5:35 AM Nov 7, 1994

NO GREAT GAINS FROM URUGUAY ROUND

Geneva 5 Nov (Chakaravarthi Raghavan) -- The results of the Uruguay Round of Multilateral Trade Negotiations are unlikely to bring much change to the commodity market situations, the UNCTAD Standing Committee on Commodities heard from several participants at its just concluded week-long meeting here.

The meeting itself took place amidst signs of a price upturn, in nominal dollar terms, on the commodity markets, but tempered by fact that given the steep dollar depreciation visavis other currencies and the import prices for developing countries of industrialized goods, the terms of trade still remained considerably below that of a decade ago.

The agreed conclusions of the Committee noted that prices of many commodities had risen sharply in nominal terms in 1994 -- driven by improved demand reduced stock overhang, investor interest and currency movements -- but that price development was uneven, prices of some commodities were stagnating and that of others had declined.

In real terms, the prices of certain commodities still remained lower than in the previous two decades.

An UNCTAD secretariat report before the Committee, and the speech of the UNCTAD Officer-in-charge, Carlos Fortin, had brought out that coffee prices had increased by 182 percent, aluminium by 57 percent, copper by 49 percent, lead by 40 percent, nickel by 34 percent and cotton by 26 percent.

Fortin in his speech stressed that this price rise had to be tempered by fact that commodities like phosphates and tea had not improved and that of others had actually fallen: iron ore by ten percent, mangagenese ore by seven percent and jute by 45 percent.

The rise in demand with the beginning of a recovery in the world economy and perceptions of demand prospects for many industrial raw materials was one factor behind price rise. There had also been the historically low-level of commodity stocks and adverse weather conditions. A number of investors were also including primary commodity holdings in their portfolios.

All this had prompted a significant increase in nominal dollar prices of a number of commodities, though not all.

But market sentiment might quickly be reversed and, depending on the import basket of the exporting countries, price measures in currencies other than the dollar (which would show a price fall) might be more relevant for a number of countries-.

The agreed conclusion appeared to skirt the issue of the real effects of the Uruguay Round on commodity markets and future outlook, merely noting that the Committee looked forward to the ratification of the agreements and their early entry into force so as to trigger benefits that could be expected to acrrue to all countries, especially the developing countries, from strengthened rules and institutions and from improved conditions of market access.

The agreed conclusions also made special mention of the Uruguay Round agreement on agriculture which was of particular importance to commodities and said this would lead to reduction in agricultural subsidies and, thus, reduction in surplus supplies in industrial countries, though increasing costs of imports for net food importing countries on a temporary basis.

In his speech to the Committee, Fortin had referred to the implications of the outcome of the Uruguay Round and apprehensions about erosion of preferences, Fortin said that given the already low-level of tariffs on several non-competing primary commodities -- coffee, coca, tea, tropical timber, and most ores and minrals in primary form -- the loss of preferences would be small.

As for commodities competing with products of industrial countries -- wheat, rice, sugar, beef and vegetable oils -- the quotas would be replaced by 'minimum access opportunities', but with prohibitive tariffs for exports above these quotas, so that there would not be much change for these commodities.

But developing country members of the aCP group would see an erosion of their privileged access to the European market.

The Uruguay Round had not addressed the important problem of the tariff and non-tariff barriers preventing primary commodity exporters from achieving vertical diversification.

While tariff escalation would be reduced somewhat by the MFN tariff reductions, it would not be eliminated and the problems of non-tariff barriers would remain.

As for the Agricultural agreement, it would lead to reduction in subsidies and thus to reduction in surplus supplies in industrial countries, but migh also worsen terms of trade for food importing countries.

The UNCTAD secretariat, Fortin said, intended to conduct appropriate studies on this complex issue and the results would be made available to the Committee in due course.

The enviable economic growth and diversification experiences of many countries of East Asia and, to a lesser extent, South Asia, Latin America and North Africa had shown that a common factor behind such performance and resilience was a vigorous commodity sector. But this experience also showed that while economic incentives were indispensable for emergence and strength of a diversified commodity sector, the modifications of policy and institutions needed were not cost free.

Attempts to restore and sustain balance in budget and external accounts had often resulted in deep cuts in sectoral allocations and in provision of essential facilities and services. And in many countires, deep-seated and persistent structural constraints in transport and communications, financial intermediation, marketing and storgage networks and research and development as well as human resource development had yet to receive due attention in many countries.

On the effects of the Uruguay Round, Fortin had noted that its results would not bring much change to trade barriers on commodity exports of developing countries wich competed with those produced in industrial countries, while the ACP countries would see an erosion of their privileged access on the European market.

The Committee also welcomed the Uruguay Round agreement for phased dismantling of the Multi-Fibre Agreement system as likely to be highly beneficial to the efficient Third World producers. The tariff escalation in this area would be reduced somewhat by the MFN tariff reductions, the Committee said, but noted that there remained problems of non-tariff barriers which hindered efforts of primary commodity exporters to diversify vertically into export of value-added products.

In interventions at the Committee, Tanzania had said that the "unbalanced" international trading system had a greater impact on development efforts than internal constraints. The heavy debt burden of commodity-dependent LDCs -- accounting for 60% percent of GDP in 1992 -- was another constraint. Vertical diversification was closely linked to the transfer of technology, particularly for finished and semi-finished products and in this area there was continuing erosion of trading opportunities for developing countries.

There was also the potential adverse effect of biotechnology and replacement of natural agricultural products of significance to some developing countries -- synthetic cocoa butter, vanilla flavouring and food sweeters. the effects could be devastating and UNCTAD should undertake serious study.

Indonesia agreed with Tanzania that the main problem of commodity trade lay in the unbalanced structure of international markets and cited the increased supply from developed countries as a major cause of commodity price falls. The diversification efforts of developing countries had to be matched by reversal of oversupply in interantional markets.

Japan noted the long-term depressed state of commodity prices and uncertainty of their modest recovery and suggested that the most effective way of stabilizing prices and supply of commodites was by maximising market transparency through information exchange and adjustment of production volumes on the other. Developing countries should also make efforts to promote exports of high value added products, carry out structural adjustment programmes, explore new markets including South-South trade and investigate market and investment opportunities in domestic markets. The international community should also provide financial and technical assistance to enable these countries overcome severe constraints of debt burden, shortage of capital and appropriate technology.

The Committee in its agreed conclusions said that improved marketing couldf be an important tool for improving export possibilities of commodity-exporting developing countries. Ability to make use of modern marketing instruments, improvement of trade-related information, commercial strength, presentation of products adn effective export promotion were all necessary elements of a transparent marketing policy which could both open up new markets and ensure gains in prices obtained.$

UNCTAD's work in 'trade efficiency' area -- following the recently held UNCTAD International symposium on trade effeciency at Ohio (USA) -- would be helpful to developing countries. The division of labour among various UN institutions (UNCTAD, GATT/WTO, ITC) should be reviewed to fully utilise existing st4engths and increasing combined impact, the committee said.