I. Aim of the Understanding
With a view to maintaining a certain degree of stability in the international market for whole milk powder and to avoiding excessive competition which would have the effect of reducing export prices to an abnormally low level, as compared with the production cost of efficient producers - while taking into account the interests of consumers in developing countries and the desirability of promoting the consumption of the product in question - the following Adhering Parties: Austria, the European Economic Community, Denmark, Ireland, Norway, New Zealand, Sweden, Switzerland, are determined to continue the efforts made within the framework of the Gentleman’s Agreement on exports of whole milk powder which came into force on 15th February, 1963, and thereafter renewed on 23rd January, 1964, 39th October, 1964, 20th November, 1965 and 9th February, 1967.
To this end, they are agreed as follows:
II. Nature of products covered by the Understanding
Without prejudice to the definition in the F.A.O. Code of Principles concerning milk and milk products, according to which only a product with a minimum fat content of 26 per cent by weight may be defined as whole milk powder, it is understood that the present Understanding applies also to products with a declared fat content below that percentage, excluding, however, all powders designated as skim milk powder.
III. Floor prices
1. In order to prevent the export prices practised in their respective countries from falling below an agreed Participants undertake to apply the measures described for each of them in Annex 1.
2. The floor price is fixed at U.S. $45 Per 100 kilogrammes for whole milk powder with 26 per cent fat content. The description of the standard product to which this floor price applies, and the provisions on which the price is based, are given in Annex 2.
3. If the whold milk powder exported differs from the standard product in respect of either the manufacturing process, the fat content, the packaging or the terms of sale, the floor price shall be adjusted in accordance with the scales and provisions in Annex 2.
4. The Participants undertake to ensure that trade practices such as the tying of sales of whole milk powder to those of other products, or the sale of whole milk powder mixed with cocoa, chocolate or other products, do not have the indirect effect of reducing the export price of whole milk powder below the agreed floor price.
5. The Standing Committee set up in accordance with Article V shall be entitled to grant derogations from the provisions of paragraph 2 of the present Article if it is shown that compliance with the Understanding is causing serious difficulties to certain Participants and if, in particular, the applicant can prove that compliance with the floor price is perceptibly affecting its competitive position on certain markets or reducing the ratio of its total exports to the total exports of all the Participants.
6. As the purpose of fixing the floor price for exports is to prevent prices on the international market from settling at abnormally low levels, the floor price fixed in Virtue of the present Article shall in no case be interpreted as a fixed selling price.
IV. Field of application
1. For each Participant the Understanding shall apply to commercial exports of whole milk powder manufactured or repacked inside its own customs territory, whether the destination is temporary or final.
2. The Understanding shall not apply to non-commercial exports made under the auspices of Governments for the benefit of developing countries or less favoured groups. Such special operations should not disturb, or be likely to disturb, normal commercial exports or prejudice the satisfactory functioning of the Understanding; they should be notified to the Standing Committee in advance, if possible.
V. Administration of the Understanding
1. A Standing Committee is set up on which all Participants in the Understanding shall be represented.
2. The Standing Committee may decide to invite other countries and inter-governmental organisations as observers to its meetings.
3. The Standing Committee shall elect a Chairman and a Vice-Chairmen each year. These together with the Secretary represent the Bureau of the Standing Committee.
4. The Standing Committee shall act as necessary to ensure that the present Understanding is applied to that effect. The Participant shall make available to it the statistics and information it requires.
5· Decisions οf the Standing Committee shall be taken unanimously by Participants' Representatives present. In the cases provided for in Article VI, the Participants' Representatives directly concerned shall, while taking part in the discussions, not intervene in the final decision.
6. The Standing Committee shall meet, in principle, once in each quarter. Notwithstanding this (a) the Chairman shall be entitled to convene the Standing Committee on his own initiative outside the regular meetings; (b) the Chairman must convene the Standing Committee in the cases provided for in Articles VI, VII, and VIII-4, or if at least two Participants request him to do so.
7. The Standing Committee shall appoint its Secretary, after consultation with the Secretary-General of the O.E.C.D. The Secretary may, with the agreement of the Standing Committee, be assisted by experts.
