Addressing the issue of commodities

Ambassador Ali Mchumo, former Managing Director of the Common Fund for Commodities and former Ambassador of Tanzania to the UN and WTO, said that in the post-Bali period at the WTO, developing countries face the challenge of following up on the decisions taken in Bali, especially the unfinished areas of the negotiations. In regard to the Trade Facilitation Agreement, Ambassador Mchumo highlighted the need to address the gap reflected in the lack of financial resources necessary to implement the agreement and to ensure it results in positive outcomes for developing countries. Otherwise, as it stands, the agreement would help the main exporters rather than developing countries, Mchumo noted.

In regard to the future of the negotiations, Mchumo called on developing countries to emphasize the centrality of development in interpreting and implementing the WTO agreements. He stressed that the preamble of the WTO agreement clearly emphasizes that the main objective is to ensure that developing countries and peoples of the world have better living standards. Accordingly, Mchumo added, the question of development should be at the center of all endeavors at the WTO.

Ambassador Mchumo was of the opinion that the post-Bali negotiations should focus on completing the Doha Development agenda, and whatever has been achieved in Bali should only be part of a long process to fulfill this agenda. Mchumo emphasized the importance of giving concrete content to the special and differential treatment (SDT) provisions in favor of developing countries especially LDCs, so that they can benefit from the multilateral trading system.

Mchumo called on developing countries to stand firm against the introduction of new issues or non-trade issues, including the Singapore issues that were previously rejected (except for trade facilitation).

With regard to the process of negotiations, Ambassador Mchumo emphasized the importance of inclusivity and transparency, so that developing countries take full role in the decisions taken. He highlighted the importance of being creative during the post-Bali negotiations in order to allow issues that are important for development to be negotiated first.

Ambassador Mchumo discussed also the issue of commodities, which he stressed remains a major issue that needs to be addressed. The importance of commodities for the economies of developing countries – as a source of food and employment, as a source of foreign exchange, and as one of the main goods that many of the developing countries sell to the global markets – cannot be emphasized enough, according to Mchumo.

While commodities play such a major role in the economies of developing countries, they remain marginally considered under the multilateral trading system and in the WTO, Ambassador Mchumo highlighted.  In fact, it is only in the Hong Kong declaration (2005) that commodities were mentioned for the first time as an issue of concern to the WTO.

One of the issues to be addressed in this regard is how to ensure that the producers of commodities benefit from the multilateral trading system post Bali. According to Ambassador Mchumo, there are many elements in the commodities problematique; some could be addressed by national governments, and could require a wider framework of international cooperation. These include supply side problems, assisting in infrastructure in order to ensure commodities reach the market, irrigation, and storage. These are issues that are not expected to be addressed within the WTO, but should be kept in mind as issues influencing what happens in the multilateral trading system, Mchumo explained. Moreover, among the issues that require more national attention and wider international cooperation are adding value to commodities and diversification, Mchumo added.

According to Ambassador Mchumo, there are three major concerns on commodities that should be addressed within the multilateral trading system;

First, trade distorting measures in commodities’ trade that adversely impact the producers, such as tariff peaks and escalations as well as market access and domestic support, and this of course is part of the negotiations on agriculture;

Second is the question of value chains, which remains imbalanced. It is common to see that only few multinational corporations control the procurement of commodities; for example in the area of cocoa, only three multinational companies deal with the procurement of 60% of cocoa production. In coffee trade, which is worth more than USD 90 billion, less than USD 5 billion accrue to producers. Ambassador Mchumo called for addressing this imbalance in the multilateral trading system and for empowering the commodity producers and developing countries in order to have a bigger bargaining power in the multilateral trading system.

Third is the issue of price decline and price volatility, which remains the biggest and most long-standing problem that needs to be addressed by the multilateral trading system in regard to commodities. Ambassador Mchumo recalled the thesis of Prebisch and Singer on this issue, who have highlighted that the prices of commodities in the long-term would decline compared to manufacturing. This is still true in the long-term cycle, Mchumo noted. But in the short-term cycles there could be price rises as have been witnessed during the past few years due to the increasing demand for commodities, including by China and India, Mchumo added. However over the long-term, the prices of commodities will continue to decline vis-à-vis industrial goods, according to Mchumo.

Ambassador Mchumo added that the question of price volatility is no longer a North-South issue, as there are major developing countries that play an increasing role in the export and import of commodities. Early attempts, during the 1960s, to address price declines and volatility have failed. Mchumo recalled the attempt to establish an international commodity agreement to address the supply and management of commodities. He also noted that UNCTAD’s work on management of stocks in order to achieve price stabilization was another attempt. However, during the 1980s, the interests of developed countries on price stabilization decreased.

Ambassador Mchumo called for thinking of a mechanism that allows developing countries to have a say in how to manage price stability and volatility. One of the causes of price decline is the mismatch between supply and demand, and accordingly there has been consideration of various supply management schemes. The African group in the WTO suggested in 2006 that there should be a system whereby countries can negotiate how to establish supply management schemes using provisions of Article XXXVIII of the GATT 1994. But this proposal has not been pursued since then. Mchumo also highlighted the attempts to establish compensatory finance mechanisms, which he considered to be an area that could be revisited.

Ambassador Mchumo concluded by highlighting the growing mood against the existence of institutions that would manage commodity trade. In many advanced countries, he noted, there is a feeling that commodity institutions should not be pursued and that the markets should play their role in this regard. Japan, for example, recently withdrew from the international coffee agreement. The Common Fund for Commodities is almost on its death bed. In this situation, Ambassador Mchumo stressed, think tanks should discuss how to revive the interest in the management of commodities so that developing countries and LDCs that depend on these commodities could fare better in the multilateral trading system.