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The new international economic order: trade policy for primary commodities

Published online by Cambridge University Press:  26 October 2009

C. H. Kirkpatrick  and
F. I. Nixson
C. H. Kirkpatrick
Affiliation:
Lecturer in Economics, University of Manchester
F. I. Nixson
Affiliation:
Lecturer in Economics, University of Manchester
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Extract

The demands of the less developed countries (LDCs) for a fundamental reform of the economic, commercial and financial relationships between themselves and the rich, developed economies have dominated international affairs for the past three years. In April–May 1974, the sixth Special Session of the General Assembly of the United Nations called for the establishment of a New International Economic Order (NIEO) and similar appeals have been made on a large number of occasions since then. 1976 was marked by UNGTAD IV meeting in Nairobi, Kenya in May and the commencement of the deliberations of the Conference on International Economic Co-operation (the so-called North-South Conference) meeting in Paris, originally scheduled to end in December 1976, but reconvened for a final session at the end of May 1977

Type
Research Article
Information
Review of International Studies , Volume 3 , Issue 3 , October 1977 , pp. 233 - 253
Copyright
Copyright © British International Studies Association 1977

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References

page 233 note 1. Most notably at the Commonwealth Heads of Government Meeting in Jamaica, May 1975; the meeting of the Third World Non-Aligned Group of countries in Lima, Peru, August 1975 and in Colombo, Sri Lanka in August 1976, and the special session of the UN's General Assembly on Raw Materials and Economic Development Co-operation in September 1975.

page 234 note 1. The Charter of Economic Rights and Duties of States was adopted, as Resolution 3281, by majority vote: 120 votes for, 6 against, with 10 abstentions. It is significant that the sixteen nations which did not support the resolution consisted of most of the ‘developed bloc’ countries.

page 234 note 2. The North-South Conference ended in deadlock on 2 June, 1977. The developed country participants committed themselves to: further negotiations for the establishment of some kind of common fund (without specifying the form the fund should take); the provision of $ 1 billion to help the poorest LDCs, part of which will go towards rescheduling their debts; increased aid for agricultural development and the provision of emergency food supplies. But there was no agreement on the general problem of debt rescheduling (the total public debt of LDCs is estimated to have reached $180 billion) or the commitment to reach agreed aid targets. The issue that received most publicity was the threat by the oil producers t o raise prices (by perhaps 10 per cent) because of the failure of the dialogue.

page 235 note 1. The share of TNGs in total exports (excluding oil) of LDGs is estimated to be of the order of 40 per cent; see UNGTAD, New Directions and New Structures for Trade and Development, TD/183 (Geneva, May 1976), p. 9.Google Scholar

page 236 note 1. This has important implications in assessing the contribution of ‘internal’ supply constraints within the LDGs to the slow growth of export earnings.

page 236 note 2. The determination of world commodity prices is discussed in Harris, S. and Josling, T., ‘Can World Commodity Prices be Explained?’ National Westminster Bank Quarterly Review, (Aug. 1974)Google Scholar.

page 236 note 3. See for example, UN Economic Commission for Latin America, The Economic Development of Latin America and some of its Problems (New York, 1949)Google Scholar; Singer, H.‘The Distribution of Gains between Investing and Borrowing Countries’, American Economic Review, Papers and Proceedings (May 1950), pp. 473–85Google Scholar.

page 236 note 4. Singer now interprets the trading disadvantage of LDCs in terms of the distribution of technology – see Singer, H., ‘The Distribution of Gains from Trade and Investment – Revisited’, Journal of Development Studies, xi (1974–1975), PP. 376–82Google Scholar.

page 237 note 1. However, another UN report (the Houthakker Report) has concluded that there is no evidence of a long-term deterioration in the poor countries' net barter terms of trade.

page 238 note 1. The Financial Times (2 Jan., 1974)Google Scholar commented that: “The era of cheap raw materials subsidising the richer nations has gone. It follows that the rise in prices is a long-term phenomenon, even if reduced demand brings a temporary downturn”. Hone, Angus in ‘The Primary Commodities Boom’, New Left Review, no. 81 (Sept.–Oct. 1973), p. 86Google Scholar argued that “… the 1973 boom is almost certainly part of a long-run adjustment in the terms of trade in favour of primary producing countries and as such the commodity indices are extremely unlikely to fall right back to the 1972 levels, unless there is a major world depression” (emphasis added).

page 238 note 2. IMF, Annual Report (Washington D.C., 1976)Google Scholar.

page 238 note 3. OECD Development Co-operation, 1976 Review, Table II–9,, p. 47Google Scholar.

page 239 note 1. The possibilities of forming producer cartels in non-fuel minerals are assessed in Varon, B. and Takeuchi, K., ‘Developing Countries and Non-Fuel Minerals’, Foreign (1974), pp. 497–510CrossRefGoogle Scholar.

page 240 note 1. Radetzki, M., ‘The potential for monopolistic commodity pricing’ in Helleiner, G. K. (ed.), A World Divided (Cambridge, 1976), pp. 53–76Google Scholar.

page 240 note 2. In the case of bananas, for example, UNCTAD has estimated that on an average basis, the receipts of local growers represented only about 11 per cent of the total value of retail sales, with most of the remainder accruing to ripeners (gross margins of 19 per cent) and retailers (gross margins of 32 per cent). The remaining 38 per cent goes to shippers; see UNCTAD, The Marketing and Distribution Systems for Bananas, TD/B/C.1/162 (Geneva, December 1974)Google Scholar.

