TD/B/C.1/166

page 22

Chapter IV

PROPOSALS FOR FURTHER ACTION

66. Paragraph 8 of resolution 124 (XIV) of the Trade and Development Board requests the Committee on Commodities to give priority consideration to the matters contained in the part of the resolution dealing with an over-all integrated programme for commodities, and to make recommendations, including a time-table of work, for appropriate action by the Board at its sixth special session.

67. In response to this request the Committee will wish to bear in mind that the integrated programme outlined in the preceding chapters proposes action on:

(a) International stocking arrangements for various commodities, to be brought into operation to counter rapid deterioration of prices or downturns in demand and, in some instances, to restore dangerously low levels of world stocks. Eighteen of the principal commodities (or commodity groups) in world trade, to which these measures could be applied, have been provisionally identified;

(b) Financial support for all stocking operations through a common fund, based on contributions shared by importing and exporting countries, assisted by the international financial institutions, and also open to international investment from other sources;

(c) Multilateral purchase and supply commitments by governments to give assurance of supply and outlets on at least the key commodities in trade for which such assurance is important. These measures should as far as possible be linked to international stocking arrangements. Supply commitments are also required when independent measures are taken by exporting countries;

(a) Improved compensatory arrangements, primarily through extension of the IMF compensatory financing facility;

(e) Expansion of trade in processed products through extension of the coverage of the GSP, the removal of non-tariff barriers and the provision of export incentives.

68. While the Secretary-General will proceed with further work in the light of the comments and decisions or recommendations of the Committee after consideration of the documentation before it, it is already possible to identify key questions that will require consultation with governments as well as with the international organizations concerned and the specialized commodity bodies. These issues include:

specific stocking arrangements, and their techniques of operation whether on a single-commodity or multi-commodity basis or both;

refinement of estimates of the financial implications of international stocks, the size of the proposed fund, and the relation of its operational functions to sources of finance;

proposals for multilateral contracts and compensation arrangements.

69.

TD/B/C.1/166 page 23

Besides the urgent need to endorse the general principles or key elements on the main lines of an integrated programme as outlined in the present report, so that further work on the programme can proceed without delay, the Committee could, in making its recommendations to the Board at its sixth special session give more concrete form and direction to the programme. In this regard the Committee might wish to recommend to the Board the setting up of suitable machinery and procedures to deal with specific issues such as those mentioned in paragraph 68 above.

Α

70. The constitution and terms of reference of the machinery to be established in this respect should reflect the intention of bringing negotiated arrangements into force at the earliest possible time. It might take the form of a preparatory committee which would meet between the sixth special session and the fifteenth session of the Board to facilitate the taking of decisions on the programme at the latter session, decisions which would be aimed at negotiating without delay stocking arrangements, the establishment of a common fund and other aspects of the proposed programme. preparatory committee that would be representative of the interests in the integrated programme could carry forward the elaboration of the proposals and allow the Board to give more adequate attention to the major policy decisions that would need to be taken. This might be the most practical procedure in view of the comprehensive character envisaged for the programme, particularly as the Board will have an unusually heavy agenda before it at its fifteenth session.

71. The Board at the first part of its fourteenth session expressed a sense of urgency in the matter of new approaches to commodity problems and policies and in particular, as already noted, regarding the elaboration of the proposed integrated programme. It may also be observed that the World Food Conference, addressing itself to these matters in the context of the inter-relationship between the world food problem and international trade, made recommendations calling upon governments to devise, in appropriate organizations, effective steps for dealing with the problems of world markets, and, in urging UNCTAD to intensify its efforts in considering new approaches to international commodity problems, reiterated the recommendation of the Board in this respect to the Committee on Commodities. The World Food Conference also urged countries concerned and international financial institutions to give favourable consideration to the provision of adequate assistance to developing countries in cases of balance-of-payments difficulties arising from fluctuations in export receipts or import costs, particularly with regard to food.

72. In the light of the sense of urgency that is being shown by the international community on these issues, and the expectation that UNCTAD and other international organizations will move forward with expedition in deciding on the lines of the intergovernmental action required, the Committee will wish to focus its efforts on the recommendations to be made in this regard, and in particular on a time-table and programme of activity.

