CELEX: 51979PC0003
Language: en
Date: 1979-01-17 00:00:00
Title: RECOMMENDATION FOR A COUNCIL DECISION on the negotiation of the third international Cocoa Agreement (Presented by the Commission to the Council)

ARCHIVES HISTORIQUES
DE LA COMMISSION
COLLECTION RELIEE DES
DOCUMENTS "COM"
COM (79) 3
Vol. 1979/0001
 ---pagebreak--- Disclaimer
Conformément au règlement (CEE, Euratom) n° 354/83 du Conseil du 1er février 1983
concernant l'ouverture au public des archives historiques de la Communauté économique
européenne et de la Communauté européenne de l'énergie atomique (JO L 43 du 15.2.1983,
p. 1), tel que modifié par le règlement (CE, Euratom) n° 1700/2003 du 22 septembre 2003
(JO L 243 du 27.9.2003, p. 1), ce dossier est ouvert au public. Le cas échéant, les documents
classifiés présents dans ce dossier ont été déclassifiés conformément à l'article 5 dudit
règlement.
In accordance with Council Regulation (EEC, Euratom) No 354/83 of 1 February 1983
concerning the opening to the public of the historical archives of the European Economic
Community and the European Atomic Energy Community (OJ L 43, 15.2.1983, p. 1), as
amended by Regulation (EC, Euratom) No 1700/2003 of 22 September 2003 (OJ L 243,
27.9.2003, p. 1), this file is open to the public. Where necessary, classified documents in this
file have been declassified in conformity with Article 5 of the aforementioned regulation.
In Übereinstimmung mit der Verordnung (EWG, Euratom) Nr. 354/83 des Rates vom 1.
Februar 1983 über die Freigabe der historischen Archive der Europäischen
Wirtschaftsgemeinschaft und der Europäischen Atomgemeinschaft (ABI. L 43 vom 15.2.1983,
S. 1), geändert durch die Verordnung (EG, Euratom) Nr. 1700/2003 vom 22. September 2003
(ABI. L 243 vom 27.9.2003, S. 1), ist diese Datei der Öffentlichkeit zugänglich. Soweit
erforderlich, wurden die Verschlusssachen in dieser Datei in Übereinstimmung mit Artikel 5
der genannten Verordnung freigegeben.
 ---pagebreak--- ^2
                                                                       COM(79)3 final
i
          COMMISSION                                                   Brussels.. *7 January 1979,
            OF THE
  EUROPEAN COMMUNITIES                                                 FOR OFFICiAL USE ONLY
        General Sccretcriat
                                       RECOMMENDATION FOR A COUNCIL DECISION       ..
                          on "the negotiation of the third international Cocoa Agreement
                                   (Presented "by the Commission to the Council )
C Olí ( 79 ) 3 final
 ---pagebreak--- Introduction      ■
Prom 29 January to 23 February 1979 a conference is to be held in Geneva,
under the auspices of UNCTAD , with the aim of negc tiating a third International
Cocoa Agreement . Cocoa is one of the eighteen products on the Integrated Programme
list ( UHCTAD Resolution 93/lV). It is among the most important agricultural com­
modities exported "by the developing countries ( US ^ 3 500 million in 1977 )» and
the Community is the world 's largest importer ( extra-EEC imports for 1977
= 1 600 million u.a .), with an important chocolate , confectionery and "biscuit-
making industry largely dependent on supplies of this raw material , which is
produced mainly in a small number of developing countries in Africa and Latin
America . These is also considerable intra-EEC trade in cocoa- and chocolate-based
products ( 820 million u.a. in 1977 ) •
The Community and its Member States are Members of the second International
Cocoa Agreement , which came into force on 1 October 1976 and is to expire on
30 September 1979 *
The aim of this Communication is to set out guidelines for the Community 's
participation in the forthcoming negotiations , and to propose negotiating
directives on the basis of a planned draft agreement , the decision authorizing
the Commission to negociate on behalf of the Community being based on Article
113'ί ' .
The International Cocoa Council 's decision to set 29 January as the opening
date for the conference was only taken on 15 December , in the light of progress
made at the preparatory session held from 4 "fco 13 December . It was thus not
possible to present this Communication at an earlier date , and it now requires
particularly urgent consideration by the Council .
