unctad.org | Report of the Group of Eminent Persons on Commodities<br> Trade and Development Board
Statement by Mr. Rubens Ricupero, Secretary-General of UNCTAD
Report of the Group of Eminent Persons on Commodities<br> Trade and Development Board
Geneva
17 Oct 2003

Mr. President,
Distinguished delegates,
Ladies and gentlemen:

The importance of this issue of the commodities sector was recently highlighted in the preparatory process for Cancún, during the conference itself and afterwards -- not so much because commodities were on the agenda, but for the opposite reason. It is well known that, except for some indirect aspects, the basic problems of commodities are not being addressed concretely or systematically in international negotiations, and this despite the undeniable importance of the sector: more than 30 developing countries, many of them LDCs, depend on a single commodity for most of their export income.

Among the special problems that have plagued this sector are the declining terms of trade. Over the past 25 years, commodities in general have lost more than half of their purchasing power relative to manufactured goods. The problem is not only that the prices are extremely low, but that they have also fluctuated widely, causing dramatic variations in revenues. Average monthly fluctuations around the trend in the price of bananas, cocoa, cotton, hides and skins, nickel, petroleum, sugar, tea and most vegetable oils have been more than 10%, which makes it impossible for countries that depend on those products to have a reasonable predictability in their incomes. Stagnant demand - as you know, world demand unfortunately is not growing in a satisfactory way -; the inability to diversify production and export structures; and supply-related weaknesses, including the inability of exporters in many developing countries to position themselves in the more dynamic and lucrative segments of commodity markets, which generally have more value added, are problems that only a few developing countries have been able to overcome.

But at the same time we must remind ourselves that commodities are not just a problem; they may also be an opportunity, as they have been in many cases. Take the case of Malaysia, which 35 or 40 years ago basically depended on natural rubber, tin and palm oil and which has since moved into the production and exporting of highly sophisticated products. You can see here the good use that countries can make of commodities; there have been some very successful cases in the US, Canada and Australia.

Despite the persistence of these problems, discussions at international fora on policies and actions to deal with them have shown a cyclical pattern at best. Over the last two decades, the approach has been what could be called benign neglect, or to use President Chirac´s words, a "conspiracy of silence". No one wants to speak about the issue. Disappointment with the ambitious initiatives of the late 1970s may have played an important role in relegating the issue of commodities to the background. Nevertheless, the problems remain, and the social and economic hardships caused by the devastating price situation, in particular for coffee and cotton, have recently attracted considerable attention. In both cases, prices have increased somewhat in US dollar terms, partly reflecting the decline in the value of the dollar, but they are still far from recovering the lost ground. I think the pattern for cotton is somewhat better than it is for coffee, as the former has had a partial recovery. The disappointment with earlier work needs to be overcome, and the best, possibly the only, way forward is to embark on a process of constructive thinking, supported by strong political commitment, on commodity initiatives that focus on the main problems and are in line with the realities of the day. Whenever possible, initiatives should be innovative. I am thinking about a plurality of approaches, not a sort of simplified solution.

Even though the commodity issue has been a victim of the "conspiracy of silence", specific aspects of it have been discussed at UNCTAD and valuable insights and recommendations for action generated. In addition, every other year the UN General Assembly includes in its agenda an item on commodities and discusses a report by the UNCTAD secretariat on the commodity situation and prospects. It must be admitted, however, that this discussion has not always been sufficiently substantive and action-oriented, nor has it had a sufficiently high profile. It was in this context, and realizing that the search for solutions requires increased political clout, that last year the General Assembly adopted its resolution 57/236 pursuant to its discussion of UNCTAD´s report on commodities.

In its paragraph 11, that resolution, and I quote, "Calls upon the Secretary-General of the United Nations Conference on Trade and Development, within existing budgetary resources, supplemented by voluntary contributions as appropriate, to designate independent eminent persons to examine and report on commodity issues, including the volatility in commodity prices and declining terms of trade and the impact these have on the development efforts of commodity-dependent developing countries, for consideration by the executive session of the Trade and Development Board and subsequently by the General Assembly at its fifty-eighth session".

In response to this resolution, UNCTAD at first sought extrabudgetary contributions. Unfortunately, the only positive response we received was the Italian Government´s contribution of about $10,000, for which we are deeply grateful, and which was used to finance the travel of four eminent persons from developing countries. Our Commodities Branch has thus had to undertake the organizational and substantive work required for this event within its very limited resources, on top of a regular programme of work that was already quite heavy. The nine substantive background notes prepared for the eminent persons are before you in document TD/B/50/CRP.3.

The 15 eminent persons on commodity issues met on 22 and 23 September. They represented very diverse backgrounds, institutional affiliations and experiences, and also represented different if not opposing philosophical and political approaches to commodity problems and possible solutions. In addition to the mandate given them by the Assembly resolution, in my opening statement to the Group I reminded them that they were expected to undertake a solid assessment of the situation and come up with proposals that were realistic, practical and well focused. And I added that they should not shy away from being bold.

The document before you contains both the recommendations of the Group -- and I wish to stress here that these are the Group´s recommendations, and not those of the UNCTAD secretariat -- and a summary of the discussions. Despite the heterogeneity of the Group, the recommendations are remarkably substantive, well focused, prioritized and operational. It is also important that in many cases they have identified roles and responsibilities for different actors and have set or proposed deadlines and a follow-up calendar.

