HOW TO SOLVE THE COMMODITIES CRISIS…
The WTO Committee on Trade and Development (CTD) held its 48th session on 18 February, chaired by newly-elected Ambassador Trevor Clarke (Barbados). Discussions in the Committee focused mainly on the issue of declining commodity prices, an issue introduced by Kenya. Also looking at commodities, UNCTAD released a report on Africa’s commodities trade and the related economic development of the continent. Although both fora deal with commodity dependency, the proposed ways out of the current crisis greatly differ.
Market instruments — the way forward?
Kenya stressed the importance of addressing the decline in commodity prices and said it would submit a paper before the next CTD session outlining its expectations of CTD action on the issue. The paper reportedly will elaborate on and add detail to a May 2003 submission by Kenya, Uganda and Tanzania (WT/COMTD/W/113), highlighting the need for urgent action to deal with the crisis caused by the long-term price decline of primary commodities. Most developing countries, including India, Pakistan and Brazil, supported Kenya’s intervention. According to one delegate, Kenya said the issue of declining terms of trade had many dimensions, including those related to tariff peaks, technology transfer and agricultural subsidies — all of which were under the purview of various WTO negotiating bodies.
The US cautioned against having the WTO handle non-trade issues, and added that the problem was market-related — pointing to issues such as competitiveness, horizontal and vertical diversification and investment — rather than a question of supply management. The US felt the commodity price decline needed to be addressed through ‘market-based’ instruments such as commodity-risk derivatives. The EC highlighted the importance of damage verification in countries affected by declining commodity prices, and greater access to finance and capacity building.
The next CTD meeting is scheduled for 11 May, and a meeting of the Sub-committee on Least-Developed Countries for 9 March.
Coherent trade and development policy — the way forward?
Rather than focussing on market-based mechanisms as suggested by the US, the UNCTAD report "Economic Development in Africa: Trade Performance and Commodity Dependence" released on 26 February, suggests that commodities should be treated as an integral part of development policy. The report examines the structure and composition of Africa’s trade and considers the various impacts of commodity dependence. Furthermore, the report attempts to put in perspective Africa’s declining share of world trade, which has fallen from 6 percent in 1990 to 2 percent in 2002. While trade has grown relative to gross domestic product (GDP) in African countries, as elsewhere, Africa’s diminishing share of world exports has been a phenomenon that "has as much to do with the structure of international trade as with the composition of Africa’s merchandise trade, the trade policies applied on the continent in the past 20 years, market access and trade policies in developed countries". "Even in the area where Africa is supposed to have a competitive advantage, it has been losing market share," said Kamran Kousari, one of the authors of the report.
In particular, the report focuses on policy issues in both the domestic and international spheres for i) providing adjustment mechanisms to help Africa manage commodity dependence in the short to medium term and ii) promoting sectoral diversification and productive development in African economies as a long term strategy. Specifically, it calls for a compensatory financial mechanism for African producers to meet short-term price shocks and declining incomes, as well as a "diversification fund" to support the diversification of production structures in African economies. In addition, the report points out that the state should play a bigger role in improving infrastructure and encourage value addition by ensuring quality control and diversifying into new products such as fruits, vegetables and fish.
The U.N. body furthermore backed calls by some African countries for compensation from developed countries for losses caused by subsidies on cotton and other products (see BRIDGES Trade BioRes, 2 June 2003). The World Bank estimates that subsidies on cotton by the US and the EU cost African producers up to USD 300 million in 2002 — more than the total amount of debt relief granted in the same year to African cotton-producing countries. To counteract this trend UNCTAD called on the international trading system — especially the WTO — to accelerate negotiations on reducing and phasing out distortive agricultural subsidies in advanced economies and strengthening technical assistance in areas such as quality control and health and safety requirements.
In conclusion, the report states that the three last decades have shown that markets alone cannot solve the problem of commodity dependence. Comparing Africa today to the newly-industrialising economies (NIEs) in South East Asia in the 1970s, the report notes that the international context since the 1970s has changed. African countries have to operate within the WTO framework, which limits the use of measures that the NIEs used in their development process. While the report stresses that African governments are shouldering the responsibility for reducing their commodity dependence themselves, the international community should support this process by providing as consistent and coherent a policy framework as possible.
ICTSD reporting; "UNCTAD Study on African Development Prospects Echoes President Chirac’s Call For Ending "Conspiracy Of Silence" On Commodity Issues," UNCTAD PRESS RELEASE, 26 February 2004; "Trade Barriers Leave Africa Dependent On Commodities" AP, 26 February 2004.