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DOCUMENTS "COM"
COM(82)419
Vol.1982/0139

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COMMISSION
OFTHE
EUROPEAN COMMUNITIES
GeneralSecretariatCOM(82)419 final
Brussels,29thJung^^
FOROFFICIAL USEONLY
COMMUNICATION FROMTHECOMMISSION TOTHECONCIL
onthefutureoftheInternational CocoaAgreement 1980
COM(82)419final

Commission communication totheCouncilonthefutureofthe
International CocoaAgreement1980
Introduction |
Itshouldbenotedfirstofallthatthisinternational agreemententered j
intoforceinunusualcircumstances .Theparticipation percentagesrequired ]
forthedeiuceentryintoforcehadnotbeenreachedbythedateset I
(31May1981). .
Themeetingofgovernments,whichhastobeheldinsuchcircumstances,ji
tookplaceinGenevaon29and30June1981andadecisionwastakenon i
theprovisionalentryintoforceon1August1981oftheagreement~in j
itsentiretyandamong.theexistingparticipants-providedthatthe
CommunityandtheMemberStatescouldagreebeforethatdatetobecome
amemberoftheagreementinthosecircumstances .
TheCommunityanditsMemberStates,havingdecidedtomakeadeclarationinfavourofprovisionalapplication oftheagreementon30June1981
(preciselywithaviewtobeingtherebyentitledtotakepartinthe
Genevameeting),subsequently agreedtothedecisiontakenbytheother
countriesatthemeeting.
IvoryCoast,theworld'slargestexporterandpartytotheprevioustwo
agreements,refusedtotakepartinthenewagreement;however,itagreedto
leaveatthebufferstock'sdisposalthecontributionsithadacquiredduring
thecourseofthepreviousagreements (some£50m).Moreoverthiswasone
oftheconditionsthattheCommunityanditsMemberStateshadsetfor
theirprovisionalparticipation .
TheUnitedStates,theworld'ssecondlargestimporteraftertheEEC,which
wasnotpartytothepreviousagreements,isnotapartytothethird
agreementeither.
Itwashopedthat,duringthemonthsfollowingtheentryintoforceofthej|
agreement,otherexportingandimportingcountries,regardlessofwhetherthe
hadbeenpartiestothepreviousagreements,wouldaccedetothenew I
agreement;thesehopesdidnotmaterialize andtheparticipation rateremains?
comparabletothatreferredtoabove. j
AlthoughtheCommunityandtheMemberStateshadnoformalreservations when j
theygavenotification oftheprovisional application oftheagreementand
acceptanceofthedecisiononentryintoforcetakeninGeneva,the
difficulties encounteredwithintheCommunityasearlyasthesigningstage j
inMarch1981indicatedthatthedecisionstakenwerealreadysomewhat i
precarious.Themainreservations ofcertainMemberStateswareaboutthej
/...
1-exportingcountries :72%(80Zrequired)
-importingcountries :60%(70%required)
2-0JL313,31October1981

factthatIvoryCoastandotherACPStateswerenotparticipating andthat
theintervention priceLevelssetintheagreementweretoohigh.Moreover,
theCommission,initscommunication ofJune1981,hadacknowledged that
participation intheagreementwasnotassatisfactory astheCommunity
hadhopedattheendoftheConference .
Despitethesedifficulties ,thewilltokeepupinternational cooperation
inthisfieldataperiodwhichiscrucialforworldtradeincocoahadled
theCommunityandtheMemberStatestomakeapoliticalcommitment,while
decidingthat,oncetheagreementhadbeeninforceforoneyear,the
situationwouldbereviewedinthelightoftheresultsobtainedandthat^theyreservedtherighttoreviewtheirpositionwithinthenewagreement.
Thiscommunication takesstockoftheoperationoftheagreementandaims
toputbeforetheCouncilthefactorsonwhichanassessment canbemade
inordertodeterminethefutureattitudetobeadoptedbytheCommunityand
itsMemberStatestowardthisinternational agreement.
Theoperationoftheinternational agreementsinceitsentryintoforce
on1August1981 •
Followingadoptionoftl^rulesonthebufferstockandtheeconomicandcontrolrulesbytheICCfiinAugust1981,theaareementbecameoperational .
TheCouncil,actingonaproposalfromtheCommission,tookthenecessary^
measuresatCommunitylevelinRegulation No2818/81of29September1981.
Giventhattheworldmarketsituationhasdeteriorated theeconomic
arrangements wereappliedimmediately,unlikeundertheprevioustwo
agreements.Thebufferstockhadtocomeintoplayonthemarketasearly
as28September1981,withtheaimofboostingpricesuptothelowest
interventionpriceof110UnitedStatescentsperpound.Theindicator
pricewasthenfluctuating between100and106whereasithadfallento76
inJune;themarketdidinfactrecoverinJuly,inanticipation ofthe
entryintoforceoftheagreementandtheintervention ofthebufferstock.
Inspiteofthefundsavailable(£230m-sufficienttopurchasesome
100000t),thebufferstocksoonbegantolosecredibility.Itproved
impossibletoreachthelevelof110and,followingacertainstabilization
aroundthe100markearlyin1982,pricesevenstarteddroppingagain.
Theindicatorpriceundertheagreementwas93centson8March1982atthe
momentwhenthebufferstockhadboughtin100000tandpractically exhaustec
itsfinancialreserves.ThesituationcontinueddeterbratinginApril1982j
C78centsinmid-April). j
/
1-Councildecisiónof13july1981-doc.Proba48,10July1981
2-International CocoaCouncil
3-0JL279,1October1981

