Proposal for a Council Decision on the position to be adopted by the Community within the ACP-EC Council of Ministers regarding the revision of the terms and conditions of financing for short-term fluctuations in export earnings (Chapter 3 of Annex II to the ACP-EC Partnership Agreement)
Date: 2007-06-19
Institutions: European Commission
Subjects: ACP countries, cooperation agreement (EU), eligibility criteria, export revenue, financial aid, financing

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 19.6.2007 
COM(2007) 337 final 

Proposal for a 

COUNCIL DECISION 

on the position to be adopted by the Community within the ACP-EC Council of 
Ministers regarding the revision of the terms and conditions of financing for short-term 
fluctuations in export earnings (Chapter 3 of Annex II to the ACP-EC Partnership 
Agreement) 

(presented by the Commission) 

EN 

   EN 

 
 
 
  
EXPLANATORY MEMORANDUM 

In  the  ACP-EC  Partnership  Agreement  signed  in  Cotonou  on  23  June  20071  and  revised  in 
Luxembourg  on  25  June  20052  (the  Cotonou  Agreement)  the  Parties  recognised  that  the 
instability of export earnings could be prejudicial to the development of the ACP States and 
compromise  the  achievement  of  their  development  aims.  A  system  of  additional  support 
(Flex) was therefore established in order to mitigate the adverse effects of any instability in 
export earnings, in accordance with Article 68(1) of the Cotonou Agreement. 

However,  Flex  does  not  seem  to  be  achieving  all  its  objectives  owing  to  various 
methodological and operational problems, and the ACP States submitted a proposal to amend 
it  in  January  20053.  Since  this  amendment  was  not  dealt  with  in  the  framework  of  the 
five-year revision of the Cotonou Agreement, it was agreed that the Commission and the ACP 
Group would examine the proposal at a later date4. 

The Commission agrees with the analysis that there are flaws in the Flex instrument (but not 
necessarily  with  the  solutions  advocated  by  the  ACP  Group)  and  a  substantial  revision  is 
therefore needed in order to help achieve the objectives laid down in Article 68. This revision 
will  embrace  both  the  eligibility  criteria  and  technical  aspects  with  a  view  to  clarifying  the 
indicators used, the disbursement period and the counter-cyclical nature of Flex funding. 

In  accordance  with  Article  100  of  the  Cotonou  Agreement,  Annex  II  may  be  revised  by 
decision of the ACP-EC Council of Ministers. In view of this, the Commission recommends 
that the Council and the Member States authorise the Commission to negotiate the revision of 
the Flex cooperation instrument with the ACP Group. 

1. 

PURPOSE OF THE PROPOSED REVISION 

The purpose of the support in cases of short-term fluctuations in export earnings provided for 
in Article 68(2) of the Cotonou Agreement is: "... to safeguard socio-economic reforms and 
policies  that  could  be  affected  negatively  as  a  result  of  a  drop  in  [export]  revenue  and  to 
remedy  the  adverse  effects  of  instability  of  export  earnings,  in  particular  from  agricultural 
and mining products ...". 

The  Flex  instrument  is  not,  therefore,  designed  to  compensate  directly  for  losses  of  export 
earnings but to mitigate their adverse impact on economic potential and to protect expenditure 
in social sectors. 

During the initial years of implementation of the Flex instrument a number of methodological 
and operational problems came to light. These problems significantly reduce the effectiveness 
of the instrument. In particular, Flex loses its counter-cyclical impact because implementation 

1 
2 
3 

4 

OJ L 317, 15.12.2000. 
OJ L 287, 28.10.2005. 
"Proposed Amendments to the Cotonou Agreement under the FLEX", document ACP/85/017/04, Rev. 
5 of 8 December 2004, submitted to DG DEV on 17 January 2005. 
Declaration  II  of  the  Final  Act  of  the  Agreement  signed  in  Luxembourg  on  25 June  2005  -  Joint 
declaration on Article 68 of the Cotonou Agreement: "The ACP-EC Council of Ministers will examine, 
in application of the provisions contained in Article 100 of the Cotonou Agreement, the proposals of the 
ACP side concerning Annex II thereof on short-term fluctuations in export earnings." 

