REPORT FROM THE COMMISSION on the operation in 2000 of the export earnings stabilisation system under the Fourth ACP-EC Convention as revised by the Agreement signed in Mauritius.

REPORT FROM THE COMMISSION

on the operation in 2000 of the export earnings stabilisation system under the Fourth ACP-EC Convention as revised by the Agreement signed in Mauritius.

1. Introduction

1. Article 31.3 of the Internal Agreement on the financing and administration of Community aid states:

Each year the Commission shall draw up a comprehensive report for the Member States on the operation of the system of stabilisation of export earnings and the use made by the ACP States of the funds transferred

2. This report covers the activities of the ACP-EC institutions and the administration of the system in 2000, paying special attention to the allocation of transfers for 1999, the fifth year of application of Stabex under the fourth ACP-EC Convention as revised by the Agreement signed in Mauritius.

This was the final year of application of the export earnings stabilisation system. Indeed, under the ACP-EC Partnership Agreement, signed at Cotonou on 23 June 2000, it was decided to replace this system by one providing additional support to cover fluctuations in these earnings, this support forming part of the National Indicative Programme for ACP States.

For this final year of application of Stabex, it has been possible to cover all transfers, as has been the case for previous years under the second financial protocol.

2. activities of the ACP-EU institutions

3. By decision N° 1/2000 of 27 July 2000 [1] concerning the transitional measures applicable from 2 August 2000 until the ACP- EU Partnership Agreement comes into force, the ACP-EC Council of Ministers extended until 31 December 2000 the provisions of the Fourth ACP-EC Convention as revised by the Agreement signed in Mauritius on 4 November 1995 regarding Stabex.

[1] OJ L 195 of 1 August 2000, p. 46

4. On the basis of this decision, the ACP-EC Committee of Ambassadors also decided [2], on 26 September 2000, to set up a reserve fund as a means of financing the transfers decided under the Stabex arrangements and chargeable to financial years of application 1998 and 1999 (168 million euros) and reimbursing the residual balance under the second financial protocol (72 million euros - Article 195a of the Convention) prior to 31 December 2000. This made it possible to decide upon certain transfers that were still being appraised in July 2000 and to reimburse the residual balances under the second financial protocol. Please refer to points 3 (transfers for year of application 1999) and 4 (reimbursement of residual balances under the second financial protocol) of this report for further information on the financial aspects of these decisions.

[2] Decision n° 3/2000, OJ L 303 of 2.12.2000, p.30

3. Transfers for year of application 1999

5. Calculation of the transfer bases

For the year of application 1999, the Commission found 23 ACP States to be eligible for 31 transfers under the Stabex arrangements. The 31 country/product groups for which losses of earnings eligible for compensation were recorded are listed in Table 1 of this report [3].

[3] Most of the transfers were approved by the Commission on 24 July 2000. Two transfers were approved on 27 December 2000 despite the fact that appraisal was still under way (Sudan/cotton and Burkina Faso/beans). That decision also covered three transfers for year of application 1998 (Sudan/cotton: EUR4 832 283; Mauritania/calamars, octupus and cuttlefish : EUR14 754 418; Madagascar/vanilla : EUR1 769 073) and the transfer of residual balances under the second financial protocol (see point 4 of this report).

6. After calculating the reduction provided for in Article 197(3) and (4) of the Convention, the transfer bases totalled EUR316 439 472 .

Under Article 204 of the Convention the transfer basis calculated from the Community's import statistics is reduced to the level of the transfer basis calculated from the statistics on ACP exports to all destinations, where the latter amount is less than the former.

7. Reductions under Article 203

Trends in marketed output and total exports to the Community of the products in question meant that consultations under article 203 of the Convention had to be held between the Commission and the representatives of the ACP States. The consultations resulted in the reductions shown in the following tables:

7.1. Reductions applied as a result of significant changes in trends in marketed output of the product concerned:

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7.2. Reductions applied as a result of a decline in exports to all destinations as a proportion of marketed output:

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7.3. Reductions applied as a result of a decline in exports to the EU as a proportion of exports to all destinations:

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8. Calculating the transfers

Following consultation where appropriate and as required under Articles 202 and 203 of the Convention, the total amount of eligible transfers was therefore calculated at 281 081 112 euros.

