Abstract
In the course of the past eight-and-a-half years the basic provisions concerning the monetary system of the Common Agricultural Policy (C.A.P.) have been amended a number of times. This series of amendments followed directly from the alterations to currency exchange rates introduced by Member States. The decision-making process underlying these alterations was in some cases characterised by considerations of purely economic nature, whereas in other cases national politics had a decisive influence.
Commission of the European Communities, Directorate Agricultural Legislation. The author expresses his personal views.
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Septième rapport d’activité du Comité Monétaire, (Brussels, 2.2.1965). The decisive argument for this choice was that in the case of a disturbance of the cross-rate balance between the different national currencies, the U.A. would automatically allow for maintenance of the agricultural prive level “et garantirait mieux le maintien des mécanismes d’organisation des marchés sur le plan communautaire notamment à l’égard de l’extérieur”.
Although at the time the Conference was held only 44 countries participated, at present all industrialised countries, except Switzerland, and virtually all developing countries are members of the I.M.F.
To the great disappointment of the U.K. the question whether the Fund was going to be an independent, supra-national organization, staffed by international civil servants, or an organization strictly supervised by the participating members, was, at American insistence, decided in favour of the latter alternative.
For the argument that it concerns an obligation, see Gold J., The International Monetary Fund and International Law, An Introduction (I.M.F. Washington D.C. 1965) 26 p., p. 11–12.
I.M.F., Annual Report 1948, p. 21.
I.M.F., Selected Decisions of the Executive Directors and Selected Documents, (third Issue, Washington 1965) p. 17–18. However, only those parity changes which have been officially announced are subject to the judgement of the I.M.F. This results in the extraordinary legal situation whereby in cases where a change in the par value is not approved, Article IV, section 6, comes into force and the member can, for example, be deprived of the Fund’s resources. The relevant sanctions do not automatically apply if the member does not change its value de jure, but instead, allows the agreed margin to be exceeded by letting its currency float. In such a case it is assumed that there is no (formal) violation of the rule.
See Meyer and Stadtmüller, “Flexibele Wechselkurse in der Währungsordnung”, 136 Zeitschrift für das gesamte Handels- und Wirtschaftsrecht, 1972, 35–36.
J.O. No. 2553/62, 30.10.1962. Apart from its use in the agricultural sector the U.A. is used in the Community for various other purposes. For an extensive account, see C. v. Ballegooijen, “De Rekeneenheden van de Europese Gemeenschappen”, (1975) S.E.W., 43.
See report cited under note 1, p. 99–113. The year 1967 was chosen since in that year the establishment of the C.A.P. was supposed to have reached its final stage.
Article 107 of the Treaty does not go further than declaring that “each Member State treats its policy with regard to rates of exchange as a matter of common concern”, whereas the I.M.F. obligation of not exceeding the 1% limits could be interpreted rather liberally.
As these prices had already been fixed in German marks before, the operation carried out by the Commission was a purely formal one. See Proposal for a Council Regulation fixing the unit of account for the common agricultural policy, J.O. No. 116, 17.6.1967, p. 2265/67 (not officially translated into English). See for the Opinion of the European Parliament, J.O., 11.8.1967, p. 12, in which the Parliament gives the proposal the benefit of the doubt until the end of the transitional period.
Council Regulation (EEC) No. 653/68, 30.5.1968, on conditions for alterations to the value of the unit of account used for the common agricultural policy, J.O. No. L 123, 31.5.1968, p. 4.
The value of the U.A. alters automatically where all Member States alter the parity of their currencies simultaneously, in the same direction and — in the same proportion: in the same direction and in the proportion as the alterations in the parities; — in different proportions: in the same direction as the alterations and in the same proportion equivalent to the smallest alteration in parity. This procedure is called the E.P.U. formula, since it was first used within the framework of the European Payments Union. In the event of every other parity change, the Council decides on a new value according to the procedure mentioned in the text. However, the Council may also in cases where the E.P.U. formula applies, decide upon a different alteration.
Council Regulation (EEC) No. 1134/68, 30.7.1968, laying down rules for the implementation of Regulation (EEC) No. 653/68 on conditions for alterations to the value of the unit of account used for the common agricultural policy, J.O. No. L 188, 1.8.1968, p. 1.
The agricultural prices in a Member State do not necessarily change whenever the value of the U.A. changes. A change will only occur in cases where the relationship between the national currency and the U.A. changes as a result of the alteration of either of them (see note 12).
According to the Commission the English text aggravates this indistinctness since the expression “due and payable” is not a correct translation of the other texts. Compare e.g. the French: “Le moment de réalisation de l’opération est la date à laquelle intervient le fait générateur de la créance relative au moment afférent à cette opération.” The Commission expressed this opinion in Case 80/76, North Kerry Milk Products Limited, Dublin v. The Minister for Agriculture and Fisheries, Dublin, (1977) E.C.R. 425. The Kerry case also demonstrates that the task of interpreting Article 6, albeit important, is by no means easy. In this case the question was raised as to which representative rate had to be applied in calculating the subsidy North Kerry was entitled to: the one applicable on the date the products concerned were manufactured or the one applicable on the date they were marketed; or, in other words, on which of the two dates the transaction had to be considered as having been carried out. The Court of Justice ruled that the latter date was applicable. This case, which is the first one in which the Court adopted a position on the interpretation of Article 6, demonstrates the importance such interpretation may have: the amount of money involved was Pd. Stg. 44,687.71 p.