3
WhenNovembercarr.eitwasclearthatthemembergovernments werenot
preparedtotakeonanyfinancialobligations otherthanthoseunderthe
agreement.Hencetheloansarebeingcontractedwithoutanygovernment
guarantees andbasedonlyontheforeseeable resourcesderivedfromthe
levyontradeincocoa(whichisduetobeincreasedbybetween 1and2
centsperpoundon1October'J982)andfromthelodgingofbufferstock
cocoaassecurity.Therearestillproblemsincallinguponthefaci­
litiesoftheInternational MonetaryFundsincetheFund'sauthorities
havestillnotgiventheiropinionontheviabilityoftheagreementand
itwouldseemthattherearefewexportingdevelopingcountriespartytothe
agreementthatcould,orwould,haverecoursetoit.
TheInternational CocoaOrganisation'ssituationisallthemoredifficult
because,sinceworldpricehavedroppedinrelationtothepriceatwhich
thebufferstockmakespurchases,thevalueofthecocoaheldhasdecreased
considerably,reducingtheborrowingcapacityaccordingly .Hence,thusfar,
thebufferstock,hasnotservedtocounterinalastingmannerthemedium-
termpricetrend,whichisinfluenced bythegloomyoutlookofthemarket'
inthelongerterm.
Barringareversalofthistrend,whichpresupposes somenaturaldisaster
orotherinthebigproducercountriesfollowedbyaseriousdropin
supply,itisdifficulttoseehowthebufferstockcanfulfilitsaim
sinceitdoesnothavethefinancialmeansrequiredtopurchaseitsmaximum
capacityof250000t.Giventhecostsofstockingandrenewingthecocoa
stocked,itwouldseemappropriate forthisinternational organization to
makeaseriousre-assessment ofitssituationasawholeanddrawits
conclusions .
Thefutureoftheagreement
Giventheirimportantstatusasimportingcountries,theCommunityand
theMemberStatesmustworkouttheirattitude,whichwillbeadetermining
factorinthefutureoftheagreement.Theymustremovetheuncertainty
whichreignsastotheconditionsoftheirparticipation afteroneyearof
operation(1August1982).
TheCommissionfeelsthat,forobviousreasons,allextremesolutions,po­
sitiveornegative,suchasphefollowingmustberuledout.:
~financialcommitment bydirectbudgetcontributions orgovernment
guaranteestoenablethebufferstocktomakepurchasesasrapidlyas
possibleandbringitsreservesupto250000tofcocoa,inorderto
bringpricestemporarily•anaartificially above106centsperpound,
-withdrawaloftheagreement,probablyleadingtotheprematuredissolution
oftheOrganisation andadverseeffectsonthemarket,whichisalready
inaslumpsituation,andontheeconomiesoftheproducingcountries.
■■•/•B■

