ARCHIVES HISTORIQUES
DELACOMMISSION
COLLECTION RELIEEDES
DOCUMENTS "COM"
COM(79)3
Vol.1979/0001

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^2
i
COMMISSION
OFTHE
EUROPEAN COMMUNITIES
GeneralSccretcriat
RECOMMENDATION FORACOUNCIL DECISION ..
on"thenegotiation ofthethirdinternational CocoaAgreement
(Presented "bytheCommission totheCouncil)COM(79)3 final
Brussels..*7January1979,
FOROFFICiAL USEONLY
COlí(79)3final

Introduction ■
Prom29Januaryto23February 1979aconference istobeheldinGeneva,
undertheauspicesofUNCTAD,withtheaimofnegctiatingathirdInternational
CocoaAgreement .Cocoaisoneoftheeighteen products ontheIntegrated Programme
list(UHCTADResolution 93/lV).Itisamongthemostimportantagricultural com­
moditiesexported "bythedeveloping countries (US^3500millionin1977)»and
theCommunityistheworld'slargestimporter (extra-EEC importsfor1977
=1600millionu.a.),withanimportant chocolate ,confectionery and"biscuit-
makingindustrylargelydependent onsupplies ofthisrawmaterial ,whichis
produced mainlyinasmallnumberofdeveloping countries inAfricaandLatin
America.Theseisalsoconsiderable intra-EEC tradeincocoa-andchocolate-based
products (820millionu.a.in1977)•
TheCommunity anditsMemberStatesareMembersofthesecondInternational
CocoaAgreement ,whichcameintoforceon1October1976andistoexpireon
30September 1979*
TheaimofthisCommunication istosetoutguidelines fortheCommunity's
participation intheforthcoming negotiations ,andtoproposenegotiating
directives onthebasisofaplanneddraftagreement ,thedecision authorizing
theCommission tonegociate onbehalfoftheCommunity beingbasedonArticle
113'ί'.
TheInternational CocoaCouncil'sdecision toset29Januaryastheopening
datefortheconference wasonlytakenon15December ,inthelightofprogress
madeatthepreparatory sessionheldfrom4"fco13December .Itwasthusnot
possible topresentthisCommunication atanearlierdate,anditnowrequires
particularly urgentconsideration bytheCouncil.
(1)SeeC0M(507)75finalof5Octoberonthenegociation ofaninternational
agreement onnaturalrubber,andtheCommission decision torequestaprior
opinionfromtheCourtofJustice,undertheconsultation procedure set
outinthesecondparagraph ofArticle228(l)oftheEECTreaty,with,in
particular reference to.theCommunity'scomperence toconclude suchan
agreement .

-2-
1.Thesecond International Cocoa Agreement
Thesecond International Cocoa Agreement came into force provisionally on
1October 1976 ,with allmajor exporting andimporting countries participating
except theUnited States ,which hadnotbeen amember ofthefirst Agreement
either .ByaCouncil Decision dated 28September 1976^^*theCommunity gave
notification that iswasapplying theAgreement onaprovisional basis ,as
animporting Member .Council Regulation 2762/76of19October 1976^enabled
theeconomic andcontrol rules oftheAgreement tobeapplied intheCommunity .
TheAgreement came into force definitively on7November 1977 *Inacommunica­
tion currently upforapproval ,theCommission rocoramends totheCouncil that
„theAgreement beconcluded ,asithasnotbeen ratified byalltheMember
States .
With aprecarious balance between supply anddemand ontheworld market ,and
even acertain scarcity , theAgreement 'sstabilization mechanisms (export
quotas andabuffer stock tobuyandresell surpluses byreference todifferent
price levels )have notbeen called into operation ;thebuffer stock hasnot
hadtobuyupsurpluses ,andthefunds intended tofinance thestock have been
accumulating ascontributions levied onmember countries' exports ,andontheir
imports from non-member countries ,have continued tocome in.Thebuffer stock
fund will stand atclose onUS^200million when thepresent Agreement expires
on30September 1979 *
Theprice levels setintheAgreement (39-55 cents/lb)were revised upwards
inSeptember 1977 (65-81cents /lb),butarestill well below market prices ,
which have been above 130cents /lbfortwoyears now> ••v
(1)0JNo«321of20November 1976 (this also contains thetext oftheAgreement )