EN 

2 

   EN 

 
                                                 
takes  a  long  time.In  addition,  Flex  is  financed  from  the  B  envelopes  for  unforeseen  needs5 
which under the 9th EDF led to problems of access to Flex support when the B envelope was 
exhausted. 

The three main factors that affect the implementation of Flex, namely the eligibility criteria, 
the  method  of  calculating  and  mobilising  Flex  funds  and  the  source  of  financing,  must 
therefore be thoroughly revised. 

2. 

ELIGIBILITY CRITERIA 

Currently access to Flex is subject to two eligibility criteria that are applied cumulatively: one 
concerns the fluctuation in export earnings and the other the theoretical impact on the public 
budget  deficit.  There  are  problems  in  interpretation  which  justify  updating  both  criteria, 
without, however, calling into question the underlying philosophy. 

2.1. 

Greater number of countries enjoying special treatment 

Currently, the first eligibility criterion for Flex runs as follows6:  

"-  a  10%  (2%  in  the  case  of  least-developed,  landlocked  and  island  States)  loss  of  export 
earnings from goods compared with the arithmetical average of the earnings in the first three 
years of the first four years preceding the application year; 

or - a 10% (2% in the case of least-developed, landlocked and island States) loss of export 
earnings  from  the  total  of  agricultural  or  mineral  products  compared  with  the  arithmetical 
average of the earnings in the first three years of the first four years preceding the application 
year for countries where the agricultural or mineral export revenues represent more than 40 
% of total export revenues from goods;". 

When  the  Cotonou  Agreement  was  revised,  the  number  of  countries  entitled  to  more 
favourable  treatment  at  the  2%  threshold  was  extended  to  include  "post-conflict  and 
post-natural disaster" countries (Article 68(3) of the Cotonou Agreement). 

It  is  proposed  to  amend  Article  9  of  Annex  II  to  the  Cotonou  Agreement  to  reflect  the 
broadening  of  the  definition  of  countries  satisfying  the  criterion  at  the  lower  threshold  to 
include post-conflict and post-natural disaster countries.  

2.2. 

Reference period 

The reference period currently used to calculate the fluctuation in export earnings is years N-4 
to N-2. It is proposed to include the last year preceding (N-1) the application year (N) in 
the  reference  period  since  these  figures  have  to  be  provided  by  the  partner  country  in  any 
case. 

Moreover,  given  the  recurrent  nature  of  the  fluctuations,  the  reference  period  may  include 
"extreme" figures and so not reflect the trend.  

Quantified examples for the years N-4, N-3, N-2, N-1, N: 

5 
6 

Article 3(2 )(b) of Annex IV to the Cotonou Agreement. 
Article 9(1)(a) of Annex II to the Cotonou Agreement. 

EN 

3 

   EN 

 
                                                 
•  50, 53, 92, 59, 62 = favourable trend but the country is eligible for Flex since the average 
in question (N-4, N-3, N-2) is 65, and the exports of the application year are less than 98% 
of this average. 

•  50, 41, 53, 56, 48 = negative fluctuation with regard to the trend but the country is eligible 
for  Flex  since  the  average  in  question  (N-4,  N-3,  N-2)  is  48,  and  the  exports  of  the 
application year are more than 98% of this average. 

The ACP Group asked  for  a  six-year  reference period from which the greatest and smallest 
values would be excluded. This proposal puts more emphasis on structural trends against the 
instrument's focus on short-term fluctuations in the general trend. 

It is proposed to amend Article 9 of Annex II to the Cotonou Agreement in order to take as 
the  reference  period  the  four  years  preceding  the  application  year  and  to  exclude  from  the 
calculation the year with the "most extreme" figures, i.e. the year with export earnings that are 
furthest from the average7. 

2.3. 

Currency used 

Hitherto  the  export  losses  have  been  systematically  calculated  in  euro.  Inflation  and 
exchange-rate variations of countries that have a currency pegged to the American dollar or 
another  reference  currency  and/or  countries  the  bulk  of  whose  trade  is  done  in  a  reference 
currency  other  than  the  euro  can,  however,  have  a  significant  impact  on  the  eligibility.  For 
example, St Lucia's currency, the East Caribbean dollar, has had a fixed exchange rate with 
the  American  dollar  for  30  years  and  most  of  its  international  trade  is  denominated  in 
American dollars; it would not have been eligible in 2004 if the figures had been calculated in 
local currency. 

