RECENT DEVELOPMENTS IN INTERNATIONAL COMMODITY AGREEMENTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T00608R000600010048-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 28
• Document Creation Date: December 12, 2016
• Document Release Date: April 13, 1999
• Sequence Number: 48
• Publication Date: March 14, 1975
• Content Type: MF

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MIMMMOMMINUM ..
1. Attached per our recent telephone conversation is
a compendium of recent developments pertaining to international
commodity agreements that should be of assistance in your
contribution to the Economic Policy Board Commodity Study.
? We have included developments in the following commodities:
tin, copper, rubber, EC Stabex Agreement for iron ore, tungsten,
mercury, coffee and sugar. Each commodity section is separately
classified.
2. If you:.require any further assistance on this matter,
please do not hesitate to calla
Chief
Agriculture and Materials Branch
Industrial Nations Division
Office of Economic Research
14 March 1975
MEMORANDUM FOR: Dr. Samuel Rosenblatt
Assistant Director.
Council on International Economic Policy
SUBJECT : Recent Developments in International
Commodity Agreements
Attachments :
As stated
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Distribution: (S-6822)
Orig. & 1 - Addressee
1 - D/I
1 - D/OER, SA/ER
1 - St/P
2 - Jerry Crawford, Treasury
2 - I/AM
OER/I/AM/l/bj/5868 9 arch 1975
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INTERNATIONAL TIN AGREEMENT I
Tin is the only metal for which there is an international
agreement guaranteeing minimum prices for producers. Most tin
producers and consumers, except the United States, belong to the
International Tin Agreement, and are represented on ito governing
limiting exports of producing countries until equilibrium is
restored.
The buffer stock has an upper limit of 20,000 metric tons.
in recent months the stock has been almost exhausted in efforts
to stem rising prices, resulting from supply shortfalls. Sales
from the buffer stock and from the US stockpile covered a 55,000
ton deficit in the world tin supply over the past two years.
The ITC is able to support its floor price effectively,
providing the tin mining industry with a safeguard against a
collapse in prices. The Council has been less successful in
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body, the International Tin Council (ITC). The tin agreement
was the first commodity to attract International Monetary
Fund support under the IMF`s buffer stock financing facility
established in June 1969.
One of the primary functions of the ITC is to maintain
tin prices between a floor and ceiling price set by the Council.
The price range is maintained by manipulation of a buffer stock
financed by a fund provided by the tin producing countries.
The Council in a weak market may also apply export controls,
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preventing the price from going above the established ceiling
price, but it has restrained run away price movements.
Recently, the Council adjusted its floor and ceiling
prices upward to cover rises in production costs. The new floor
price of $2.95 a pound is still well below the prevailing LME
market price of $3.37, however, and tin producers, led by
Malaysia, which mines 45% of the world's tin output, ar,r-, seeking
an increase in the floor price to $3.27 a pound to offset
soaring production costs. The prime complaint of tin producers
is that the inadequacies of minimum guarantees provided by the
current buffer floor price is seriously hurting many small tin
miners who use the floor price as collateral for loans. As a
result, there have been mine closures among small-scale marginal
operators, aggravating the shortfall in mine production.
Malaysian mine output dropped by about 4,000 tons in 1974.
Consumer nations of the ITC want no further i:,,>>ward price
revisions, insisting the ITC should not reinforce the existing
inflationary trends throughout the world. Although not opposed
to a small increase in buffer floor price to cover increased
producer costs, consumers fear an increase of the magnitude
proposed by Malaysia will force them to subsidize inefficient
and marginal production.
FUTURE
To ensure sufficient flexibility in its efforts to moderate
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price fluctuations the ITC is exploring ways to finance the
doubling of its buffer stock limit to 40,000 tons. The current
buffer stock is down to insignificant tonnage and the US
stockpile is nearing the end of its permissable sales quota.
Increased consumer participation and greater financial
support from the International Monetary Fund are proposed-_.
to finance the larger buffer stock. At the present time the
only consuming nations who'have provided funds are the
Netherlands and France. -IMF financings is limited to assisting
those countries with an adverse balance of payments. Tin
producing countries that are also exporters such as Indonesia
and Bolivia are probably ineligible. Based on'the present
buffer stock floor price of $2.95 a pound, a 40,000 ton tin
buffer stock would cost at least $260 million.