-3-
2.The situation "before the opening ofneftociations
*
When thequestion arose astowhether theAgreement should "beextended fora
further twoyears orrenegotiated after thefirst three years ,theproducing
countries came outstrongly infavour ofrenegotiation#
Theimporting countries would have preferred toseethecurrent Agreement exten­
ded ,butinJuly ofthis year theInternational Cocoa Council decided that the
Agreement should berenegotiated under UNCTAD ,andthat aPreparatory Committee
would produce adraft third Agreement with asimpler andmore flexible stabili­
zation mechanism than those contained inthe 1972 and 1975 Agreements .
ThePreparatory Committee ,onwhich theUnited States isrepresented ,despite
being anon-member country ,hasexamined astudy bytheICOSecretariat onthe
state oftheworld cocoa economy anditslikely development upto1985 »and
hasreviewed proposals putforward byvarious countries ,notably theproducing
countries ,Switzerland andtheUnited States .Allthese proposals arebased on
theidea ofaninternational buffer stock asthemain (fortheUnited States ,
theonly )market stabilization mechanism .
TheCommunity ,taking theview that these proposals -formed anadequate basis
for arussion atthepreparatory stage -,hasnotputforward anyproposal of
..:i,given that ,incommon with themajority ofconsuming countries ,it
*
favours asimpler ,more flexible agreement ,which would nolonger have export
quotas asitsmain mechanism ,butaninternational buffer stock that caninter­
vene onthemarket directly when certain price levels arereached .However ,
■ν
theCommunity does notexclude thepossibility ofsupplementary measures being
taken toback uptheaction ofthebuffer stock ,intheunlikely event that
such measures would beneeded under afive-year agreement .

-4-
During thePreparatory Committee 'sdeliberations theproducing countries put
0
forward arather different concept ofthe "buffer stock ,which wasthat ,ifprices
*
fell thestock would heable topurchase only from producing countries ,without
going "below aguaranteed minimum price "backed upbyadditional measures :export
quotas ,restrictions ontrade with non-member countries ,andtheuseofsurpluses
innon-traditional ways .Theagreement should beconcluded forthree years ,
with thepossibility ofbeing extended forafurther twoyears bydcision of
theCouncil oftheagreement .
Oneoftheconsuming countries' major concerns istheneed foradequate supplies
•
onthemarket atreasonable prices ,since allthestudies undertaken show that
there isstill considerable scope forexpending cocoa consumption ,even in
traditional consuming areas such astheUnited States andWestern Europe .There
iscontinuing anxiety ,however ,asworld production stagnates despite high prices ,
andtheannual output ofthemain producing countries often fluctuates widely ,even
tothe extent that regular supplies cannot always beguaranteed ;theuseof
cocoa substitutes isstill onthe increase .
Theconsuming countries have frequently voiced these ,worries over thepast few
years ,andthemain aimofthenewagreement should betobring themarket into
equilibrium .This would not -ofcourse eradicate allshort-term price fluctuations ,
but itwould guarantee importing countries adequate ,regular supplies atprices
that arecompetitive enough toencourage production increases andlimit the
use ofsubstitutes .