It  is  proposed  to  analyse  the  fluctuations  in  export  earnings  in  local  currency  corrected  for 
inflation (consumer price index or gross domestic product deflator). 

It  is  proposed  to  add  a  paragraph  with  a  reference  to  the  choice  of  currency  to  the  new 
Article 9a of Annex II to the Cotonou Agreement. 

2.4. 

Elimination of the second eligibility criterion 

The second eligibility criterion for receiving additional resources is "a 2% worsening in the 
programmed public deficit programmed for the year in question or forecast for the following 
year8."  In  order  to  calculate  the  theoretical  impact  of  a  loss  of  export  earnings  on  the 
government  budget,  a  simplified  formula  is  adopted  whereby  exports  contribute  to  the 
government  budget  in  the  same  proportion  as  to  GDP.  The  worsening  of  the  public  deficit 
following a loss of export earnings is thus calculated as follows:  

7 

8 

To return to the first example, average export earnings in the years N-4 to N-1 are 63.6 and the extreme 
value  in  relation  to  this  average  is  that  of  year  N-2.  If  the  average  of  years  N-4,  N-3  and  N-1  is 
recalculated,  a  value  of  54  is  obtained  and  the  country  is  logically  no  longer  eligible  for  Flex.  In  the 
second example, the average N-4 to N-1 is 50, the extreme value is that of year N-3, and the average 
excluding the extreme value is 53, making the country eligible for Flex. 
Article  9(1)(b)  of  Annex  II  of  the  Cotonou  Agreement.  The  deficit  is  defined  in  the  Commission's 
guidelines as "the central government deficit (overall balance excluding grants)". 

EN 

4 

   EN 

 
                                                 
"Worsening  of  the  public  deficit  =  (value  of  export  losses  in  year  N)  x  (average  ratio 
revenues/GDP in years N-4, N-3, N-2)" (operational guidelines for Flex, 2005). 

The need for this criterion has been questioned by the ACP States and by the Commission in 
its 2004 proposal. There are several reasons for abandoning this criterion: 

•  the  impact  of  losses  of  export  earnings  on  government  budgets  (and  therefore  on  a 
government's  capacity  to  pursue  its  development  policies)  is  difficult  to  establish.  The 
structure  (private/public,  concentrated  or  not,  etc.)  and  taxation  of  an  export  sector  can 
vary widely from one country to the next. The loss of export earnings in N may have an 
impact on the budget in N or in N+1, depending on the tax system and at what point in the 
fiscal  year 
the  quality  of 
losses  of  export  earnings  materialise.  Similarly, 
macroeconomic  management  and  the  grip  on  public  finances  will  also  influence  the 
budgetary  impact  of  an  external  shock  such  as  a  fluctuation  in  export  earnings.  The  real 
impact of any instability of export earnings on the effective budgetary situation therefore 
varies  considerably  in  relation  to  the  country's  circumstances,  and  the  current  approach 
might appear to offer an incentive to less rigorous management of public finances. 

the 

•  the arbitrary choice of a  2%  worsening of the deficit skews the results. A country which 
already  has  a  substantial  programmed  deficit  will,  all  things  being  equal,  have  more 
difficulty in gaining access to Flex than a country with a smaller programmed deficit9. 

•  the figures of the forecast deficits on which the eligibility calculation is based may be quite 

different from the final data.  

It is therefore proposed to delete the second eligibility criterion in Article 9 of Annex II to 
the Cotonou Agreement. 

2.5. 

Addition of a condition to the first eligibility criterion 

In deleting the second allocation criterion, we must also take steps to avoid a proliferation of 
Flex awards for quite small amounts that do not affect the country's macroeconomic stability 
and its capacity to pursue its reforms and socio-economic policies.  

