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Vol.1976/0198

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COMMISSION OPTHE EUROPEAN COMMUNITIES
COM(76)656 final
Brussels .9thDecember 1976
COMMISSION COMMUNICATION TOTHE COUNCIL
pursuant toArticle 29ofthe Internal
Agreement onthefinancing and
administration ofCommunity aid
REPORT
ontheoperation during 1975 ofthe system
BetupbytheLomé Convention forstabilizing
export earnings
COM(76 )656final

1.UnderArticle29oftheInternalAgreementonthefinancingand
administration ofCommunityaid,"theCommission"shallprepareanannual
comprehensivereportontheoperationof"thesystem(forstabilizingexportearnings),indicatinginparticularitseffectontheeconomiodevelopment
oftherecipientcountriesandonthedevelopmentofexternaltrade"#
TheCouncilDecisionof29June197^ontheassociationoftheoverseas
countriesandterritorieswiththeEuropeanEoonomicCommunityalsoprovides
foranexportearningsstabilization systemwhichissimilarineveryrespect
tothatsetupundertheLom6Convention.Thefirstperiodofapplioation
ofthesystemtothesecountriesandterritories 1bunderwayandwillsoon
cometoanend#
2.Thiscomprehensive reportisconcernedwiththeapplicationofthe
systemduring1975"to"theACPStatessignatorytotheLom6Convention.
Sinceitisthefirsttimethistotallynewsystemhasbeenappliedand
thetransfershaveonlyjustbeenmade,nothingcanbesaidinthisreport
abouttheeffectofthesystemontheeconomiodevelopmentofthe
recipientcountries–exceptforanassessmentofthevolumeofthe
transfersinrelationtotheexportearnings-noraboutitseffectonthe
developmentofforeigntrade.
3.Thedrawing-upandexaminationofthisreportshould,however,provide'
foodforthoughtonthewayinwhichthesystemoperatesandonoertainof
itscomponentpartsandcouldpossibleservetomakebothofthemmore
explicit.
Thesystemshouldalsobeassessedinrelationtothetrendsemergingin
variousinternational discussionsdealingwithproblemstowhichthesystem
isspecifically intendedtohelpprovideasolution.
Thisiswhyinadditiontolookingbackontheoperationofthesystemthis
reportwillalsolookforwardtothefuture.Thediscussionstowhichthis
reportcouldgiveriseareveryimportanttotheCommissionbecauseona
numberofpointstheywillenableittoolarifyandpavethewayforthe
actionitwillhavetotakeinthefutureasmanagerofthesystem.

4»Inthisreport,"theCommissionwillexaminethefollowing:
(i)themachineryforcooperationwiththeACPStatesandhowit
operates;
(ii)thefirstperiodofapplicationofthetextsandtheresults;
(iii)theprospectsandlimitationsofthesystem*
o
o o
PARTOWE:Themachineryforcooperation withtheACPStatesandhowit
operates
ChapterI.:Thema£hiner£for£oop£ration
§1.TheCommission
5.AssoonastheLomeConventionwassigned,theCommissionstarted
settingupthevariousmechanismsenablingthesystemtobeimplemented
speedily.Thefirstdecisiontakeninthisconnection wastoformwithin
the"Operations"Directorate oftheDireotorate-Oeneral forDevelopment a
Divisionwithspecialresponsibility fortheplanningandadministrative
tasksassociatedwiththesystem*
6.Thefirstproblemwastoensurethatthestatisticaldataaretransmitted
totherelevantadministrative department *Inviewoftheletterandthe
spiritofthetexts–whiohstatethatthetransfersshouldbemadetothe
requestingStatesasrapidlyaspossibleafterafallintheexportearnings
occurs(Artiole19(6)oftheLomSConvention),traditionalstatistical
sourcesoouldnotbeusedsinoethefrequencywithwhiohsuchdataarepublishedisgenerallyinadequateforthepresentpurposes^*
1Thetime–lagbetweentheendoftheyearandpublicationofthedatavaries
betweensixmonthsandmorethanthreeyears*

7.ItwasthereforenecessarytosetupadhocchannelsofcommunicationwithintheCommunityandwiththeACPStates(see10below).Inthelatter
case,themeasurestooktheformofmissionstoalltheACPStates
potentiallyaffected "bythesystem.Thetaskofthesemissionswas,of
course,greatlyhelped "bythefactthattherewereCommissionDelegations
intheformerAASHandthattheseDelegations havebeencloselyinvolvedin
theworkingofthesystem.Astimewentby,andasDelegations weresetup
intheACPStatesotherthantheAASM,theDelegations *contribution tothe
operationofthesystembecameevengreater.
8.Anumberofotherpointshavebeenfinalized:formsforregular
notification andforrequestingtransfers,listsforcross-checking
statistics,dataonthefirstreferenceperiod,calculationofcif/fob
ooefficients ,transferproposalforms,transferagreementsandsoon.
§2.TheCommunity
9.TheCommunityhascontinuedfinalizingthetextsrequiredforthe
smoothoperationofthesystem:
(a)On20January1976theCounciladoptedaRegulation'makingit
compulsorytogivemonthlynotification ofstatistics,aprocedure
whichtheMemberStateshadagreedtoimplementasearlyasmid-1975
despitethefactthattherewasnolegalbasisforit.Article1of
thisRegulationstatesthat:"Beforetheendofeachmonth,the
MemberStatesshallforwardtotheCommissionastatementofimports
duringthepreviousmonthoftheproducts"eligibleunderthesystem.
(b)On25Maroh197^theCounciladoptedaprooedureforexohangesof
viewswiththeMemberStatesontransferproposals.
CouncilRegulationNo158/76(OJL18of27January1976»pag«83to6).