-5-Γ
3.TheCommunity 'sposition onthebasic elements ofthethird agreement
m
Thepreparatory work ,which wascompleted on13December ,leaves most ofthe
basic 'elements ofthethird agreement still undecided ,owing tothedivergent
views ofthemain participants .
Thethird agreement will ,therefore ,beharder tonegotiate than thesecond ,
since intheCommission 'sview itisnolonger simply amatter oftidying up
anexisting version .What isenvisaged isaradically different andsimpler
agreement ,based essentially onaninternational buffer stock .forwhich part of
thefinance isalready available intheformoffunds collected bytheICCO^^
inthesixyears ofitsexistence ;theadditional finance will have tobefound
bymaintaining thecontribution ontrade incocoa under thethird agreement .
Obviously ,thebuffer stock will only come into play ifproduction isstepped
up,andsurplusea appear onthemarket ;thestock will then buyupthesurpluses ,
•»andcanthus function asastabilizing force should prices drop ,or,should
they subsequently rise ,byselling cocoa .
Under present andforeseeable market conditions ,surpluses arenotlikely inthe
medium term .Thecharacteristics ofcocoa production .andthecocoa market ,
however ,make prediction risky ,anditispossible that under afive-year
agreement part ofthebuffer stock capacity would have tobeused toregulate
short-term market fluctuations .
Another fundamental point tobereckoned with isthat cocoa prices areamong the
most unstable ofallcommodity prices ,with sudden sharp fluctuations occurring
(2)
frcigently v'•Thebuffer stock intervention zones must therefore lietoeither
side ofanadequate median ("free")zone where thebuffer stock would notoperate .
(1)International Cocoa Organization ..;
(2)Average deviation ofprice (inconstant dollars )from afive-year moving
average (over theperiod 1955-77 )i
cocoa :17*1%»sugar :14*4 Ì°%rubber :13.4 copper :16.2

-6-
Onelastcrucialpoint,isthelevelatwhichtheminimumandmaximumprices
«areto"beset,andtheconditions forrevising them.Thisisthemostsensitive
issue■"inthenegotiation ofanyinternational commodity agreement establishing
priceranges,andonewhichisnotsettleduntilthefinalstage.TheCommission
istherefore notproposing anyfiguresatthisstage,butitisclearthatthe
levelsunderthecurrentagreement (65-81cents/lb)willhavetoberaised
fortechnical reasons(towidenthespreadbetween"floor"and"ceiling")but
alsooneconomicgrounds,totakeintoaccounttheriseincostprices(which
isitselflinkedtothemonetary andinflationary featuresoftheworldeconomy),
theneedtoencourage increased production andthecontinuation ofefforts made
*inthisfield,andthescopeforexpanding consumption atpricesabovethecurrent
range(butnaturally belowworldmarketlevels,whichhavebeenintheregion
of150cents/lbthisyear.
TheCommission therefore reserves therighttoputforwardconcrete proposals
onpricelevelsundertheagreement atalaterstage,usingfaprocedure whereby
figureswillnotbedivulged outsidetheCommunity untilthefinalphaceofthe
negotiations .
Theannexeddraftdirectives shouldprovidetheCommunity withabasisfornego­
tiationsinceasthingsstaudtheycoverallmajorornovelaspectsofathird
inational cocoaagreement .

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A
4.Community participation
0
Thedesirability ofactive participation bytheCommunity isbeyond question ;
in-thepreparation ,negotiation andadministration ofthefirst twoagreements ,
however ,theCommunity acted inparallel with theMember States ,which were all
members oftheagreements .Generally speaking ,itproved possible toadopt a
common position ontheessential points ,butthis wasdone without raising the
question ofthe legal basis orsettling thematter ofcompetence .
TheCommission therefore feels that henceforth ,forthesame -reasons asthose
setout inanearlier communication onthe negotiation ofaninternational
♦ .
agreement onnatural rubber ,based onsimilar instruments ,thethird cocoa agree­
■fcment should benegociated andconcluded bytheCommunity alone .Without wishing
toanticipate theprior opinion tobedeliverd bythe Couit ofJustice ,the
Commission ^position here isthat all theinstruments oftheagreement have
adirect andfundamental bearing onthevolume andterms ofinternational
trade incocoa ,andconsequently come within theCommunity 'sjurisdiction by
virtue ofArticle 113oftheTreaty ofRome .
Participation intheagreement itself ,aswell asinthe negotiation -,must
henceforth beatCommunity level ,andthis will have tobetaken into account
when drafting theadministrative andlegal provisions concerning signature
andapproval oftheagreement ,anddeciding onvoting rights andprocedures ,
elections tobodies setupunder theagreement ,andbudget contributions .The
«
annexed draft Council Decision and draft directives reflect these considerations .
■ν
(1)C0M(7o )507final of5October

