UNCTAD Commodities and Development Meeting and Actions

UNCLAS SECTION 01 OF 02 GENEVA 000350

SIPDIS

STATE FOR IO/T, IO/EDA, EEB

E.O. 12958: N/A
TAGS: ECON ETRD EINV EFIN UNCTAD
SUBJECT: UNCTAD Commodities and Development Meeting and Actions

GENEVA 00000350 001.2 OF 002



1. This is an Action request, see para 12.


2. SUMMARY: At UNCTAD's Multi-Year Expert Meeting on Commodities
and Development on April 6-7, expert discussion focused on the need
for regulation of commodity markets and the need to address the
problem of speculation, which was considered to be a cause of both
volatile markets and price increases. The situations in oil and
gas, agricultural commodities, minerals and metals, and fisheries
and forestry markets were discussed as well as the challenges and
possible solutions for each commodity area. END SUMMARY


3. Background: At the twelfth ministerial meeting of the UN
Conference on Trade and Development (UNCTAD) held in Accra, Ghana in
April 2008, member states recognized the importance of expert
meetings, to share experiences and best practices, and for
networking among experts (para 207, Accra Accord). Member states
also highlighted the importance of international commodity bodies
and commodity sectors, including agriculture, forestry, fisheries,
metals and minerals, and oil and gas (para 91). The April 6-7
UNCTAD's Multi-Year Expert Meeting on Commodities and Development
was a response to the Accra mandate. The meeting was attended by
about 75 experts and member state observers.


4. Ambassador Gauze from the Ivory Coast, Chairman of the meeting,
stated that we are currently in a market of risk, which has caused a
drop in demand for commodities. This is demonstrated by iron,
mineral, and oil prices, which have dropped over sixty percent in
the last six months. Expert speaker Gati Saadi Al-Jebouri, CEO of
Litasco S.A., talked about the current issues facing the oil
industry, including the instability of prices. Al Jebouri warned
that if reductions in worldwide investment in oil continue, a
reduction in production will follow, which will eventually result in
higher oil prices.


5. The relationship between oil and food prices was highlighted by
experts, including Professor Gilbert of the University of Trento.
He explained that high oil prices lead to a demand for biofuels,
made from products such as maize and vegetable oils. This demand
for biofuels generally occurs when oil prices surpass $70 per
barrel. High food prices are also caused by high fertilizer prices,
high freight rates, and high production costs. Several participants
stressed the importance of addressing volatility in commodity prices
through stronger regulation of commodity markets.


6. Experts' discussion on the issue of forestry was largely focused
on the economic crisis, which has greatly affected timber prices.
Christopher Prins, Chief of ECE/FAO Timber Section, discussed the
timber industry in North America, which is being drastically
effected by the rising inventory of unsold homes and the extreme
drop in demand for new housing projects. He stated that forest
production in Canada, which is the United States' main trading
partner for forestry, is expected to lose another $750 million to $1
billion in revenue in 2009. Short term solutions were mentioned and
included cost-cutting in production, product diversification, and
exploring renewable energy from wood.


7. Experts noted that approximately 1 billion people, many of them
from developing counties and LDCs, depend on fish and marine
products as their main source of livelihood, foreign income and
domestic savings. International trade in fish and fish products,
valued at USD 86 billion in 2008, is growing at about 4 per cent per
year, driven largely by high per capita consumption in Japan, the
United States, and the European Union. Participants noted the
significant growth of aquaculture farming - particularly in Asia,
led by China and Viet Nam - compared to captured fish. Overfishing
and the depletion of fish stocks are threatening the sustainability
of the fisheries sector, and participants stated that this issue
should be addressed.


8. During the session entitled "Improving transparency and
accountability at all levels and for all participants in the
commodity sector," the United States made a statement about the
importance of transparency, good governance, and accountability.
This statement was well-received by experts and other member states.



9. In his summary, the Chairman noted many challenges that are faced
in the commodities industry today, including macroeconomic
challenges, volatile prices, lack of diversification, poor supply
chain linkages, high transportation costs, difficulty accessing
financial markets, and limited market access due to trade barriers.
Suggestions for future action included the collection of reliable
and timely data in production regions, the integration of

GENEVA 00000350 002.2 OF 002


agricultural policies with other sectoral policies, minimization of
rent-seeking and corruption, avoiding development of industrial
enclaves, and climate-proofing agriculture through better
technology. It was also noted that UNCTAD should do more work to
strengthen the domestic commodity sectors in commodity-dependent
developing countries (CDDCs). Specifically, experts said that
UNCTAD should undertake a comprehensive review of all current
multilateral and bilateral assistance to CDDCs in order to identify
gaps and priority areas which, if addressed, would enable them to
take advantage of the opportunities in international trade in
commodities, as well as to cope with the challenges of the current
price cycle.

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

10. The establishment of a multi-year experts group on commodities
was one of the major objectives of the Africa Group during the Accra
Ministerial meeting. The Africa Group also succeeded in having
UNCTAD's commodities branch reestablished as an autonomous, higher
profile, unit reporting directly to the UNCTAD SG Dr. Supachai. So
far work of the commodities unit and expert group seems to be
constructive, but it warrants close monitoring as historically,
UNCTAD has looked to price agreements and buffer funds rather than
free market solutions to promote price stability among commodities'
producers.


11. The Trade Commission meeting May 11-15 will consider the
following proposals for work by the Commodities experts group,
contained in report TD/B/C.I/MEM.2/5.


12. ACTION REQUESTED: Please advise Mission by May 8 whether the US
would support or object to any of the points below.

The Commission may wish to:
(a) Welcome the call by experts on the international community to
address the vulnerability of commodity-dependent developing
countries to both positive and negative price shocks (para. 4 of the
report);
(b) Take note of the consensus among experts that - while excessive
speculation was partly responsible for the recent wide price swings
- an overregulation of markets could be detrimental, since
speculators provided the liquidity required by futures markets for
hedging. However, futures markets should nonetheless be better
regulated so that they remained a reliable barometer of price for
market participants. (para 11 of the report);
(c) Endorse the emphasis by experts that a strategic approach to the
commodity sector by commodity-dependent developing countries (CDDCs)
should involve investments in both vertical and horizontal
diversification, and that technical support, including from UNCTAD,
would be necessary to support this strategy. (para 23 of the
report);
(d) Endorse the view of experts that transparency in the management
of windfall incomes from natural resource exploitation is essential
to prevent their misapplication (para 37 of the report) and that the
principles of good governance should extend beyond transparency in
the management of revenues to include the appropriate management of
the social and environmental cost and benefits related to extractive
industries (para 20 of the report);
(e) Reconfirm the need for commodity policy issues to be
incorporated in rules of the international trading system. (para 41
of the report);
(f) Take note of the emphasis of experts on the need to pursue
mechanisms to stabilize commodity prices for producers and producing
countries, and for stronger regulation of commodity production and
trade throughout commodity chains. (para. 43 of the report);
(g) Request UNCTAD to undertake a comprehensive review of all
current multilateral and bilateral assistance to CDDCs (para 45 of
the report);
(h) Endorse the view of experts that initiatives at the regional and
subregional levels should be encouraged to address the energy
security challenge of net fuel-importing developing countries (para
48 of the report);
(i) Approve the suggestion of experts that UNCTAD should organize
joint taining workshops and other capacity-building activties to
promote a "green revolution" in food-defcit developing countries
(para 50 of the report);
nd Comment and Action Request.

STORELLA#