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(c)Finally itadopted theFinancial Regulation oftheEDP ,ofwhich
Articles 53 54 particular refer toth®system® Article 53for
instance lays down theprinoiple according towhich theexchange rates
applicable forthecalculation inEUAofthereference level andofthe
actual earnings aretheaverage rates inforce intheperiods towhich
the amounts concerned refer *
§3.TheACP States
10*During thecourse ofmissions tothese States ,itwasfound that the
services orbodies responsible forspecific produots"' generally hadthe
necessary data available within thedesired time limits# Asageneral rule ,
cooperation with theACPStates hasbeen organized with thehelp ofarnuaber
ofnatural andlegal persons ^,
(a)Oneormore correspondents responsible fornotifying theCommission
periodically *Theinformation required foreach period covered bya
form is,inthemain ,asfollows ?
(i)total exports oftheproduct inquestion (values andquantities );
(ii)exports oftheproduct totheCommunity (values andquantities )^;
(iii)marketed production (quantities)#
Generally speaking ,thecorrespondent scome under aministry ,marketing
boards orthe customs departments *
(b)Aperson authorized tosign therequests fortransfers ,whoisnormally
ofministerial level ,oracting onbehalf ofaminister#
(c)Aperson responsible forcross-checking statistics with theCommission
andconducting anyconsultations under Artiole 19(4 )(b)oftheLom£
Convention .This person isgenerally either thecorrespondent ora
member oftheRepresentation totheCommunities oftheACPState
concerned *
1Generally bodies such as"caisses destabilisation "or"marketing boards"#
?Itbeing understood that oneperson mayperform several tasks ,oreven
all of .them *
^Except forthose oountries covered byArticle 17(4)oftheLom£Convention .

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(d)TheRepresentative of-theACPStateauthorizedtosignthetransfer
agreements.TheRepresentatives oftheACPStatesarecloselyand
continuouslyassociated,"bymeansofasteadyflowofinformation twith
thewholeprocess.
(e)Thebodywhiohwillreceivethefunds.
ItgoeswithoutsayingthatthisBchemeisnotinflexible "butis
adaptedtotakeaccountofeachcountry'sindividualconditionsand
practices.
64»TheGroupofACPStates
11.TheGroupofACPStateBhassetupaspecialized committeeof
Ambassadorstofollowtheimplementation ofthesystem.Inaddition,one
memberoftheACPSecretariat hasspecialresponsibility forrelationswith
therelevantCommissiondepartments.
12.Almostallthecomponentsoftheschemedescribedabovewereinplace
byFebruary/March1976,thetimewhentheywereabouttobetriedoutin
respectoftheoperationsrelatingtotheACPStates*1975exportearnings.
Theaimhereistodescribeandassesstheoperationofthesystem.
ChapterII:Howthemadiiner^for£ooj>eratxonoperates
81.Statistical information
13.WithregardtotheMemberStates,
(a)forthereferenceperiodtheStatisticalOfficeoftheEuropean
Communities hadtoextrapolate fromUNstatisticsthedataonthe
MemberStates*importsoftheproductscoveredbythesystemsinoe

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itdid notyethave any Community statistics assuch onthe Nine for
alltheyears to "becovered (1971 "to1974 )•These data ,expressed on
acif "basis inUSdollars ,were oonverted bytheCommission into fob
values using cif/fobcoefficients worked outbytheSOEC ;
(b)for1975 ,usewasmade ofthemonthly data communicated bytheMember
States aspart ofanempirical procedure formalized bytheRegulation
of20January 1976 .These data were also converted into fobvalues and
from thenational currencies into European units ofaccount *
14# With regard totheACPStates ,
(a)thedata forthereference period were generally gathered onthe
spot orforwarded later totheCommission ;
(b)thedata for1975were obtained andprocessed inthesameway*The
mechanism forregular notification hasbeen inoperation sinoe the
endof1975 *Itoperates satisfactorily inmost cases andthe
information isnormally provided every month •
15»Thesituation asregards statistical information isonthewhole ,
satisfactory although adifficulty remains with regard tooneMember State •
Theeffort made bytheACPStates ,however ,tokeep upasteady flow of
information isabsolutely remarkable ?this isoneproof oftheimportance
they attach tothesystem .Thanks totheACPStates andtheMember States ^
theCommission obtains information every month ontheproducts covered by
thesystem ,theextent ofthis achievement being unequalled anywhere else
intheworld# TheCommission istrying hard toremedy theflaws which do
remain ,particularly concerning theregularity oftheflow ofinformation
with thehelp oftheparties ooncerned .
TheCommission hasalso made aneffort tocollect data foryears previous
to1971 *Such data onthemonthly exports (inquantities )areessential
ifthesix–monthly advances referred toinArticle 19(5 )oftheConvention
aretobepaid with theminimum risk ofmistakes occurring *
2TheACPStates andtheCommission have agreed that only those countries
which provide information onamonthly basis will beeligible forthe
six-monthly advances .
3OneMember State ishaving difficulties intransmitting thedata onits
imparts ofproducts covered bythesystem totheCommission within the
required tiraee

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f
§2.Transfers :presentation ofrequests ,appraisal ofdossiers .
clearing oftransactions
16.AttheendofFebruary 1976 theCommission asked theACPStates to
present their requests fortransfers by15March .Areminder wassent
aweek later .Since this first operation wasto "becarried outinsuch
awaythat transfers could hemade rapidly butatthesame time with
allowance being made foranyteething troubles encounted byarequesting
State ,theCommission ,together with theGroup ofACPStates ,forthis
first year left thedoor open until theendofMay ,andeven extended this
deadline forcountries that hadduly announced that they would be
submitting requests .Once therequests hadbeen received statistics were
cross –checked andtransfer operations appraised andprepared .
§2.1 Cross-checking ofstatistics
17.TheLomeConvention stipulates ,towards theendofArticle 17(l),
that the "statistics used forimplementation ofthesystem shall bethose
obtained bycross-checking thestatistics oftheACPStates andofthe •
Community ,account being taken ofthefobvalues ".
18.Export andimport statistics have always differed foranumber of
reasons ,themain ones being :
(a)thefactthatexports arenormally recorded infobvalues whereas
imports axerecorded incifvalues :
(b)thefactthatexports andimports arerecorded inthenational
currencies oftheimporting andexporting countries :
Thequestion ofcross-checking does notarise fortheACPStates towhioh
Article 17(4 )applies ,theonlydata required being those States'
export statistics .