In  order  to  focus  our  aid  on  the  countries  most  affected  by  losses  in  export  earnings,  it  is 
proposed  to  amend  Article  9  of  Annex  II  to  the  Cotonou  Agreement  so  as  to  restrict 
interventions to situations where the loss in export earnings is more than 0.7% of GDP10. 

2.6. 

Number of successive years 

Currently a country can have access to Flex for four successive years11.  

9 

10 

For example, a country with a programmed deficit of 2% of GDP will be eligible if the worsening of the 
deficit following the loss of export earnings is calculated as equivalent to 0.04% of GDP. On the other 
hand,  a  country  with  a  programmed  deficit  (excluding  grants)  of  20%  would  require  a  worsening 
equivalent to 0.4% of GDP to have the possibility of access to Flex. So in practice it is mostly countries 
with a small budget deficit (estimated) that are eligible. 
The threshold of 0.7% was calculated using the following assumption: loss in export earnings 2% and 
exports'  share  of  GDP  35%  (which  corresponds  to  the  ACP  countries'  average  for  2000-2005).  This 
threshold  favours  countries  whose  exports  account  for  a  bigger  share  of  GDP  and/or  whose  export 
earnings are the most volatile without penalising the poorest countries with a tax or parafiscal base that 
accounts for a very small percentage of GDP. 

EN 

5 

   EN 

 
                                                 
It  is  proposed  to  amend  Article  9(2)  of  Annex  II  to  the  Cotonou  Agreement  in  order  to 
restrict  access  to  Flex  to  three  successive  years  in  line  with  Article  68  of  the  Cotonou 
Agreement which refers to "short-term fluctuations in export earnings" and not to structural 
trends towards a fall in export earnings. 

3. 

METHOD OF CALCULATING AND MOBILISING FLEX 

3.1. 

Budgetary impact 

If  an  ACP  country  satisfies  the  eligibility  criteria,  the  maximum  financial  support  it  can 
receive  under  Flex  (subject  to  the  availability  of  funds  in  the  B  envelope  of  the  country 
concerned,  see  point  4)  is  currently  equal  to  the  estimated  worsening  of  the  programmed 
public  deficit.  Given  the  problem  of  the  bias  resulting  from  use  of  the  "budget  deficit"  as 
reference  point  (see  point  2.5),  it  would  be  wiser  to  refer  to  budgetary  impact  rather  than 
deficit. In order to concentrate the FLEX intervention in the countries less well armed to face 
fluctuations  in  export  earnings,  and  in  particular  countries  with  relatively  weak  central 
government revenue excluding grants, it is proposed to cap the interventions in the countries 
whose share of those revenues in GDP is above the ACP average. 

It is proposed to add an Article 9a to Annex II to the Cotonou Agreement for the purpose of 
reformulating the way support is calculated and limiting it to the theoretical budgetary 
impact, defined as follows: 

"Theoretical budgetary impact = value of export losses in year N multiplied by the average of 
the  "revenue/GDP  ratio  for  the  years  N-4,  N-3,  N-2  and  N  -1,  excluding  the  most  extreme 
value  and  capping  that  ratio  at  25%",  where  revenue  is  central  government  revenue, 
excluding grants. 

The  value  of  the  losses  in  export  earnings  is  calculated  in  local  currency  corrected  for 
inflation,  as  the  difference  between  the  earnings  in  year  N  and  the  arithmetical  average  of 
earnings for  the  years N-4,  N-3, N-2, N-1, excluding  the year  with the most  extreme value. 
The  value  of  the  losses  in  export  earnings  is  then  converted  in  euro  at  the  exchange  rate 
applicable to the year N. 

3.2.  Methods of releasing financial support 

Currently, the implementation of support varies, depending on whether the country concerned 
is eligible or not for budgetary support. 

(a) Countries in receipt of budgetary support 

The countries eligible for budgetary support receive financial support in the form of general 
budgetary  support  to  compensate  for  losses  of  export  earnings,  which  is  in  line  with  Flex 
objectives. However, the disbursement period could be shortened. There is already a system 
for  advancing  up  to  80%  of  the  potential  amount  of  financial  support12.  This  system  of 
advances  is  currently  insufficiently  exploited,  especially  as  the  final  statistics  for  export 

11 
12 

Article 9(2) of Annex II to the Cotonou Agreement. 
Article 10 of Annex II to the Cotonou Agreement. 