page 241 note 1. See Streeten, P., ‘The Dynamics of the New Poor Power’, in G. K. Helleiner, A World Divided (Cambridge, 1976), pp. 77–88Google Scholar.

page 242 note 1. The difficulties of operating a successful international commodity agreement based on export quotas are reflected in the limited number of such arrangements that have been negotiated. The International Coffee Agreement, which operated from 1964 to 1972, worked primarily through a system of export quotas, but the Agreement came under increasing pressures both between producers over export shares and between producers and consumers over prices and became inoperative in October 1973. The most recent International Sugar Agreement, which came into force in 1968 and lasted until 1973 also relied on adjustable export quotas to regulate the market and maintain the price within a pre-set range, but, after 1971 the Agreement came under increasing pressure from both importers and exporters, and it was not renewed when it came up for renegotiation in 1973.

page 243 note 1. Successive International Wheat Agreements have used the multinational contract form of agreement, but the success of the agreements was limited by the difficulties of accurately predicting market variations which were caused by the absence of the Soviet Union, which was an importer in some years and an exporter in others, from the agreements, and by the stock-piling policies of the United States and Canada. The 1967 Agreement lapsed in 1971 and has not so far been renewed, although negotiations on a new international wheat agreement are currently under consideration. A second example of the use of multinational contract agreements was the Commonwealth Sugar Agreement (CSA), which was a contract by Commonwealth countries to supply and by the UiK. to purchase fixed annual amounts at prices negotiated periodically. The CSA has now been replaced by arrangements with the EEC which provide producers with a guaranteed market at guaranteed basic prices at a level similar to that of Community beet producers.

page 243 note 2. For a discussion of indexation, see UNCTAD, The Indexation of Prices, TD/B/503/Supp. 1, 20 Aug., 1974Google Scholar.

page 244 note 1. Recent research suggests that a high rate of growth of export receipts associated with a high degree of instability may be a more important determinant of the growth of GNP than a lower, but more stable, rate of growth of earnings. Given certain plausible assumptions concerning the market adjustment process it can be shown that if shifts in demand are the cause of price instability, then price stabilization will decrease total export earnings. This implies that it is necessary for producing countries to distinguish between price stabilization which is intended to stablize prices, stabilize earnings, and/or maximize export receipts, and emphasizes the advantages of schemes aimed at guaranteed earnings, rather than price stabilization. See Brook, E. M. and Grilli, E. R., ‘Commodity Price Stabilisation and the Developing World’, Finance and Development, vol. 14 (March 1977)Google Scholar.

page 245 note 1. The original method of assessing shortfalls was to compare export receipts in the shortfall year with a five year average of receipts including earnings in the two pre-shortfall years and a forecast for the two post-shortfall years. This was replaced in 1976 by an extrapolation formula based on historical data only.

page 245 note 2. The EEC agreed recently to include additional products (mohair, cloves, gum arabic) n i the STABEX system.

page 245 note 3. Tulloch, P. and Hodgkinson, E., ‘Europe and the Developing Countries’, Grindlays Bank Review (July 1975), p. 4.Google Scholar Also, Wall, D., ‘The European Community's Lomé Convention: “STABEX” and the Third World's Aspirations’, Guest Paper no. 4, Trade Policy Research Centre (London, 1976)Google Scholar.

page 246 note 1. UNGTAD, An Integrated Programme for Commodities, TD/B/C/1/166, (Dec. 1974).Google Scholar

page 246 note 2. The seven other commodities were: bananas, wheat, rice, meat, wool, iron ore and bauxite.

page 246 note 3. Johnson, H. G., ‘World Inflation, the Developing Countries, and “An Integrated Programme for Commidities”,’ Banca Nazionale del Lavoro, no. 119, (Dec. 1976), p. 327Google Scholar.

page 247 note 1. Commodities; the expansion and diversification of exports of manufactures and semi-manufactures from LDCs; money and finance; the transfer of technology; special measures for the disadvantaged countries; economic co-operation among LDGs; trade with the socialist countries; institutional issues.

page 247 note 2. Negotiations are to cover eighteen commodities – bananas, bauxite, cocoa, coffee, copper, cotton and cotton yarns, hard fibres and products, iron ore, jute and products, manganese, meat, phosphates, rubber, sugar, tea, tropical timber, tin and vegetable oils, (including olive oil, and oil-seeds) and other commodities may be added to the list and included in the negotiations.

page 249 note 1. In contrast to this generally accepted view, Smith, G. W. and Schink, G. R. in, ‘The International Tin Agreement: A reassessment’, Economic Journal, 86 (1976), pp. 715–728CrossRefGoogle Scholar, using a simulated model of the world tin market conclude:

(i) the tin agreement has only marginally reduced the instability of prices and producer incomes – of greater importance have been the U.S. Government stockpile transactions of tin made outside the Tin Agreement;

(ii) the International Tin Agreement has endured in part because it lacked effective power to make critical price decisions which might have intensified producer-consumer conflicts;

(iii) if the agreement had been designed as an effective market stabilizer along the lines currently envisaged for other products, there is a good chance that it would have fallen apart; meaningfiil reductions in price fluctuations may require larger buffer stocks than have been so far envisaged (at least in the case of the more volatile metals) (p. 715).

page 250 note 1. In June, 1977, there were further preparatory meetings on manganese, cotton and vegetable oils and oilseeds.