Recoimnendation fora
COUNCIL DECISION
«
onthenegotiation ofthe
thirdInternational CocoaAgreement
THECOUNCIL OFTHEEUROPEAN COMMUNITIES ,
HavingregardtotheTreatyestablishing theEuropean Economic Community ,
andinparticular Article 113thereof,
HavingregardtotheRecommendation fromtheCommission ,
WhereastheCommunity hasparticipated intheInternational CpcoaAgreement
1975sinceitsentryintoforceon1October1976,subjecttodefinitive accept­
anceatalaterdate^;
WhereasthatAgreement willexpireon30September 1979J
Whereasaninternational conference istobeheldinGenevafrom29Januaryto
23February 1979unde-rtheauspices -ofUNGTAD-.in ordertonegotiate athird
International CocoaAgreement ?whereastheCommunity shouldparticipate inthose
negotiations ,whichwillaffectmattersrelatingtocommoncommercial policy,
I
HASDECIDED ASFOLLOWS :
SoleArticle
TheCommission isherebyauthorized toconduct,onbehalfoftheCommunity ,
negotiations fortheconclusion ofthethirdInternational CocoaAgreement .
TheCommission shallconductthenegotiations inaccordance withthedirectives
annexedhereto,andinconsultation withtheSpecialCommittee providedfor
Article 113oftheTreatyo
DoneatBrussels , FortheCouncil
ThePresident
(1)OJNo.L321,20November 1976«

AMEXE II
Draft Directives for theNegotiation ofthe
9
Third International Cocoa Agreement
(Geneva ,29January -23February 1979 )
These directives relate totheeconomic andadministrative provisions ofa
draft third International Cocoa Agreement ,andinparticular tothefeatures
which differ significantly from theprevious twoagreements .TheCommunity
isaiming this time forasimpler ,more flexible agreement based essentially
«,onaninternational buffer stock intervening onthemarket when specific
price levels arereached .Amarket stabilized inthis wayshould above all
allow producing countries toincrease orkeep upproduction ,asthecase may
be,thus ensuring adequate andregular supplies forconsuming countries .
These directives maybeamended orsupplemented inthelight ofprogress in
thenegociations ,onthebasis ofproposals from theCommission .

MA.IITECONOMIC PROVISIONS
1.Bufferstock
(a)Capacity
Onthe"basisoftheforeseeable marketsituation ,amaximumcapacity
of250000tonnesofcocoa "beanswouldappearsufficient tofulfil
theaimsoftheagreement undernormalconditions .
(b)Financing
Thefundsaccumulated underthefirsttwoagreements will "beusedto
financethethird.Tomakeupthe"balancerequiredforthestock,the
presentcontribution ofonecentperpoundofcocoa "beanswill "bemain­
tained.Thesamesystemofcollection can"beusedasunderthe1975
Agreement ,it"beingunderstood thattherevenuefromthecontribution
istheproperty ofICCOandnotoftheMembers.
TheCounciloftheagreement shouldbeauthorized tomodifyorsuspend
thecontribution ,andtohaverecoursetoothersourcesoffinance
(loans).
Theprospect ofaCommonFund-andthepossibilities itwilloffermust
bebornein'rnind,andthenatureofthelinkstobeestablished with
theFundshouldbespecified inaparticular articleoftheagreement .
(c)Liquidation
Theconditions governing liquidation ofthebufferstockshouldbe
■<
renewed ;anybalanceofthefundscollected underthethirdagreement
shouldbesharedamongalltheMembersinaccordance withcriteria to
bedefined.
2.Pricemechanism
(a)Pricerange
Theoperation ofthebufferstockwillbebasedonafixedpricerange
comprising minimumandmaximumpricesforcocoabeans.Theseprices
wouldcontinuetobeexpressed inUSdollars,although otherdenomina­
tionswouldnotberuledout.Aroundthemidpoint oftherangeafree
zonewouldbeestablished wherethebufferstockwouldnotnormally
operate }thiszonewouldextend207S,atmost,oneithersideofthe
meanprice.Theminimumandmaximum("floor"and"ceiling")prices
wouldbesetnomorethan255°belowandabovethemeanpricerespec­
tively.

