Printer Friendly

Law and organisation of the primary commodities in world trade.

The primary producing countries face a problem of heavy fluctuation in their export earning due to the price fluctuation and climatic condition. In connection with the measures as the establishment of buffer stock is unsatisfactory. In this regard IMF has played crucial role in establishing the export earning of developing countries. Common fund also serve as key instrument in attaining the objects of integrated programme for commodities and to facilitate the function of international commodity agreement.

General problems of world food supply, and related problems of population growth and control, may be among the most improtant issues of international relations, directly affecting the prospects of peace in the longer term. The growing aspirations of developing countries to change their conditions of poverty also impose some important constraints on international relations, economic and political.(1)

Generally agreed principle of international trade policy in the post World War II were those enunciated in the Havana Charter. Article 62, Articles 56 (1) of the Havana Charter defined primary products and some of the objectives of commodity agreements and the term of commercial policy.(2) Article 57 names among the objectives of inter Governmental commodity agreements, and these closely resemble the once found in General Agreement.

During it's early years the GATT played an active part in the development of international policy on commodity trade regulation. The GATT rules for agricultural trade are basically the same as rules for another kind of trade. But now there is essential problem of GATT rules as they apply to trade in agriculture. "One can argue from the text of general agreement that the GATT merely provides the facilities for negotiations looking towards the reduction of tariffs and there is nothing in General Agreement requiring contracting parties to reduce tariffs".(3)

In the GATT agreement agricultural goods are segregated from the general applicability of rules in three places. First in Article XI generally prohibiting the use of quantitative restrictions, there is an elaborately crafted exception for agricultural or fishery products, when quotas are necessary for the enforcement of Governmental measures to restrict production of like domestic products and an exception on the use of export prohibitions where they are necessary to receive critical shortages of food-stuff. In Article XVI the treatment of the use of export subsidies differs for "primary" products and non-primary products [Article XVI containing two key obligations: One obligation (paragraph 3) was against using an export subsidy on primary products which results in obtaining more than an equal share of world export trade in that product. A second obligation (paragraph 4) prohibits a subsidy on the export of non-primary products which results in an export price lower than comparable price for like goods which are not exported]. Not all members of GATT are bound by the provisions of Article XVI.(4)

Finally in Article XX there is an exception allowing export restriction of domestic materials necessary to insure essential quantities of such materials to a domestic processing industry. Tariff on agricultural products, like those on an industrial products are negotiable and can be bound in tariff schedule. In contrast to tariff concessions on industrial products. however, those on agricultural are neither as many or as meaningful.

Except these Articles another important thing that, Kennedy Round negotiations fail to achieve very much in the area of agricultural liberalisation. Between 1947 to 1961 there were five Conferences under GATT auspices, although these Conferences secure substantial reduction in trade barriers on industrial products, it was recognised that they had little impact in respect of barriers to trade in agricultural products.(5) Another factors was that mechanics of tariffs bargaining tended to focus attention on goods traded by the industrial countries, whose key common interest were industrial products.

New chapter (part IV Trade and Development) added to agreement under which new principle was adopted that developed countries would not aspect developing countries to reciprocate commitments to reduce or to remove tariff and other trade barriers.(6) This additional chapter aim to stabilise and improve the conditions in the world market for primary exports of developing countries in order to enable them to attain stable equitable and remunerative price and to expend resources for economic development.

United States, at the 1955 review session, applied to GATT for Waiver. The request of the United States Government for a waiver of the provision of Article II and Article XI of the General Agreement, with respect to certain actions by the United States Government required by the provisions of section 22 of the United States Agricultural Adjustment Act (1933). Recognising the political reality the other GATT members granted the waiver to the United States.

Congress of the United States enacted section 22 which requires that the restrictions in the form either of fees or of quantitative limitations must be imposed on imports whenevedr the President of the US finds, after investigation, that such products are being or are particularly certain to be imported in such quantities and under such conditions to render ineffective or materially interfree with any programme or operation undertaken by the United States Department of Agriculture or any agency under its direction with respect to any agricultural commodity or product, thereof or reduce substantially the amount of any product processed in the United States from any agricultural commodity or product thereof, with respect to which such a programme is being undertaken, and has required the President not to accept any international obligation which would be inconsistent with the requirements of the section.(7)

Obligation of the United States under the provision of Article II and XI of the General Agreement are waived to the extent necessary to prevent conflict with such provisions of General Agreements in the case of action require to be taken by the Government of the United States under section 22. Ministers meeting of the contracting parties at |Punta Este', have decided to launch Multilateral Trade Negotiation (the Uruguay Round 20 September 1986) with other aim the most important aim of the Uruguay Round is to bring about the further liberalisation and expansion of world trade to benefit of all countries.