VI. Complaints
In the event of a dispute concerning the observance of the Understanding, the Participant which considers itself injured shall, as a general rule, immediately contact the other Participant concerned. If the difficulties are not cleared up directly, the Participant considering itself injured may inform the Chairman of the facts of which it has knowledge. It may also transmit confidential information to the Secretary, who may attest as appropriate. The Bureau and representatives of the two Participants concerned, shall meet within seven days after receipt of such a communication, to consider and resolve the question. If agreement is not reached, or if an agreement reached at the meeting is not put into effect within a reasonable time, the Standing Committee shall be officially advised of the matter and shall hold an extraordinary session as a matter οf urgency to decide on steps to be taken.
VII. Emergency procedure
Any Participant which considers that its interests in one of its traditional markets are being seriously threatened by a country not bound by the Understanding may request for an urgent meeting of the Standing Committee to formulate and decide on emergency measures to be taken to meet the situation. If such a meeting cannot be held within two working days as from the date this request is received, the Participant which considers itself injured may, exceptionally take unilateral safeguard measures, the nature of which it shall immediately communicate to the other participating countries. It must be in a position to prove, at the following meeting of the Standing Committee, that the measures taken were justified.
VIII. Entry into force, renewal, amendment, adherence, withdrawal
1. The present Understanding shall come into force on 1st July, 1970 in respect of contracts to be fulfilled between 1st July, 1970 and 31st December, 1971.
2. Subject to amendments, which may be made at any time in accordance with the provisions of paragraph 3 of the present Article, the Understanding shall be tacitly renewed for a further period of one year if the participating countries have not decided otherwise by 1st October of each year at the latest.
3.
a) Any Participant may request an amendment of the present Understanding. The Standing Committee shall examine the request and may propose an amendment to the Participants. If the proposal is accepted it shall come into force immediately.
b) As soon as a request for increasing the floor price has been officially notified to all Participants, they shall immediately take the necessary steps so that exporters do not give firm undertakings in respect of the prices in any new contract and/or so that no assurances are given to them as to the amount of direct or indirect financial assistance that might be made available to them in order that they may honour such contract. These measures shall be reported as soon as the Participants have reached a decision on the request for an increase in the floor price.
c) If it is decided to increase the floor price, each Participant shall inform the Secretary within 14 days of the quantities remaining to be delivered, and the destination, of milk powder covered by contracts concluded at the old price. The Secretary shall communicate this information to the Participants.
d) If a Participant should amend its undertakings as described in Annex I, it shall immediately inform the other Participants in writing. Such modifications can only be effected by a Participant provided the new arrangements have as their minimum objective the achievement of results comparable to those of the present agreement. At the session following this modification the Standing Committee shall examine the new undertakings with a view to amending the Annex I.
3. The present Understanding shall be open at all times for adherence by countries which did not participate in it at the time of its conclusion. Applications for adherence shall be addressed to the Chairman of the Standing Committee. The Standing Committee shall meet within a short time, with the participation of the country concerned, to reach a decision on the application.
5. Any Participant may indicate its intention of withdrawing from the present Understanding if it considers that the procedures laid down in articles III-5, VI or VII do not result in adequate corrective measures to safeguard its interests. It shall notify its intention to withdraw in writing to the Chairman of the Standing Committee and shall inform the Secretary. The Standing Committee shall meet officially within seven days following such notification to examine the situation and to seek means whereby the withdrawal of the Participant concerned, and of other Participants affected by that withdrawal, can be avoided. If no means can be found it shall immediately report to the Participants on the circumstances motivating the withdrawal and the efforts it has made to avoid it. It shall also give its opinion in the report on the consequences of the withdrawal and the responsibility of the country or Countries for bringing about this situation.
The withdrawal shall not take effect until after ten days from the date of the meeting of the Standing Committee.
IX. Abrogation
The Understanding may be declared to have lapsed if a wider agreement on dairy products, including whole milk powder, were concluded.
X. Notification
The present Understanding, and any significant amendments subsequently made to it, shall be notified to the Secretary-General of the O.E.C.D. and communicated to the Director-General of the G.A.T.T. for information.
ANNEX I
MEASURES TAKEN BY THE PARTICIPANTS FOR THE OBSERVANCE OF THE UNDERSTANDING
AUSTRIA
1. In order to prevent export prices from dropping below the agreed limit, the Austrian authorities will restrict in an appropriate manner the export restitution necessary for exportation. Due to the high costs of milk, whole milk powder is available to the Austrian exporter at a price fixed substantially above the minimum price for whole milk powder as laid down in the Gentleman's Agreement. Within the framework of an agreement with the competent authority, the exporter has undertaken to respect the minimum price, the conditions and terms of the Gentleman's Agreement.
