International Commodity Agreements

MAC/WFY

Page-67

0230_553559_11_cha07

never ratified, and which was also intended to serve as a code of guiding principles
governing international commodity negotiations, stated:

The conditions under which primary commodities are produced, exchanged
and consumed are such that international trade in those commodities may be
affected by special difficulties such as a tendency towards persistent disequilib-
rium between production and consumption, the accumulation of burdensome
stocks, and pronounced fluctuations in prices.

It was this problem of market instability that international commodity agreements
were designed to cope, a problem of particular concern to developing countries
and to others whose economies were largely dependent on the earnings of primary
products in international trade (Hudson, 1960). The nature of the problem varied
among commodities. In the case of tin, rubber, cocoa and coffee, for example,
production tended to be concentrated in a relatively few countries and, at the
beginning of the 1960s, more than 70 per cent of production entered world trade.
The production of butter, sugar and wheat, on the other hand, occurred in a
number of countries with the result that less than 30 per cent of aggregate world
production was exported.

Chapter VI of the draft Havana Charter emphasized that no interested govern-

ment should be excluded from negotiations and that `participating countries
which are mainly interested in imports of the commodity concerned shall, in
decisions on substantive matters, have together a number of votes equal to that
of those mainly interested in obtaining export markets for the commodity'. This
provision made negotiation of individual commodity agreements more difficult. It
implied that an agreement was negotiable only as regards matters on which there
was an identity of interest of both parties or on points on which a `bargaining
balance' could be reached, that is, where the advantages and disadvantages of an
agreement were in balance for each participant.

The two main objectives of international commodity agreements, according

to Chapter VI of the Havana Charter, were: to prevent or moderate pronounced
fluctuations in prices, without interfering with long-term trends; and to provide a
framework for facilitating adjustments between production and consumption in
order to securing long-term equilibrium between the forces of supply and demand.
Eliminating or moderating price fluctuations were clearly in the interests of both
exporting and importing countries but the interests of the former (the bulk of
whose foreign exchange income was derived from the sale of one or a few primary
commodities) was much greater than the latter (whose economies were not greatly
affected by changes in the price of any one primary product).

The postulate of non-interference with long-term trends implied that prices

resulting from an agreement should not differ, on average over a number of years,
from what they would be in the absence of an agreement. The dilemma was
that since the future was unknown, this `neutral price' could be ascertained only
ex post, whereas the technical solution of the problem presupposes that it was
known ex ante. In the absence of such pre-knowledge, a commodity agreement

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Useful links	International Commodity Agreements MAC/WFY Page-67 0230_553559_11_cha07 International Commodity Agreements 67 never ratified, and which was also intended to serve as a code of guiding principles governing international commodity negotiations, stated: The conditions under which primary commodities are produced, exchanged and consumed are such that international trade in those commodities may be affected by special difficulties such as a tendency towards persistent disequilib- rium between production and consumption, the accumulation of burdensome stocks, and pronounced fluctuations in prices. It was this problem of market instability that international commodity agreements were designed to cope, a problem of particular concern to developing countries and to others whose economies were largely dependent on the earnings of primary products in international trade (Hudson, 1960). The nature of the problem varied among commodities. In the case of tin, rubber, cocoa and coffee, for example, production tended to be concentrated in a relatively few countries and, at the beginning of the 1960s, more than 70 per cent of production entered world trade. The production of butter, sugar and wheat, on the other hand, occurred in a number of countries with the result that less than 30 per cent of aggregate world production was exported. Chapter VI of the draft Havana Charter emphasized that no interested govern- ment should be excluded from negotiations and that `participating countries which are mainly interested in imports of the commodity concerned shall, in decisions on substantive matters, have together a number of votes equal to that of those mainly interested in obtaining export markets for the commodity'. This provision made negotiation of individual commodity agreements more difficult. It implied that an agreement was negotiable only as regards matters on which there was an identity of interest of both parties or on points on which a `bargaining balance' could be reached, that is, where the advantages and disadvantages of an agreement were in balance for each participant. The two main objectives of international commodity agreements, according to Chapter VI of the Havana Charter, were: to prevent or moderate pronounced fluctuations in prices, without interfering with long-term trends; and to provide a framework for facilitating adjustments between production and consumption in order to securing long-term equilibrium between the forces of supply and demand. Eliminating or moderating price fluctuations were clearly in the interests of both exporting and importing countries but the interests of the former (the bulk of whose foreign exchange income was derived from the sale of one or a few primary commodities) was much greater than the latter (whose economies were not greatly affected by changes in the price of any one primary product). The postulate of non-interference with long-term trends implied that prices resulting from an agreement should not differ, on average over a number of years, from what they would be in the absence of an agreement. The dilemma was that since the future was unknown, this `neutral price' could be ascertained only ex post, whereas the technical solution of the problem presupposes that it was known ex ante. In the absence of such pre-knowledge, a commodity agreement back to top Next page
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