The 15 recommendations were formulated on the basis of an analysis of the commodity situation, its impact on development and implications for the particularly vulnerable groups of developing countries. The eminent persons were also careful to take account of the developments in related for a, such as the WTO, and to use the lessons learned from the positive experience of several developing countries that have been successful in the area of commodities. Their recommendations fall into three categories: short-, medium- and long-term. Five subject areas, with seven related recommendations, have been identified as having highest priority. These are:

  • Enhanced, equitable and predictable market access for commodities of key importance to developing countries, which has a lot to do with the trade negotiations;


  • Addressing the problems of oversupply, which include not only subsidies but also gains in productivity;


  • Making compensatory financing schemes user-friendly and operational, because right now they are very unoperational;


  • Strengthening capacity and institutions; and


  • Pursuing the possibilities for the creation of a new international diversification fund, so as to address this problem with adequate financing.

The priorities accorded to compensatory financing schemes and the diversification fund are especially significant, as the related recommendations contain considerable new thinking. Regarding compensatory financing, a principal innovation is the call for operation on the basis of ex-ante rather than ex-post mechanisms -- in other words, clearly linking automatic payouts to specific occurrences. This was seen as an important step in bringing compensatory financing schemes into line with modern trading practices where the private sector, rather than the State, is engaged in trading.

Concerning the diversification fund, although the idea had been floated earlier, the innovative step here was to suggest that it should focus on developing private sector capacity, and that it be linked to specific activities, such as strengthening institution-building and capacity-building; developing strong producer associations with a proper role for the majority of producers, including women; developing crucial infrastructure; and stimulating investments, for instance by providing risk capital or temporary compensation for certain infrastructural weaknesses. As you certainly know, UNCTAD has been active in some of these areas, among which I wish to highlight the creation of commodity exchanges. We did some pioneering work on risk management, which was later taken up by the World Bank, but it was we who did the initial work.

Although I find all the recommendations highly valuable, I would like to draw your attention to two in particular.

The eminent persons, including a high-level representative of the private sector - namely, the Chief Executive Officer of Nestlé -- recognized that a healthy commodity sector in developing countries is a prerequisite for the survival of global commodity-based industries and emphasized the importance of corporate social responsibility and broad-based partnerships in the search for solutions to commodity problems.

Regarding fiscal management, the eminent persons stressed the inextricable link between institutional building in fiscal management and a strong governance framework. One without the other would be insufficient to ensure that the revenues from the commodity sector, or any other sector, are used effectively for supporting the development process. Here I would like to underline that our debt management work -- DMFAS - is one of the most successful projects in this area.

The very important "concluding requests" are addressed to the Secretary-General of the United Nations, to UNCTAD and to the General Assembly. Two of these also set dates for their implementation. While I cannot say anything at this stage about how New York will react to these requests, the one addressed in particular to UNCTAD - that we "explore the possibilities for a new partnership between Governments, private business, producers´ and traders´ associations, civil society and international organizations in the commodity area, and announce the shape and modalities of such a partnership, as well as concrete steps to implement it, at the forthcoming UNCTAD XI in June 2004" -- is fully within our mandate and consistent with our plans for UNCTAD XI. Allow me to add a personal note here: it would be very fitting to do this in Brazil, because Brazil is the product of a commodity-based economy, its foundations lie in the sugar cane plantations and, as you know, it reached the 20th century thanks to the coffee sector. So there is hardly another country which has had more experience with, and which owes more to, commodities than my own.

In any case, we shall do our best to satisfy this request. I should also confirm that various other requests that the Group has addressed to UNCTAD also fall within our mandate and provide very useful guidance for our work on commodities. But I would like also to remind you that in our work in this area, we collaborate closely first and foremost with the Common Fund for Commodities, which has participated in practically all our commodity initiatives and is our partner in the preparation and publication of our commodity statistical report. We also work closely with other relevant organizations, among which I would single out the IMF and the World Bank for their decisive role in the financing compensatory mechanism; much will depend on them. I am sure they are keenly interested in those matters and, as they want to ensure progress in the trade negotiations, I am hopeful that they will spare no effort to make a practical contribution in this area, because the impact would be truly this would have a significant. Nor should I forget the European institutions, which have also had a compensatory mechanism. I would like also to remind you that President Chirac, before the G8 meeting in Evian, made a far-reaching proposal on this subject. Apparently the proposal did not meet with the necessary prompt responses, but it is still being considered. Finally, let me highlight the significant role being played by FAO, ITC, UNIDO and the WTO in aspects of our work related to the negotiations.

After the discussion here by the TDB, the report will be taken up at a panel organized by the presidency of the General Assembly on 27 October in New York, in which some of the eminent persons will participate. The report will then be considered by the Second Committee of the GA. We shall also make available there a summary of the discussions taking place here today. It goes without saying that I will be in New York to participate in this panel, and I would like also, before concluding, to reiterate our wish for a very fruitful and intensive discussion here. This is a good time to remind ourselves that the reactions to these debates will be very important for many developing countries, which have a great deal at stake on the issue -- and not only in UNCTAD, but in other fora as well. I would urge you to consider that, if we wish to create a positive and concrete atmosphere leading to a convergence of minds on trade matters, commodities of course are something that should be very much on your minds.



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