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(c)theeffectofthetimetakentotransportthegoodB,whichmaymean
thatexportsrecordedassuchintheexportingcountryduringyear.
willalwaysappearintheimportstatisticsasimportseffectedduringyearT+1*;
(d)thefactthatcargoeswhichareenteredintherecordsofthe
exportingcountry,asbeing "boundfortheCommunitymayhediverted
tootherdestinations withouthavingcrossedtheCommunity'scustoms
frontier;
(e)lossesduetovariousfactors(desiccation,damage,accidents,etc.)
asaresultofwhichthequantitiesunloadedinCommunityportsare
lowerthanthosedeclaredupondespatch.
19.Sincecross-checking isprescribedthetwosetsofstatisticsofthe
CommunityandtheACPStates^havetobereconciledwitheachother.For
thispurpose,dependingonthecaseinpoint,fiveapproaches ar®used
enablingaclearerpictureoftheactualtradeflowstobeestablishedin
thelightofthecharactei'istics ofeachsituations
(a)theCommunitystatistics :
(b)theACPState'sstatiBtiosi
(c)thequantitiesimportedbytheCommunityandtheunitvaluesupon
exportfromtheACPState;
(d)thequantitiesexportedbytheACPStateandtheunitvaluesupon
importintotheCommunity;
(e)theaveragebetweentheCommunitystatisticsandtheACPState'sstatistics^.
Similarly,itshouldberememberedthatanimportermaystoregoodsin
awarehouseforavariablelengthoftimebeforeclearingthemforhome
useofbeforeapplyinginwardprocessingarrangementsintheCommunity.
Sfiththeexceptionofafewcaseswherethestatisticscorrespond
remarkablywell.
^Thechoiceofmethoddependsupontheproductinquestionandnotupon
theACPState.Inthecaseofacountrywhichhaspresentedseveral
requestsanumberof thereforebeused.

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20.Ingeneral,cross-checking hasturnedoutto"beeasierthanexpected
andineverycaseagreementhas"beenreachedonamutuallyacceptable
"basis.Inthisconnection ,thefollowingisworthnoting:
(a)cross-checking isdoneinthenationalcurrenciesoftheACPStates;
(to)cross–checkingisdoneusingthesanemethodforthe1975reference
levelsandresults;
(c)sincethesamemethodhasbeenusedforfiveyears(fouryearsofthe
referenceperiodplus1975)iitfollowsthatthesamemethodwill
havetobeusedforeachsubsequentcase;
(d)cross-checking isdonefortheCommunityasawhole.Fromthe
technicalpointofview,theCommissionhasarrangedtotakeeach
MemberStateindividually .Itisoftheopinion,however,thatthis
precautionisnecessaryonlywhenthereisaconsiderable difference
betweentheCommunity'sandtheACPState'sstatisticsandwhenlarge
sumsareinvolved.Thistypeofsituationdidnotoccurwithregard
to1975;
(e)thestatisticsthathavebeencross-checked arenottobepublished.
Iftheywere,itwouldonlyincreasethedifficulties facingall
usersofforeigntradestatistics,whohavealwayscomeupagainst
theproblemofthedifferences betweenexportandimportstatistics :
thestatisticscross-checked fortherequirements ofthesystemfor
thestabilization ofexportearningsaretobekeptstrictlyforthis
purpose.
§2.2Appraisalofrequests
21.ThisquestionwillbedealtwithintheChapterIofPartTwo.
§2.3ExchangesofviewswiththeMemberStates
22.TheexchangeofviewswiththeMemberStateshaveenabledtherequestsforinformationtobemet.Theyhavebeenveryuseful1.
Seepoint39,footnote1.

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§2.4 Transfers
23.TheCommission received thirty requests ,twenty-five ofwhich were
given afavourable response after appraisal ;accordingly twenty -five
transfer agreements were drawn upandtwenty -twoofthese were signed on
8July 1976^byMrCheysson fortheCommission andgenerally "bythe
Representative totheCommunities oftheACPState inquestion forthe
ACP States .
24.Forthefive countries receiving transfers forI975 which undertook
tocontribute towards the reconstitution oftheresources made available
forthesystem ^,thesignature ofthetransfer agreements waspreceded by
thesignature ofanexchange ofletters onthepractical details ofthis
contribution towards thereconstitution oftheresources .
25.Thetransfers were made during aperiod ofthirty days following
8July I976 ,intheCommunity currencies chosen bytherecipient ACP
States ^andattheexchange rates stipulated inthetexts .
26.Sotheoperations relating tothefirst year ofapplication ofthe
system were completed ,asfarasthesigning ofthetransfer agreements
wasconcerned ,alittle over three months after theentry into force of
theLom6 Convention and ,asfarastheactual payments were concerned ,a
little over four months later .
§3.Activities oftheACP-EEC Institutions
27*Thevarious elements ofthesystem were setupwith theclose
collaboration oftheCommission andtheGroup ofACPStates .Among the
questions that were dealt with were thefinalizing of:
Twomore transfer agreements were signed on13July .Thelast onewill
besigned shortly ,after further consultation with theACPState concerned .
2Article 21(2 )and (3)ofth®Lome Convention .
^Second paragraph ofArticle 27oftheInternal Agreement ,

(i)theform forregular notification ;
(ii)theform forrequesting thetransfer ;
(iii)thetransfer agreement .
Also ,most ofthebilateral difficulties between theCommission and
individual AGP States were rapidly ironed outwith thehelp ofthe
Chairman ofthe ACP Stabex Committee .
28.The ACP-EEC Stabex Subcommittee has met twice I
(a)Atitsfirst meeting on17June 1975 »i"texamined thevery important
question ofthefirst period ofapplication ofthe system .Because
oftheCommunity 'swish that theACP States should becovered by
thesystem independently oftheentry inforce oftheConvention ,it
being understood that nopayment oould bemade before that date ,
there were twopossibilities :
(i)towork over twelve-month periods ,starting 1March 1975 ?
(ii)towork over calendar years ,thefirst year ofapplication
being the 1975 calendar year .
For reasons connected mainly with the general method ofdrawing up
foreign trade statistics ,itwasagreed jointly toadopt theseoond
formula ,that ofthecalendar year .This choice maywell pose
problems forcertain ACP States whose statistics arekept onthebasis
ofabudget year that differs from thecalendar year oronthebasis
ofaparticular production year .This formula does ,however ,have
theadvantage ofbeing homogeneous from theadministrative point of
view andbesides ,thesix–monthly advances should help alleviate the
difficulties for thecountries following therhythm ofproduction
years .
(b)During itsmeeting of24February 1976 ,theSubcommittee was
informed oftheprogress that hadbeen made inimplementing the
system .TheACPStates took this opportunity tomake some
suggestions aimed atimproving thesystem .These will bedealt
with below .