EN 

6 

   EN 

 
                                                                                                                                                         
earnings  generally  differ  little  or  not  at  all  from  the  provisional  statistics  on  basis  of  which 
these advances may be made. 

It is proposed to amend Article 10 of Annex II to the Cotonou Agreement so that payment of 
an  advance  is  the  rule  and  to  raise  the  maximum  amount  of  the  advance  to  100%  of  the 
potential amount of financial support. Typical scenario: cut-off date for Flex requests in the 
first  half  of  year  N+1,  decision  submitted  to  the  EDF  Committee  and  disbursement  in  the 
second half of the same year or possibly beginning of year N+2 at the latest. Recovery at a 
later date of any overpayment (if final statistics show that the loss of export earnings was not 
as large as forecast) would then be effected by offsetting the amount against the next payment 
of budgetary support. 

(b) Country not in receipt of budgetary support 

For countries where budgetary support is not planned, the amount is added to the country's 
National  Indicative  Programme  (NIP)  for  new  projects  and  programmes  or  for  topping  up 
existing  projects  and  programmes.  For  these  countries  Flex  financial  support  does  not 
contribute directly to macroeconomic stabilisation and is not truly counter-cyclical in nature. 
Given  the  complexity  of  managing  advances  for  projects,  extending  the  advances  system  to 
countries  not  eligible  for  budgetary  support  is  not  recommended;  it  is  better  to  wait  for  the 
final statistics for export earnings before allocating Flex financial support. 

However, efforts should be made to make more use of Flex to remedy the adverse effects of 
instability  in  export  earnings  and  so  encourage  more  systematic  recourse  to  alternative 
mechanisms,  as  provided  for  in  Article  68(5)  of  the  Cotonou  Agreement:  "The  Community 
shall  also  provide  support  for  market-based  insurance  schemes  designed  for  ACP  States 
seeking to protect themselves against the risk of fluctuations in export earnings." 

It  is  proposed  to  amend  Article  9  of  Annex  II  to  the  Cotonou  Agreement  by  adding  a 
reference  to  market-based  insurance  schemes  offering  protection  against  the  risk  of 
fluctuations in export earnings. 

3.3. 

Countries without Country Strategy Paper (CSP) and special cases 

Flex  is  above  all  designed  to  safeguard  socio-economic  reforms  and  policies  that  could  be 
affected negatively as a result of a drop in export revenue. This assumes that such a drop in 
export earnings is of external origin and that there is a government in place pursuing a policy 
of reform designed to improve the well-being of the local population. In the case of countries 
deemed  "special"  cases  (e.g.  countries  without  a  signed  CSP,  and  countries  subject  to 
appropriate measures in application of Articles 96 and 97 of the Cotonou Agreement), this is 
not necessarily true. Access to Flex should be subject to the Council's political evaluation of 
the situation. 

It is therefore proposed that Flex be systematically taken into account whenever the Council 
decides to take appropriate measures in respect of a partner country in the framework of the 
political dialogue provided for in the Cotonou Agreement. 

EN 

7 

   EN 

 
4. 

CREATION OF A FLEX ENVELOPE 

In the past, the fact that the amount of Flex financial support was limited by the amount and 
availability  of  funds  in  the  B  envelopes  had  a  significant  impact  on  the  scale  of  Flex 
interventions.  In  the  2004  application  year  only  €10.6  million  of  a  potential  total  of 
€193.6 million was paid out. The average coverage rate of potential requirements was 21.5% 
between 2003 and 2005, reaching a maximum of 28% in 2003 (€81.5 million paid out). 

With the revision of the Cotonou Agreement it is now possible replenish the B envelopes in 
response to "special needs"13. The sums reserved for national cooperation under the 10th EDF 
are  not  enough,  however,  to  cover  Flex  requirements  up  to  the  maximum  theoretical 
budgetary  impact  (see  point 3.1)14.  This  means  that  an  objective,  uniform  and  transparent 
method must be found to limit the share of B-envelope funds allocated to the Flex instrument. 

