CELEX: 51980PC0330
Language: en
Date: 1980-06-16 00:00:00
Title: RECOMMENDATION FOR A COUNCIL DECISION ON THE STAND TO BE ADOPTED BY THE COMMUNITY AT THE INTERNATIONAL NEGOTIATIONS ON THE AMENDMENT OF CERTAIN PROVISIONS OF THE ARRANGEMENT ON GUIDELINES FOR OFFICIALLY SUPPORTED EXPORT CREDITS (presented by the Commission to the Council)

ARCHIVES HISTORIQUES
DE LA COMMISSION
COLLECTION RELIEE DES
DOCUMENTS "COM"
COM (80) 330
Vol. 1980/0119
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 ---pagebreak---                                                                   COM ( 80 ) 330 final
     COMMISSION                                                   Brussels , 16 June 1980
        OF THE
EUROPEAN COMMUNITIES                                              FOR OFFICIAL USE ONLY
    General Secretariat
                                   RECOMMENDATION FOR A COUNCIL DECISION
                           ON THE STAND TO BE ADOPTED BY THE COMMUNITY AT THE
                             INTERNATIONAL NEGOTIATIONS ON THE AMENDMENT OF
                          CERTAIN PROVISIONS OF THE ARRANGEMENT ON GUIDELINES
                                   FOR OFFICIALLY SUPPORTED EXPORT CREDITS
                               ( presented by the Commission to the Council )
                 C0M(80 ) 330 final
 ---pagebreak---                         EXPLANATORY MEMORANDUM
1.      By adopting its decision of 5 May 1980 on the Community stand at
the international negotiations . on the amendment of the Arrangement on
Guidelines for Officially Supported Export Credits , the Council enabled
the Community , which participates as such in the Arrangement , to play
an active part in the negotiations between the Participants which were
held from 12 to 14 May .
The outcome of this was an agreement to raise the minimum interest rates
in the Consensus by 0.75% for rich ( Category I ) and intermediate
( Category II ) countries and by 0.25% for poor countries ( Category III ),
with effect from 1 July .
2.      This does not mean the negotiations are complete , since the Participants
also agreed to continue talks aimed at reaching a mutually acceptable
solution covering all aspects of the Consensus by 1 December .
In this connection , it should be noted that :
  ( i ) the Community 's negotiating directives called for adaptations to
        other provisions of the Consensus as well , some dealing with financial
        aspects ( the minimum level of cash payments , financing of local costs ,
        maximum repayment terms ), and others aimed at including in the
        Arrangement provisions covering sectors hitherto excluded from its
        scope ( nuclear power stations , agricultural products and methane
        tankers );
( ii ) the report submitted on 24 April by Mr Wallen , Chairman of the meeting
        of Participants , which deals exclusively with the structure and
        trend of interest rates , concludes that in view of the rigid nature
        of the current grid of interest rates laid down in the Consensus and
        the divergence of interest rates on the markets of the different
        currencies , there is a need to move towards a mew system based
 ---pagebreak---         either on uniform rates which can be revised in accordance with
        certain criteria , or on rates which are differentiated according
        to the currency concerned ;  the United States , Canadian , Austrian
        and Swiss delegations have already come down in favour of the
        second approach
Although the lastest downward swing in interest rates ( e.g._ the four
point fall in the US short-term prime rate ) and the relatively modest
increases ( 0.75% or 0.25% depending on the category of country ) adopted
on the basis of the Community 's proposals have done something to mitigate
the impatience of and pressure from those delegations cabling for a
" revision " of the Consensus , the Community must still define its position
as regards the alternative " models " put forward by Mr Wallen .
3.      As far as the intrinsic merits of Mr Wal.Len 's suggestions are concerned ,
given the liberal economic tradition to which all industrialized Consensus
Participants claim allegiance , economic logic alone would appear to make
the differential-rate system undoubtedly the most appealing intellectually .
This solution combines the merits of :
  ( i ) truthfulness , in that the Participants 1 interest-rate commitment
        would be directly related to the rates in force on the medium-term
        market for each currency , thus putting an end to the current gap
        between domestic and export interest rates ;
( ii ) transparency and discipline , in that the commitments of each Participant
        would be clearly recognized whatever the medium-term interest rate
        relating to its own currency ;  and incidentally , those national
        treasuries which under the current system end( up subsidizing export
        interest rates by one means or other would be relieved of what is
        a not inconsiderable burden on the national budget .
 ---pagebreak--- 4.       But on the purely practical level , a number of objections' to such
a " radical " system have already been raised by some Participants :
    ( i ) the choice of the basic rates to be taken as indicators is not
    *
          always simple and straightforward :   in cases where there is no
          " medium-term rate ", the Wallen report advocates using the rate
          for national bonds of equivalent maturity , but even this " market "
          does not exist in all countries , and in addition it has just lately
          been possible to detect a"flight"of capital' from this " market " to
          others which offer a higher return .
          The same objection could doubtless be made of a uniform mobile system
          but here it would be nullified to the extent that the Consensus rates
          would be the result of a weighted average in which any approximations
          would be amalgamated .
  ( ii ) The availability of the different currencies :    so long as not all
          currencies are freely and equally accessible , if the Consensus laid
          down a different rate for each currency there would be no guarantee
          of equality for exporters ;
( iii ) In a differentiated , periodically-adjustable system the problem of
          " prior commitments " would become somewhat complicated as a result
          of any changes in the relationship bet.ween currencies and their
          respective rates , thus further complicating matching procedures .
