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COMMISSION OFTHEEUROPEAN COMMUNITIES
/
COM(77)365finalx
Brussels/J21September1977ffsîk/\^J.■*\
Adj.J, .'"Aν4%"ν·νΐ'*·Ιν-'λ "V,,ν'·7 r•&!..-vv,' .■
COMMISSION COMMUNICATION TOTHECOUNCIL
concerninginternational negotiations on
aCommonFundforCommodities
UNITEDNATIONSNEGOTIATING CONFERENCE ONACOMMONFUND
UNDERTHEINTEGRATED PROGRAMME FORCOMMODITIES
GENEVA,7THNOVEMBER-2NDDECEMBER1977
C0MC77)365final

I. THE COMMITMENT TONEGOTIATE
1.Following thefirst part oftheUnited Nations Negotiating Conference on
*»>
theCommon Fuhd (7thMarch -3rdApril ,1977 )andtheCommunity 'sdecision in
Rome on25th ttlarch ,1977 that "there should becommodity price stabilisation
agreements wh'Bre appropriate andthat there should beaCommon Fund ",all
participants :LntheConference onInternational Economic Co-operation (CIEC )
agreed :
"that a'Common Fund should beestablished asanewentity toserve as
akeyinstrument inattaining theagreed objectives oftheIntegrated
Programme forCommodities asembodied inUNCTAD Resolution 93(lV ).
They also agreed that itsspecific purposes andobjectives ,aswell as
itsother constituent elements ,will continue tobenegotiated inthe
United Nations Conference onTrade andDevelopment (UNCTAD )./Andthe^7
pledged themselves tosecure asuccessful conclusion attheforthcoming
resumed session oftheUnited Nations Neogtiating Conference ona
Common Fund scheduled forNovember 1977 atplenipotentiary level ."
TheCommunity will thus enter thesecond round ofthenegotiatiorr -,tobe
held inGeneva between 7thNovember and2ndDecember ,onthebasic ofa
clear political commitment which must now bedefined inaform capable of
detailed presentation anddefence .
2.Thepurpose ofthepresent communication istohonour this political
commitment bytranslating itinto aconcrete proposal foraCommon Fund ..
Drawing onwortc conducted hitherto both within theCommunity andbetween the
Community anditsindustrialised country partners ,theproposal isbased on
theestablishment ofaCommon Fund intheform ofapooling oftheresources
made available within individual buffer stock agreements ,ontheunderstanding
that asufficient number ofsuch agreements canbeinduced toparticipate .

II.ELEM5KTS FOR ACOMMUNITY POSITION
Sixmain problem areas require attention
anddecision inorder todetermine thecontents ofaCommunity position for
thereconvened Negotiating Conference ,namely :
«•whether ornot the Common Fund 'sactivities should berelated
exclusively tothefinancing ofbuffer stocks ofshould have arole
inthefinancing ofmeasures other than buffer stocks ;
–whether ornotspecial arrangements maybeconceived tofacilitate
theparticipation ofpoorer producing developing countries in
commodity agreements ;
–thefunctioning andfeasibility ofaCommon Fund asapooling mechanism
between buffer stock agreements ;
–whether ornotanelement ofownresources oraguarantee facility
should beprovided forthe Common Fund andtheform that this should
take ;
–themanagement anddecision-making arrangements foraCommon Fund ;
–whether ornotaprovisional framework agreement might berequired prior
4
totheentry into force ofsufficient buffer stock agreements andthe
conditions under which this would enter into operation .
These issues areoutlined seriatim together with proposals ineach case .It
isrecalled that inmany detailed issues notcovered here ,butwhich maytake
onimportance asthenegotiation evolves ,sufficient margin must beleft to
theCommunity 'snegotiators .TheCommission mayalso Wish toreturn indue
course totheCouncil with appropriate supplementary proposals concerning
theCommunity 'snegotiating position asandwhen thecircumstances ofthe
negotiation require .
III .MEASURES OTHER THAN BUFFER STOCKS
TheCommission recalls that both developing and irldustrialised countries
during thefirst part oftheNegotiating Conference have agreed that themain
function ofanyCommon Fund should relate tothefinancing ofbuffer 6tocks .