9. Results by recipient country and product

Table 2 gives the results by recipient country.

The balance by product (see table n° 3) shows that coffee accounted for 66.4% of the total amount transferred.

Because of a sharp, steep decline of coffee prices on the international markets in 1999, the ACP coffee exporters are the major Stabex recipients for the year of application concerned.

4. transfer of residual balances under the second financial protocol

10. In accordance with Article 195a of the Convention, and based on the decision of the Committee of Ambassadors of 26 September 2000 (see point 2.4. of this report), the Commission decided on 27.12.2000 to transfer, under the second financial protocol, the residual balances (commonly termed "excess") to eligible ACP States. These balances amounted to EUR70 691 488. The breakdown of the balances by ACP State and by product is given in Table 4 of this report.

5. financial situation of the system

11. At the end of August 2000, the financial situation of the system was as follows :

In euros

-Funds available [4] + 1 509 655 373

[4] Detail by year of application:

-Interest + 71 470 164

-Transfers for year of application 1999 (Decision of 24.7.2000) - 235 453 535

-Balance + 1 345 672 002

12. By decision n° 3/2000 of the ACP-EC Committee of Ambassadors of 26 September 2000 (cf. Point 2.4), the balance referred to in point 5.11 above, amounting to 1 345 672 002 euros, was allocated as follows :

-240 million euros to the reserve fund established under the above decision, of which :

-168 million euros for potential transfers chargeable to years of application 1998 and 1999

-72 million euros for the potential reimbursement of residual balances under the second financial protocol (Art. 195a of the Convention)

-1 105 672 002 euros to a general reserve fund for non-allocated resources of the 6th, 7th and 8th EDF, available for programming activities pursuant to Article 3 of Decision 1/2000 of the ACP-EC Council of Ministers of 27 July 2000.

At the end of December 2000, details of the balance of the reserve fund of 240 million euros, established under the Stabex arrangement, by way of ACP-EC Committee of Ambassadors' Decision n° 3/2000 were as follows:

-Potential transfers in 1998/1999 in euros

-Amount held in reserve + 168 000 000

-Amount approved [5] - 66 983 351

[5] Commission decision of 27 December 2000

-Reimbursement of residual balances (2nd financial protocol)

-Amount held in reserve + 72 000 000

-Amount approved5 - 70 691 488

-Balance 102 325 161

14. The balance of 102 325 161 euros referred to in 5.13 above was transferred to the general reserve of non-allocated funds of the 6th, 7th and 8th EDF, set up in accordance with decision 1/2000 of the ACP-EC Council of Ministers of 27 July 2000. The sum of 19 144 397 euros, representing additional interest accrued between the date of the ACP-EC Committee of Ambassadors decision 3/2000 (26 September 2000) and 31/12/2000, was also transferred to that fund.

6. Use of transfers

15. Framework of Mutual Obligations

15.1. Burundi

Year of application Product Amount in EUR

1992 Coffee 9 038 427

Hides & skins 326 763

1993 Coffee 19 577 265

Hides & skins 273 078

1993 additional Coffee 799 072

Hides & skins 11 146

Transfer Coffee 653 113

First Protocol

1995 Uncured skins 299 240

1996 Coffee 3 182 889

Uncured skins 402 737

1998 Hides & skins 203 803

1999 Coffee 8 746 332

Date of payment: 11.1.2001 (1992 Coffee)

8.2.2001 (1992 Hides & Skins)

(1993 and 1993 additional)

(1995 - 1996 - 1998 - 1999)

FMO signed: 6.12.2000

Utilisation (areas of intervention):

