Intergovernmental Council of Copper Exporting Countries
Encyclopedia
Lusaka
Lusaka is the capital and largest city of Zambia. It is located in the southern part of the central plateau, at an elevation of about 1,300 metres . It has a population of about 1.7 million . It is a commercial centre as well as the centre of government, and the four main highways of Zambia head...
with the objective of coordinating policies of the country members looking for growth in the revenues coming from copper
Copper
Copper is a chemical element with the symbol Cu and atomic number 29. It is a ductile metal with very high thermal and electrical conductivity. Pure copper is soft and malleable; an exposed surface has a reddish-orange tarnish...
.
Composition
It was initially constituted with four members:- ChileChileChile ,officially the Republic of Chile , is a country in South America occupying a long, narrow coastal strip between the Andes mountains to the east and the Pacific Ocean to the west. It borders Peru to the north, Bolivia to the northeast, Argentina to the east, and the Drake Passage in the far...
- PeruPeruPeru , officially the Republic of Peru , is a country in western South America. It is bordered on the north by Ecuador and Colombia, on the east by Brazil, on the southeast by Bolivia, on the south by Chile, and on the west by the Pacific Ocean....
- ZaireZaireThe Republic of Zaire was the name of the present Democratic Republic of the Congo between 27 October 1971 and 17 May 1997. The name of Zaire derives from the , itself an adaptation of the Kongo word nzere or nzadi, or "the river that swallows all rivers".-Self-proclaimed Father of the Nation:In...
- ZambiaZambiaZambia , officially the Republic of Zambia, is a landlocked country in Southern Africa. The neighbouring countries are the Democratic Republic of the Congo to the north, Tanzania to the north-east, Malawi to the east, Mozambique, Zimbabwe, Botswana and Namibia to the south, and Angola to the west....
A further four were added to the cartel
Cartel
A cartel is a formal agreement among competing firms. It is a formal organization of producers and manufacturers that agree to fix prices, marketing, and production. Cartels usually occur in an oligopolistic industry, where there is a small number of sellers and usually involve homogeneous products...
in 1975
- AustraliaAustraliaAustralia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...
- IndonesiaIndonesiaIndonesia , officially the Republic of Indonesia , is a country in Southeast Asia and Oceania. Indonesia is an archipelago comprising approximately 13,000 islands. It has 33 provinces with over 238 million people, and is the world's fourth most populous country. Indonesia is a republic, with an...
- Papua New GuineaPapua New GuineaPapua New Guinea , officially the Independent State of Papua New Guinea, is a country in Oceania, occupying the eastern half of the island of New Guinea and numerous offshore islands...
- YugoslaviaYugoslaviaYugoslavia refers to three political entities that existed successively on the western part of the Balkans during most of the 20th century....
CIPEC represented around 30% of the world's refined copper, and more than 50% of the proven reserves of copper. The intent of the members to get higher prices failed, particularly of increasing the price during the crisis of 1975-1976, and the subsequent change of behavior of Chile
Chicago Boys
The Chicago Boys were a group of young Chilean economists most of whom trained at the University of Chicago under Milton Friedman and Arnold Harberger, or at its affiliate in the economics department at the Catholic University of Chile...
finally finished the cartel.
Many experts consider that the market power of this cartel was negligible, because the residual demand that they faced was elastic (much higher than OPEC
OPEC
OPEC is an intergovernmental organization of twelve developing countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC has maintained its headquarters in Vienna since 1965, and hosts regular meetings...
, for example). The inability of coordinating output cutbacks during the extensive period of life of CIPEC seems to validate this hypothesis. It was dissolved in 1988.
CIPEC stages
There are three stages of the CIPEC that economist recognizes:- Nationalization stage (1967–1973)
- Unilateral Action stage (1973–1976)
- Reflux stage (1976–1988)
Environmental conditions for CIPEC
The OPECOPEC
OPEC is an intergovernmental organization of twelve developing countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC has maintained its headquarters in Vienna since 1965, and hosts regular meetings...
embargo
1973 oil crisis
The 1973 oil crisis started in October 1973, when the members of Organization of Arab Petroleum Exporting Countries or the OAPEC proclaimed an oil embargo. This was "in response to the U.S. decision to re-supply the Israeli military" during the Yom Kippur war. It lasted until March 1974. With the...
marked a turning point in the history of the international copper trade, waking up the countries that depended strongly on their exports of commodities. They desired to imitate the behavior of CIPEC with the objective of increasing the prices of their commodities.
Motivated by Rio Tinto Zinc (RTZ), in November 1974 in Lusaka
Lusaka
Lusaka is the capital and largest city of Zambia. It is located in the southern part of the central plateau, at an elevation of about 1,300 metres . It has a population of about 1.7 million . It is a commercial centre as well as the centre of government, and the four main highways of Zambia head...
the members of CIPEC reached an agreement to reduce copper exports by 10% -- later on increased to 15% -- until the first half of 1976. The high incentives took to that the countries did not complete the agreement completely and in fact in this period only 300,000 tons of copper were reduced by the cartel—hardly half of the reductions contemplated in the agreement. High inventories and the growth of sources outside of the cartel prevented the policies adopted by CIPEC to benefit its members.