( 1 ) See C0M( 507)75 final of 5 October on the negociation of an international
      agreement on natural rubber , and the Commission decision to request a prior
      opinion from the Court of Justice , under the consultation procedure set
      out in the second paragraph of Article 228(l ) of the EEC Treaty , with, in
      particular reference to . the Community 's comperence to conclude such an
      agreement .
 ---pagebreak---                                    - 2 -
  1 . The second International Cocoa Agreement
  The second International Cocoa Agreement came into force provisionally on
  1 October 1976 , with all major exporting and importing countries participating
  except the United States , which had not been a member of the first Agreement
  either. By a Council Decision dated 28 September 1976^^ * the Community gave
  notification that is was applying the Agreement on a provisional basis , as
  an importing Member. Council Regulation 2762/76 of 19 October 1976^ enabled
  the economic and control rules of the Agreement to be applied in the Community.
  The Agreement came into force definitively on 7 November 1977 * In a communica­
  tion currently up for approval , the Commission rocoramends to the Council that
„ the Agreement be concluded, as it has not been ratified by all the Member
  States .
  With a precarious balance between supply and demand on the world market , and
  even a certain scarcity,           the Agreement 's stabilization mechanisms ( export
  quotas and a buffer stock to buy and resell surpluses by reference to different
  price levels) have not been called into operation ; the buffer stock has not
  had to buy up surpluses , and the funds intended to finance the stock have been
  accumulating as contributions levied on member countries' exports , and on their
  imports from non-member countries , have continued to come in. The buffer stock
  fund will stand at close on US ^ 200 million when the present Agreement expires
  on 30 September 1979 *
  The price levels set in the Agreement ( 39-55 cents/lb) were revised upwards
  in September 1977 ( 65 - 81 cents/lb), but are still well below market prices ,
  which have been above 130 cents/lb for two years now>                               ••v
  ( 1 ) 0J No « 321 of 20 November 1976 ( this also contains the text of the Agreement )
 ---pagebreak---                                   - 3 -
2 . The situation "before the opening of neftociations
                                                                 *
When the question arose as to whether the Agreement should "be extended for a
further two years or renegotiated after the first three years , the producing
countries came out strongly in favour of renegotiation#
The importing countries would have preferred to see the current Agreement exten­
ded, but in July of this year the International Cocoa Council decided that the
Agreement should be renegotiated under UNCTAD, and that a Preparatory Committee
would produce a draft third Agreement with a simpler and more flexible stabili­
zation mechanism than those contained in the 1972 and 1975 Agreements .
The Preparatory Committee , on which the United States is represented, despite
being a non-member country , has examined a study by the ICO Secretariat on the
state of the world cocoa economy and its likely development up to 1985 » and
has reviewed proposals put forward by various countries , notably the producing
countries , Switzerland and the United States . All these proposals are based on
the idea of an international buffer stock as the main ( for the United States ,
the only) market stabilization mechanism.
The Community, taking the view that these proposals- formed an adequate basis
for a russion at the preparatory stage-, has not put forward any proposal of
     .. :i, given that , in common with the majority of consuming countries , it
                                                                          *
favours a simpler, more flexible agreement , which would no longer have export
quotas as its main mechanism , but an international buffer stock that can inter­
vene on the market directly when certain price levels are reached . However,
                                                                                 ■ ν
the Community does not exclude the possibility of supplementary measures being
taken to back up the action of the buffer stock , in the unlikely event that
such measures would be needed under a five-year agreement .
 ---pagebreak---                                   - 4 -
  During the Preparatory Committee 's deliberations the producing countries put
                                                                   0
  forward a rather different concept of the "buffer stock, which was that , if prices
        *
  fell the stock would he able to purchase only from producing countries , without
  going "below a guaranteed minimum price "backed up by additional measures : export
  quotas , restrictions on trade with non-member countries, and the use of surpluses
  in non-traditional ways . The agreement should be concluded for three years ,
 with the possibility of being extended for a further two years by d cision of
  the Council of the agreement .