The Group of Ten is made up of the countries party to the General Loan Agreements, namely: West-Germany, Belgium, Canada, France, Italy, Japan, the Netherlands, Sweden, the United Kingdom and the United States.
The percentage was chosen to bring the devaluation of the FF to a round number in terms of grammes of fine gold, from .18 grammes to .16 grammes. Although France obstructed the I.M.F. rules by not informing the Fund in advance of the devaluation, it did communicate a new par value, which corresponded to the new value of the FF, to the Fund.
For all products which do not fall under the scope of the monetary system of the C.A.P., a devaluation (revaluation) of the currency of a country does not bring about an increase (decrease) of the prices of those products as expressed in terms of another currency (or U.A.), by a percentage corresponding to that of the parity change concerned. The question as to what extent the increase (decrease) which was aimed at, will actually take place depends firstly upon the elasticities of the imports and exports of the products concerned. In order to reduce the deficit (surplus) in the balance of payments, which usually will be the purpose of the devaluation (revaluation), the sum of these two elasticities must exceed unity. See, also for Marshal-Lerner and Robinson condition, Rose, Theorie der Aussenwirtschaft (Verlag Franz Vahien GmbH, Berlin und Frankfurt am Main, 1970), p. 65 et seq. The initial effects of the exchange rate alteration are further attenuated by the so-called “absorption effect”. This absorption effect accounts for the manner in which the parity change affects for example the national income (the primary change in the current account involves certain income changes which in turn change the “new” current account), or the export price level (the rise of the import price level will bring about an increase in the price level over the internal market as a whole, and thus also, indirectly, a rise in the export price level) etc. The absorption approach goes back to Alexander, “Effects of a Devaluation on a Trade Balance”, International Monetary Staff Papers, 1952, vol. 2; Alexander, “Effects of a Devaluation: A Simplified Synthesis of Elasticities and Absorption Approaches”, 49 American Economy Review 1959.
Council Regulation (EEC) No. 1586/69 of 11 August 1969, J.O. No. L 202 of 12.8.1969, p. 1. The Council adopted this Regulation retro-actively and on the basis of Article 103 of the Treaty. The use of this Article, which deals with conjunctural policy, demonstrates that the measures in question were designed to be temporary.
See for an extensive account of the French devaluation, Pierre Baudin, “Politique monétaire et politique agriculture; une leçon pour l’avenir, la dévaluation du Franc”, in: (1969) Revue du Marché Commun, 561 et seq.
Decision No. 69/375/EEC of the Commission, J.O. No. L 273 of October 31, 1969, p. 35. The decision was based on Article 226 of the Treaty. This Article is a so-called “safeguard clause”, which indicates that the measures taken are derogations from the basic rules of the Treaty and are authorized to such an extent and for such period as are strictly necessary in order to adjust the sector concerned in which the economic situation has deteriorated, to the economy of the Common Market.
Council Regulation (EEC) No. 2464/69 of 9 December 1969, J.O. No. L 312 of 12.12.1969, p. 4. The total loss of income for the German agricultural population resulting from the realignment of the German prices to Community level was an estimated 1,7 thousand million U.A.’s. The E.A.G.G.F. contributed to the costs thereof: 90 million U.A.’s chargeable to the 1971 budget and 60 million U.A.’s chargeable to the 1972 budget, whereas a contribution of 30 million U.A.’s chargeable to the 1973 budget was made dependent on the economic situation of that year.
Although France acted contrary to the I.M.F. rules in not informing the Fund of the devaluation in advance, it was more the temporary floating of the DM, though a less obvious obstruction of the I.M.F. Agreement (see note 6), which once more raised the question of the reliability of this Agreement regarding the establishment of the C.A.P.
Council Regulation (EEC) No. 974/71, of 12 May 1971, on certain measures of conjunctural policy to be taken in agriculture following the temporary widening of the margins of fluctuation for the currencies of certain Member States, J.O. No. L 106, 12.5.1971, p. 1. By the time this Regulation was adopted the transitory period had long since ended (1.1.1970) and hence Article 226 could not be used again as a legal basis (as see note 22). Article 115, being also one of the Articles which Germany had invoked to justify the measures taken during the time the DM floated in 1969, could not be used either as this Article only applies if Member States have difficulties in “the execution of measures of commercial policy taken in accordance with the Treaty”. Consequently, the two most obvious Articles between which the Council had to choose were Articles 103 and 43. The Council opted for Article 103 and as Morawitz points out, this choice may have arisen from the fact that the procedure of Article 43 includes the Opinion of the European Parliament as well as of the Economic and Social Committee, whereas the situation which existed at the time required more rapid action, see Morawitz, “Die Freigabe des Wechselkurses der Deutschen Mark”, (1971) Europarecht, 1971, 335 et seq. However, the argument of the Commission in preference for Article 103, as developed in the Balkan case, seems to hold water better. In this case the Commission argued that Article 103 was chosen as a legal basis in order to emphasize the transitory character of the M.C.A.’s. See Case 5/73, Balkan-Import-Export GmbH v. H.Z.A. Berlin-Packhof, preliminary ruling of 24 October 1973, (1973) E.C.R. 1091.