73. It should be borne in mind that other on-going activities between governments will be related to an integrated programme along the lines envisaged in the present report. These will include the multilateral trade negotiations with GATT, which are expected to move soon into a further stage of active negotiations and may be concerned with initiatives dealing with trade in commodities that would bear on aspects of the proposals for the integrated programme.

74. Specific financial questions relevant to the integrated programme proposals may also be taken up in 1975 in the agenda of work of the recently inaugurated Development Committee of the Governors of the World Bank and the IMF, and also by the Executive Boards of these agencies. In addition, there will be the need for re-negotiation of

TD/B/C11/166 page 24

the international commodity agreements on tin and cocoa, as well as continuing efforts to re-establish economic provisions in other agreements or to negotiate new agreements. All of these activities will require close co-ordination with the over-all development of an integrated programme, in order that its basic principles and objectives, as well as the main emphasis to be given in the direction of its operation, should influence policy decisions elsewhere on aspects related to the programme and action on specific commodities.

75. Furthermore, it bears reiteration that the nature of the programme may well be imposed by world events. The gravity of the present international economic situation should persuade governments of the imperative need for early action on contingency policies, if the action eventually decided upon is not to be overtaken by more rapid change in the condition of the world economy, and of the developing countries in particular.

WORLD ECONOMIC INTERDEPENDENCE AND TRADE IN COMMODITIES

(Presented to Parliament by the Prime Minister by Command of Her Majesty

May 1975)

INTRODUCTION BY THE PRIME MINISTER, THE RT. HON. HAROLD WILSON,

OBE, FRS, MP

At the meeting of Commonwealth Heads of Government at Kingston, Jamaica on 1 May 1975, I put forward suggestions for a general agreement on commodities. The text of my statement at that meeting, together with a memorandum by the United Kingdom Delegation analysing the background, describing the problems of world trade in commodities, and setting out the proposals I tabled at the meeting, are published together in this paper.

SPEECH BY THE PRIME MINISTER THE RT. HON. HAROLD WILSON, OBE, FRS, MP, AT THE COMMONWEALTH HEADS OF GOVERNMENT MEETING, KINGSTON, JAMAICA, 1 MAY 1975

All of us here have long recognised the need for economic interdependence in our trade and dealings with one another, and in the wider world. Over generations, failure to make this interdependence a reality has been the cause of great suffering, suffering above all for developing countries producing the food and raw materials the world needs, without a fair and assured return.

If any doubt remained about the need for interdependence surely this has been dispelled by the events of these past few years.

We have all been affected. But by far the hardest hit of all are those developing countries whose pattern of exports denies them any chance of profiting by the boom in commodity prices, while at the same time they have had to pay a lot more for all their essential imports, especially oil and food, fertilisers and feeding stuffs. Most tragic of all has been the effect on nations already facing starvation-starvation aggravated in some cases by drought and others by food-who have then found their resources strained beyond endurances to pay the increased cost of the things they need.

I want to make it clear in what I propose today that the British Government fully accept that the relationship, the balance, between the rich and poor countries of the world is wrong and must be remedied. That is the principle on which my proposals rest: that the wealth of the world must be redistributed in favour of the poverty stricken and the starving. This means a new deal in world economies, in trade between nations and the terms of that trade.

I believe that this can be done. But it is fundamental that there should be more wealth-more wealth to be shared more equitably. Shared more equitably, as you said, Mr. Chairman in your welcoming address, within nations: but shared more equitably between nations and peoples.

How we fulfill that objective, by what measures or armoury of measures, we can decide. There are many means by which we can reach that end: but they are only mechanisms. Our dedication must be to the principle, and our determination to achieve it, is unshakeable.

My own concern and involvement with the problems of commodity trade is lifelong, but what is new is the extent of instability in food and raw material prices. Following the Korean War, which caused great disturbance, there was a long period of relative calm. But recently circumstances have been more difficult than at any time since the 1930s. Fluctuations in prices have been violent and sudden.

