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.
[Page 705]
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.