_4-
TheprovisionalpositionpapersubmittedlayGroupBduringtheMarch
Negotiating Conferencestated:
-"Whilstfullyrecognizingtheimportanceofmeajsuresotherthan
"bufferstocking,theneedandscopeforaCommonFundinthis
contextshouldbefurtherexploredhavingdueregardtothe
international machinerywhichcurrentlysupportsuchmeasures.
IfothermeasuresaretohefinancedthroughaCommonPond,the
accountforsuchfinancingshouldhekeptseparatefromthatof
buffer-stock financing."
Itmustbenoted,however,thatpreparatorytalksandnegotiations sofaron
the18productscoveredbytheUNCTADIntegratedProgrammeforCommodities
indicatethatonlysomeofthesecommodities maybesubjecttotheconclusion
ofcommodityagreementsbasedonbufferstocks.Forcertaindeveloping
commodityproducingcountriesarolefortheCommonFundinthefinancingof
othermeasuresthanbufferstocksisofmajorimportanceandthedeveloping
countriesasagroupcannotenvisageasuccessfulconclusiontotheNegotiating
Conferencewithoutthem.TheCommissionremains,however,oftheopinionthat
mostofthemeasuressofarenvisaged,e.g.intheIntegratedProgramme^\
couldandshouldbefinancedbytheestablishedexistinginternational agencies
(e.g.International BankforReconstruction andDevelopment (IBRD),United
«
NationsDevelopmentProgramme(UNDP),International FundforAgricultural
Development (IFAD),orregionalbanks).Theseagenciesarealreadyactively
engagedinpromotingcommodityexports,production,andtransformation in
thecontextofoveralleconomicdevelopment.Itishardtoseewhatadvantage
tointernational cooperation maybeobtainedfromtheestablishment ofanew,
inexperienced ,andrelativelysmallagencywithnodirectmarketinvolvement ,
whosedecision-making procedureswouldscarcelybecompatiblewiththoseofa
development agency.Apoolingmechanismoperatingessentiallywithrevolving
(1)Theserangefrompromotionalactivities,researchanddevelopmentfor
improvedproductqualityanduse,toproductprocessing,todiversifi­
cationoutofproduction,andtoprovisionofinfrastructure fostering
trade,productionorproductivity .

fund,sfor"bufferstackswouldnotlenditselftotheconcessional
andnon-recoterable financingwhich"othermeasures*wouldappearessentially
toinvolve^andanyfinancingforothermeasureswouldrequireasecond
separatemechanism.
IV.POORERDEVELOPING PRODUCING COUNTRIES
ACommonFundbasedonapoolingsystemforbufferstockfinancingwould
helpthespecialpositionofpoorerproducingdevelopingcountrio •onlyinsofar
asitachievedoverallfinancialeconomiesonthefinancingofstocksof
interestto"them.Discussions oncertainindividual commodities haveshown
thatsuchcountriesmaybedisinclinedtoenterintostockingarrangements
withoutanelementofadditionalhelp.Suchhelpmightbeprovidedbythe
International .MonetaryFund's(IMF)BufferStockingFacility,althoughits
interestrat<isarenotconcessional .TheCommissionproposesthatthe-.
Communityshouldindicateitsreadinessinduecoursetoexaminewhatelements
ofsubsidytoIKFinterestratesmightberequired,andwhethertheCommon.
Fundmayplayanyrolffinthisframework, _
V.THEPOOLINGSYSTEM
1.OnthebasisofCommissionproposalstheCouncilillMarchdefinedthe
Community's(>peningPositionintheNegotiating Conferenceintermsofa
poolingsystem,i.e.anarrangement wherebycommoditybulfferstockagreements
agreetodepositaproportionoftheirfinancialresourceswithacentral
poolinreturnforguaranteeddrawingrightsonthatpodl.Thisapproach
inturnbecamethecoreofthepositionputforwardintheNegotiating

Conference byfheGroup Bindustrialised countries .-Expert discussions
before ,during andsince theMarch opening session oftheNegotiating
*
Conference have exposed anumber oftechnical variations astohowsuch a...
pool could function without anyclear choice being adopted .Thepurpose
ofthis Communication istopropose formally theoutline euc& apool ..
2.Anyform ofpooling mechanism isbased onacombination ofagreed
deposit oblipations ontheonehand andofmaximum drawing rights onthe
other .Theprpblem istodetermine theoptimum levels ofthese twoelements
andtheir relationship toeach other andthis from thepoints ofview ofthe
optimal functioning ofthepool ,theattainment ofamaxirptnn degree of
financial "savings "tobeobtained compared with thesituation inwhich
individual buffer stock agreements arefinanced inisolation ,andthe
provision ofsufficient attraction toinduce buffer stpek agreements to
associate with thepool .
3.Deposit obli /rations .Anumber ofideas have been puTfforward :
-deposit ofallfinancial resources made toindividual agreements ?
-deposit fforthefirst buffer stock purchases ,ofagiven percentage
oftheresources made available toindividual agreements ;
-asystem requiring individual agreements tofinance afirst
percentage oftheir buffer stock purchases ,with r<?cource tothe ,
•Common Fund fortheir later purchases inperiods ofgreater economic
difficulty . >
Thefinal scheme will very much depend onfurther discussions andnegotiations' .
Butonthebasis offactors setoutbelow there seems topemerit inamedian
course ,whereby participating buffer stock agreements deposit acertain
\
proportion only oftheir funds :