 One of the consuming countries' major concerns is the need for adequate supplies
•
  on the market at reasonable prices , since all the studies undertaken show that
  there is still considerable scope for expending cocoa consumption, even in
 traditional consuming areas such as the United States and Western Europe . There
  is continuing anxiety, however, as world production stagnates despite high prices ,
 and the annual output of the main producing countries often fluctuates widely , even
  to the extent that regular supplies cannot always be guaranteed; the use of
  cocoa substitutes is still on the increase .
 The consuming countries have frequently voiced these, worries over the past few
 years , and the main aim of the new agreement should be to bring the market into
 equilibrium . This would not - of course eradicate all short-term price fluctuations ,
 but it would guarantee importing countries adequate , regular supplies at prices
 that are competitive enough to encourage production increases and limit the
 use of substitutes .
 ---pagebreak---                                                                                      Γ
                                 - 5 -
3 . The Community 's position on the basic elements of the third agreement
                                                                  m
The preparatory work, which was completed on 13 December, leaves most of the
basic 'elements of the third agreement still undecided, owing to the divergent
views of the main participants .
The third agreement will, therefore , be harder to negotiate than the second,
since in the Commission 's view it is no longer simply a matter of tidying up
an existing version. What is envisaged is a radically different and simpler
agreement , based essentially on an international buffer stock .for which part of
the finance is already available in the form of funds collected by the ICCO^^
in the six years of its existence ; the additional finance will have to be found
by maintaining the contribution on trade in cocoa under the third agreement .
Obviously, the buffer stock will only come into play if production is stepped
up ,and surplusea appear on the market ; the stock will then buy up the surpluses ,
                                                              • »
and can thus function as a stabilizing force should prices drop, or , should
they subsequently rise , by selling cocoa.
Under present and foreseeable market conditions , surpluses are not likely in the
medium term . The characteristics of cocoa production .and the cocoa market ,
however , make prediction risky, and it is possible that under a five-year
agreement part of the buffer stock capacity would have to be used to regulate
short-term market fluctuations .
Another fundamental point to be reckoned with is that cocoa prices are among the
most unstable of all commodity prices , with sudden sharp fluctuations occurring
            ( 2)
frci gentlyv ' • The buffer stock intervention zones must therefore lie to either
side of an adequate median (" free") zone where the buffer stock would not operate .
( 1 ) International Cocoa Organization. .;
( 2 ) Average deviation of price ( in constant dollars) from a five-year moving
      average ( over the period 1955-77 ) i
      cocoa : 17*1 %» sugar : 14*4 Ì°% rubber : 13.4    copper : 16.2
 ---pagebreak---                                    - 6 -
  One last crucial point , is the level at which the minimum and maximum prices
                                                                   «
  are to "be set , and the conditions for revising them . This is the most sensitive
  issue■"in the negotiation of any international commodity agreement establishing
  price ranges , and one which is not settled until the final stage . The Commission
  is therefore not proposing any figures at this stage , but it is clear that the
  levels under the current agreement ( 65-81 cents/lb) will have to be raised
  for technical reasons (to widen the spread between "floor" and "ceiling") but
  also on economic grounds , to take into account the rise in cost prices ( which
  is itself linked to the monetary and inflationary features of the world economy),
  the need to encourage increased production and the continuation of efforts made
* in this field, and the scope for expanding consumption at prices above the current
  range ( but naturally below world market levels , which have been in the region
  of 150 cents/lb this year.
  The Commission therefore reserves the right to put forward concrete proposals
  on price levels under the agreement at a later stage , usingfa procedure whereby
  figures will not be divulged outside the Community until the final phace of the
   negotiations .
  The annexed draft directives should provide the Community with a basis for nego­
   tiation since as things staud they cover all major or novel aspects of a third
  i     national cocoa agreement .
 ---pagebreak---                                    - 7 -
                                                               A
  4 . Community participation
                                                                 0
  The desirability of active participation by the Community is beyond question ;
  in - the preparation, negotiation and administration of the first two agreements ,
  however, the Community acted in parallel with the Member States , which were all
  members of the agreements . Generally speaking, it proved possible to adopt a
  common position on the essential points , but this was done without raising the
  question of the legal basis or settling the matter of competence .