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PART TWO :Theinitial "period ofappli oa/tion of "th.e *bex~tB and ..the ^results
Chapter I:Initial period ofapplication
29.Ingeneral ,this initial period ofapplication ofthetexts onthe
stabilization ofexport earnings hasenabled astart tobemade ,in
conjunction with theACPStates ,onprogressively working outadoctrine ,
which isnecessary because texts cannot make provision foreverything ,
especially inthecase ofasystem without precedent®
Asthemanager ofthesystem ,under Artiole 18(1),theCommission has
preferred toactcautiously inthis initial application ofthetexts on
thestabilization ofexport earnings ,while atthesame time clarifying
certain aspects ofthefunctioning ofthesystem® This cautious attitude
which seemed ,atthis stage ,best toguarantee thesuccess ofthesystem ,
hasbeen maintained particularly asregards theprovisions onthresholds ,
theexport earnings tobetaken into account andconsultations tobeheld .
§1:Thresholds :application ofArticles 17(2 )and19(2 )
30.AnACP State 'sentitlement torequest afinancial transfer issubject
totwopreconditions under theConvention ,namely that adependence
threshold iscrossed (Article 17(2 ))andthat afluctuation threshold is
crossed (Artiole 19(2 ))• Theapplication ofthese provisions hasledthe
Commission toturn down three requests submitted bytwocountries ,Sierra
Leone andLiberia ,because they didnotfulfil theconditions stipulated
bythese artioles .
31•Sierra Leone submitted tworequests fortransfers onthegrounds of
thefall initsexport earnings from palm nuts andfrom iron ore .Since
this country isnotincluded inthelist ofleast developed ,landlocked or
island ACPStates given inArticle 24,the7»5% thresholds axeapplicable .
Inthecase ofpalm nuts ,thedependence threshold of7»5i*i-nrelation to
total merchandise exports was notreached .Inthecase ofiron ore ,
although thecondition relating tothedependence threshold wassatisfied ,
theoneoonoerning thefluctuation threshold wasnotfulfilled .

I
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32.Liberia foritspart submitted arequest relating tothe
stabilization ofitsexport earnings from iron ore ,forwhich itsaotual
earnings were higher than thereference level –this isofcourse quite
contrary totheprovisions ofArticle 19(2 ),whioh areparticularly precise
and clear .
33.Article 17(2 ),bycontrast ,leaves room forinterpretation since it
states that :"Thesystem shall apply toanACP State 'sexport earnings
from theproducts listed above if,during theyear preceding theyear of
application ,earnings from theexport oftheproduot orproducts toall
destinations represented atleast 7f5% ofitstotal earnings from
merchandise exports ". Thequestion iswhether the condition laid down of
crossing thedependence threshold must befulfilled for eaoh ofthe
products oonsidered individually orforeach group ofproducts listed under
letters atomintheparagraph preceding that article .
34.This question arose when Nxger submitted arequest following the
drop initsexport earnings from groundnuts .This produot traditionally
represents avery substantial portion ofNiger 'stotal export earnings ,
butexports haddropped tozero–level in1974 following anatural disaster
(plant disease ).
Consequently ,according totheinterpretation that each product considered
individually must reach thedependence threshold ,compensation forNiger 's
loss ofearnings would have been ruled out .Inthis extreme case ofa
total collapse such aninterpretation would have meant that there was a
gapandeven acontradiction inthesystem whose aim ,clearly setoutin
Article 16oftheConvention ,istoguarantee thestabilization ofearnings
from exports ofcertain products on -which the economies oftheACP States
aredependent –such isparticularly the case ofgroundnuts forNiger –
"aridwhich areaffected byfluctuations inprice and/orquantity ".
35.Ittherefore appeared necessary totheCommission torespeot the
internal logic ofthesystem andconsequently totake into account ,in
this particular case ,thedependence threshold ofthe "groundnut produots "
group .fycontrast *thefluctuation threshold andthebasis ofthe

transferwerecalculated,asinresponsetootherrequests,forgroundnuts,shelledornot,consideredindividually ,sinceasmentionedearlierArticle19(2)leavesnoroomforinterpretation .
36.Itshouldfurthermorebepointedoutthatthethresholdswere
calculatedonthebasisofnationalcurrencies,forascalculationof
thedependencerateinvolvestotalmerchandiseexportearningsitmusttakethefiguresoftheACPStates,whichexpressearningsinnationalcurrencies *Inordertoavoidanydistortion,thesamemethodhasthereforebeenfollowedforthecalculationoffluctuationrates.
37«Therequestswerethenexaminedonthebasisoffiguresoross-cheokedinthenationalcurrenoyoftherequestingState,andsubsequently
oonvertedintoEuropeanunitsofacoount.ThefiguresusedrepresentforeaohproductthevalueoftheexportearningsoftheACPStatein
questiontotheCommunityalone,sinceitisthestabilizationofthese
earningsalonewhichthesystemisaimingtoguarantee.
I2:ApplicationofArtiole17(4)
v.c-i1®CommissionhasreceivedfourrequestsfromtwoofthecountriesbenefitingfromtheprovisionsofArticle17(4)1Burundiforitscotton
anditsrawhidesandskins,andEthiopiaforitscoffeeanditsrawhides
andskins.ThesecountrieshaveatraditionofexportingtothirdcountriesandconsequentlyforthepurposeofapplicationoftheConventionthesecountries»statisticsrelatingtoexportsoftheaboveproductstoalldestinationshavebeentakenintoconsiderationwithoutoross-oheoking.

