COMMODITY PACTS MORE ORIENTED TOWARDS MARKET

  Consuming countries, chastened by the
  collapse of International Tin Council (ITC) price support
  operations in 1985, are insisting more than ever before that
  commodity pacts reflect the reality of the markets they are
  serving, a Reuter survey showed.
      They want price ranges to be more responsive to market
  trends - to avoid overstimulating output and straining the
  accords' support operations - and intervention rules that avoid
  the risk of exports by non-members undermining the pacts.
  Consumers and producers, mindful of ITC buffer stock losses,
  have also sought strict conditions for buffer operations.
      Importers and some key exporting countries have shunned a
  generalised approach to commodity price stabilisation and
  prefer to assess each commodity case by case, the survey
  showed.
      The International Cocoa Organization (ICCO) last week set
  precise limits on what the Buffer Stock Manager (BSM) could do
  under the new agreement. It imposed daily and weekly purchase
  limits, prohibited the BSM from operating on futures markets
  and stipulated, after consumer insistence, that up to 15 pct of
  total buffer stock purchases could be of non-member cocoa. This
  will help prevent lower quality cocoa from Malaysia, the
  world's fourth largest producer, undermining the market.
      The cocoa pact establishes precise differentials the Buffer
  Stock Manager must use when purchasing varying grades.
      A new International Natural Rubber Agreement (INRA) was
  adopted earlier this month in Geneva. Importing and exporting
  countries agreed several changes to make the reference price
  more responsive to market trends and they eliminated provisions
  under which the buffer stock could borrow from banks to finance
  operations. Direct cash contributions from members will fund
  buffer stock purchases. Bank financing was a particular feature
  of the failed ITC buffer stock which suffered losses running
  into hundreds of millions of sterling. Legal wrangles continue.
      Recent International Coffee Organization (ICO) negotiations
  in London exemplified the degree to which consumers insist that
  agreements reflect market reality, commodity analysts said.
      Consumers and a small group of producers argued that
  "objective criteria" should be used to define export quota
  shares, which would have meant a reduction in the share of
  Brazil, the world's leading producer. Brazil wanted to maintain
  its previous quota share of 30 pct. The talks broke down and,
  although an ICO executive board meeting starts in London today,
  delegates and trade sources see chances of any near term
  negotiations on export quota distribution as remote.
      International agreements exist for sugar and wheat. These
  do not have any economic clauses but provide a forum for
  discussions on possible future economic agreements, collect
  statistics and draw up market analyses. Analysts said
  differences between sugar exporting countries have held up any
  progress towards an accord with economic teeth, while sheer
  competition between major exporters amid a world grain glut
  militate against any pact with economic provisions for wheat.
      An alternative focus for commodity discussions are
  international study groups, made up of governments with advice
  from industry, such as those for lead and zinc and rubber.
      The U.N. Common fund for commodities, with a planned
  directly contributed capital of 470 mln dlrs, has failed to
  become operational because neither the U.S. Nor the Soviet
  Union has ratified it. U.S. Officials in Washington said the
  U.S. Doubts the fund would be able to fulfil its objectives,
  citing the lack of widespread support.
      U.S. Officials in Washington and Malaysian officials in
  Kuala Lumpur expressed a policy of looking at each commodity
  pact case by case. U.S. Officials said it has been willing to
  study individual cases for economically sound, market-oriented
  commodity accords balancing producer and consumer interests.
      "We see little to be gained by attempting to increase the
  price of a commodity whose long-term trend is downward,"
  official Administration policy states. The U.S. Currently
  belongs to only two international commodity agreements that
  have economic clauses - the International Coffee Agreement
  (ICA) and INRA - but it is also a member of the sugar and wheat
  pacts.
      The U.S. Did not join the International Cocoa Agreement
  because it considered its proposed price ranges unrealistic and
  not designed to protect the interests of consuming countries,
  the State Department said. U.S. Officials singled out the INRA
  as the one commodity agreement that seems to be working.
      U.S. Negotiators were successful in getting other members
  of the pact to agree that the price review and adjustment
  mechanism of the rubber agreement would accurately reflect
  market trends and also to continue the accord as a market
  oriented agreement, U.S. Officials said.
      Canadian officials in Ottawa also said they have
  consistently tried to look at membership of commodity pacts on
  the merits of each case. Malaysian Primary Industries Minister
  Lim Keng Yaik told Reuters in Kuala Lumpur his country, the
  world's top producer of rubber, tin and palm oil, decides its
  participation in international commodity pacts case by case.
      Malaysia is a member of the Association of Tin Producing
  Countries (ATPC) which produce 65 pct of world tin. The ATPC
  launched a plan to limit member tin exports to 96,000 tonnes
  for a year from March to cut the tin surplus to 50,000 from
  70,000.
      Economist in the West German Ministry of Agriculture and
  delegate to cocoa, wheat and sugar agreements Peter Baron told
  Reuters in London, "Agreements with economic clauses to
  stabilise prices could function if fixed price ranges were
  close to market reality, if there was full participation by
  producers and consumers, and if participants were prepared to
  take their obligations in the framework of the agreement
  seriously."
      But Baron added, "No real sanctions are available for a
  country that doesn't stick to its obligations...The German
  approach is sceptical. We don't think agreements are the best
  instrument to help developing countries. They were never meant
  to be a vehicle for the transfer of resources and that is how
  developing countries often interpret them."
      Traditionally Britain has always been supportive of
  commodity agreements, reflecting its strong links with Third
  World producing countries. But recently demands for more
  stringent and justifiable pacts with emphasis placed on the
  need for "intellectual honesty" and "objective criteria" have
  grown.
      British officials stress the need for commodity pacts to be
  a two way partnership in trade rather than a disguise for aid.
      It is now seen as essential that any pacts involving direct
  market participation through a buffer stock have a high degree
  of transparency and do not contain the risk of open-ended
  borrowing that occurred in the tin pact, they said. U.K.
  Delegates talk of stabilisation and the need for prices to
  reflect changes in market structure and price trends rather
  than dictate what prices should be.
      A Foreign Ministry official in Tokyo said Japan urges price
  realism in commodity pacts, adding high prices inflate supply.
      A government spokesman in Paris said France is favourable
  to commodity pacts. France, a large consumer and producer of
  sugar, favours a sugar pact as long as it reflects the real
  market situation, particularly regarding stocks.
      Indonesia's Foreign Minister Mochtar Kusumaatmadja told
  Reuters in Jakarta: "These agreements can work as long as the
  problems are cyclical..But it's another matter when there are
  structural problems..But we are still committed to commodity
  agreements as an act of faith." Nicaraguan External Trade
  Minister Alejandro Martinez Cuenca said in London producers
  cannot afford not to give their backing to commodity
  agreements.
      "The political will is not there on the part of some
  consumers to make agreements work," Martinez Cuenca said.
      The head of the economics department in the Brazilian
  Foreign Ministry, Sebastiao do Rego Barros, told Reuters an
  agreement can be successful if it keeps a link with market
  reality. If you have an agreement such as coffee with a system
  of quotas, with a link between prices practised inside the pact
  and actual market prices, it can work. UNCTAD spokesman Graham
  Shanley said consuming countries realise steady export earnings
  enhance developing countries' ability to service debt and mean
  greater demand for industrialised nations' capital goods.
  

