Short Note on Commodity Agreement

If there are lessons from the ICA movement, they are political rather than economic. UNCTAD`s negotiations on the NIEO failed because they were an attempt by certain groups of governments and officials to impose political authority on near-competitive markets. The question of whether or not this would have been possible was rejected both by the governments of consumer countries, which saw themselves as the beneficiaries of the competitive structure, and by the industries themselves. Any international agreement requires the consent of all parties concerned. This was true for ACIs in the immediate post-war period and in part also at the beginning of the Cold War. This ceased to be true in the seventies and eighties. Nevertheless, all new agreements on the cereals sector must be based on a comprehensive international consensus. This INRA fluctuated until 1999, when the main producing countries announced their withdrawal from the agreement. These measures were partly motivated by the perception that INRA offered too little stabilization due to the adjustment of price bands. This effectively ended the agreement and with it the ICA movement. There is no single reason for the failure or expiry of commodity agreements. The cocoa and sugar agreements expired because they were ineffective. The tin deal collapsed because it tried to keep the price too high with too little funding to do so.

This was the only case consistent with the widely held view that ICAs are trying to withstand the next wave of markets, but it`s also important to remember that the ITA has been effective in the first twenty-five years of its existence. More interesting are the cases of coffee and natural rubber, where chords have expired rather than collapsed. In the case of rubber, this is due to the fact that the governments of the producing countries have benefited little from continued price smoothing, while agreements in the coffee sector have lost the support of consumers and, to some extent, producers (Gilbert, 1996). ACIs seemed anachronistic, and international meetings where diplomats advanced non-trade arguments on price and export levels seemed irrelevant given the imperatives of competition in largely liberalized markets. By the end of World War II, it was generally expected in all primary markets that the above-average production and low prices that had characterized the 1930s would return. The immediate post-war discussion on commodity issues was aimed at avoiding these results. The Havana Charter of 1948, which would have made the International Trade Organization the third pillar of Bretton Woods, included measures to mitigate situations of “onerous surplus” (Rowe, 1965). Overall, this was envisaged to be achieved mainly through supply regulation – usually export controls. In the absence of the institutional structures that the Havana Charter was supposed to create, the governments concerned negotiated autonomous agreements, of which the IAA of 1949 and the ISA and ITA of 1954 were the first.

The ISA and ITA focused primarily on supply management – the ISA entirely, while the ITA also used a buffer warehouse whose original purpose was to support the price during the period when export restrictions came into effect – see Fox (1974). These two agreements perpetuate an interventionist tradition inherited from the colonial administrations of the interwar period. Alternatives. Various efforts have been made to invent mechanisms other than international commodity agreements to transfer purchasing power to less developed countries whose incomes have been cyclically or chronically squeezed. Some of these alternatives, such as the proposals for a commodity reserve currency (United Nations 1964a), would serve the purposes of foreign aid and the “reform” of the international currency, to the detriment of undermining the role of the price system as the main instrument of economic governance in (relatively) free corporate societies. Other operations through open financial transfers (United Nations 1964b; Dodge 1964) have the great advantage that the pricing system as an allocator of economic resources remains largely intact. Finally, the International Monetary Fund has acted – albeit with great reluctance and after some delay (Fleming & Lovasy, 1960) – to provide an additional tranche (i.e. a quarter of the country`s IMF quota) to offset deficits in the export earnings of less developed countries when these deficits occur for reasons that are not under the country`s control. which is experiencing balance of payments difficulties (International Monetary Fund 1963).

Such an approach has the important advantage of taking into account fluctuations in export volumes rather than reacting exclusively to fluctuations in commodity prices. The most interesting questions are whether price stabilization can increase economic prosperity. Again, the answer resonates significantly with the alternatives. If this is the model of perfect competition with fully developed futures markets and mechanisms to achieve immediate equilibrium, then the impact on well-being seems negative. On the other hand, if futures markets are not or very incomplete and price information is the only investment signal available to producers, the results can be very different. As Behrman (1978) suggests, the problems are empirical rather than theoretical. Since the empirical basis for commenting is rather thin, we simply note that this is a relatively unexplored area and an important direction for future research. Hedging a commodity can cause a company to miss favorable price movements because the contract is tied to a fixed interest rate, regardless of where the price of the commodity is subsequently negotiated.

Even if the company miscalculates and overestimates its need for the commodity, this could result in a loss of the futures contract when it is resold to the market. Recent WTO jurisprudence has departed considerably from this position. In Shrimp-Turtle, the problem was refined with the observation that endangered sea turtles were migratory and may have sometimes ended up in U.S. waters. Various international treaties for the protection of endangered species were also at stake, which gave the United States some international authority for its position. .