|3:Consultations :Article19(4)(a)and(b)
39.Forthisinitialapplicationofthetexts,theCommissionhasnothad
todeclareanyrequestasinadmissible onthebasisofArticle19(4)(a)1.
Thispassagereferstotradepolicydiscriminating againstexportstothe
Communityalone#
40.Article19(4)(b)haswiderimplicationssinceitconcernsany
significantchangeinthetotalexportsoftherequesting ACPStateand
provides,notfortheautomatioinadmissibility oftherequest,but
ratherforconsultations betweentheCommissionandtherequestingState,
asaresultofwhichtheamountoftherequestedtransfermaypossiblybe
modified,orevenreducedtonil.
41.Sofar,sixteensituationswhichmayresultin"significantchanges"
in"totalexports"havebeenlisted.Someofthese,suchasnatural
disastersorreducedCommunitydemand,arenotlikelytoaffectthebasis
ofthetransfersincetheexportingACPStateoannotbeheldresponsible
forthem,whereasthosewhicharetheresultofadeliberatedecisioncan
entailareductioninthetransfers.
Thequestionhasarisenwhetherthisarticleshouldnotbeappliedto
requestsresultingfromfallsinexportearningsfromwoodintherough.
Thesefallsinearningswereduein1975"to"therecessioninEurope;
increasinglydiffioultoperatingconditions andthejustifiable tendency
ofproducingcountriestoprocessonthespotwillmostprobablyprovoke
newfallsinearningsfromwoodintherough,butthislastfactor
playednorolein1975andinanycasetherewasnosigninthatyear
ofanytradepolicyparticularly affectingexportstotheCommunity
unfavourably.
2Thesituatimsare:naturaldisasters,reducedCommunitydemand,strikes
inCommunityports,reductionordeliberaterunningdovmofproduction,
modification inthestructureoftheimportingcountries,increased
consumptionintheexportingcountry,increasedlocalprocessing,
deterioration inquality,dumping,devaluationofanACPcurrency,
strikesinanACPcountry,ageneralexportbanonaStabexproduct,
smugglingbetweenACPcountries,speculativestock–holding,civilwar,
ageneralexportbanonanon–Stabexproductbutaffectingexportsof
Stabexproducts.

Because ofthenumerous situations andthegreat number ofelements
tobetaken into consideration ,itisdifficult tomapoutasingle
rigid line ofconduct ;onthecontrary ,each case must bejudged
individually onthebasis ofthedifferent characteristics .
42.Inorder toassess whether theconsultations provided forin
Article 19(4)(b)should beundertaken ,thetrend oftherelations
between thevarious data intheCommunity 'spossession (marketed
production ,total export earnings ,unit values ,etc.)during the
reference period andduring theyear ofapplication hasbeen studied
foreach request received .
Inorder toconform totheletter andthespirit oftheConvention ,
amargin ofappreciation hasbeen allowed inexamining thetrend of
thevarious relations ,andtheonly "significant changes "tobe
considered arethose showing divergences of10$ormore inrelation to
thesituation during thereference period .
There hasbeennoautomatic linkbetween therecording ofdivergences
andthecutsmade inthetransfers ;therecording ofadivergence has
merely served asawarning signal that there might because for
consultation ,anditisexclusively theconsultations themselves that
havepermitted anassessment tobemade oftheeffects ofthechangesobserved ontheamount ofthetransfer .
43*Suchdivergences have ,forinstance ,been observed notonlyinthe
four cases inwhich thetransfer hasbeen reduced ,butalso incases
where consultations ledtotheconclusion that theamount ofthe
transfer wasnotaffected or,conversely ,that notransfer wascalled
for .Theproducts inquestion were :
Coffee from Ethiopia ,inwhich case theanomalies observed were
duetoplant disease andthere wastherefore noneed forareduction
inthetransfer ;
Cotton (notcarded orcombed )fromChad ,inwhich case theincrease
inearnings from exports toalldestinations waswell inexcess of
thedrop inthose fromexports totheCommunity and,furthermore ,
there wasasignificant change inthestructure ofexport flows ,
making itimpossible toreply favourably tothis request ;

-17-
Cocoa butter from Cameroon ,total exports ofwhich have risen far
more than exports totheCommunity have fallen ,sothat there was
noneed for atransfer .
44•Ingeneral ,theprinciple that atransfer cannot belarger than
thetotal loss hasbeen systematically applied bytheCommission ,for
instance inthefirst twoofthefollowing four cases ,where
consultations with therequesting State gave rise toareduction in
therequested transfer :
(a)and (b)Cameroon andIvory Coast (wood intherough ):relatively
sharper deorease inearnings from exports totheCommunity
inrelation tothose from exports toother destinations }
(c)Fiji (coconut oil):aconsiderable change inthestructure of
export flows following anincrease inexports toAustralia :
(d)Niger (groundnuts ):theneed totake into account ,when assessing
thetransfer ,theincrease inexport earnings from groundnut oil
andalso ,toalesser extent ,from groundnut oilcake ,which increase
itwaspossible toobtain only byreducing exports ofseed .
Chapter II:Results
45-Thesystem forstabilizing export earnings has ledinitsfirst
year ofapplication to25transfers infavour of17States for
9products ,within thelimit oftheyearly instalment of75million
units ofaccount .
81xOverall results
46.The overall results areasfollows :

-18-
TRANSFERS FOR1975FINANCIAL YEAR
Récipient ACPState
BENIN(l)
BURUNDI(l)
CAMEROUN
REP.CENTRAFRICAINE (l)
R.P.CONGO
COTED'IVOIRE
ETHIOPIE(l)
FIDJI
GHANA.
HAUTE-VOLTA(l)
NIGER(l)
SOMALIE(l)
SOUDAN(l)
TANZANIE(l)
TOGO(l)
OUGANDA,(l)
SAMOAOCCID.(1)Produot
groundnuts
Coffee
Cotton
oilcake
cotton
rawhidesandskins
t
'woodintherough
coffeej
woodintherough
woodintherough
coffee 1
rawhidesandskins
coconutoil
woodintherough
groundnuts
cotton
groundnuts
.rawhidesandskins
fresh "bananas
rawhidesandskins
rawhidesandskins
cotton !
coffee ■
Icotton
cocoaAmountof
transferInEUA
464.330
1.174.883
4.299.556
1.191.079
965.602
520.053
3.601.423
353.108
7.361.677
15.000.000
9.339.683
5.080.364
615.140
5.176.408
685.239
175.936
5.441.294
507.747
1.296.907
635.238
1.658.579
1.887.082
2.680.324
1.748.932
276.978
72.137.562
(1)LeastdevelopedACPStates,receivingnon-repayabletransfers.