The FMO stipulates that a first tranche of 6 000 000 euro will be sold by auction by the Bank of the Republic of Burundi (BRB) in accordance with the Rules of the Currency Auction Market (CAM) of 29 June 2000, in force since 1 July 2000, and with the subsequently adopted applicable legislation. The counterpart funds obtained from this auction will be transferred to a STABEX transfer account, opened at the BRB, for which there will be two authorised signatories, the national authorising officer and the European Commission representative. These funds will be used to pay the basic salaries of civil administration staff, especially those with responsibilities in the production sectors or, more generally speaking, in agricultural development or the social sectors, with priority given to the countryside, in an effort to help normalise local authority operations to the advantage of the rural people. At the same time, the Government has pledged to act as guarantor for the state counterpart funds in the various programmes receiving external financing as part of the rehabilitation process.

Bearing in mind the level of security achieved and the progress made in the peace process, two tranches amounting to roughly 17 250 000 euro, divided into several sub-tranches, will be made available to the BRB for sale by auction in accordance with the Rules referred to above. The counterpart funds resulting from each auction will be transferred to a "STABEX transfer" account, opened at the BRB, with two signatories, the national authorising officer and the European Commission representative.

A cash sum of 3,000,000 euro will be set aside for all technical assistance operations : budget management experts in charge of monitoring the implementation and use of the funds, technical and financial audits for the preparation and monitoring of operations, as well as other technical assistance operations throughout the period of implementation of the current FMO.

15.2. The Comoros

Year of application Product Amount in EUR

1996 Vanilla 1 606 458

Cloves 203 380

Essential oils 829 618

1997 Vanilla 1 768 900

Essential oils 480 188

Date of payment : 21 August 1998 (1996) and 16 October 1998 (1997)

FMO signed : 31.10. 2000

Utilisation (areas of intervention):

Bearing in mind the cooperation objectives, the European Commission has pledged to support the Government of the IFR of the Comoros in its efforts to pursue liberation policies and to withdraw from operational tasks in the agricultural sector. With this in view, the funds from the STABEX transfers will be used to:

-Help improve the SIDJOU-IDJIKOUNDZI road in Dimani region on Grande Comore Island, in support of the Public Works Department of the Ministry of Infrastructure, Urbanism and Habitat;

-Promote an inter-island programme to step up vanilla and ylang-ylang production, by lending support to the farmers' organisations concerned, through a structure comprising farmers' organisations and joint organisations of farmers and those working in other fields (House of Spices);

-Back the selection and introduction of new crops in support of the groups concerned;

-Back efforts to improve the agricultural export sectors, especially that of ylang-ylang, by providing expert technical support;

-Help to increase knowledge of mechanisms and the know-how of national and international operators in the domestic and external markets in the cash crop sectors, by setting up an observatory of joint trade organisations;

-Back international promotion of cash crops by providing assistance for marketing operations in support of the exporters of such products through the House of Spices;

-Promote the introduction of quality control in support of the House of Spices in partnership with the CNDRS;

-Commission expert studies on the taxation system applied to agricultural products for export;

-Promote the establishment and operation of the House of Spices;

-Strengthen the technical and administrative capabilities of the House of Spices by providing technical assistance during the implementation of support programmes.

15.3. Rwanda

Year of application Product Amount in EUR

1992 Coffee 13 420 282

Hides & Skins 849 994

Pyrethrum 52 024

Transfer Coffee 566 400

1st Protocol Hides & Skins 27 188

1995 Tea 2 150 169

Uncured skins 570 368

Coffee 11 028 005

Date of payment: 3.6.1996 (1992)

16.9.1997 (Transfer 1st Protocol)

31.1.2000 (1995)

FMO signed: 10.2.2000

Utilisation (areas of intervention):

The funds will be used to finance the following operations:

(1) Support for action under the Structural Adjustment Programme (EUR25.4 million, relating to tranches 3 and 4 of the Programme);

-The Government of Rwanda and the European Commission have decided that the funds, covered by the FMO would be used to provide support for the country's budget in accordance with the conditions set out in the Structural Adjustment Support Programme (SAF 1), signed on 18 May 1999

-In addition to the FMO, a draft agreement, signed by the EDF's national authorising officer and the Head of Delegation, shall stipulate the budget lines and amounts to be met by the FMO, and the practical arrangements for financing expenditure in the targeted sectors.