–Exajnirjationofthecommoditiesthatmightc01119withinspooling'
systemintheforeseeablefuturesuggeststhatiftheparticipating
commodityagreementsweretodepositaroundhalf_oftheir ^fundsf';
theCommonFundshouldhavesufficientliquiditytomeetits
obligationsandtoachieveoverallfinancial"savings'1"bymeansOf
'1'
the;compensation effected.
–Arequirementforindividualcommodityagreement^todepositmore;,
thanhalfoftheirresourcesintheCommonFundtoouldprobably v
discouragethemfromjoininginthefirstplace#Inanyoasethe^
depositobligationmustbeinlinewiththefinancial
requirementforanaveragestockholding level*
^. .. .-r–Itwouldbeeasiertomovetowardshigherdepositlevelsinthe
lightofexperiencethantoevolveintheoppositedirection.
Thelevelofoverall"savings"whichcouldbeexpectedfitomtheoperation
ofasystemofthiskindwillonly
becomeapparentinthelightofexperience.Butonthet^asisofvarious
modelsconcerningtheparticipation ofindividualcommodities anclthe
movementsofmarkets,theymaycurrentlybeassumedtobq,oftheregionof-
15/20$ofthetotalotherwiserequiredforseparatebufferstockfinancing.
4.Drawingrights?Themaximumdrawingrightwouldbecalculatedasthe
sumofthedepositobligationplusagivenpercentage.Thispercentage
wouldbeinlinewiththe.expectedproportionof"savings"tobeachieved ■
. »• •/
bythepool.Studyhithertosuggeststhatthiswillbeintheregionof
15-20'foandthatitmayprovideasufficientmarginofinq/erytivetobuffer :
stockagreementstoassociatewiththepool.

-e-
5.Thearrangementsnegotiatedwillneedtobeencompassedinaset
ofclearrules,capableofaaautomaticanapplicationanpossibleona
strictlynon–discriminatory basisbetweenindividualconupodityagreements *
Thesewillprovidethetermsonwhichbilateralagreementscanbesigned
betweentheseindividualcommodityagreement "?andtheCoinmonFund.Itshould
beamajortankoftheNegotiatingConferencetoreachat^reementonthese
rules,havingparticularreferencetothefollowingpointsi
–Applioation/withdrawa1:eachindividualcommodityagreementwillbe
freetodecidewhetherornottojoinintheCommonFundsystem.If
theyjointheymustacceptthefullobligationsinvolved.Ifthey
decidetowithdrawtheyshouldonlydosoafterduenotice.Itwould
bedesirabletoestablishthegeneralrulethatnewcommodityagree­
mentsdoassociatewiththeCommonFundandthatthey(a)remain
withintheFundforaminimumoftuoyears-,(b)maketheirnececsary
depcc.Ltatthemomentofjoiningand(c)agreetorepaytheir^oans
infullatthemomentofwithdrawal,afterduenotice.TheCommon
Fondshoulditselfhavetheright,bydulyconsideredmajority
decision,toaskforanyindividualcommodityagreementtowithdraw
fromthesystem,ifitbelievedthatitscreditfacilitieswere
beingabused.
-Interestratepolicy:expertexaminationsofa*indicatesthat
provisionforthepaymentofinterestonbothdepositsandon
drawingswouldbemorelikelytoguaranteetheattractiveness
ofthepooltoindividualagreementsandtherebyitsviability.
Interestratesforbothdepositsandoverdraftdrawingsshouldbe