2. The correct settlement of the invoices and payments to foreign countries are subject to the control of the Austrian National bank according to the exchange act. In the event of the Austrian exporter selling below the minimum price the first step would be an official enquiry into the facts and their implications.
3· If it were established that the provisions of the Gentleman's Agreement had not been observed by the Austrian exporter, he would bo held responsible by the Austrian authorities and would be made to reimburse the difference between the minimum price and the actual price quoted.
DENMARK
1. To produce milk powder for export a special authorisation issued by the Danish authorities is required.
Furthermore, a special export licence is issued for each consignment.
2. All manufacturers of full cream milk powder will, towards the Ministry of Agriculture, undertake in writing to observe prices, terms, and conditions stipulated in the Gentleman's Agreement, and to secure, in case of resale to exporters, that the latter also observe the agreement
3. To make it possible to verify and control that the conditions of the Gentleman's Agreement are observed, each exporting factory will furthermore undertake to supply to the Ministry of Agriculture all information necessary hereto, if so requested.
4· Such written obligations towards a Danish authority means that non-observance automatically brings the case under the regular civil laws. A court will decide in each case, and, depending on the nature of the non-oboervance, impose fines or eventually withdraw, for shorter or longer periods, the authorisation to manufacture milk powder for export. For each case of non-observance of prices a sanction will be taken.
EUROPEAN ECONOMIC COMMUNITY
In conformity with Article 17 of (EEC) Regulation No. 804/68, the difference between the international market price and that prevailing within the Community may be covered by a standard restitution at the export level.
The amount of restitution shall be limited to the difference between the agreed price and the market level prevailing within the Community.
The amount of restitution is calculated for "spray" processed whole milk powder with 26% fat content by weight packed in polythene lined paper bags of 25 kilos net. Being given that the amount of restitution is the same as above whatever be the processing method, packing and conditions of sole, any difference in manufacturing costs, packing costs and terms of sale will be automatically reflected in the export price.
The restitution for products with a fat content which differs from 26% is calculated by decreasing or Increasing, as the case may be, the restitution applicable to the product with 26% fat content by an amount corresponding to the difference in the fat content multiplied by the difference between the value of 1% fat within the Community and $1.00. Restitution 13 fixed for products with the following contents (the same restitution being applicable for the products in brockets):
Restitution for products with 11% fat content or less is the same as that granted for skimmed milk powder.
Restitution for products containing whole milk powder is granted on the basis of the actual quantity of whole milk powder included taking into account the real fat content of the exported product.
Restitutions, which are fixed at least once every four weeks, are published in the "Journal Officiel" of the European Communities.
IRELAND
1· The Irish Dairy Produce Board is, with two exceptions, the sole exporter of whole milk powder. The powder is purchased from manufacturers at un agreed price related to production costs and exported by the Board at not less than the mínimum price under the Agreement, the difference between the realised and purchase prices being covered by the Board which receives a grant from the State in respect of losses on the export of dairy produce.
In the case of the two manufacturers who trade directly a subsidy is paid by the Board to cover the difference between average production costs of efficient producers and the price realised on export, the Board verifying from the relevant shipping documents that the sale price is not less than the minimum laid down in the Agreement.
2. Dairy products may not be exported from Ireland except under licence from the Department of Agriculture and Fisheries. In the case of whole milk powder all exporters, including the Dairy produce Board, are required to furnish comprehensive details of each shipment, Including particulars of the export price, before an export licence is granted. Additional evidence as to price may be called for, if considered necessary.
The Department may have powder analysed for butterfat content prior to granting of export licences and the Customs Authorities take samples from consignments prior to export,
3. A breach of the Agreement would Involve such penalties as refusal by the Department of future applications for export licences and/or the abatement or withholding of subsidies by the Dairy Produce Board.
NEW ZEALAND
The New Zealand Dairy Board, on which the New Zealand Government is represented, is the sole exporter of dairy products from New Zealand, The Board operates under statutory authority, which provides, inter alia, that the Board shall comply with the general trade policy of the Government. The New Zealand Government is therefore in a position to ensure that the Board's performance is consistent with the provisions of the Gentleman's Agreement.
NORWAY
1 The dairy cooperatives on the one hand and a private firm on the other hand which are the only exporters, have concluded an agreement similar to the Gentleman's Agreement; they are bound by an undertaking not to export below a fixed price and a procedure for complaints is provided.