  The Commission therefore feels that henceforth, for the same - reasons as those
♦
  set out
        .
            in an earlier communication on the negotiation of an international
  agreement on natural rubber, based on similar instruments , the third cocoa agree­
                        ■fc
  ment should be negociated and concluded by the Community alone . Without wishing
  to anticipate the prior opinion to be deliverd by the Couit of Justice , the
  Commission ^ position here is that all the instruments of the agreement have
  a direct and fundamental bearing on the volume and terms of international
  trade in cocoa, and consequently come within the Community 's jurisdiction by
  virtue of Article 113 of the Treaty of Rome .
  Participation in the agreement itself, as well as in the negotiation-, must
  henceforth be at Community level , and this will have to be taken into account
  when drafting the administrative and legal provisions concerning signature
  and approval of the agreement , and deciding on voting rights and procedures ,
  elections to bodies set up under the agreement , and budget contributions . The
                                                                           «
  annexed draft Council Decision and draft directives reflect these considerations .
                                                                                     ■ν
  ( 1 ) C0M(7o ) 507 final of 5 October
 ---pagebreak---                             Recoimnendation for a
                            COUNCIL DECISION
                                                                «
                      on the negotiation of the
                third International Cocoa Agreement
THE COUNCIL OF THE EUROPEAN COMMUNITIES ,
Having regard to the Treaty establishing the European Economic Community ,
and in particular Article 113 thereof,
Having regard to the Recommendation from the Commission ,
Whereas the Community has participated in the International Cpcoa Agreement
1975 since its entry into force on 1 October 1976 , subject to definitive accept­
ance at a later date^ ;
Whereas that Agreement will expire on 30 September 1979 J
Whereas an international conference is to be held in Geneva from 29 January to
23 February 1979 unde-r the auspices -of UNGTAD-.in order to negotiate a third
International Cocoa Agreement ? whereas the Community should participate in those
negotiations , which will affect matters relating to common commercial policy ,
                                                                  I
HAS DECIDED AS FOLLOWS :
                                 Sole Article
The Commission is hereby authorized to conduct , on behalf of the Community ,
negotiations for the conclusion of the third International Cocoa Agreement .
The Commission shall conduct the negotiations in accordance with the directives
annexed hereto , and in consultation with the Special Committee provided for
Article 113 of the Treatyo
Done at Brussels ,                                         For the Council
                                                           The President
( 1 ) OJ No . L 321 , 20 November 1976 «
 ---pagebreak---                                                                         AMEXE II
                     Draft Directives for the Negotiation of the
                                                                 9
                          Third International Cocoa Agreement
                       ( Geneva, 29 January - 23 February 1979)
   These directives relate to the economic and administrative provisions of a
   draft third International Cocoa Agreement , and in particular to the features
   which differ significantly from the previous two agreements . The Community
   is aiming this time for a simpler, more flexible agreement based essentially
«, on an international buffer stock intervening on the market when specific
   price levels are reached. A market stabilized in this way should above all
   allow producing countries to increase or keep up production , as the case may
   be , thus ensuring adequate and regular supplies for consuming countries .
   These directives may be amended or supplemented in the light of progress in
   the negociations , on the basis of proposals from the Commission.
 ---pagebreak--- MA.IIT ECONOMIC PROVISIONS
1 . Buffer stock
     ( a) Capacity
           On the "basis of the foreseeable market situation, a maximum capacity
           of 250 000 tonnes of cocoa "beans would appear sufficient to fulfil
           the aims of the agreement under normal conditions .
     ( b ) Financing
           The funds accumulated under the first two agreements will "be used to
           finance the third . To make up the "balance required for the stock , the
           present contribution of one cent per pound of cocoa "beans will "be main­
           tained . The same system of collection can "be used as under the 1975
           Agreement , it "being understood that the revenue from the contribution
           is the property of ICCO and not of the Members .
           The Council of the agreement should be authorized to modify or suspend
           the contribution, and to have recourse to other sources of finance
           ( loans) .
           The prospect of a Common Fund - and the possibilities it will offer must
           be borne in'rnind, and the nature of the links to be established with
           the Fund should be specified in a particular article of the agreement .
