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

353. Summary of a Meeting¹

Honolulu, February 1, 1986

1986 Economic Summit
Second Sherpa Meeting (Honolulu)
January 31–February 2, 1986

I. Sherpas and Assistants in Attendance

United States

Mr. W. Allen Wallis

Under Secretary of State for Economics

Dr. David Mulford

Assistant Secretary of the Treasury

Mr. Stephen Danzansky

Senior Director of International Economic Affairs, National Security Council

Republic of France

Mr. Jacques Attali

Special Adviser to the President

Mr. Jean Vidal

Director General of the Division of Economic & Financial Affairs, Ministry of External Relations

Mr. Daniel Lebeque

Director General of the Division of Treasury, Ministry for the Economy, Finance and the Budget

United Kingdom

Sir Robert Armstrong

Secretary of the Cabinet

Mr. Rodric Braithwaite

Deputy Under Secretary, Foreign Commonwealth Office

Sir J. Geoffrey Littler

Second Permanent Secretary, HM Treasury

Federal Republic of Germany

Dr. Hans Tietmeyer

State Secretary, Ministry for Finance

Dr. Alois Jelonek

Director General, Department of the External Economic Policy Development Assistance & European Economic Integration, Federal Ministry of Foreign Affairs

Dr. Lorenz Schomerus

Director General, Department of the External Economic Affairs, Federal Ministry of Economics

Japan

Reishi Teshima

Deputy Minister for Foreign Affairs

Tomomitsu Oba

Deputy Minister of Finance

Nobutoshi Akao

Counsellor in the Bureau of Economic Affairs in the Foreign Ministry

Kunio Miyamoto

Deputy Director General, Coordination Bureau, Economic Planning Agency

Republic of Italy

Ambassador Renato Ruggiero

Secretary General of the Ministry of Foreign Affairs

Dr. Mario Sarcinelli

Director General of the Treasury, Ministry of the Treasury

Prof. Antonio Pedone

Economic Councilor, Presidency of the Council of the Ministries

Canada

Dr. Sylvia Ostry

Ambassador for Multilateral Trade Negotiations

Mr. Bernard Drabble

Associate Deputy Minister, Department of Finance

Mr. David Wright

Director General of the Economic Affairs Bureau, Department of External Affairs

Commission of the European Communities

Mr. Pascal Lamy

Head of Cabinet of the President of the Commission

Mr. Herman Posthumus-Meyjes

Director General for European Cooperation at the Ministry of Foreign Affairs of the Kingdom of the Netherlands

Mr. Leslie Fielding

Director General for External Relations at the Commission

II. Agenda Outline

[Omitted here are the schedule of events and discussion of subjects other than commodities.]

Session IV

COMMODITIES

— Reishi Teshima presented his personal paper on Commodity Problems² which he characterized as “most serious” for developing countries in light of their monoculture (dependency upon a limited number of commodity exports for income) and need to service growing debt under conditions of high interest rates and European countries’ weak economic recovery.

He seemed to agree that one element of the Common Fund for Commodities Agreement, namely, the price stabilization (buffer stock) concept was not a useful idea, but suggested consideration or reconsideration of element two: “other measures” which call for a research and development fund to assist in minimizing price fluctuations through better seed, processing and distribution.

U.S.—Mr. Wallis stated that the record shows that attempts to control or stabilize commodity prices work to the disadvantage of both producing and consuming countries. Teshima’s paper refers to benefits to more stable prices to both groups, but there is no evidence that stable prices would be better for either in the long run.

— Price movements are necessary to signal changes in supply and demand conditions. Attempts to suppress them lead to serious misallocation of resources, and are not sustainable for any length of time. Short-run “successes” in suppressing market signals, such as unrealistically high support prices, are undermined by reduced demand and the entry of new suppliers, leading to more drastic fluctuations in the incomes of producers than would have occurred without a stabilization agreement.

— Commodity prices have been weak in the recent recovery when measured in dollars, but not when measured in terms of other currencies. They have responded in a normal fashion to the strength of world economic activity and the expansion of world trade. This points out the most important things the Summit countries can do to improve the export earnings of primary commodity exporting countries: improve prospects for world growth and reduce trade barriers and distortions (especially in agricultural markets).

— There is no need for a new international organization to channel additional funds from donor countries to LDC’s for commodity research and development. Furthermore, creating a new multilateral mechanism would revive the Common Fund price support idea—a bad idea whose time has come and gone.

Canada—Agreed that the answer was not in price maintenance or regulation. The LDC’s problem is a problem of income and price is not the way to get there. The use or abuse of pricing mechanisms should not be encouraged. This raises another issue: how to deal with subsidies in developing countries as well as tariff escalation.

FRG—Felt that Teshima’s paper was quite balanced. Properly reflects skepticism about common fund commodity stocks.

— Most of the EC members agree on two points:

1. The commodity problem is both lasting and structural, not merely cyclical.

2. Stability is the issue for LDC commodity producers.

3. Existing commodity agreements are too far from market realities.

— Can they be better managed? Answer uncertain.

UK—The way to help commodity producing LDC’s is through OECD growth. There may be some value in price stability but most agreements promoting same generally work against markets. UK opposes cartel attempts to stabilize markets.

— To properly assess the real problem of poorer nations we must look to the income side—not the price side.

— In large part, debtor nations have done damage to themselves by embracing price mechanisms in defiance of market prices. The Summit nations should vigorously campaign for a minimum distortion of prices. Look at real pricing within the nations themselves. LDC’s won’t like this approach.

— Speaking of commodities, oil is a real problem. We need to discuss oil at length at the next Sherpa meeting.

—Commodities ought to be discussed in the next round of trade negotiations.

FRG—An option to think about is whether a drop in oil prices should trigger relief in the form of an IMF commodity facility.

[Omitted here is discussion of subjects other than commodities.]

1. Source: Reagan Library, Stephen Danzansky Files, International Trade Subject Outline, VII (G) 3.b. Tokyo Summit—Sherpas—Meetings—Honolulu 1986; NLR–733–5–26–1–3. Secret. There is no indication as to where in Honolulu the meeting took place. No drafting information appears on the summary.
2. Not found.