CIA/OER
13 March 1975
UNCLASSIFIED
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CIP.EC COUNTRIES SEEK BUFFER STOCK AGREEMENT
Chile, Peru, Zaire, and Zambia, members'of the
International Council of Copper Exporting Countries (CIPEC),
are seeking cooperation of producers and consumers'to
stabilize world copper prices.
CIPEC producers, who do not control a sufficiently large
share of world copper exports to establish an OPEC-like cartel,
want an organization patterned after the International Tin'
Council, which attempts to maintain agreed floor and ceiling
companies. The participating exporting and importing countries
would each control 50% of a vote weighted by the size of each
country's copper exports or imports. The CIPEC countries
would control two thirds of the producer votes and one third
? would be allocated, to producers in Canada, the Philippines,
Papua New Guinea, and Australia: The importing countries
considered for the plan are Japan, Germany, the UK, Belgium,
France and Italy.
Members of the organization would establish a buffer
stock and purchase copper on the London Metal Exchange when
the price falls below the floor price and sell copper on the
CLASSIFIED r..Y
EXE51PT FRO1GENFRAL Dr CLSIFIC.TION
I SCIIEDIILE r " n 11'x' "vr'. .Tie'
prices-through manipulation of buffer stocks. The CIPEC
nations are studying a plan which would include all major
copper exporters and importers willing to join, possibly
including the participation of private copper producing
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LME when the price rises above,-.the ceiling level. Suggested
floor and ceiling prices are 68 cents and 89 cents a pound..
Purchases of about 50Q 000 tons of copper are estimated necessary
during 1975 at a total cost of about $750 million.. The IMF
would be asked to share in financing the buffer stocks..
The CIPEC nations are. particularly concerned. about the
extreme volatility of copper prices because of their reliance
on copper revenues for a large share of export earnings that
have been hard hit by the sharp decline-in copper prices.
Some consuming nations also are concerned about prices.and
supply over the longer term unless relatively stable prices are
achieved at a level sufficiently high to foster investment.
They point to shortages during the economic upturn, in late
1973 and early 1974, when copper prices doubled.
Prospects for the formation of a copper stock, however,
appear poor. Reasons for joining are less compelling for
consuming nations currently benefitting from low prices and for
non-CIPEC producers hopeful of expanding their share of the
world market. Moreover, few countries would be willing to build
up buffer stocks given the large overhang of world copper
stocks -- now totalling 800,000 tons. Many countries favor
production cutbacks to the complex involvement of financing
international buffer stocks. (See Attachment -
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CIA/OER
13 March..1975
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MAJOR RUBBER PRObUCERS'AGREE TO ESTABLISH BUFFER STOCKS
Malaysia, Indonesia, and Thailand, which account for.
80 percent of world rubber production moved closer last week
toward an agreement to set up buffer stocks as a means of
stabilizing natural rubber prices. The buffer stocks will
probably be built up to some-350,000 tons at a cost of $200
million.
Details of the scheme, which is intended ultimately
to include all rubber-producing: nations; was worked out by
.technical experts and is subject to governmental approval.
It may be fashioned along the lines of the International Tin
Council, which includes both producers and consumers.
The move toward a price-stabilization plan was led by
Malaysia, which alone turns out 45 percent of world rubber
output. In response to widespread discontent among small
producers at falling rubber prices, Kuala Lumpur late last
year launched a program to curb production by reducing tapping,
accelerating replanting, and prohibiting chemical stimulants.
Malaysia also called on other major producers to join in a
coordinated marketing system that would include both buffer
stocks and production controls.
The pricing policy of the rubber group will not be
disclosed until the participating governments approva it.
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Pressure for sharp increases is unlikely, however, because
the major producers are acutely aware. of the ease with which
synthetics can be substituted. Although not finalized,
discussions indicate floor and ceiling prices of 29 and 37
cents a pound.
Several means of financing buffer stocks are being
explored, including financing by the International Monetary
Fund and by the major oil-producing countries. The chances
for success on buffer stocks will depend largely on the
participating governments' ability to work.out effective
domestic production control programs. In Malaysia, about
50 percent of all rubber is produced on large estates where
production controls can be readily implemented. In Indonesia
and Thailand, small producers account for 75 percent and
95 percent, respectively, of rubber output; attempts to reduce
production would be considerably moie difficult and disruptive
to the rural economies.