-19-
2:Results "bycountry
47•Asregards thecountries ,theallocation "between non-repayable
transfers and transfers tocountries which have undertaken to
contribute towards the reconstitution ofthe resources made available
tothemechanism ,which coincides virtually with theallocation
between transfers tothe least favoured ACP States and those toother
ACP States ,isinpraotice abalanced one ;theformer account for
56%ofthetransferable amount ,i.e. 40.382.914 EUA ,thelatter
44$ ,i.e. 31.754.918 EUA .
Inthemore orless long term ,inaccordance with theconditions set
outinArticle 21(3)oftheLome Convention ,this 44i°share transferred
under the 1975 finanoial year will bereturned tothesystem .The
manner inwhich this undertaking isfulfilled bytheACPStates
concerned will constitute another test ofcapital importance forthe
future ofthe system .
48.Inrelation totheexport earnings oftherecipient countries ,
thetransfers made under the system represent acontribution whose
relative importance varies according tothelosses observed ,tothe
importance oftheproduct orproducts intheoverall exports ofthe
country andtothestructure ofexports (share oftheCommunity in
total exports ).
Inseveral cases this contribution reaches outstanding proportions .
Inrelation tototal export earnings ,transfers represent (allproducts
-alldestinations –1974 )J24%forBenin ,over 13%forNiger ,
6,5% forEthiopia .5»5% f°rBurundi ,etc .
49' Theimpact ofthetransfers made isofcourse all themore
obvious when thetransfers foraspecific product and theexport
earnings (alldestinations )forthesame product aretaken into account
(1974 )* Thefollowing percentages serve asanexample x

-20-
Burundi (cotton ) - 63%
Togo (coffee ) 39$
Niger (groundnuts ) 397°
Somalia (hides andskins )33%
Burundi (hides andskins )33%
Benin (cotton ) 27%
Ethiopia (hides andskins )27%–Benin (groundnuts )- 25%
–ITiger (hides andskins )20$
–Sudan (hides andskins )16$
–Ethiopia (coffee ) 15%
–Somalia (bananas ) 12%
–Ghana (wood ) 11%
These figures clearly show theconsiderable guarantee provided
bythesystem fortheexport earnings oftheACPStates and
inparticular tothe least favoured among them .
§3»Results byproduct
0.Asregards products ,theresults areasfollows :
(a)Products
Groundnuts
Bananas
Wood intherough
Cocoa
Coffee
Cotton
Coconut oil
Raw hides and skins
OilcakeAmounts mEUA
6.590.863
1.296.907
31.139 .508
276.978
13.547.998
9.077.108
615.140 '
8.4OI.98I
1.191.079
72.137.5629,14
1,80
43,17
0,38
18,78
12,58
0,85
11,65
1,65
100,00
(b)Products affected by:
the économie
situation 48.618.597 67,4
local conditions •23.518.9^5 32,6
51.Ascanbeseen initem (b)above ,thetransfers concern
products ofwhich exports have decreased because ofthe
unfavourable economic climate intheCommunity and ,secondly ,
those ofwhich thedrop inexports canbeexplained bya
decrease inproduction due tonatural circumstances or
disasters ;

-21-
(a)Theproductswhichhave"beenaffected ,by"theeconomicsituation
arewoodintherough,rawhides,skinsandleather,andcotton,
whichaccountrespectivelyfor43$»12%and13ortogether68
ofthetransferable amount.Forthefirsttwocategories ,the
fall-offisalmostgeneralamongstthebigexporters;forcotton,
althoughtheunitvalueshavedecreasedingeneral,thereare
caseswhereanincreaseinproductionhasmorethancompensated
forthis(Sudan,Chad)}
(b)themostvariedlocalcircumstances haveaffectedexport
earningsfromotherproducts,whichreceive32$ofthetransferable
amount,forexample:
diseases(groundnutsfromNiger,coffeefromEthiopia)
droughtCbananasfromSomalia)
cyclone(coconutoilfromFiji).
Thesystemisthereforecarryingoutitsdualroleperfectly,
byprovidingprotectionagainsteoonomicrisksandagainsta
fallinearningsfollowingadropinproductionforwhichthe
ACPStatescannotbeheldresponsible .
§4:Financialresults
52.Thefinancialresultsoftheoperationhavebeenamplycovered
intheprecedingpages.Itshouldhoweverbeaddedthatasregards
theACPStates,itisofsomeimportancethatthebasisofthe
transferbecalculatedinEuropeanunitsofaccount,asprescribed ,
incompliancewiththeConvention,byArticle27oftheInternal
Agreementonthefinancingandadministration ofCommunityaid.
53.|nthisrespect,twomethodswerepossible:
(1)Onewastousetheexchangeratesonafixeddateforcarrying
outalltheconversionsinquestion.Thisfixedpegmethodwould
havetheadvantageofsimplifyingcalculations ,butwouldby
contrasthavethemajordisadvantage ofcompleteuncertainty asto
thechoiceofthedate.
(2)Theotherwastousetheaverageexchangeraterelatingto
eachyearoovered.Thismethodhastheadvantageof:
(i)reflectingmoreaocuratelythecurrentmonetarysituation!