I would identify three reasons for these fluctuations:

First, variations in demand. In the last few years demand in the industrialised countries for the products of other countries has moved up and down more or less in step. The rise and fall has been greater than in the past and might well be even greater in the future. No-one, but no-one, has a vested interest in this sort of boom and bust. Commodity producing countries who gain from scarcity prices for a time, often find that inflation is generated in their countries, which causes great social hardship when the boom ends.

Second, variations in supply. There has been widespread disruption particularly from crop failure. The harvests of 1972 and 1974 were bad, as Mrs. Gandhi reminded us yesterday. These bring disastrous consequences, above all for the poorest. Even now world food stocks are very low.

56-944 O 75 14

Third, of course, oil. The world economy as a whole suffered a sharp and unique jolt with the rise in oil prices.

These events underline one of the historic canons of one of the world's great religions, that "we are all members one of another".

Everything that has happened in these past two or three years demonstrates the vested interest of all of us in a one-world system for commodity trade. We shall make no progress unless we recognise that large and sudden variations in price, not to mention uncertainty over supply and markets, are disadvantageous to both developed and developing countries alike. Both have a common interest in avoiding them.

The costs for the developed countries as consumers are a worsening of their inflation, setting up a ratchet mechanism of inflation as wages react up but not down: an extra burden on their balance of payments: and uncertainty over the long-term development of their sources of supply.

Britain's own balance of payments in 1974 had to carry an extra charge of £2,500 million by the rise in prices of oil, and commodity price increases over the past year represent a surcharge on every family in the country of 4 per cent of their household income. But developed countries do not gain all that much when commodity prices fall. They might hope for an improvement in their price level, but this does not always occur, particularly if the previous price inflation has generated a spiral of internal cost increases, wage and price increases. They might secure a temporary easement to their balance of payments, but it is only temporary, because one inevitable result is the impoverishment of their primary producing customers who have to cut down their imports of manufactured and other goods whether capital goods or consumer products. And this increases unemployment.

Before the War Sir William Beveridge and I produced evidence that every industrial slump in Britian, every increase in unemployment for the previous 100 years, was associated with a collapse in primary prices in the countries from whom we imported much food and materials.

And turning to developing countries, boom conditions can lead to excessive production and over-investment in capacity which may then prove uneconomic. In slump conditions while some developing countries suffer only from setbacks to their development plans for many others it means malnutrition, even starvation Less advanced countries depend critically on the ratio between their exports and imports of high-priced commodities.

And, again I repeat, those developing countries who neither produce their own energy needs nor raw materials for export suffer most whether in boom or slump. Especially those in absolute poverty.

What this analysis means, I can sum up in these terms.

We all have a common interest in reducing the violent fluctuations in commodity prices.

We must recognise the importance to developing countries of increasing their income from commodity exports.

The context for achieving these objectives must be an orderly and sustained expansion of world trade. Without this our joint efforts to bring order into trade in commodities will be frustrated.

Going back a little, the war released a new idealism and new intellectual resources. Bretton Woods, the work on the Havana Charter, which became permanent in the General Agreement on Tariffs and Trade, and the creation of the Food and Agriculture Organisation all brought forth a new sense of urgency. I was fortunate to have spent one of the most exciting periods of my life being involved with this. In 1946 my Prime Minister, Attlee, sent me as a young Minister to head the British Delegation to the FAO preparatory Commission. Sixteen nations were selected by FAO to prepare guidelines for the new organisation under two heads-primary production, particularly in developing countries, and commodity policy. Our report created a great deal of interest at that time but little action. What we did do was to draft the guidelines for the new postwar international wheat agreement, for sugar and to seek to turn the pre-war producer cartels, tin and others, into genuine commodity agreements.

Under the then laissez-faire leadership of the United States, nations were content to make important decisions about tariffs, about freeing trade, and, through GATT, above all to lay down ground rules to prevent escapism by individual nations into autarky and into nationalistic measures harmful to their neighbors and to the world in general. But the same philosophy proved allergic to vigorous action on commodities.