COMMODITY PACTS MORE ORIENTED TOWARDS MARKET Consuming countries, chastened by the collapse of International Tin Council (ITC) price support operations in 1985, are insisting more than ever before that commodity pacts reflect the reality of the markets they are serving, a Reuter survey showed. They want price ranges to be more responsive to market trends - to avoid overstimulating output and straining the accords' support operations - and intervention rules that avoid the risk of exports by non-members undermining the pacts. Consumers and producers, mindful of ITC buffer stock losses, have also sought strict conditions for buffer operations. Importers and some key exporting countries have shunned a generalised approach to commodity price stabilisation and prefer to assess each commodity case by case, the survey showed. The International Cocoa Organization (ICCO) last week set precise limits on what the Buffer Stock Manager (BSM) could do under the new agreement. It imposed daily and weekly purchase limits, prohibited the BSM from operating on futures markets and stipulated, after consumer insistence, that up to 15 pct of total buffer stock purchases could be of non-member cocoa. This will help prevent lower quality cocoa from Malaysia, the world's fourth largest producer, undermining the market. The cocoa pact establishes precise differentials the Buffer Stock Manager must use when purchasing varying grades. A new International Natural Rubber Agreement (INRA) was adopted earlier this month in Geneva. Importing and exporting countries agreed several changes to make the reference price more responsive to market trends and they eliminated provisions under which the buffer stock could borrow from banks to finance operations. Direct cash contributions from members will fund buffer stock purchases. Bank financing was a particular feature of the failed ITC buffer stock which suffered losses running into hundreds of millions of sterling. Legal wrangles continue. Recent International Coffee Organization (ICO) negotiations in London exemplified the degree to which consumers insist that agreements reflect market reality, commodity analysts said. Consumers and a small group of producers argued that "objective criteria" should be used to define export quota shares, which would have meant a reduction in the share of Brazil, the world's leading producer. Brazil wanted to maintain its previous quota share of 30 pct. The talks broke down and, although an ICO executive board meeting starts in London today, delegates and trade sources see chances of any near term negotiations on export quota distribution as remote. International agreements exist for sugar and wheat. These do not have any economic clauses but provide a forum for discussions on possible future economic agreements, collect statistics and draw up market analyses. Analysts said differences between sugar exporting countries have held up any progress towards an accord with economic teeth, while sheer competition between major exporters amid a world grain glut militate against any pact with economic provisions for wheat. An alternative focus for commodity discussions are international study groups, made up of governments with advice from industry, such as those for lead and zinc and rubber. The U.N. Common fund for commodities, with a planned directly contributed capital of 470 mln dlrs, has failed to become operational because neither the U.S. Nor the Soviet Union has ratified it. U.S. Officials in Washington said the U.S. Doubts the fund would be able to fulfil its objectives, citing the lack of widespread support. U.S. Officials in Washington and Malaysian officials in Kuala Lumpur expressed a policy of looking at each commodity pact case by case. U.S. Officials said it has been willing to study individual cases for economically sound, market-oriented commodity accords balancing producer and consumer interests. "We see little to be gained by attempting to increase the price of a commodity whose long-term trend is downward," official Administration policy states. The U.S. Currently belongs to only two international commodity agreements that have economic clauses - the International Coffee Agreement (ICA) and INRA - but it is also a member of the sugar and wheat pacts. The U.S. Did not join the International Cocoa Agreement because it considered its proposed price ranges unrealistic and not designed to protect the interests of consuming countries, the State Department said. U.S. Officials singled out the INRA as the one commodity agreement that seems to be working. U.S. Negotiators were successful in getting other members of the pact to agree that the price review and adjustment mechanism of the rubber agreement would accurately reflect market trends and also to continue the accord as a market oriented agreement, U.S. Officials said. Canadian officials in Ottawa also said they have consistently tried to look at membership of commodity pacts on the merits of each case. Malaysian Primary Industries Minister Lim Keng Yaik told Reuters in Kuala Lumpur his country, the world's top producer of rubber, tin and palm oil, decides its participation in international commodity pacts case by case. Malaysia is a member of the Association of Tin Producing Countries (ATPC) which produce 65 pct of world tin. The ATPC launched a plan to limit member tin exports to 96,000 tonnes for a year from March to cut the tin surplus to 50,000 from 70,000. Economist in the West German Ministry of Agriculture and delegate to cocoa, wheat and sugar agreements Peter Baron told Reuters in London, "Agreements with economic clauses to stabilise prices could function if fixed price ranges were close to market reality, if there was full participation by producers and consumers, and if participants were prepared to take their obligations in the framework of the agreement seriously." But Baron added, "No real sanctions are available for a country that doesn't stick to its obligations...The German approach is sceptical. We don't think agreements are the best instrument to help developing countries. They were never meant to be a vehicle for the transfer of resources and that is how developing countries often interpret them." Traditionally Britain has always been supportive of commodity agreements, reflecting its strong links with Third World producing countries. But recently demands for more stringent and justifiable pacts with emphasis placed on the need for "intellectual honesty" and "objective criteria" have grown. British officials stress the need for commodity pacts to be a two way partnership in trade rather than a disguise for aid. It is now seen as essential that any pacts involving direct market participation through a buffer stock have a high degree of transparency and do not contain the risk of open-ended borrowing that occurred in the tin pact, they said. U.K. Delegates talk of stabilisation and the need for prices to reflect changes in market structure and price trends rather than dictate what prices should be. A Foreign Ministry official in Tokyo said Japan urges price realism in commodity pacts, adding high prices inflate supply. A government spokesman in Paris said France is favourable to commodity pacts. France, a large consumer and producer of sugar, favours a sugar pact as long as it reflects the real market situation, particularly regarding stocks. Indonesia's Foreign Minister Mochtar Kusumaatmadja told Reuters in Jakarta: "These agreements can work as long as the problems are cyclical..But it's another matter when there are structural problems..But we are still committed to commodity agreements as an act of faith." Nicaraguan External Trade Minister Alejandro Martinez Cuenca said in London producers cannot afford not to give their backing to commodity agreements. "The political will is not there on the part of some consumers to make agreements work," Martinez Cuenca said. The head of the economics department in the Brazilian Foreign Ministry, Sebastiao do Rego Barros, told Reuters an agreement can be successful if it keeps a link with market reality. If you have an agreement such as coffee with a system of quotas, with a link between prices practised inside the pact and actual market prices, it can work. UNCTAD spokesman Graham Shanley said consuming countries realise steady export earnings enhance developing countries' ability to service debt and mean greater demand for industrialised nations' capital goods.