CIA/OER
13 March 1975
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UNCLASSIFIED
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EC'Exporn STABILIZATION 'PROGRAM''(STABEX)
The. export stabilization plan grew out of a desire on the
part of the developing countries for a stable income from their
exports of raw materials. The first such arrangement between
developed and developing states, it stipulates that the EC will
provide grants or loans, mainly :of aconcessionary nature,
to signatories whose earnings from exports to the Community
of 11 agricultural commodities and of iron ore fall below a
minimum reference level.
The final list of products consists of peanuts, cocoa,
coffee, cotton, copra, palm oil, hides and skins, wood products,
-bananas, tea, raw risal, and one mineral, iron ore. Iron ore
was a last minute concession by the EC, which specified that
its inclusion should not constitute a precedent for other
minerals. Some EC countries had originally sought to tie the
export stabilization scheme to a provision guaranteeing EC
access to certain raw materials. This proposal was eventually
dropped, however, and no supply commitments other than a
special arrangement for sugar were included in the final
agreement.
OPERATING RULES
The following operating rules for STABEX have largely
been gleaned from fragmentary State Department reporting.
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We expect to have an official copy of the Lome Agreement
(200 pages) early next week.. Hopefully, this will help to
clarify some of the ambiguities in the present reporting
on how the scheme will actually work. Key rules are:
1) To trigger a payment, the product must account
for at least 7.5% of the country's exports to the
world and the decline in export earnings from the EC
for that product must be at least 7.5%. (In both
cases, the percentages.are 2.5% for the 24 least
developed countries of the-46).
2) Payments will come from an EC fund set at 375
million units of account (about $450 million) over
the 5 years of the convention.
3) Payments are not automatic; an ACP must make a
request to the EC commision. However, once a payment
is made, these funds are reimbursable to the EC if LDC
export earnings increase above 7.5%. (No repayment is
required of the 24 least developed.)
4) The recipient ACP decides how the financial payment
will be used.
"-2.
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a formula measuring the EC's share of total exports
against the historical trend would be routinely applied
to trade patterns. Significant diversions of shipments
away from the traditional EC markets could result in
denial of financial payments.
6) The ACP's are obligated, in the event of a fall in
their total exports, not to reduce exports to the EC by
a proportion greater than the fall in ?.:)tal exports.
7) The list of products can be reviewed after one year.
IRON ORE
In 1972 the EC (nine) imported -- by value -- 22.9% _of
their iron ore from ACP countries. Of the 46 ACP countries
5) To prevent ACP. export diversions or market manipulation
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EC Iron Ore,Imports - 1972 1000's of US Dollars
percent of total
only Liberia, Mauritania, Sierra Leone, Ghana, Nigeria,
Zaire, and the Congo exported iron ore to the EC. See Table.
Total EC Imports 1,269,631
Imports from OECD (includes
intra EC trade) 617,527
48.6
Imports \from
ACP countries
290,441
Liberia 184,623
Mauritania 91,163
Sierra Leone 13,453
Ghana . 629
Nigeria 394
Zaire 117
Congo 62
Imports from others
LDC's-Latin America
295,026
LDC's-Africa (less
ACP's)
36,120
2.8
Sino-Soviet
25,437
2.0
Other Developed
2,067
.2
LDC's-Far East
1,825
.1
LDC's-Middle East
1,186
Using per capita GNP for 1972 as the criteria, Nigeria,
Sierra Leone, and Zaire. would be classified with the 24 least
developed countries and thus eligible for payments under'the
2.5% criteria. Ghana, the Congo, Liberia, and Mauritania are
eligible for payments using the 7.5% criteria.
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Using 1972 trade data, Mauritania, Liberia, Sierra
Leone, and Ghana are the only countries that might qualify
for payments under the STABEX formula. This is based on
the fact that iron ore exports represent more than 7.5%
.(2.5$; in the case' of Sierra Leone) of total exports.
We'.estimate that iron ore prices will increase from
5-10% this year and will continue to increase through 1980.
Past price trends of Liberian ore are shown in the following
table.
US Import Cost of Iron Ore (fob) Liberia
(Annual Average Price)
1974 $10.66 per ton
1973 $ 8.66 per ton
1972 $ 8.24 per ton
country can request financial payment under the STABEX formula
If iron ore prices increase as anticipated, no ACP
The EC-ACP agreement will not influence the world iron
ore market. Liberia, Sier-rr. Leone, and Mauritania -- the only
major producers of iron ore in the ACP -- produce less than
5% of total world production as noted in the table.
World Production of Iron Ore - 1973
(Thousands of Long Tons)
Total World
794,321
Liberia
21,161
2.7
Mauritania
9,252
1.2
Sierra Leone
2,362
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ASSOCIATION OF O R - E - RE EXPORTING COUNTRIES ?