(ii)applyingtothesystemthesamerulesofconversionasforthe
othermonetaryflowsundertheConvention.
54•"Theunitofaccountisacommonconceptofvalueindependentofnationalcurrencies,"butlinkedtothem"byconversionrates.Italso
enablessinglecommonpricestoheestablishedforthewholeofthe
Community.Theunitofaccountcanfulfilthesetwofunctions
satisfactorily ,however,onlyiftheconversionratesreflectmarketexchangerates."1
55•lnordertoovercomethedifficultiesarisingfromthegeneralizedfloatingofcurrenciesandtoeliminatethearbitraryelementwhichwould
necessarilyenterintothechoiceofanexchangeratecorrespondingto
suchandsuchadate,theCommissionpreferredtoadopttheseoondmethod,whichappearedto"bethemostobjective.
56.Inpracticalterms,thevaluesresultingfromthecross-checkingcarriedout,attherequestoftheACPStates,inthenationalcurrencyoftherequestingACPState,havebeenconvertedintoEUAbytakingtheaveragevalueofthecurrencyinquestion(calculatedonthebasisofratesestablishedbytheIMF)duringthereferenceperiodforthe
calculationofthereferencelevel,andbytakingtheaverageexchangeraterelatingtoI975forthecalculationofactualearnings.
57.Thismethod,followedconsistentlyfortheexaminationofallthe
requestssubmittedtotheCommission,hasthedefiniteadvantageofdisregardingthefluctuationsinthenationalcurrenciesofthereoipientcountries.
58.Thepaymentoftransfersismadeinthecurrency02*currenciesof
oneormoreMemberStatesoftheCommunity,aocordingtothechoiceoftherecipient ACPState.
Commission'sanswertoWrittenQuestionNo61/76byMrCousts
(OJNoC158of12.7.1976,pp.35to37).

-23-
PARTTHREE:Theprospectsandlimitations ofthesystem
ChapterI:Theprospects
§1:Thenextstagesinapplication
59.TheproblemswhichtheCommission,astheadministrator ofthe
system,willhavetosolveinthemonthstocomewill"beasfollows,inchronologicalorder'":
(a)thepossiblepaymentofsix-monthlyadvancespursuantto
Article19(6)oftheLom£Convention.Theonlycountrieseligible
forthiswillhethoseforwhichtheCommissionpossessesmonthly
datasinceatleast1972.Thisdataisabsolutelyindispensable
inordertobeabletoassessaspreciselyaspossibletheamount
tobepaid;
(b)themonitoring,inrespectofthoseACPStateswhichhaveundertaken
tocontribute towardsthereconstitution oftheresources made
availableforthesystemandwhichhavereceivedtransfersfor1975»
ofthedatarelatingtoreconstitution ,namely:
(i)theunitvaluesoftheexportsoftheproductsinquestionin
1976,
(ii)thequantitiesoftheseproductsexportedtotheCommunityin
1976.
Thisoperationwillbecarriedoutinsuchawayastoenableany
amountsowedbytheStatesinquestiontobepaidbackintothe
systemwhenthetransfersfor1976areconsidered ;
(c)preparationofthetransfersfor1976;
(d)theextensionofthesystemtocoverStateswhichhaveaccededto
theLomeConventionsinceitwassigned:
ApartfromthestagessetoutinthisBection,theCommissionwill
implementthesystemlaiddownintheDecisionontheassociation ofthe
overseascountriesandterritories ,theappropriation forwhichiB
4millionEUAperannum.Overseascountriesandterritories which
becomeindependentduringtheperiodofapplicationofthisDecisionwill
-nevertheless continuetobecoveredbytheDecisionforthepurposesof
thesystem.

-24-
(e)"theanalysisofthereportsontheutilizationofthefundswhich
therecipientStateshaveundertaken ,asstipulatedinthetransfer
agree-menis,tosendtheCommissionbeforetheendoftheperiodof
twelvemonthsfollowingthesignatureofthoseagreements.
§2iTherepercussionsoftheintroductionofthesystem
60.Intheshorttimethesystemhasbeenoperatingcertainproblemshave
arisenrelatingtotheproductscovered,ascanbeseenfromtheabove
commentsonwood.Theseproblemsaresignificantandmustbecarefully
studied.Itwillbepossibletostudythemallthemorethoroughlyonce
first-handinformationcollectedbyCommissiondelegatesonthespotin
cooperationwiththecommercialattachesoftheMemberStatesbecomes
available.
61.Thequestionofthefinaldateforthesubmissionoftransfer
requestsshouldnotpresentanyproblem.Itisintheinterestsofthe
ACPStatesasawholethattransfersshouldbemadeasquicklyaspossibleafterafallinexportearningshasbeenobserved,asisstipulatedinthe
LomeConvention.Moreover,byvirtueoftheprovisionsofArticle18(2)
and(4)oftheConvention,eachannualoperationmustformawhole,since
transferscannotbecalculateddefinitelyuntilalltherequestsareknown.
Thesetwoconsiderations raisethequestionofwhetherafinaldateshould
beagreedwiththeACPStatesforthesubmissionoftransferrequests.
Apossibilityis15Februaryofeachyear,andinitialexperiencesuggeststhatitshouldbepossibletokeeptothisdeadlinewithoutmajordifficulties .
62.Lastly,thedocumentation whichwillautomatically beamassedasa
resultoftheimplementation ofthesystemopensupvezyinterestingpossibilities whichtheCommissionintendstoresearchasfullyas
possible.Herethefollowingshouldbementionedinparticulars
(i)thedifferencesbetweentheactualvaluesofthetransactions and
worldprices;
(iO"theamountofthedifferencebetweencifandfobvalues,whichcan
beconsiderable .