The proposed solution is to set a maximum annual Flex allocation for all the ACP States, 
as  proposed  in  the  course  of  the  end-term  review  of  the  2005  and  2006  application  years. 
Given  the  funds  available  for  the  B  envelopes  under  the  10th  EDF,  it  is  proposed  not  to 
increase the level of Flex funding significantly under this Fund. 

To take account of specific circumstances from one year to the next, it is proposed to allocate 
Flex  a  basic  budget  of  €80  million,  which  may  rise  to  €100  million  if  potential  amounts  of 
support look exceptionally high and the coverage rate were to fall below 33% of the potential 
amounts.  This  envelope  corresponds  to  a  coverage  of  about  35%  to  45%  of  estimated 
effective needs over the last three years, close to the coverage rate of the estimated cost of the 
reform of the Community's sugar market for ACP signatories of the sugar protocol, and close 
to the maximum amount allocated to Flex under the 9th EDF. 

If  the  potential  amount  of  Flex  support  exceeded  the  annual  allocation,  countries  would 
receive Flex financial support in proportion to their potential eligibility. So as not to slow 
down the whole process, it is proposed to notify in year N+1, using provisional statistics, an 
amount  for  countries  eligible  for  budgetary  support  which  could  be  disbursed  quickly  (see 
point 3.3). Amounts for other countries will be notified on the basis of final statistics. 

It  is  proposed  to  include  a  paragraph  in  the  new  Article  9a  of  Annex  II  to  the  Cotonou 
Agreement providing for the creation of an overall annual envelope for Flex and the principle 
of its allocation in proportion to requirements. 

The Commission therefore proposes that the Council adopts the attached decision. 

13 
14 

Article 3(5 ) of Annex IV to the Cotonou Agreement. 
It was decided to reserve €1.8 billion for the B envelopes for unforeseen needs under the 10th EDF. This 
reserve should in particular cover emergency and humanitarian aid requirements under Articles 72 and 
73 of the Cotonou Agreement (including aid for post-crisis countries without signed strategy papers), 
contributions to debt relief initiatives, and Flex. The requirements for humanitarian and emergency aid 
additional  to  budgetary  aid  are  estimated  at  about  €150  to  200  million  a  year  on  the  basis  of  an 
extrapolation of operations financed under the 9th EDF. The balance available for Flex is not therefore 
sufficient to satisfy all potential requirements, which are estimated at about €200 million. 

EN 

8 

   EN 

 
                                                 
Proposal for a 

COUNCIL DECISION 

on the position to be adopted by the Community within the ACP-EC Council of 
Ministers regarding the revision of the terms and conditions of financing for short-term 
fluctuations in export earnings (Chapter 3 of Annex II to the ACP-EC Partnership 
Agreement) 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in  particular 
Article 310 in conjunction with the second subparagraph of Article 300(2) thereof, 

Having  regard  to  the  ACP-EC  Partnership  Agreement  signed  in  Cotonou  on  23  June  20001 
and  revised  in  Luxembourg  on  25  June  20052  (hereinafter  referred  to  as  'the  ACP-EC 
Partnership Agreement'), 

Having regard to the proposal from the Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

Article 100 of the Partnership Agreement lays down that Annexes II, III, IV and VI of 
the Agreement may be revised, reviewed and/or amended by decision of the ACP-EC 
Council  of  Ministers  on  the  basis  of  a  recommendation  from  the  ACP-EC 
Development Finance Cooperation Committee. 

Article 11 of Chapter 3 of Annex II to the Agreement lays down that the Chapter shall 
be subject to review at the latest after two years of operation and subsequently at the 
request of either Party. 

The  system  of  support  to  mitigate  the  adverse  effects  of  any  instability  in  export 
earnings  was  amended  for  the  first  time  by  Decision  No 2/2004  of  the  ACP-EC 
Council of Ministers of 30 June 20043. 