-9-
closelyrelatedtogoingmarketrates.Whatever ;rate3areapplied,
therateschargedondrawingsshouldbemarginallyhigherthanthose
chargedondeposits:thedifferential mightbeu#edtocover
administrative costs.
VI.PROVISION OPADDITIONALGUARAITTE3
1.Thepoolmay,however,attinesbeindangerofbeiri£exhaustedandfor
thefollowingreasonsnotbeablebyitselftogivealOOJcguaranteethatthe
creditnecessarytomeetallitsmaximumdrawingrightobligations wouldbe
availableallthetime.
–Commoditymarketsmightmovedownwardsatthesamptimeandleadto
suchademandforcreditforfinancingstockingoperationsthatthe
poolwouldbecomeexhausted *
«•Implementation ofpriceortonnagereview
clauseswithincommodityagreementsmightposesqpe6hort–■termstrain
ontheresourcesavailable.
–Theremaybeneedforancillaryresourcesduringtheinitialperiod
ofsto.3kbuilding,particularly inconnectionwitfocommodityagree­
mentsfinancingstocksoutofleviesontrade.
Someformofguarantee(orback-ui>)facilitywill,therefore,berequiredto
enablemaximumdrawingrightstobeguaranteedabsolutelyandtoenablethe
CommonFundtoactasasourceofsupportiveloanfinanceinconnectionwith
initialstockbuildingoperationsand/orstockbuildingrequiredasaresult
ofeitherpriceortonnagereview,foreseenwithincommodityagreements.The
Commissionproposesthatitsmaximumsizemightbestatedasthedifference
(currentlyasstimedtobe15-20JJ)betweendepositobligationsandmaximum
drawingrights.

-10-
2.Methodsofguaranteeprovision *Variouswaysofprovidingsucha
guaranteemaybeenvisaged,namely:
–byexistinginternational financialinstitutions ;
-bydirectgovernmentcontributions ;
–bymeansofloansraisedonthecapitalmarketwith,suitable
collateral.
2.1Internatiora.1 financialinstitutions .Existinginternational organi­
sationssuchastheIBRDandIKF,ithasbeensuggested,mightprovidethe
guaranteetQtheCommonFund.Howevertherearecertaindifficulties
thatwouldlimittheBank'sefficacity:
-itstermsofreferencefocusverymuchondevelopmentratherthanon
stabilisation oftrade;
–thereareseveralinterestedcommoditytradingcountrieswhicharenot
membersoftheBankanditwillbeessentialtoinvolvethem,particularly
thosewhichareprominentincommoditytrade;
–complicated changesofarticlesmightberequired,withinany
eventdecisionsrequiringsubmissiontotheBank'sBoard.
2.2Directconlributions .Ithasbeensuggestedthatparticipating
governmentsishouldendowtheCommonFundwithadirectlycontributed
elementofownresources.Thishasmetwithconsiderable resistance
fromthemajorityofindustrialised countries.Anang,lagoussuggestion
thatindividualgovernments mightmakevoluntarycontributions suffer
fromthedrawbackthatsuchanapproachwouldnotprovidethecertain
sourceofsupplementary financialsupportrequired,
2.3Loanfinancecouldbeprovidedfromthecapitalmarket.Suchborrowing
operationswouldrequiresufficientcollateral.Thiscollateralcould
!:providedby:
–liensonbufferstocks;
-provisionofsubscribedorcallablecapitalfromparticipating
governments.

Examination hasshownthatliensonbufferstockswouldnotontheirown
providesufficientcollateralfortheborrowingrequirements .Asfor
capitalprovisionbygovernments nocasehashithertobeenmade
indicatinganyadvantagetobeobtainedfromtheprovisionofsubscribed ,
paid-upcapitalcomparedwithcallablecapitalwhichcouldprovidemuch
ofifnotthetotalityofthecollateralrequirements forborrowing
operations.
3.Thebasisforfinancing.TheCommissionproposesthatacombination of
theaboveelementsshouldbeemployedinordertoconstitutetheguarantee
facility.Thepossibilityofsomefinancebeingprovidedbyexisting
international financialinstitutions andbydirectgovernmentcontributions
shoul3continuetobeexplored.Anadditionalborrowingrequirement must,
howew.",beexpected.Collateralforpartofthisborrowingwillbeprovided
byliensonstocks.Aresidualelementofcollateralappearslikelytobe
required.TheCommission,therefore,proposesthatallgovernmentspartici­
patingintheFund^\withtheexceptionofcountrieswithaGUPpercapita
below$300,shouldparticipate (onaGNPbasis)inprovidingcapitaloncall
untotheoverallmaximumrequired,lesssuchsumswhichcanintimereliably
beassuredbyinternational organisations ,fromvoluntarygovernments
contributions ,orfromloansraisedthroughiiensonstocks.
VII.rj.'BER3i;iP .MAlIACEJ.:i3NT .DïïCISICN-NAKING
1.TheCommissionseestwomajorrealisticchoicesconcerningmomberrhip.
–Membershipbothofcommoditycouncilsandofindividualcountriesf
withacarefulbalanceofvotingbetweenthetwo;
-reservingmembershiptoindividualcountries,leavingindividual
commoditycouncilsasobservers,onthebasisthatrelationsbetween
individualcouncilsandtheFundaretobethesubjectofclearand
automaticrulesgoverningtheFund'soperations.
(l)Includingcountrieswhich,whilstpossiblynotmembersofindividualcommodity
agreements,axeinsubstantialfinanoialsurplus.