A preparatory meeting of iron ore producing nations was
held in New Delhi on 13-15 January 1975 to discuss the
formation of an iron ore exporters association. Taking part
in the conference were Algeria, Australia, Brazil, Canada,
Chile, India, Mauritania, Peru, Sweden, the Philippines, _
and Venezuela. A draft agreement setting forth the terms
of the proposed association was unanimously adopted at the
conference, and will be submitted at the 2 April ministerial.
meeting of iron ore exporting countries in Geneva. The
association would consist of a permanent board, a secretariat,
? and a conference of ministers, which would normally meet once
The original Indian version of the draft agreement called
for progressive harmonization of the policies of member countries
on problems relating to prices, production and export of iron
ore, and coordination of national policies. The Australian
delegation, who were firmly backed by the Canadians and received
muted support from the Swedes, prevented any sort of a cartel
arrangement from being adopted. The Brazilians cave tacit
support to the Australian position.
Membership in the association will be open to any nation
which exports iron ore or holds substantial reserves. Australia
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and`Sweden agreed to join as full members of the iron ore
association, while. the Canadians have not yet made up their
mind to accept. There will be no room for observer nations
at future iron ore conferences. An earlier suggestion to
allow consumer nations to join the association was rejected.
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TUNGSTEN
Representatives of tungsten producing and exporting
;.;ountries will meet in La Paz. April 7 'with the objective
of forming an associ.a?ttDn of tungsten producers.' They will
consider ways to limit past wide variations of tungsten prices
and to analyze means of reducing European and'US import tariffs
on tungsten sales. Delegates from China, Thailand, Australia,
Portugal, France, Brazil, Peru, Korea, Canada, and Zaire are
expected to attend. The US and USSR will not be invited
although both countries produce but do not export tungsten.
This group will present their proposals to the next
session of the UNCTAD Tungsten Committee. .
MERCURY
Some mercury producers met at Izmir, Turkey, on
23-25 January 1975. One proposal to emerge from the meeting
was the establishment of an international association of
world mercury producers. This was first mentioned at last
May's International Mercury Congress in Barcelona, Spain.
Since May, these producers have studied the constitutions
and regulations of other established metal industry associations
and formulated statutes for a quicksilver association. These
were-provisionally approved at Izmir and are expected to be
ratified at the next producers meeting, scheduled for April.
UNCLASSIFlED
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The proposed association may be centered in Geneva. The
precise objectives of the association are not known..
CIA/ OER
13 March 1975
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 1. The International Coffee Agreement of 1962 (ICA),
signed by 41 producing and 24 consuming countries, created
the International Coffee Organization (ICO) in order to
strengthen the chronically depressed world coffee market.
Led by the United States, the consumers were willing to
support the ICO and to pay somewhat higher prices for their
coffee imports in order to:
. reduce the need for direct economic aid to
the coffee producing countries,
contain the threat of Communism in the
producing countries (thought to be serious in
the early 1960s),
improve their export markets in the producing
countries..
The ICO also was intended to stabilize coffee prices as
well as improve them, thus offering the consumers protection
against sharp price increases during periods of scarcity.
In fact, the ICO was very one sided in its operation. It
helped the producers by strengthening the market somewhat
but was unable to check steep price increases following
the frosts that severely damaged Brazil's 1970 and 1972
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The International Coffee Agreement,
Its Current Status and Prospects
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2. The ICA was renewed with some changes in 1968
but efforts to renew it again in 1973 broke down because
of:
the producing countries attempt to form a
cartel outside the ICO,
? producer demands that the ICO support the
high prices which prevailed in the wake of
Brazil's 1972 frost.
Another fruitless effort to renegotiate was made in 1974
and the members have only succeeded in extending the life
of the ICO without its regulatory powers. It continues to
exist merely as a collector and publisher of coffee statistics
and as a forum for further negotiations.
The Current Situation
3. A third effort to renew the agreement is now
underway in a series of negotiations taking place in London
and scheduled for completion in April. Prospects that a
new agreement will be reached this time are fairly good.
The producers' cartel has not been able to support prices
on its own and the market has been weakening fairly
steadily since early 1974. A recent producers' meeting in
El Salvador failed to produce new initiatives and many
exporting countries probably have concluded that a revived
ICO is their best hope for a stable and profitable market.