At  the  signing  of  the  revised  ACP-EC  Partnership  Agreement  in  Luxembourg  on 
25 June  2005,  the  parties  made  a  joint  declaration  that:  "The  ACP-EC  Council  of 
Ministers will examine, in application of the provisions contained in Article 100 of the 
Cotonou  Agreement,  the  proposals  of  the  ACP  side  concerning  Annex  II  thereof  on 
short-term fluctuations in export earnings"4. 

1 
2 
3 
4 

OJ L 317, 15.12.2000. 
OJ L 287, 28.10.2005. 
OJ L 297, 22.9.2004, p. 18. 
Declaration II, Joint declaration on Article 68 of the Cotonou Agreement, OJ L 287, 28.10.2005, p. 37. 

EN 

9 

   EN 

 
                                                 
(5) 

The position of the Community within the ACP-EC Council of Ministers regarding the 
revision of Chapter 3 of Annex II to the ACP-EC Partnership Agreement covering the 
terms and conditions of financing for short-term fluctuations in export earnings needs 
to be established. 

HAS DECIDED AS FOLLOWS: 

Sole Article 

The Community shall adopt a position within the ACP-EC Council of Ministers regarding the 
revision of the terms and conditions of financing for short-term fluctuations in export earnings 
on the basis of the draft decision of the ACP-EC Council of Ministers at annex. 

Minor  changes  may  be  made  to  this  draft  decision  without  a  new  Council Decision  being 
necessary. 

Done at Brussels, […] 

For the Council 
The President 

EN 

10 

   EN 

 
 
 
 
 
ANNEX  

Draft 

DECISION OF THE ACP-EC COUNCIL OF MINISTERS 

regarding the revision of the terms and conditions of financing for short-term 
fluctuations in export earnings (Chapter 3 of Annex II to the ACP-EC Partnership 
Agreement) 

THE ACP-EC COUNCIL OF MINISTERS, 

Having regard to the ACP-EC Partnership Agreement signed in Cotonou on 23 June 20071 
and revised in Luxembourg on 25 June 20052 (hereinafter referred to as 'the ACP-EC 
Partnership Agreement'), and in particular Article 100 thereof, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

The  signatory  countries  of  the  ACP-EC  Partnership  Agreement,  aware  that  the 
instability  of  export  earnings  could  be  prejudicial  to  the  development  of  the  ACP 
States, have set up a system of additional support to mitigate the adverse effects of any 
instability  in  export  earnings,  including  those  of  the  agricultural  and  mining  sectors; 
they confirm that the aim of this support is to safeguard socio-economic reforms and 
policies that could be affected negatively as a result of a drop in export revenue and to 
remedy  the  adverse  effects  of  instability  of  export  earnings,  in  particular  from 
agricultural and mining products3. 

In accordance with Article 11 of Annex II to the ACP-EC Partnership Agreement, the 
provisions  of  Chapter  3  of  that  Annex  covering  the  terms  and  conditions  of  the 
financing  of  short-term  fluctuations  in  export  earnings  are  subject  to  review  at  the 
latest after two years and subsequently at the request of either party. 

The  system  of  support  to  mitigate  the  adverse  effects  of  any  instability  in  export 
earnings  was  amended  for  the  first  time  by  Decision  No 2/2004  of  the  ACP-EC 
Council of Ministers of 30 June 20044. 

At  the  signing  of  the  revised  ACP-EC  Partnership  Agreement  in  Luxembourg  on 
25 June  2005,  the  parties  made  a  joint  declaration  that:  "The  ACP-EC  Council  of 
Ministers will examine, in application of the provisions contained in Article 100 of the 
Cotonou  Agreement,  the  proposals  of  the  ACP  side  concerning  Annex  II  thereof  on 
short-term fluctuations in export earnings"5. 

1 
2 
3 
4 
5 

OJ L 317, 15.12.2000, p. 3. 
OJ L 287, 28.10.2005, p. 1. 
Article 68 of the ACP-EC Partnership Agreement. 
OJ L 297, 22.9.2004, p. 18. 
Declaration II, Joint declaration on Article 68 of the Cotonou Agreement, OJ L 287, 28.10.2005, p. 37. 