GiventheimportanceandurgencyoftheproblemtheCommissionfeelsthat,j
attheforthcomingsessionoftheInternational CocoaCouncilinJuly1982,f
theconditionsandlimitsoftheCommunity'sandMemberStates'participa-'tioninthisagreementcouldbedeterminedalongthefollowinglines.:\
1.TheInternational CocoaCouncil,meetinginJuly,mustreviewthelevel jj
oftheintervention pricesofthebufferstockandcanrevisethen,byspecia
vote(two-thirds' ,majority).Itcanbeassumedthattheexportingcountries j
willoppose,for^economic-butessentiallypolitical-reasons,anydownwardpricerevision .Nevertheless,theCommunityanditsMemberStates,
togetherwiththeotherimportingcountries,shouldproposesuchadownwards
revision,forthefollowingreasons:
-trendofthedollarinrelationtomostothercurrenciessincetheprices
werefixedintheagreement (November1980),
-inabilityoftheagreementtosupportthepricesfixed,
-highcostsofmaintainingthequalityofthecocoastocked,whichcannot
besoldoutofstockinthenearfuture,especiallynotatthepresent
priceof146cents,
-gloomyoutlookforthemedium-andlongtermcocoaeconomy,
-probableeffectonthemarketofapricereductionmeasure,whichis
likelytorestoreamodicumofcredibility totheOrganisation .
Itisonlyintheseconditionsthattheagreementcanoperate,taking
accountoftherealmarketsituation.
2.ShoulditproveimpossibletoobtainaconsensusattheInternational
CocoaCouncilonanysignificant reductionoftheintervention prices
(whichcouldbeaccompanied byaguaranteethattheywouldberaised
subsequently if-whichisnotonthecardsatthemoment-therewere
atotalreversalofthetrendandaverysharpriseinworldprices),
theCommunityandtheMemberStatesshouldproposeothersolutions,namely:
2.1.freezingbufferstockoperationsatthelevelreachedinJuly1982
(100000to125000t)andsafeguardmeasurestomaintainthequalityofthe
stocksheld;
2.2.possibleraisingofthecontribution by2to3centson1October1982,
ifsuchastepisnecessarytomeetthebufferstock'sfinancialobligations
inlimitedinthisway,
2.3.bettercoordination ofthememberproducingcountries'product ion
policies(Articles44and45)andappealforsolidaritytothenon-member
countriesthataresteppinguptheirproductionwithoutanyconsideration
forothers,
1-InMarch1982theyproposedthatthedownwardspricerevisionprovided
for-intheagreementaftert^epurchaseof100000tbecancelledbythe
Council,theimportingcountriesopposedthis.
Also,theagreementmakesexpressprovisionforadownwardspricerevision
oncethestockhasboughtin80%ofitsmaximumcapacity,whichisnotthe
caseatpresent(Article36(4)).

2.4.examination ofwaystopromotetheindustrialuseofcocoaand
theconsumption ofcocoa-baspd products(Article45).
2.5.examination ofanyothersupplementary measuresthatcouldbetaken,
thoughtheremightnotbeexpressprovisionforthemunlessthestockhas
reacheditsmaximumcapacityof250000t(Article40).Inthisconnection,
theCommission wouldliketopointoutthatitdoesnotseempossibleto
takemeasurestorestrictsupplybymakingmembercountries'exportssubject !
toquotasandapplyacorresponding restriction onimportsfromnon-member
countriesbecauseofthedegreeofparticipation intheagreement,the
importanceofthenon-membercountriesandthepossibleconsequences-
creationofadualmarket,distortionofcompetition betweenmembersand
non-members andsoon.
Havingexploredallthesepossibilities ,theCommissionhascometothe
conclusionthat.itisdifficult,withinthestrictconfinesofthe
agreement,toenvisageanyeffectivemeasureswhichwouldensurethatthe
Organization waseconomically andfinanciallyviable.•
3.ShouldtheInternational CocoaCouncilinJulynotmanagetotakesuch
measures,thequestionwouldariseastowhetherthegovernmentspartyto
theagreementshouldbereconvened,underArticle66(3)oftheagreement.
TheCommissionproposesthatsuchameetingshouldbeprecededbyconsulta­
tionswith"thenon-membercountries-chieflyIvoryCoast,theUnited
StatesandMalaysia-toreviewthesituationandseeifanychangescould
bemadetothepresentagreementtoenablethemtoparticipate inan
international cocoaagreement.
Ifnopositiveresultsemergefromsuchconsultations theonlywayout
wouldbethemeetingofgovernmentstodecide"whetherthisAgreement
shallenterintoforcedefinitively amongthemselves,orcontinuein
forceprovisionally ,orterminate".-
Inconclusion,theCommissionwishestoemphasizetheextenttowhich
thedifficulties encountered withthisinternational agreement,aswithother
agreementsbasedonaninternational bufferstock(rubber-tin),makeit
improbablethatnewagreementsofthistypewillbeimplemented underthe
UNCTADintegratedprogramme.