(2) Support for Phase 3 of the reorganisation of the coffee sector (EUR4.8 million). This will ensure:

-The establishment and operation of an in vitro laboratory to provide backing for ISAR research and for the coffee plantations rejuvenation programme.

-The provision of technical assistance in support of Government institutional reform programmes and programmes for improving crop production, harvesting and processing (including a coffee infrastructure maintenance programme in the rural areas), marketing and the dissemination of information on market prices.

-The technical assistance programme shall include a section on assessments and studies, and a number of studies will have to be carried out, the most important of which will be:

-An assessment of the state of the sector and the impact of previous Stabex interventions;

-A study on the organisation and development of farmer groups;

-A study on the input system and an agricultural credit programme in line with the Government's food and liberalisation policies and the interventions of other donors in this area.

-The establishment of a laboratory for coffee quality control and the provision of the relevant training.

-The preparation of the 1996 and 1997 FMOs for the coffee, tea, pyrethrum, hides and skin sectors, with special attention paid to diversification opportunities.

The cost of some already identified priority measures, the result of the aforementioned studies, will also be paid for out of the 4.8 million euro under FMO 92/95.

The rules of implementation of these activities and the detailed budget for the interventions referred to (studies, assessment, technical assistance and operations) will have to be set out subsequently in an exchange of letters, giving all the necessary details, taking into account the rules in force, the sector's strategy and the commitments made in the FMO.

FMO support will have to be consistent with other similar Community interventions (existing SIP Counterpart Funds) and with operations through other instruments for the rehabilitation of the social sectors, especially the Immediate Rehabilitation Action Programme, the Second Rehabilitation Programme and the 7th EDF Micro-project Programme currently under way.

15.4. Solomon Islands

Year of application Product Amount in EUR

1998 Timber 41 820 222

Date of payment: 10.1.2000

F.M.O. signed: 29.5.2000

Utilisation (areas of intervention):

(1) Transport Sector - Activities

(a) The Trust Fund Concept The Trust Fund concept can be applied to transfer the provision of transport services from the state to the private sector. The proceeds from the Trust Fund may be applied to meet the costs of subsidising non-commercial routes. This would be through competition for long-term franchises from private sector operators based on minimum service requirements. This approach would create a degree of certainty and establish an environment favourable to investment. With the « non-commercial » routes effectively subsidised there would no longer be a need to cross-subsidise. Thus the commercial routes could either be opened for full competition, or competition could take place for franchises. A fully private sector will emerge from which it is hoped there will be considerable economic gains. 60% of the transfer will be placed under a trust fund.

(b) Establishment of a Shipping and Aviation Regulation and Licensing Unit In order to administer the franchise system, as well as licensing and other safety aspects, a Shipping and Aviation Regulation and Licensing Unit would need to be set up. The unit will be very limited in size (max. 5 persons full time) and will initially be based within the Ministry of Transport, Works and Communication. Up to 3% of the transfer may be used for this purpose.

(2) Development Bank of the Solomon Islands Following a review of the Bank sponsored by EDF resources, it has been decided that the Bank has a useful role to play, provided it can secure financial backing to strengthen its activities. This role lies in acting as a provider of longer-term finance to commercial activities. The Bank will be made more independent of Government under a revised mandate and in the longer term it is hoped that the private sector can be attracted to participate in the Bank once it is reconstructed. Up to 10% of the transfer may be used to provide assistance to DBSI.