EN 

11 

   EN 

 
                                                 
(5) 

It  is  necessary  to  improve  the  functioning  of  the  system  of  financing  for  short-term 
fluctuations in export earnings so as to respond more adequately to its objectives, 

HAS DECIDED AS FOLLOWS: 

Article 1 

Chapter 3 of Annex II to the ACP-EC Partnership Agreement is amended as follows: 

1. Article 9, paragraph 1 of the annex is replaced by the following: 

1. Eligibility for additional resources shall be established by: 

-  a  10%  (2%  in  the  case  of  least-developed,  landlocked,  island,  post-conflict  and 
post-natural  disaster  States)  loss  of  export  earnings  from  goods  compared  with  the 
arithmetical average of the earnings in the four years preceding the application year, 
excluding the most extreme value; or 

- a 10% (2% in the case of least-developed, landlocked, island, post-conflict and post 
natural  disaster  States)  loss  of  export  earnings  from  the  total  of  agricultural  or 
mineral products compared with the arithmetical average of the earnings in the four 
years preceding the application year, excluding the most extreme value for countries 
where the agricultural or mineral export revenues represent more than 40 % of total 
export revenues from goods;" 

2. Article 9, paragraph 2 of the annex is replaced by the following: 

"2. The loss of export earnings referred to in paragraph 1 must be 0.7% of GDP or 
more  for  there  to  be  entitlement  to  additional  support.  Entitlement  to  additional 
support shall be limited to three successive years.”  

3. Article 9, paragraph 3 of the annex is replaced by the following: 

"3. The additional resources shall be reflected in the public accounts of the country 
concerned.  They  shall  be  utilised  in  accordance  with  programming  rules  and 
methods,  including  the  specific  provisions  of  Annex  IV  "Implementation  and 
management procedures", on the basis of agreements drawn up in advance between 
the  Community  and  the  ACP  State  concerned  in  the  year  following  the  application 
year. By agreement of both Parties the resources may be used to finance programmes 
included in the national budget. However, a part of the additional resources may also 
be  set  aside  for  specific  sectors,  in  particular  to  develop  market-based  insurance 
schemes offering protection against the risk of fluctuations in export earnings."  

4. An Article 9a is added to Chapter 3 of Annex II: 

"1. The amount of additional financial support is equal to the loss of export earnings 
multiplied  by  the  arithmetic  mean  of  the  "government  revenue/gross  domestic 
product"  ratio  of  the  four  years  preceding  the  application  year,  excluding  the  most 
extreme value and capping that ratio at 25%. 

EN 

12 

   EN 

 
2. The Commission will analyse the data provided by the ACP States for the purpose 
of establishing eligibility and additional financial support as defined in Article 9 in 
the  local  currency  corrected  for  inflation.  The  Commission  will  then  convert  the 
potential  amount  of  additional  financial  support  into  euro  in  accordance  with  its 
procedures. 

3.  Each  year,  within  the  total  financial  allocation  for  NIPs,  the  Commission  will 
establish an envelope covering all ACP countries to provide support in the event of 
short-term  fluctuations  in  export  earnings.  If  the  amount  of  financial  support 
calculated on the basis of the criteria set out in Article 9 exceeds the amount of that 
envelope,  each  ACP  State's  share  will  be  established  in  proportion  to  the  potential 
amount of its additional financial support expressed in euro. » 

5. Article 10 of the annex is replaced by the following: 

"The system for allocating additional resources shall provide for advances to cover 
any delays in obtaining consolidated trade statistics and to ensure that the resources 
in  question  can  be  included  in  the  budget  of  the  second  year  following  the 
application  year  at  the  latest.  Advances  shall  be  reserved  for  States  where  Flex 
financial support can be implemented by means of general budgetary support. They 
shall  be  mobilised  on  the  basis  of  provisional  export  statistics  drawn  up  by  the 
government and submitted to the Commission. The maximum advance shall be 100 
% of the amount of additional financial support for the application year. The amounts 
thus mobilised shall be adjusted in the light of the final consolidated export statistics. 
These  statistics  must  be  submitted  no  later  than  31 December  of  the  second  year 
following the application year."  

This Decision shall enter into force on the day of its adoption. 

Article 2 

Done at 

For the ACP-EC Council of Ministers 
The President 

EN 

13 

   EN