international commodity agreement
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International Commodity Agreement
international commodity agreementa form of CARTEL arrangement between producers in a number of countries (often organized by their governments) which operates to regulate the supply and prices of a particular COMMODITY such as tin, copper etc. on world markets.
international commodity agreementan agreement that attempts to stabilize the prices of some internationally traded COMMODITIES such as cocoa and tin, with the objective of stabilizing foreign exchange earnings and producers’ incomes, primarily in the DEVELOPING COUNTRIES. Although international commodity agreements are established to further the interests of producing countries, they may also benefit consumers by removing the uncertainties and inconveniences associated with erratic price movements.
International commodity agreements vary in format, but one typical approach involves the establishment of an ‘official’ price for the commodity, agreed on by member countries, which is then maintained over a period of time by the use of a BUFFER STOCK mechanism: surplus output is bought in if market supply exceeds demand at the official price and sold off if demand exceeds market supply.
International commodity agreements have been promoted by the UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT as a means of enhancing the economic interests of the developing countries (see NEW INTERNATIONAL ECONOMIC ORDER), but there are often serious difficulties encountered in ensuring their viability. For example, disagreements can occur between member countries on what particular official prices to set arising out of differences in the degree of importance of the commodity to individual members’ economies; and often the temptation is to set prices above market-determined rate, which places a financial strain on the buffer stock, which may then eventually run out of money.
As a result of the growing foreign exchange and balance of payments problems of developing countries, the INTERNATIONAL MONETARY FUND has established a number of ‘special’ funding facilities for these countries. See also ECONOMIC AID, INTERNATIONAL DEBT.