     ( c ) Liquidation
           The conditions governing liquidation of the buffer stock should be
                                                                                    ■<
           renewed ; any balance of the funds collected under the third agreement
           should be shared among all the Members in accordance with criteria to
           be defined .
2 . Price mechanism
     ( a) Price range
           The operation of the buffer stock will be based on a fixed price range
           comprising minimum and maximum prices for cocoa beans . These prices
           would continue to be expressed in US dollars , although other denomina­
           tions would not be ruled out . Around the midpoint of the range a free
           zone would be established where the buffer stock would not normally
           operate } this zone would extend 20 7S, at most , on either side of the
           mean price . The minimum and maximum (" floor" and " ceiling") prices
           would be set no more than 25 5° below and above the mean price respec­
           tively .
 ---pagebreak--- (b) Price revision
     The Council will review the minimum and maximum prices "before the end
     of the second and fourth years of application of the agreement , and
     may revise them lay special vote . The width of the revised price range
     will "be left to the Council 's discretion. The criteria for examination
     and revision will "be those of the 1975 agreement , supplemented as
     follows :
     When 80 $ of available funds have "been used, or when net purchases or
     sales have reached 80 fo of total "buffer stock capacity, the Council
     will meet in special session to take the necessary action , and review
     and if necessary revise the minimum and maximum prices "by special vote .
( c) Indicator price
     The provisions laid down m the 1975 agreement for defining and calcu­
     lating the indicator price should "be renewed in the light of the "buffer
     stock intervention machinery .
Buffer stock operations
( a) Scope
     The "buffer sto'ck '"begins "buying or selling when the indicator price rises
     above or falls "below the free zone ? it continues to intervene to prevent
     the indicator price falling "below the minimum price or rising above the
     maximum price . The greater and Eharper the price movements , the more
     rapidly the "buffer stock must intervene , and the larger the quantities■ v
     it must "buy or sell , in accordance with rules to "be laid down "by the
     Council .
     The "buffer stock will cease buying or selling when the indicator price
     is back within the free zone .
( b) Purchases
     The buffer stock should buy only cocoa beans of recognized standard
     marketable grades in lots of less than . 100 tonnes . Such beans shall
     be the property of ICCO and under its control .
 ---pagebreak---                                  - 4 -
            The "buffer stock shall buy at current market prices     through normal
            commercial channels , priority being given to sellers #in exporting
       ^    Member countries, who will be required to respond to bids by the
            stock and conclude contracts with it , or notify the stock that no
            surplus exists , within a period to be determined.
       ( c) Sales
            The buffer stock shall sell at     current market prices^ ^ through
            normal commercial channels to firms and organizations in Member countries ,
            priority being given, however, to buyers in the importing countries
            engaged in the trade in or processing of cocoa, who will be required
            to reply to bids by the buffer stock-within a period to be determined.
       ( d) Location of the buffer stock
            The buffer stock shall be stored in locations chosen to facilitate
            the immediate delivery of available cocoa to buyers in Member countries ,
            priority being given to buyers in importing Momber countries . Stocks
            should also be stored in such a way as to permit economic and efficient
            management •
( 1) It is as yet undecided whether it would be acceptable and feasible for the
     buffer stock not to buy below the minimum price©
 ---pagebreak--- 4 . Supplementary measures ( Protection of the minimum price)
                                                               9
    To deal with exceptional circumstances , where it appears that the
    2*50 000-tonn® "buffer stock is no longer able to defend the minimum price ,
    a five-year agreement could provide that the Council , meeting in special
    session, "be authorized to take certain measures to be decided "by special
    vote . Such a situation does not , however, seem at all likely in the medium
    term .
    The maximum capacity of the "buffer stock could possibly be increased by
    up to 100 000 tonnes , depending on the funds available or on call , following
    a Council decision taken by special vote .
    When the buffer stock has reached its maximum capacity , the Council may
    decide to take other measures , such as the withdrawal of surpluses from the
    traditional market by authorizing the stock , on behalf of the exporting
    Members concerned, to arrange for the surpluses to be "diverted to non-tra-
    ditional uses under strictly-defined conditions in exporting and importing
    Member countries .