TheCommissionproposesthesecondalternative *ItseestheFundasa
financialmechanismandbelievesthatthemoreitcanoperateonthebasis
ofclearandautomaticrulesandlimittheneedforpolicydecisions,the
betteritwillbe.(Themainpolicyareaswherepolicydecisionsmaybe
requiredaretheaccessiontoorwithdrawalfromthePond;acceptanceor
notofvoluntarydeposits;interestrateandinvestmentpolicy,including
theuseofprofits,utilisationofsubscribed -orcallablecapital;
utilisationofadditionalvoluntarilysubscribedcapital.)
2.KarapementBhouldbeplacedinthehandsofanExecutiveKanager,with
annallSecretariat,whowillberesponsibletoaBoardofManagementof
(s,y)20-25membersdrawnfromaCouncilopentoallparticipating members
aswellastoobservers.
3.Decision–aakir/*.Againstthisbackgroundstepsshouldbetakentogivethose
countriesmostinvolvedinconanoditytradeorprovidingthemajorfinancialsupport
fortheFundadecidingvoiceinpolicydecisions.
-Oneoptionwouldbeforastraightvotingsystemcallingforalarge
majority^possible75-80^,toapproveanymajorpolicyproposal.Itwould
havethemeritofsimplicity.Butitmightpoliticisedecisionstothe
detrimentoftherealcommercialandfinancialinterestsinvolved.
–Analternativetobestudiedwouldbeasystemofcountryvotingwithin
threegroups,nanelyaconsumersgroup,aproducersgroup,andafinance
group,withcountriesbeingabletovoteinallthre>6groupsinaccordance
withtheirgrossimportsorexportsofthecommoditiesparticipatingin
thepool(firstandsecondgroups)andwiththescaleoftheirobligatory
financialparticipation (thirdgroup)•Majo*policyj>ropoealsmight
requireasimplemajorityofvotes,i.e.over50$ineach^groupin_
ordertobeadouted»

-13-
VIII .AFRAK3W0HK ACR3EMI1TT
TheCommunity may beasked totake upaposition ontheearly establish­
es'
me-.t ofaframework agreement .This would become operational asandwhen
enough commodity agreements were able andwilling toparticipate .Readiness
to -entertain itflight have theadvantage offostering acceptance bythe
developing countries ofthepooling concept .TheCommission proposes that If
theadvantage 3eems likely toberealised anindication ,atasuitable moment ,
ofagreement inprinciple tosetupsuch aninterim framework agreement could
beuseful .But itwould only enter into force once sufficient buffers-stock
agreements areready toparticipate .Tothis endtheCommur^ty isready toconcen­
trate onalimited number ofcommodity agreements ,negotiated within agiven time#
IX.COMMUNITY POLICIES INVOLVED
Asx^asagreed byallparticipants attheConference onInternational ^ ,
Economic Cooperation ,the Common Fund istoserve as"akeyinstrument in
attaining the agreed objectives oftheIntegrated Programme forCommodities ".
Theestablishment oftheFund thus forms acentral part oftheProgramme and
hastobeconsidered "interms both ofthepurposes oftheProgramme asawhole
andinrelation tothe series ofcommodity agreements which aretobeconcluded .
Thepurposes oftheProgramme directly affect theoperation ofseveral
Community policies .Provision will therefore need tobemade atan
appropriate moment .,forthe Community assuch tobecome aparty tothe
arrangements establishing the Commofi Fund .
X. CONCLUSIONS
Forthereasons setoutabove ,andhaving regard totheimportance ..ofthe
issues andthe practice followed atthe Conference onInternational Economic
Cooperation ,itisproposed that the Council should decide *
-that the Community position should bealong thelines setoutin
thepresent Communication ,both indiscussiong with Group B/OECD
partners and attheNegotiating Conference ;
-that the Community anditsMember States should participate inthe
Negotiating Conference asasingle delegation ,thespokesmen being
thePresidency ofthe Council andtheCommission ,the Commissi on -
conducting negotiations formatters coming within Community competence .