(b)Price revision
TheCouncil will review theminimum andmaximum prices "before theend
ofthesecond andfourth years ofapplication oftheagreement ,and
mayrevise them layspecial vote .Thewidth oftherevised price range
will "beleft tothe Council 'sdiscretion .The criteria for examination
andrevision will "bethose ofthe1975 agreement ,supplemented as
follows :
When 80$ofavailable funds have "been used ,orwhen netpurchases or
sales have reached 80fooftotal "buffer stock capacity ,theCouncil
will meet inspecial session totake thenecessary action ,andreview
andifnecessary revise theminimum andmaximum prices "byspecial vote .
(c)Indicator price
Theprovisions laid downmthe 1975 agreement fordefining andcalcu­
lating theindicator price should "berenewed inthelight ofthe "buffer
stock intervention machinery .
Buffer stock operations
(a)Scope
The "buffer sto'ck '"begins "buying orselling when theindicator price rises
above orfalls "below the free zone ?itcontinues tointervene toprevent
theindicator price falling "below theminimum price orrising above the
maximum price .Thegreater and Eharper theprice movements ,themore
rapidly the "buffer stock must intervene ,andthelarger thequantities
■v
itmust "buyorsell ,inaccordance with rules to "belaid down "bythe
Council .
The "buffer stock will cease buying orselling when theindicator price
isback within the free zone .
(b)Purchases
Thebuffer stock should buyonly cocoa beans ofrecognized standard
marketable grades inlots ofless than .100tonnes .Such beans shall
betheproperty ofICCO andunder itscontrol .

-4-
The "buffer stock shall buyatcurrent market prices through normal
commercial channels ,priority being given tosellers #inexporting
^Member countries ,whowill berequired torespond tobids bythe
stock andconclude contracts with it,ornotify thestock that no
surplus exists ,within aperiod tobedetermined .
(c)Sales
Thebuffer stock shall sellat current market prices ^^through
normal commercial channels tofirms andorganizations inMember countries ,
priority being given ,however ,tobuyers intheimporting countries
engaged inthetrade inorprocessing ofcocoa ,whowill berequired
toreply tobids bythebuffer stock-within aperiod tobedetermined .
(d)Location ofthebuffer stock
The buffer stock shall bestored inlocations chosen tofacilitate
theimmediate delivery ofavailable cocoa tobuyers inMember countries ,
priority being given tobuyers inimporting Momber countries .Stocks
should also bestored insuch awayastopermit economic andefficient
management •
(1)Itisasyetundecided whether itwould beacceptable andfeasible forthe
buffer stock nottobuybelow theminimum price©

4.Supplementary measures (Protection oftheminimumprice)
9
Todealwithexceptional circumstances ,whereitappearsthatthe
2*50000-tonn® "bufferstockisnolongerabletodefendtheminimumprice,
afive-year agreement couldprovidethattheCouncil,meetinginspecial
session,"beauthorized totakecertainmeasurestobedecided "byspecial
vote.Suchasituation doesnot,however,seematalllikelyinthemedium
term.
Themaximumcapacityofthe"bufferstockcouldpossibly beincreased by
upto100000tonnes,depending onthefundsavailable oroncall,following
aCouncildecision takenbyspecialvote.
Whenthebufferstockhasreacheditsmaximumcapacity,theCouncil may
decidetotakeothermeasures ,suchasthewithdrawal ofsurpluses fromthe
traditional marketbyauthorizing thestock,onbehalfoftheexporting
Membersconcerned ,toarrangeforthesurpluses tobe"divertedtonon-tra-
ditionalusesunderstrictly-defined conditions inexporting andimporting
Membercountries .
Withregardtothepossibility ofintroducing quotasonexporting Members'
exportsandonimporting Members'importsfromii'on-member countries ,the
Community couldaccepttheinclusion ofsuchmeasures intheagreement
sincetheywouldbeconditional onadecision bytheCouncil,whichishould
introduce themonlytemporarily andafteraspecialvote.