(3) Forestry The 1998 FMO will support eco-logging and sustainable forestry as well as activities supported by the 1994-1995 FMO, namely reforestation and domestic processing projects. This is consistent with interventions funded under EC budget lines as well as by other donors in the region. It will focus on the sustainable use of natural forests and inter-linkages with agricultural activities will be taken into account. Up to 10% of the transfer allocation will be used to support the forestry sector.

(4) Rural Development The 1998 FMO will provide continued support to farmers in rural areas and to the Department of Agriculture and Fisheries. It will also support export diversification activities and provide rural infrastructure. Up to 12% of the transfer allocation will be used to support rural development.

(5) Technical assistance and evaluation The funds allocated to this component will primarily be used to finance a programme management unit (PMU), the necessary short-term technical studies (such as design and feasibility studies, and economic/financial analysis), 6-monthly audits of the various components, annual mid-term reviews and a final evaluation. This PMU will form part of the existing NAO-PMU and will also be located on the premises of the Department of Planning. Up to 5% of the transfer allocation will be used for the above activities.

15.5. Tanzania

Year of application Product Amount in EUR

1996 Tea 3 051 024

Date of payment: 2.12.1998

F.M.O. signed: 20.6.2000

Utilisation (areas of intervention):

(1) Compensation payment to tea smallholders Under "Stabex for Coffee" three successful compensation payments were made to 400 000 coffee farmers under the Stabex programmes for coffee in 1993, 1994 and 1997. Coffee farmers were directly compensated in cash using about 60% of the Stabex allocations. In the tea sector it is also considered that such direct compensation payments to tea smallholders would be an effective way to restore their confidence in the crop after several years of irregular payments by the former Tanzania Tea Authority (TTA). There are between 25 000 and 30 000 tea smallholders, who in 1996 produced some 10% of Tanzania's tea production. It is proposed to compensate smallholders only, as they have suffered most from the 1996 drought. Allocation : EUR1 150 000

(2) Support to retrenchment of former TTA staff The privatisation of the six TTA factories and the restructuring of the regulatory authority will require the retrenchment of a large number of employees. Some of these employees may be taken over by the new private owners of the factories as part of the acquisition plan, but most of them will have to be formally retrenched. A detailed retrenchment plan will be drawn up. Stabex funding may not be required for this essential activity if the sale of the factories raises enough funds to pay off the staff. Should this be the case, this allocation will be reprogrammed, probably to improve feeder roads in the tea areas. Allocation : EUR750 000

(3) Support to the Tea Research Institute of Tanzania (TRIT) Allocation : EUR500 000

(a) Small tea manufacturing plants The major items to be procured will be small-scale tea manufacturing equipment for both Ngwazi and Marakitanda research stations to allow small samples of leaf to be processed realistically and under controlled conditions.

(b) Training

(c) Soil water contents determination

(d) Environmental physiology

(4) Nursery contract scheme In order to remain competitive, the estates need to step up their capacity to replace current low performing tea bushes with clonal tea (so as to remain internationally competitive). Smallholders also need to replace non-performing tea plants after years of neglect. Therefore the existing nursery capacity needs to be increased. Allocation: EUR350 000

(5) Farmer training Smallholders will benefit from regular participatory training sessions in their villages and at the research stations, to discuss how to increase their profits from tea farming. Allocation: EUR200 000

(6) Technical assistance and evaluation Although considerable technical knowledge is available within the sector and accessible through the Tea Association of Tanzania and TRIT, occasional short-term technical advisory missions may be necessary to support certain components of the programme and evaluate the programme. Funds are also set aside for the external audit of the programme. Allocation: EUR100 000

Table 1 : CALCULATION OF THE 1999 TRANSFER BASES (in EUR)

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Table 2

breakdown by recipient country YEAR OF APPLICATION 1999

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Table 3

BREAKDOWN BY PRODUCT YEAR OF application 1999

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Table 4 : TRANSFER OF RESIDUAL BALANCES UNDER THE SECOND FINANCIAL PROTOCOL (Article 195a of the Convention)

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