appropriate levels of their host governments or whether to use it for purposes of replying to inquiries. Posts in all OECD capitals are requested to inform host governments. OECD Paris, Geneva, and USUN should inform appropriate officials. Moscow should inform Soviet officials in course of discussions of other business. Where posts believe that degree of interest warrants an initiative, host government reactions should be reported.

2. Background

We realize that a decision by the U.S. not to participate in the Common Fund will be received negatively in many countries, some of which may attempt—inaccurately—to characterize the U.S. as unsympathetic to the needs of commodity-dependent LDCs. We appreciate these countries’ hopes for the Common Fund. At the same time, we cannot avoid the conclusion that the Fund would be unable to fulfill these hopes because it would be unable to perform its principal function: serving as the least costly means of supporting a number of economically-sound commodity agreements. Experience has shown that these agreements often produce fewer benefits and more problems than are promised. Only three such price-influencing agreements with internationally-controlled buffer stocks currently exist—for rubber, cocoa, and tin. (The coffee agreement, while designed to influence prices, does not utilize internationally-controlled buffer stocks—the type of agreement the Fund was designed to help finance). The U.S. is a member of only one of these—rubber. We do not realistically anticipate the development of additional economically-sound agreements and do not wish to continue to hold out false hopes for U.S. ratification of an arrangement that appears neither useful nor necessary.

3. Posts should attempt to present the U.S. decision in the most constructive possible light, stressing in particular that the Common Fund cannot realistically provide solutions to the problems of low returns to producers from the export of primary commodities, and that, through its substantial support of international financial institutions, the U.S. is doing what it can to address commodity issues in a meaningful way.

4. Talking Points:

— The U.S. fully realizes that commodity exporters have borne a heavy burden caused by low world prices for many raw materials over a sustained period of time. Moreover, we are sensitive to the problems this situation presents to many raw material producers and exporters. At the same time, we do not believe the Common Fund could provide any relief—it would only create false expectations and additional disappointments.

— When the Common Fund agreement was being negotiated during the 1970s, the U.S. agreed that if creation of a number of economically-sound price-affecting commodity agreements proved feasible, it might be desirable to finance them through a Common Fund. The Fund was intended to reduce the total financial commitments of member nations in support of stockpile operations from what they would be otherwise.

— Subsequent experience has demonstrated that there are very few commodities for which economically-sound agreements designed to limit the wider swings of their prices around their long-term price trends are possible. Despite considerable joint efforts in recent decades by UNCTAD members—including the United States—to develop economically sound and useful agreements, only three agreements with internationally-controlled buffer stocks have been negotiated and continue to function: cocoa, tin and rubber. The U.S. is associated only with the natural rubber agreement, having previously concluded that the tin and cocoa agreements were not economically sound. Thus, a sufficient number of economically-sound agreements have not developed to enable the Fund to effectively perform its proposed principal function.

— As for the Common Fund’s proposed second account, the U.S. believes its intended function of financing programs such as commodity research and development can be provided by existing institutions or, in some instances, by special arrangements such as have been developed for jute and tropical timber.

— Entry into force of the Common Fund would entail world-wide commitment of dols. 300 million to an institution which would not be able to make effective use of the funds.

— Under these circumstances, the U.S. has decided that a Common Fund would not be able to fulfill the role envisaged for it in international commodity trade and has therefore decided not to undertake the processes associated with ratification.

Shultz. Unquote.

Whitehead

1. Source: Department of State, Central Foreign Policy File, Electronic Telegrams, [no D number]. Limited Official Use. Sent for information Immediate. A repeat of telegram 242130 to all diplomatic posts; Paris for OECD, the Mission in Geneva, and USUN, August 7. Drafted by Gilbert Johnson (EB/ICD); approved by Thomas O’Donnell (EB/ICD).