-6-
5.Availability ofsupplies (Defence ofthemaximum price )
Toensure that theagreement canfulfil itsstabilizing function ,and
*
tostrike abalance between therights andobligations oftheparticipants ,
theproducing countries should payaremunerative producer price and
employ thelatest cultivation ,marketing andmanagement techniques soas
toprovide adequate andregular supplies ofcocoa tomeet demand .The
Council should beable torecommend appropriate measures employing with
therules ofinternational trade tosecure preferential supplies toimpor­
ting Members intheevent ofsupply problems .
Theagreement should include special clauses making provision forcoopera­
tion between exporters andimporters ,andaninstitutional framework which
will enable therequirements tobemet ,andthus help toguarantee adequate
supplies .
6.Obstacles totheexpansion ofconsumption
Thescarcity ofsupplies andhigh cocoa prices areamajor obstacle to
theexpansion ofconsumption .
TheCommunity isunable toaccept theproposal putforward bytheproducing
countries atBrazil 'sinstigation whereby detailed ,compulsory provisions
ontheelimination ofobstacles affecting cocoa intheimporting countries
should beincluded ontheground that iscovered byaninternational
agreement .
Tariff policy andtrade liberalization measures shall benegociated globally
in .accordance with GATT procedures .

-7-
III .Main administrative provisions
#
Thegeneral legal andadministrative provisions ofthe1975 Agreement
shall remain valid ,subject tothefollowing amendments :
A.Community parti-ci^ation
Theagreement should include aclause allowing theCommunity toparticipate
fully intheoperation oftheagreement inallbodies setupunder it.The
final provisions should include aformula totheeffect that theagreement
would "beopen from ( .....) forsignature "byparties totheInternational
•Cocoa Agreement 1975 andGovernments invited tothe1979 United Nations
Conference onCocoa ,which includes theEECandother regional groupings
with similar competence inthefield ofinternational agreements .After
lodging aninstrument ofacceptance ornotification ofprovisional applica­
tion ,theEECandtheother regional groupings inquestion would "become
contracting parties with thesame rights andobligations under theagreement
asthe others .
B.Voting^riggits
Voting rights ontheCouncil will bedistributed among Members inaccordance
with thecriteria set -outinthe1975 Agreement .TheCommunity 'svoting
rights would correspond toitsrelative weight asanimporter ofcocoa
among theimporting Members oftheagreement .
C.Voting procedure
TheCouncil voting procedures setoutinthe 1975 Agreement should be
retained .

-8-
D.Administrât ive^budget
TheCommunity'scontribution totheadministrative "budgetforeachfinancial
yearwill "beintheproportion whichthenumberofitsvotes,atthetime
theadministrative "budgetisapproved "bytheCouncil,"bearstothetotal
votesofalltheMembers.
E.Re^jecJtive_res£onsi ;'biliti^e££f^the_Exe£utive_Directo£ andtheBuffer
StockManager
Thestructure ofthenewagreement ,"basedchieflyona"bufferoperating
asapricestabilization mechanism ,givesaddedresponsibility tothe
BufferStockManager,andhisfieldofcompetence willhaveto"becare­
fullydefinedtoensureaharmonious relationship withtheExecutive
Director,andtoenabletheagreement tooperateproperly.
P.Duration ofthea^eement
Theagreement shouldremainmforceforfiveyears.TheCouncil maydecide
byspecialvote,beforetheendofthefifthyear,thattheagreement should
berenegotiated .
TheCommunity wouldbepreparedtoacceptathree-year agreementifthat,
iswhatthemajority ofparticipants wouldprefer,providedthatsuchan
agreement wasbasedonthebufferstockastheonlypricestabilization
mechanism .

AOTEXEIII
Financial aspects
Onlythequestion ofCommunity participation inthefinancing cftheadmini-
sti&tive "budgetofthethirdInternational CocoaAgreement has"beentaken
intoconsideration .
The"bufferstockwillcontinueto"befinanced "byacontribution leviedon
tradeincocoa,andnot"bydirectcontributions fromparticipating countries .
TheCommunity'sannualcontribution totheadministrative "budgetwould "be
intheregionof:
250000EUAiftheUnitedStatesparticipates inthethirdAgreement
330000EUAiftheUnitedStatesdoesnotparticipate intheAgreement .