-25-
ChapterlitThelimitations
63.Whenthesystemwasintroduced ,certainaspectsofits
operationhadtcbeworkedoutindetailwiththeMemberStatesand
theACPStates,onthebasisoftheprovisionsoftheConvention ,
whicharerelativelyconciseoncertainpoints.Thisprocedure
should,withexperience ,improvethesystemestablished bythe
LomeConvention andprovidematerialfortheinternational
discussions onthesubject.Asregardsthesystemitself,itwould
beadvisabletoexaminethelimitations whichitcomesupagainst
anddistinguish betweenthosewhereadjustments arepossibleand
thosewhichareinherentinitsnature.
§1:Limitations whichcanbeadjusted
64.TheadditionofotherproductstothelistinArticle 17(1)
oftheLomeConventionisoneofthemajorpointsofconcernofthe
ACPStatesandrequestsmustbeexpectedheresincecertainStates
considerthatproductsessentialtothemwerenotincludedatthe
timeofthenegotiations .
Article17(3)isclearonthispoint:"if,notsoonerthan2
12monthsfollowingtheentryintoforceofthisConvention...".
Thefactthatactionunderthisprovisionisoptional(theCouncil
ofMinistersmaydecide)andthenatureoftheaccompanyingcriteria(considerable economicdependenceandsharpfluctuations )
provideadditionalbackingfortheideathatitwouldbeadvisable
todeferapossibleexamination ofanypointsthatmightberaised
inthiscontextuntilthe1977CouncilofMinistersmeeting -'•
65.Asregardsthereferenceperiod,theACPStatespointout
thatthesystemisdistortedwhenanACPStatesuffersasharp
fallinexportearningsduringtheperiodlaiddowninArticle19
oftheConvention ,namelythefouryearsprecedingeachyear
ofapplication .ThishasbeenthecaseintheSahelcountries
affectedbythedrought,butalsoinothercountrieswhoseeconomic
development hasbeendisturbedbyvariousevents.
Thedeclaration madebytheCommunitywhenthenegotiations were
concludedshouldberecalledhere.Thisstatesthat"for
reasonsofprinciple,theCommunityisfirmlyopposedtothe
inclusionofmineralproductsinthelistappearingin
Article17«...(and)....willnotfailtoopposeany
subsequentinclusionofmineralsinthatlist."

-26-
Thepoint should bemade first ofallthat theformula used inthe
Convention originated inarequest from theACP States .Secondly ,
thetext oftheConvention isvery precise onthis point ,leaving
noroom forinterpretation .What theACP States arerequesting ,
therefore ,isnothing less than anamendment totheConvention ,
involving anartiole which istheresult ofacompromise arrived
atonly with great difficulty during thenegotiations ,andthe
question maywell beasked whether such anamendment would be
sufficiently worthwhile tojustify disturbing abalance which was
achieved only with agreat deal oftrouble .
66.There would seem tobenomajor drawback involved inextending
thescope ofArticle 17(4 -)"tocover newACPStates oronly certain
products ofagiven State ^,provided however that these arecountries :
whose exports have traditionally gone tocountries outside the
Community .
§2:Limitations inherent inthenature ofthe system
67*Thesystem isnot :
merely aform offinancial cooperation ,
amechanism providing systematic support forthebalance ofpayments ,
amethod ofindexation oreven arawmaterials policy .
(a)Thesystem isnotmerely aform ofstraightf orward financial
cooperation .Financial cooperation aims inparticular at
correcting structural imbalances indeveloping countries by
means ofdevelopment projects andprogrammes .The stabilization
system ,,ontheother hand ,isintended toensure that the ACP
States receive theearnings which they canexpect onthebasis
oftheir reference levels andwhich should normally accrue
tothem from market sales .Consequently ,transfers arenot
forecastable andhence cannot beprogrammed since they depend
ontheoccurrence ofadisaster ,namely afall inexport
earnings ,which basically cannot beforeseen .Inthe event
ofsuch afall inearnings ,the system merely acts asa
substitute forthemarket bymaking available tothecountry
the amounts which itexpected from its sales andwhich were
indispensable formaintaining equilibrium initseconomy .
1Thewording ofthis provision ("«♦. certain speoial cases »••") leaves
thequestion entirely open .

-27-
("b)As"theCommissionpointedouti*ii"tsCommunication totheCouncilof
13June1975^»Stabexisnotageneralsystematicsupportforthe
balanceofpayments.Evenifsuchasystemcoveredalltheexports
oftherecipientStates,itcouldnotbyitsverynaturetackle
thebalanceofpaymentsdifficulties causedbydearerimports.
Nowtherearegoodreasonsforthinkingthatsuchasystem,although
perfectlysuitableforguaranteeing someexportearnings,cannot
guaranteethemall:invisibles,manufactured products,operationof
thresholds ,limitedresources,etc.Consequently ,therewillalways
belargesectorsofthebalanceofpayments–importsasawholeand
asubstantialproportionofexportsvaryingaccordingtocircumstances –
whichcannotbecoveredtysuchasystem.Itthereforefollowsthat
thereisnocompetitionatallbetweensuchasystemandthe
compensatoryfinancingfacilityoftheIMF2..onthecontrary,it
isobviousthatthetwosystemscomplementeachother.Atthe
most,onemayquestionthedoublecompensation whichcouldresult
frompaymentsunderbothsystems.
(o)Thesystemisnotasubstituteforbutanadditiontoaninternational
rawmaterialspolicy.Thereisagrowingconsensusofopinion-at
leastasregardstheprinciple-thatinternational commodityagree­
mentsorsimilararrangements mayprovideanappropriate answerto
certainproblemsinconnectionwithrawmaterials.But-evena
perfectworldagreement,combiningrulesgoverningpricesand
supplyandabufferstockmechanism,wouldbeineffectualfor
thepurposeofoffsettinglossesinearningsduetoafallin
quantities ,andthiswouldbeparticularly seriousinthecaseof
tropicalagricultural productswhichareextremelysensitiveto
thechangeablenaturalconditionsintheregionsconcerned,
especiallytheclimate.Thebestmarketdisciplines cannot
detraotfromthesignificance ofthe"unemployment benefits"which
thesystemprovidesintheeventofafallinexportearningsdue
totheeconomicsituation',andthe"sicknessinsurance"whichit
providesintheeventofanaccidentalfall.
1"Internationalactiononstabilizationofexportearnings"(ECBulletin,
Supplement6/75)*Thetextstatesthat:"atthesametimesucha
stabilization systemcouldleaveabalanceofpaymentsprobleminbeing,
andmightnotcoverallproblemswithrespecttocountries,products
andearnings.Itisthereforeonlyfair,andindeednecessary,that
aboveandbeyondthesystemforstabilizingearningsfromtheexport
ofrawmaterialstheinternational communityshouldestablishasystem
oflastresortfortheprecisepurposeofmakinggoodthesedeficiencies."
2
Asisevidencedbytheexoellentcooperation betweentheCommission
andtheIMF.