    With regard to the possibility of introducing quotas on exporting Members'
    exports and on importing Members' imports from ii'on-member countries , the
    Community could accept the inclusion of such measures in the agreement
    since they would be conditional on a decision by the Council , whichi should
    introduce them only temporarily and after a special vote .
 ---pagebreak---                              - 6 -
5 . Availability of supplies ( Defence of the maximum price )
    To ensure that the agreement can fulfil its stabilizing function, and
   *
    to strike a balance between the rights and obligations of the participants ,
    the producing countries should pay a remunerative producer price and
    employ the latest cultivation , marketing and management techniques so as
    to provide adequate and regular supplies of cocoa to meet demand. The
    Council should be able to recommend appropriate measures employing with
    the rules of international trade to secure preferential supplies to impor­
    ting Members in the event of supply problems .
    The agreement should include special clauses making provision for coopera­
    tion between exporters and importers , and an institutional framework which
    will enable the requirements to be met , and thus help to guarantee adequate
    supplies .
6 . Obstacles to the expansion of consumption
    The scarcity of supplies and high cocoa prices are a major obstacle to
    the expansion of consumption.
    The Community is unable to accept the proposal put forward by the producing
    countries at Brazil 's instigation whereby detailed, compulsory provisions
    on the elimination of obstacles affecting cocoa in the importing countries
    should be included on the ground that is covered by an international
    agreement .
    Tariff policy and trade liberalization measures shall be negociated globally
    in. accordance with GATT procedures .
 ---pagebreak---                                  - 7 -
III . Main administrative provisions
                                                                 #
       The general legal and administrative provisions of the 1975 Agreement
       shall remain valid, subject to the following amendments :
       A. Community parti-ci^ation
       The agreement should include a clause allowing the Community to participate
       fully in the operation of the agreement in all bodies set up under it . The
       final provisions should include a formula to the effect that the agreement
       would "be open from (     .....) for signature "by parties to the International
     • Cocoa Agreement 1975 and Governments invited to the 1979 United Nations
       Conference on Cocoa, which includes the EEC and other regional groupings
       with similar competence in the field of international agreements . After
       lodging an instrument of acceptance or notification of provisional applica­
       tion, the EEC and the other regional groupings in question would "become
       contracting parties with the same rights and obligations under the agreement
       as the others .
       B. Voting^riggits
      Voting rights on the Council will be distributed among Members in accordance
       with the criteria set- out in the 1975 Agreement . The Community 's voting
       rights would correspond to its relative weight as an importer of cocoa
       among the importing Members of the agreement .
       C. Voting procedure
       The Council voting procedures set out in the 1975 Agreement should be
       retained .
 ---pagebreak---                             - 8 -
D. Administrât ive^budget
The Community 's contribution to the administrative "budget for each financial
year will "be in the proportion which the number of its votes , at the time
the administrative "budget is approved "by the Council , "bears to the total
votes of all the Members .
E. Re^jecJtive_res£onsi;'biliti^e£ £f^the_Exe£utive_Directo£ and the Buffer
   Stock Manager
The structure of the new agreement , "based chiefly on a "buffer operating
as a price stabilization mechanism, gives added responsibility to the
Buffer Stock Manager , and his field of competence will have to "be care­
fully defined to ensure a harmonious relationship with the Executive
Director , and to enable the agreement to operate properly .
P. Duration of the a^eement
The agreement should remain m force for five years . The Council may decide
by special vote , before the end of the fifth year, that the agreement should
be renegotiated.
The Community would be prepared to accept a three-year agreement if that ,
is what the majority of participants would prefer , provided that such an
agreement was based on the buffer stock as the only price stabilization
mechanism .
 ---pagebreak---                                                                      AOTEXE III
                        Financial aspects
Only the question of Community participation in the financing cf the admini-
sti&tive "budget of the third International Cocoa Agreement has "been taken
into consideration .
The "buffer stock will continue to "be financed "by a contribution levied on
trade in cocoa, and not "by direct contributions from participating countries .
The Community 's annual contribution to the administrative "budget would "be
in the region of :
       250 000 EUA if the United States participates in the third Agreement
       330 000 EUA if the United States does not participate in the Agreement .