2. The control is efficiently carried out by both parties: should one of the exporters sell at a price lower than the agreed price, the other exporter would be automatically released from his obligation to respect this price.
3· Should this practice prove insufficient in future, and should a complaint be lodged according to the provisions of the Gentlemen’s Agreement, the Norwegian authorities would then have to take appropriate measures.
SWEDEN
Sweden will observe the prices, conditions and terms of the Gentleman's Agreement on exports of whole milk powder. In this context attention is drawn to the following facts.
The supported domestic price of whole milk powder exceeds the minimum price of the Gentleman's Agreement. An additional payment is therefore necessary to equalize the difference between the domestic price and the export price. This additional payment is financed by a special equalization fund which is administered by the Association for Trade in Milk and Dairy Products[i]. The Association grants export aid in compliance with the regulations given by the National Agricultural Marketing Board. According to these regulations export aid is not granted unless the minimum price requirements of the Gentleman’s Agreement are met.
SWITZERLAND
1. Considering the existing legislation, the Swiss Authorities are not competent to fix and control export prices and, consequently, they are not in a position to subscribe to the formal undertaking mentioned in Article III, sub-paragraph 2.
2. The Gentleman’s Agreement will, however, be observed on the Swiss side in view of the price level at which Swiss manufacturers of milk powder have to buy the fluid milk used for their export products, and considering the relationship existing between the Government and the few exporters.
3· Moreover, the Swiss authorities will see that subsidies granted for exports of whole milk powder of Swiss origin do not result in bringing the price of this product below the floor price.
As regards imported products, the method adopted for the import of whole milk powder in Switzerland is such that it excludes the possibility of re-exporting below the floor price.
ANNEX 2
A DESCRIPTION OF THE STANDARD PRODUCT
1. Manufacturing process: spray.
2. Fat content: 26 per cent of the product by weight.
3. Weight and packaging: 100 kg in polythene-lined paper bags containing 25 kg.
4. Terms of sale: F·O.Β. ocean-going vessels from the exporting country or free-at-frontier from the exporting Country. Payment against documents.
B. ADJUSTMENT OF THE FLOOR PRICE
If the product exported differs from the standard product in respect of the manufacturing process, the fat content, the packaging or the terms of sale, the floor price shall be adjusted in accordance with the following provisions:
Manufacturing process: If the exported product is manufactured by the "Roller" process, any difference in prices between this product and the standard one resulting from manufacturing cost, the home market situation or commercial practices, may be reflected in the floor price. At the export level, this difference should not, however, exceed U.s. $1·00 per 100 kilos.
Fat content: If the fat content is greater or leas than 26 per cent, U.s $1.00 shall be added to, or subtracted from, the price for each 1 per cent increase or decrease.
Packaging: If the product la packed otherwise than in 25 kg polytnene-lined paper bags (drums, hermetically sealed metal containers, cartons, etc.) the floor price stall be increased by the difference between the cost of the packaging used (including labour and direct costs) and the cost of the standard packaging.
Terms of sale: If sold on terms other than F.O.B. or free-at-frontier, the floor price shall be increased by the cost of the other services supplied: freight, insurance, etc.
If the terras of sale include credit, the invoice price shall be increased by the cost of the credit at the commercial rate in force. For the purpose of this Understanding, this rate shall not be less than 1 per cent of the invoice price for each period of 30 days from the date of shipping.
If the sale is made against payment in advance or against an irrevocable letter of credit payable against documents, the price of the product may be reduced up to 2 per cent. This does not apply to intra-European transactions.
C. INDIRECT COSTS
It is specified that the fixed floor price applies to the commercial transaction itself. Any other expenses can only be additional, whether they concern remuneration of sales agents, publicity campaigns or other items.
ANNEX 3
DEROGATION IN FAVOUR OF AUSTRIA
In derogation to the provisions concerning the conditions of sale, Austria has the option to retain F.O.B. continental North Sea ports, as a basis for the minimum price to be observed in respect of exports to countries situated outside continental Europe.
The aim of this derogation is to place Austria in a competitive position comparable with that of countries having direct access to the sea and to enable her to diversify her exports. Austria does not intend to make use of this derogation to increase her share of total exports as compared with that of other Participants and particularly to take a larger share of the United Kingdom market than that already acquired during the past three years.
The Standing Committee may examine, in particular if so requested by a Participant. the working of this derogation.
[i] Semi-official market regulation body for dairy products.