The contracting parties agree that there is an urgent need to bring more discipline and predictability to world agriculture trade and bring all the measures affecting import access and export competitions under strengthened and more operationally effective GATT rules and disciplines taking into account the general principle governing the negotiation by:- a. improving market access through, inter

alia the reduction of import barriers. b. improving the competitive environment

by increasing discipline on the use of

all direct and indirect subsidies and

other measure affecting directly or

indirectly agricultural trade, including

the phased reduction of their negative

effect and dealing with their causes. c. minimising the adverse effect that

sanitary and phytosanitary regulations

and barriers can have trade in

agriculture, taking into account the

relevant international agreements.(8)

In order achieve the above objectives the negotiating group having primary responsibility for all aspects of agriculture will use the recommendations adopted by the contracting parties at their Fortieth session which were developed in accordance with the GATT 1982 ministerial Work Programme, and take account of the approaches suggested in the work of committee on Trade in Agriculture without prejudice to other alternative that might achieve the objectives of the negotiations.

There was no fruitful results of the 1986 Uruguay Round and still the agricultural commodities are the burning issue. In this connection (3rd December 1980) in Brussels, the Uruguay Round of the GATT talks come close to a nail-biting finish for if these negotiation fail, the world economy could splinter into protectionist blocks with trade wars a common occurrence. In these talks Agreement would be concluded on a bilateral basis with the economically dominant powers dictating the terms. Agricultural subsidies are the major stumbling blocks. In the last week round agricultural subsidies have been left to sort out. The US under pressure from vested interest at home has shown a marked lack of interest in including certain sectors in the liberalisation of services.(9a) The USS pushed for 75 per cent cuts in domestic form support. To sell more of their goods they also sort a 90 per cent slash on export subsidies over ten years as well as substantial lowering of import barriers.(9b) Japan, partly for cultural reason is reluctant to left significant restrictions on the import of rice. The developing countries fear the strict imposition of intellectual property regulations such as patent and copyright because they worry about the establishment of the monopolies by the industrialised nations with their concomitant exclusion from innovation and development.(10) Brazil and Argentina adopted the entire American line. The fourteen nations |Cairn group' including such major players as Australia and Canada demanded an end to all form subsidies unconditionally and immediately.(11) The European community oppose the proposal claiming the reductions demanded would drive up to 40 per cent of E. C's ten million farmers off their lands. The community also argued the agriculture alone, which represent only 10 per cent of the world trade should not be permitted to stand in the way of an accord. Disagreeing fundamentally with the American position, the Europeans were unwilling to compromise.(12)

Problems Faced by the Primary Producing Countries

There are many problems associated with the primary commodity trade:- i) High degree of dependence of

developing countries on primary

commodities as source of income,

and their consequence susceptibility to

reduction in income of that source.

This vulnerability was enhanced in

many cases by the greater

concentration of the export portfolios

of developing countries compared with

those of their industrialised country

counterparts. Another problem which

is related with first one is the greater

instability of primary commodity as

opposed to manufactured commodity

price which it is claimed has created

special problems with for developing

opposed to developed countries.(13) ii) The most serious problem is heavy

fluctuation in their export earning.

Variations in export earning causes

sharp changes in their total export

earning which in turn causes instability

of domestic income, handicap

economic planning and damage

prospects for growth.(14) iii) Invitably remain some fluctuations in

the earning and spending power of

the exporters of the primary products.

In the first place fluctuation in the

price of the agricultural products may

arise from variation in crop yield. On

the other hand their prices may be

subject to very large variations as a

results of more or less random climatic

changes affecting crop yield.(15) iv) The main proposal for smoothing out

fluctuation in commodity price is the

operation of international buffer stock.

According to this principle, "buying

the product in to stock when it judges

the price to be exceptionally low and

selling it out of stock whe it judges the

price to be exceptionally high.(16)

However, if they succeeded in

reducing the instability in international

commodity prices this might do

relatively little to moderate fluctuations

in individual countries export

revenues. A substantial part of the

cause of export revenue fluctuation is

changes in supply which may be due

to draughts food, frosts, strikes and

political disturbances. Even with the

fixed price these would cause


Another problem is the case of a national buffer stock, it can be applied to commodities which are not too expensive to store in any international market a buffer stock can not be operated successfully if the main importing countries closely control their domestic markets by quantitatives controls over the imports or if the exporting countries do so by extensive and variable export subsidy a buffer stock needs a relatively free market.

Another difficulty is that any stabilising device may make worse if it's timing is ill-judged, and a buffer stock may be exceptionally dangerous in this respect since it may leave a large surplus stock for a disposal in a weak market. For this reason it would be wise not to demand for the buffer stock.(18) The |Haberler' Report also recommended that the buffer stock should not be based on any rigid price formula.

There is a remarkable role and function of some organisations in securing the stabilising of export earnings of primary producing developing countries e.g:-

International Monetary Fund (IMF)

One of the purpose of the commodity arrangements in to provide a reasonable and regulation income to those of developing countries, whose economics are heavily dependent on export of primary products where an arrangement fail in this object. The IMF compensatory financing facility is intended to allow primary production countries to make drawings from the fund in respect of temporary shortfall in export receipts. These drawings must be paid back over a number of years.(19) The IMF established a buffer stock in 1969 to assist in the funding of stock of commodities as part of international agreement.

