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To: US Farm Crisis <>
Date: Feb 24, 2004 10:56 AM
Subject: Analysis of UNCTAD's latest report on "Trade Performance & Commodity Dependence"

-----Original Message-----
From: E.K.Bensah II (icda) []
Sent: Monday, February 23, 2004 3:09 PM
To: European Trade Network
Subject: [etn] Analysis of UNCTAD's latest report on "Trade Performance &
Commodity Dependence"
Importance: High

Dear friends,

We obtained UNCTAD's hardcopy report the day the Media Alert was issued. The
report is still embargoed till 5pm this Thursday (26 Feb). However, pls find
below a brief analysis which reveals some interesting arguments, and
implicitly asserts UNCTAD's expertise on a topic that remains close to its
core work.

Best wishes,
Analysis of UNCTAD's report on Trade Performance & Commodity Dependence
By Emmanuel.K.Bensah

It's a great day for external transparency when the acting head of DG Trade
himself concedes that discussions at the WTO at Cancun were killed by
something. Speaking to members of civil society at the quarterly DG Trade
Civil Society Issue Group meetings on 17 February, John Clarke admitted that
the cotton issue killed Cancun.

According to the latest UNCTAD study on Trade Performance & Commodity
Dependence, in his address to the Trade Negotiations Committee at the WTO on
10 June 2003, the president of the small West African country of Burkina
Faso made the case for compensation on behalf of African cotton producers
(UNCTAD, 2003 :p.59). Whilst this was unprecedented in the making, such
compensatory measures remain few and far between-and have yet to be
capitalised on by other developing countries.

This is because the bigger picture exposes something more problematic: the
decline of commodity prices, which, UNCTAD maintains, has provided two acute
issues with regard to Africa's trade performance.

The first is that more than any other developing region, Africa is heavily
dependent on the export of commodities, although paradoxically its share in
worl commodity exports has declined in the last two decades. (ibid :45).
Secondly, the majority of Africa's non-fuel commodity exports have been
subject to both high price volatility and a secular decline in real prices
(in terms of purchasing power of manufactured imports).(ibid).

In truth, it is impossible to belabour the point of commodity decline, or
how it is inimical to the climate of foreign investment, but then again,
investment is not the end-and-be-all of development. It is one of the
reasons why this latest report by UNCTAD's, although a cool 68-page read,
does a good job to stay away from the views that UNCTAD has regrettably been
associated with as far as its World Investment Report goes.

Reading chapter three, we could be forgiven for thinking that UNCTAD has
re-deemed its credibility with parts of civil society that believe it is
becoming too much of a neo-liberal UN think-tank. In its section on
"searching for solutions", the report concedes that "commodity exports are
not generating sufficient savings for investment in diversification and in
the development of human and physical infrastructure."(pp.45-46). As a
consequence, what has been described as the "commodity trap" is, in essence,
a "poverty trap".

The situation is particularly acute especially because exports represent
well over 70% of foreign exchange income. It is for this reason, the report
maintains, that the problem becomes a developmental question - rather than
solely an economic one. The report calls for action on the policy challenges
of commodity dependence, and argues that these actions should be at several
levels -- specifically, the domestic and the international.

On the domestic front, UNCTAD believes that a reduction of the state (by
implication liberalisation) "in the commodity sector within the context of
agricultural trade liberalisation" (47) has not worked. That said, the
report supports the role of governments: " partnership with the private
sector, also need to promote regional economic cooperation with the
objective of overcoming the constraints of small domestic markets altering
the traditional export structure, as well as adapting to the challenges of
increasing global integration and the associated challenges of increased
competition." Simply put, the role of the private sector can be useful
insofar as it can facilitate regional economic cooperation.

However, the role of governments remains fundamental in fostering solutions.
UNCTAD maintains that they have a "critical role in ensuring a stable
macro-economic framework underscored by appropriate exchange rate, fiscal
and monetary policies"(pp.47-48). This is especially important because the
decline in commodity prices tends to affect the value of local
currencies-especially in "heavily-dependent countries"(ibid), where the
commodity sector has a great impact/influence over local currencies. The
report also touches on what happens when commodity prices fall-and the
picture is evidently not good.

The report contends that the commodity issue is not new: it dates back to
the 1980s, when such declines were a "prominent factor in the emergence of
debt and development crisis...and in the continued debt overhang of recent

Whilst this holds true, that there has been an attempt to undermine the role
of the state by prioritising liberalisation, along with it has come another
problem: the weakening of institutional capacities in the commodity sector
and price liberalisation that have not yielded "the desired effect of
adjustment to a more competitive environment through the free play of market

Apart from producers playing a more active role in policy, and the
"gathering and disseminating" of market intelligence "to niches (such as
fair trade, speciality and organic)" (ibid.), the report cites also that
"institutional capacities must also be enhanced for the provision of public
goods that address market imperfections."(ibid.)

Another potential response to the decline in commodity prices on the
domestic level could be the development of "quality control systems",
especially because these have not "kept pace with industry
requirements"(p.50). Here, again, the role of governments, and by extension
state, as opposed to market forces is emphasized. This much is true also
in UNCTAD's discussion on diversification (horizontal and vertical).

Finally, as far as the domestic is concerned, regional economic cooperation
and integration would be another viable contribution to the commodity
crisis. Having said that, intra-African trade "has yet to be fully exploited
through greater coordination of efforts..."(54).
To boot, the "improvement
of transport and communications links through greater investment in
developing regional infrastructure"(ibid) have yet to be realized. This
inevitably places constraints on resolving the crisis by way of regional
integration. UNCTAD's report of SACU-SADC trade serves as an example of how
much of a great potential there is "for increasing trade in primary
commodities, including meat, tropical beverages, cotton, diamonds and
non-ferrous metals"(ibid.).

It goes without saying that domestic solutions can only work in
complementing international ones, such as market access; compensation for
subsidy-related income losses; compensatory financing mechanism(CFM); and
official development assistance (ODA). UNCTAD elaborates on these from
pp.57-60. The crux, however, resides with the idea that there should be [an
explicit and] clear recognition of the fact that markets have not provided,
and are unlikely to provide , the necessary solutions to instability and
secular decline in commodity prices." The solution, therefore, is that at
the international level, there needs to be action to "mitigate the adverse
effects of market failure by devising and supporting new international
initiatives on commodities, consonant with the development needs of
commodity-dependent African countries."(55).

In conclusion, although I didn't read the report in its entirety, it is
clear from UNCTAD's analysis that the market does not come close to being a
solution to the problem of commodity prices. More significantly, governments
are pressed to play a more proactive role in resolving the crisis by
adopting a number of measures at the international and domestic level.
UNCTAD is explicit in its gentle criticism of African countries when it
contends that the solutions will have to come from African governments
themselves. Having said that, that UNCTAD has referred to ODA as somewhat of
a panacea lends some support to the idea that not only is UNCTAD interested
in a re-engagement by the international community for aid assistance (fallen
off the international agenda since the Monterrey Consensus of March 2002),
but also coherence at the international level on the outcomes of UN

(c)E.K.Bensah, 2004

Emmanuel K Bensah,
Programme Intern/ Information Officer
International Coalition for Development Action
rue Stevin 115, B-1000 Brussels
Tel. 32(2) 230 0430, Fax. 32(2) 230 5237
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