UNCTAD COMMODITIES EXPERTS MEETING, APRIL 6-8, GENEVA -

UNCLAS SECTION 01 OF 02 GENEVA 000236

SIPDIS

STATE FOR EB AND IO/EDA FOR AHAVILAND AND RWEBBER
EU EMBASSIES FOR ECON OFFICERS
DEPT OF AGRICULTURE/FAS FOR WENDELL DENNIS
DEPT OF COMMERCE FOR DCAMMAROTA AND SBHABHRAWALA
STATE PASS USTR FOR DAVID BROOKS

E.O. 12958: N/A
TAGS: UNCTAD ECON ETRD AGR
SUBJECT: UNCTAD COMMODITIES EXPERTS MEETING, APRIL 6-8, GENEVA -
REQUEST FOR GUIDANCE

GENEVA 00000236 001.2 OF 002



1. This is an action request. See para 11.


2. SUMMARY: After rescheduling twice, UNCTAD finalized dates for
the first meeting of its multi-year expert group on commodities and
development. The group will meet April 6 and 7 in Geneva,
back-to-back with a multi-stakeholders meeting on coffee on April 8.
The expert group will discuss best practices in transparency and
accountability in the commodities sectors, and mechanisms to help
developing countries cope with price volatility. The latter topic
could touch on controversial approaches such as producer and
consumer price range agreements, although UNCTAD has no plans to
advocate such approaches. Instead, UNCTAD's top priority will be
helping commodity producers diversify their economic base and move
up the global value chain. The meeting is strongly promoted by the
Africa Group. END SUMMARY.


3. Harmon Thomas, Head of UNCTAD's autonomous commodities unit,
briefed Mission officers on the upcoming first meeting of UNCTAD's
multi-year experts group on commodities and development, April 6 and

7. The Commodities experts group will meet three more times over
the next three years. It has well-defined terms of reference for
each meeting, based on paragraphs 50, 51,77,78,79, and particularly
paragraphs 91, 92, 93 and 183 of the Accra Accord, the ministerial
document that provides UNCTAD's mandate for the next four years.


4. The first meeting of the commodities multi-year expert group will
have three parts. First, the meeting will examine the current
situation and outlook in the commodities market, including examining
the impact of the financial crisis on commodities markets. Second,
experts will examine success stories and consider ways of: a)
integrating commodities policies into national, regional and
international development and poverty reduction strategies, and b)
improving transparency and accountability at all levels for all
participants in the commodities sector. Third, experts will review
and identify measures and support needed by: a) commodity-dependent
developing countries to utilize effectively the opportunities
offered by current higher commodity prices to initiate a process of
sustained economic growth; and b) commodity-importing developing
countries, particularly least developed countries, to cope with the
detrimental effects of commodities price swings.


5. Regarding the first part of the meeting, the context, Thomas
divided recent commodities price history into two periods. From the
1960s until 2002, commodities markets were characterized by price
volatility and a downward trend in prices. Since 2002, prices
continue to be volatile but the long term price trend is upward and
probably will remain upward for the next twenty-five years. In the
short term, lots of companies in the extractive industries are
decreasing investment, so we will have shortages in the future and
high price volatility. Over the longer term, the underlying demand
for primary products is based on growth in China now and will be
based on growth in India over the next ten to twenty years. China
has about 15 years before its demand for industrial raw materials
decreases. This analysis has led Thomas to advise commodity
producing countries that they need to reinvest their windfall gains
to diversify because as emerging market economies mature over the
next ten to twenty years, those Asian markets will demand fewer raw
materials and commodities prices ultimately will fall. In the short
term, along with diversifying their economic base, commodity
producers should not lose faith and should still invest to increase
their productive capacity since prices will recover and be high over
the next twenty-five years.


6. Regarding the second part of the meeting - success stories,
experts will examine case studies by sector: Malaysia and Thailand
for agriculture; Chile and Zambia for mining; and the Gulf States
for oil, including diversification through sovereign wealth funds
and diversification into direct productive investments.


7. Part three of the meeting - measures to effectively utilize
opportunities in the commodities market and to cope with price
volatility, is the session where controversial issues are most
likely to arise. Thomas said UNCTAD does not see how prices can be
stabilized in the current global situation. In the 1970s we tried
limiting price volatility by having producers and consumers agree on
price ranges and defending those ranges with buffer stocks.

GENEVA 00000236 002.2 OF 002


However, these agreements failed, just as fixed exchange rates
failed. Nonetheless, Thomas said least developed countries (LDCs)
may propose establishing funds that would allow them to keep local
prices stable, as many governments do for oil. A few countries may
wish to get together to moderate supply on the market to balance
demand and reduce price volatility. Thomas said this approach could
be beneficial for coffee or cocoa producers, and could allow more
orderly market price adjustments.


8. The three additional meetings of the commodities experts group
over the next three years deal with various issues. Session two
will address: diversification of the energy matrix while ensuring
food security; agricultural and non-agricultural trade-related
issues; and investment and financial resources for developing
commodities markets, including aid for trade, ODA, and sovereign
funds. Session three will cover policy actions to mitigate price
and income volatility in the commodities sector and to facilitate
participation of commodities producers in the global value chain,
and multi-stakeholder partnerships in the commodities sectors.
Session four will review UNCTAD's work to help commodities producers
move up the value chain.


9. Meeting papers are available on the UNCTAD website at:
http://www.unctad.org/Templates/Meeting.asp?i ntItemID
=1942&lang=1&m=16434&year=2009&month=4


Comment
--------------


10. The commodities paragraphs were among the most contentious
negotiated in Accra. Commerce, USDA and State all participated in
the negotiations, where Venezuela and the Ivory Coast represented
developing country interests. As part of the final compromise, the
US and EU agreed that UNCTAD's commodities branch would be recast as
an autonomous commodities unit under the trade division and report
directly to the UNCTAD Secretary General to ensure commodities
issues received greater visibility and attention in UNCTAD. Upon
returning to Geneva, the Ivory Coast attempted to renegotiate the
agreement and instead have the commodities unit established as a
division, which would allow its head to make staffing decisions
without approval from the trade division and thereby decrease
transparency and accountability. The US opposed this ploy
vigorously and so far successfully. Throughout 2008 until the
present, the Ivory Coast has sporadically and unsuccessfully
repeated its efforts to reconfigure the commodities unit as a
division. Any US participants in the commodities experts group
should be informed of this background and oppose efforts to
restructure the autonomous commodities unit. End Comment.


11. Action request: Post recommends relevant Washington agencies
nominate experts to participate in this and future meetings of the
expert group. In the absence of attendance by US experts, post
requests guidance by April 2 on each agenda item, as well as any
redlines for work by the experts group and suggestions for
constructive work the experts group might do between sessions. End
Action request.

STORELLA #