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At the same time, the falling market has brought coffee
prices back toward levels.the consumers are willing to
support. The outcome is still far from certain, however,
as the negotiations have yet to face the central questions
of the minimum support price and the allocation of export
quotas among the producing cour.'LI-ries.
4. If a new agreement can be reached, it probably
will contain the following main features:
A target price range which the ICO will seek
to maintain by means of an export quota system.
? Market forces will be allowed to determine prices
within the target range with quotas reduced or
expanded only when prices threaten to move outside
the range.
? A reserve coffee stock under ICO control that can
be released to the market when prices rise
excessively.
Some mechanism for periodic review of the price
targets to determine whether adjustments are
required to compensate for rising world price
levels or for dollar devaluations.
The first two points were the old ICO's essential features.
The coffee stock idea is new an.3 is being discussed as a
way to give. consumer interests greater protection under a
revived ICO. The producers apparently have conceded this
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point but in turn are demanding that prices should be
indexed to protect the real value of coffee exports as
world price levels rise and in the event of further-dollar
devaluation. The consumers have unanimously rejected
indexing but
probably will agree to a periodic review and
possible adjustment of price objectives. ?
The Outlook
5.- If a reserve stockpile is created under a new ICO,
consumers will be fairly well protected against the
recurrent periods of high prices that have followed a
major crop failure. The cost will be somewhat higher
coffee prices during normal crop years as the ICO restricts
the volume of coffee allowed to come into the market. For
the next five years or so, however, and from a purely
economic point of view, the cost. probably is not worth it
because the consumers would tend to be protected from
recurring price booms in any case.
6. The producing countries still hold excessive
.carry-over stocks of coffee and it is difficult for them
to hold these supplies off the market during periods of
high prices. This probably accounts for the fact that the
coffee market broke nearly a year before general commodity
prices began to decline. Carry-over stocks in the producing
countries estimated by the ICO were approximately 36 million
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bags as of 30 September 1974. Most of these were official
stocks and there were additional holdings of significant
size in F?7ivate hands in many producing areas. While many
of these stc,cks are not of exportable quality, they
nevertheless are considerably larger than the working
inventories required to support world exports, now about
60 million bags annually.
7. Current indicators suggest that world production
during the next five years will rise faster than consumption.
Prices during the next few months probably will recover
moderately,as consumers replenish their inventories, which
drawn
have been down to abnormally low levels. For the longer
period through 1980, however, prices should remain stable
or trend downward as world stocks again tend to increase.
8. in an unregulated market, however, the cost of
low coffee prices through 1980 could be a period of very
high prices thereafter. This would repeat the historic
coffee cycle that has been observed during much of this
century. Over the past few years, coffee prices have fallen
sharply relative to prices for many competing crops. If
this situation continues, aging coffee plantations, in some
areas at least, will be replaced by other crops. In Brazil,
which still produces one-third of the world's coffee,
vigorous economic development is creating a special problem
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as labor costs rise sharply and domestic demand for alternate
crops grows rapidly. Since coffee production involves
heavy fixed investment in land preparation and trees, it
tends to adjust very slowly to low unprofitable prices.
Conversely, as capacity falls below consumption and excess
stocks are finally worked off, it may require a considerable
period of high prices to restore capacity to adequate levels.
CIA/OER
13 March 1975
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The International' Sugar Agreement
Background
1. The existing International Sugar Agreement (ISA),
signed in 1973 after failure to extend the 1968 agreement,
provides only for the exchange of technical and statistical
information. It does not control the sugar market and
presently has no influence on prices. While the incentive
for a stronger agreement has been impeded by recent high
world sugar prices, some sentiment apparently exists for
more effective regulation of the market. New renegotiations
are not expected to get underway for at least another year,
however.
2. During 1968-73, the ISA was designed to achieve a
stable sugar market, largely through a system of export
and import quotas. Its stated objectives were a remunerative
return for exporters while providing adequate supplies to
importing countries. With the me.jor exception of the US and
the EC (including the UK), which previously had their own
preferential marketing arrangements, membership included
most of the world's exporting and importing countries,
including the USSR and Cuba. Voting power was equalized
between exporters. and importers, but was weighted within
each group by the individual members' relative market roles.
The Agreement helped raise free market' sugar prices from
the dismally low levels which prevailed throughout the
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mid-to-later 1960s, As world supplies tightened, however,
producers, sensing that the fundamental balance had begun
to shift in their favor, could not agree with consumers
on prices and the eccnor