In short , the main drawback of the differential-rate system would appear
to be its complexity and the resultant operational difficulties .       One
might also point out en passant that the rationale on which this proposal
                                                        »
is based , i.e. that in a market system the price of different goods and
services should be determined by the law of supply and demand , is not
wholly borne out in practice , as the majority       of governments are in
 ---pagebreak--- fact increasingly intervening , particularly through the central banks ,
in the operation of the money , capital and exchange markets , for
varying reasons :  to support currency , combat inflation , or simply to
stimulate or damp down the general economy .
  «
5.    It is worth noting that the initial version of the Wallen report put
forward four rather than two possible solutions , the third .and fourth
being combinations ( which could be multiplied) . These were later dropped ,
but are mentioned here because one of the possible variants was a system
of multiple rates applying to groups of currencies .    Although it was
probably not what the author had in mind , it is possible ..to 'feel that a
variant offering a differential-rate system with the Community committed
to a single rate based on that resulting from the ECU might have been
both relatively logical and distinctly attractive politically from the
Community 's point of view .
At a time when the Community has launched the EMS and is attempting to
bring about a convergence of Member States' economic and exchange rate
policies , it would have been logical - for the Community 's commitment
under the Consensus to have been based on a weighted interest rate
reflecting the ECU weighting .  At the very least one might have argued
that the Community should not commit itself externally to a system which
would perpetuate divergences , while endeavouring internally to bring
about a convergence .
Depending on future progress in the alignment of economic and monetary
policies , the approach indicated above might merit closer consideration .
6.   Granting that the present system is probably too rigid , since it
requires a formal consensus by the Participants tQ modify the minimum
interest rates , the Community should therefore logically opt for a system
of uniform mobile rates .
 ---pagebreak---                                 - 5 -
The main advantage of such a system , which could be revised upwards or
downwards , would be to prevent the Consensus rates being blocked by a
failure to reach agreement while market rates were again rising or
falling , and thus to avoid unnecessarily hard or tense negotiations .
The automatic adjustment should be based on a weighting of currencies in
accordance with the SDR weighting ( as suggested in the Wallen report ),
with a one-year interval , to avoid a rapid serie's of modifications leading
to unnecessary complications in the administration of the sy.stem .
7.    This Community negotiating position naturally implies that the other
Community proposals on other points , presented to the Participants on
12 May , should be maintained and negotiated at the same time .
                                                    »
 ---pagebreak---                         Recommendation for a
                         COUNCIL DECISION
      on the stand to be adopted by the Community at the ..international
      negotiations on the amendment of certain provisions of the
      Arrangement on Guidelines for Officially Supported Export Credits
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 ,
 ---pagebreak--- Whereas it is necessary to draw up directives on the stand to be adopted
by the Community at the international negotiations on the amendment
of the Arrangement on Guidelines for Officially Supported Export Credits ,
HAS DECIDED AS  FOLLOWS :
                          Sole Article
At the international negotiations on the amendment of the Arrangement
on Guidelines for Officially Supported Export Credits , the Commission
shall put forward the Community 's position in accordance with the
directives contained in the Annex .
The Commission shall act in consultation with the Special Committee
provided for in Article 113 of the Treaty , which shall assist it in
its work .
                                                Done at Brussels           1980
                                                Far the Council
                                                The Président
 ---pagebreak---                                                                         ANNEX
              Negotiating directives on the amendment of the
             Arrangement on Guidelines for Officially
              Supported Export Credits
Without prejudice to the negotiating directives adopted by the
Decision of 6 May 1980 relating to cash payments , local costs , maximum
repayment terms and certain sectors , the Commission should suggest to
the other      Participants the following amendments to the structure of
the minimum interest rate grid .          ( These amendments are largely based on
the " uniform mobile matrix " formula put forward by Mr Wallen in
document TD / Consensus / 80 . 9 of 24 April 1980 , in particular para . 14
et seq . ) :
(a)    The basic minimum interest rate should be determined by reference
       to the average monthly market interest rates for the Participants'
       currencies .    By these interest rates are meant the yields on the
       secondary market of Government or public-sector bonds and the
       average of these rates should be weighted in accordance with the
       share of the Participants' currencies in the . Special Drawing Rights
       ( SDRs ).  ( See TD / Consensus / 80 . 9 , Annex I of 24 April 1.980 );
(b)    on the basis of the basic minimum interest rate as specified in ( a ),
       selective minimum interest rates should be determined according to
       the category to which the purchasing country belongs ;
( c ) a mechanism should be worked out for automatically adjusting the
      basic minimum interest rate annually / by reference to the weighted
      average of interest rates during the six months preceding each
      adjustment /;
                                                                               ./.
 ---pagebreak---                               - 2 -
(d) in the Arrangement should ±>e included a procedure relating to the
    date of entry into force of each change in rates , to prior
    commitments as resulting from these successive changes and to
    methods of aligning on such prior commitments ;
(e) in the same way , a special procedure should be devisedfor commit­
    ments entered into before the date when the amended guidelines
    resulting from the negotiations come into force ,, commitments which
    should not in any case be affected by the said amendments .