Common Fund

The object of the fund are to serve as a key instrumednt in attaining the object of integrated programme for commodities and to facilitate the conclusion and functions of international commodity agreements (ICAs) particularly those concerning commodities of special interest to developing countries.(20) The notion of making the fund a trading organisation directly buying and selling commodities in the market has long been jettisoned the exception that it would engage in direct financing of projects for individual commodities is also abandoned. The fund is to be a lending institution dealing directly with international commodity bodies not with states. The money that it will lend come largely from the contribution of the associated commodity organisations (ACOs) and from the borrowing secured on the deposit of stocks warrants by ACOs and guaranteed provided by their members. The funds owner resources, in so far as the financing of the stocks is concerned, will be confined to $400 million. The area of its lending will also be limited. The fund at best will as far as the operation of |first window' is concerned be a facilitator of the borrowing arrangement for the ACOs.(21)

Integrated Programme for Commodities

One of the most significant of UNCTAD's action has been adoption of an integrated programme for commodities. This progress is the most recent step towards international measures relating to the commodities. It's aim are following:- i. To increase and stable export earning

to developing countries. ii. To provide stable means of securing

economic and social well-being in

developing countries. iii. To improve and sustain the real income

of individual developing countries

through increased export earning

especially from commodities.

The integrated programme for commodities (ICP) is the most recent step towards the international measures relating to the commodities. In it's rationale and scope the IPC differ from the Havana principle which until UNCTAD in 1964 were the prime regulators of international commodity agreement. The Havana concept of commodity regulation recognised the need for an international commodity agreement in an extreme situation of |burdensome surplus' of a commodity and heavy unemployment in a commodity industry which could not be dealth with by normal market forces within a reasonable time. The IPC moved away from this concept and is firmly based on the UNCTAD principles declared in 1964. Not all of the measures included din the IPC can be taken within the framework of an international commodity agreement, unless its scope is widened radically nor is every measure supported by a consultative mechanism o the IPC. The IPC provides no negotiating machinery of its own for measures relating to removal of barriers to trade, transport and financing commodity development.(22)


From the above discussion it seems that the original provisions of the General Agreements on Trade and Tarill cover primary product but later on the GATT failed to secure the benefits in world trade for an agricultural producing countries. |The Uruguary Round' of the |GATT' talk began in |Punta Del Este' four years ago as a most ambitious of eighth trade negotiations stretching back to 1947. This discussion aimed at extending GATT discipline over roughly $1.5 trillion in key commercial activity, ranging from the protection of film and book copyrights to banking rules and sales of clothing and corn gluten. But deep-seated disagreements, mainly over agricultural subsidies soon slowed progress to crawl.

The primary producing countries face a problem of heavy fluctuation in their export earning due to the price fluctuation and climatic condition. In connection with the measures as the establishment of buffer stock in unsatisfactory. In this regard IMF has played crucial role in establishing the export earning of developing countries. Common fund also serve as key instrument in attaining the objects of integrated programme for commodities and to facilitate the function of international commodity agreement.

United Nations integrated programme for commodities may be integrated in its concept and achieve the expected objectives but these objectives are divorces and disorganised. GATT talk in Brussels have collapsed in a paralysing dispute over agricultural subsidies. Every nation has their own interest. That complex mixture of interests and attitudes might conceivably have produced a global set of trade-offs and compromises. It could have opened a new epoch in world trade. But this dramatic collapse of the talk in Brussels will have precisely the opposite effect. It will encourage bilateral and regional agreements to manage trade in sensitive areas. It will increase protectionism in emerging economies and maintenance of status quo every-where. Trade was may not break out tomorrow but the GATT's sudden loss of impetus and prestige can not help but slow the world's progress towards the truly free market.


(1) Jackson, International Relations, P-979. (2) Koul The Legal Framework of UNCTAD in World Trade.. (3) Jackson, International Relations. (4) Op. Cit. (5) Fiona Gorden-Ashworth, International Commodity Control. (6) Long Oliver, Law and it's limitation in the GATT Multilateral Trade System. (7) BISD Supplement 3. (8) BISD Supplement 33. (9a) The Scotsman Newspaper, Thursday 6th December, 1990. (9b) Weekly Time 17th December, 1990. (10) The Scotsman Daily Newspaper. (11) Weekly Newsweek, December 17, 1990. (12) Weekly Time 17th December, 1990. (13) Fiona Gorden-Ashworth, International Commodity Control. (14) Arjun Sengupta, Commodity Finance and Trade. (15) GATT, Trends in International Trade, a report by a panel of experts, 1958 "Haberler Report". (16) Op. Cit. (17) Arjun Sengupta, Commodity Finance and Trade. (18) Haberler Report. (19) MacGovern, International Trade Regulations. (20) Op. Cit. (21) Khan The Law and Organisation of International Commodity Agreement. (22) Op. Cit. * The authors are the Masters and Doctoral students respectively at the Edinburgh University in U.K.
COPYRIGHT 1992 Economic and Industrial Publications
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:international trade
Author:Jalbani, Mahmooda; Jalbani, Amanat A.
Publication:Economic Review
Date:Jul 1, 1992
Previous Article:India counts cost of Soviet ties.
Next Article:Developing Asia grew at 5.8 per cent in 1991.

Terms of use | Copyright © 2017 Farlex, Inc. | Feedback | For webmasters