Also for products which do not fall under a common organization of the market or which are sold on the free market beyond the intervention price, sales into a foreign country after a devaluation of the home currency or a revaluation of the currency of the importing country are more profitable because of the resulting higher price level in the latter country. Eventually the market mechanism will adjust this situation by establishing a new price equilibrium at a lower level than the one existing immediately after the de- or revaluation.
Between 28 June and 14 July, the gap reached the amount of 6 billion dollars.
At the Smithsonian meeting the devaluation of the dollar was not officially fixed at 1 gramme of fine gold = Dollars 38; this meant a devaluation of 7.9%. The new parity became official on 8 May 1972, after Congress had given its consent.
Règlement (CEE) No. 2746/72 du Conseil du 19 décembre 1972, modifiant le règlement (CEE) No. 974/71 relatif à certaines mesures de politique de conjoncture à prendre dans le secteur agricole à la suite de l’élargissement temporaire des marges de fluctuation de monnaies de certains Etats membres, J.O. No. L 291, 28.12.1972, p. 148 (not officially translated).
Council Regulation (EEC) No. 729/70, of 21 April 1970, on the financing of the common agricultural policy, J.O. No. L 94, 28.4.1970, p. 13, as last amended by Regulation (EEC) No. 2788/72, J.O. No. L 295, 30.12.1972, p. 1. As the financial participation of the Member States in the Community budget was calculated on the basis of a value of the U.A. which differed from the one used for agricultural purposes, this provision gave use to the so-called “problem of the double rates”. From January 1978 this problem no longer exists as from then onwards the Community budget is totally financed by own resources.
Cf. Article 2 of the Decision of 21 April 1970 on the replacement of financial contributions from Member States by the Community’s own resources, J.O. No. L 94, 28.4.1970, p. 19.
After having joined the snake at the Smithsonian meetings, on 26 June 1972 Denmark decided to withdraw.
Council Regulation (EEC) No. 222/73, of 31 January 1973, on the exchange rates to be applied in agriculture for the currencies of the new Member States, O.J. No. L 27, 1.2.1973, p. 4.
Council Regulation (EEC) No. 509/73, of 22 February 1973, amending Regulation (EEC) No. 974/71, O.J. No. L 50, 23.2.1973, p. 1.
Council Regulation (EEC) No. 1112/73, of 30 April 1973, amending Regulation (EEC) No. 974/71, O.J. No. L 114, 30.4.1973, p. 4.
Council Regulation (EEC) No. 475/75, of 27 February 1975, on the exchange rates to be applied in agriculture, O.J. No. L 52, 28.2.1975, p. 28.
The “worm” agreement was considered as constituting a regional union between Belgium, Luxemburg and the Netherlands in the sense of Article 233 of the Treaty and hence, between those countries no M.C.A.’s were applied. Council Regulation (EEC) No. 2544/73, of 19 September 1973, on the exchange rate to be applied in agriculture for the Dutch guilder, O.J. No. L 263, p. 2.
Council Regulation (EEC) No. 557/76, of 15 March 1976, on the exchange rates to be applied in agriculture and repealing Regulation (EEC) No. 475/75, O.J. No. L 67, 15.3.1976, p. 1.
Originally this provision existed only for the export from Ireland to third countries of products in the beef and veal sector. For these operations the average of the percentage difference had to be reduced by one point. See Regulation (EEC) No. 2497/74, O.J. No. L 268, 3.10.1974, p. 5. Regulation (EEC) No. 475/75, cited above under 36., had generalized this provision to all agricultural products and extended the reduction to 1,25%.
See page 172–173 above.
This paraphrase of Article 109 is given since it offers a good indication of the limits imposed on the Member States autonomy in relation to Community interests.
Cf. Lardinois in Het Financiële Dagblad, 8.12.1977, p. 4.
Cf. I.M.F. proposals at Jamaica Conference 1976.
Cf. Duncan N. Ndegwa and Robert Triffin, “The international monetary order”, in Reshaping the International Order, A Report to the Club of Rome, (New York 1976) p. 126 et seq. Regarding the introduction of a European currency unit, see C. J. Oort, “Report on the Economic Law of the Member States in an Economic and Monetary Union”, 13 C.M.L. Rev. 1976 (Special Issue), 178 et seq.
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Braakman, G. (1978). Monetary Evolutions and the Common Agricultural Policy. In: Kapteyn, P.J.G., Ehlermann, CD., Simmonds, K.R., Winter, J.A. (eds) Common Market Law Review. Springer, Dordrecht. https://doi.org/10.1007/978-94-015-3273-0_12
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