Please find duly signed the clarification letter agreed by our Services concerning the US/EC canned fruit agreement.

I have signed it on the understanding that the letter will apply from the coming marketing year onward and will not have retroactive effect. I urge you to reconsider your decision to take unilateral measures for the current marketing year.

"On the basis of recent discussions between representatives of the Government of the United State (U.S.), and the Commission of the European Communities (EC) relating to the 1991/92 aids for EC canned peaches and canned pears, the U.S. and the EC agree that elaboration of certain points contained in the 1989 U.S. - EC Exchange of Letters on the Canned Fruit Agreement would be useful and warranted. The conclusions of those discussions are outlined below.

"The United States and the EC agree that calculation of the trade-weighted world market price shall be based on the parameters set out in Annex 1. Any modifications to Annex 1 would require bilateral agreement. Provided reliable market, trade and exchange rate data can be agreed upon, the two sides agree in principle to include in the future Chinese raw fruit prices and canned fruit exports in Annex 1. They agree to work toward reaching mutual agreement on the availability of such data by no later than April 15, 1992.

"The world price will be expressed in a single currency, the U.S. dollar, using monthly exchange rates that equal the simple average of the daily rates published by IMF. Taking note of the disparities in the methodologies used by the U.S. and the EC, the two sides agree that the EC may use green market exchange rates. Such use is without prejudice to whether the green ECU could be considered a "currency".

"The exchange rate (dollar/ECU) used for the conversion of world prices from dollars into ECUs and the exchange rates (ECU/local currencies)used for the Monetary Differential Amount (MDA) calculation will be equal to the simple average of the daily exchange rates as pub1ished in the Official Journal of the European Communities, series C, multiplied by the correcting factor used in the Common Agricultural Policy (currently 1.145109).

"Both sides confirm that the MDA shall adjust the processing aid to account for any gap between "the green and market rate". Market rates are those exchange rates specified in paragraph four of this letter.

The agreed formula for calculation of the MDA is given in Annex II. The Commission agrees to amend EC regulations to reflect this understanding.

"Noting that the 1989 exchange of letters provides that "meetings between our respective services shall be held annually, immediately prior to fixing the minimum grower prices and aid levels for canned fruit", the U.S. agrees to provide its calculations of the world price to the EC by May 15 of each year. The world price (In U.S. dollars) shall be agreed upon no later than May 30. Bilateral consultations on processing aids shall take place before June 15. Should differences of views on this matter occur, the two sides agree to resolve these differences no later than June 30.

"I would appreciate your confirmation on behalf of the U.S. government of the understanding outlined above.

Countries	Source of Export Data	Source of Price Data
United States	U.S. Census estimate of contract price for marketing year beginning following June	U.S. grower organisation
Chile	Central Bank of Chile	Average of contract prices quoted by canner and grower organisations
Australia	ABARE	ABARE indicative grower price
South Africa	South African Government	South African Canning Fruit Board

Countries	Source of Export Data	Source of Price Data
United States	U.S. Census estimate of contract price for marketing year beginning following June	U.S. grower organisation
Australia	ABARE	ABARE indicative grower price
South Africa	South African Government	South African Canning Fruit Board

MGP(1c) = Minimum Grower Price in ECUs multiplied by the Green Rate = Minimum Grower Price in local currency

WP(1c) = World Price in U.S. dollars multiplied by the local currency - U.S. dollar exchange rate = World Price in local currency.

WP(1c) = World Price in green ECUs multiplied by the local currency - ECO green market exchange rate = World Price in local currency

PS(1c) = Processing Subsidy in ECUs multiplied by the green rate = Processing Subsidy in local currency.

Note: Source of exchange rates applying to the expression of World Price in US dollars: International Monetary Fund

Source of exchange rate applying to conversion of World Price from US dollars to ECUs and from ECUs to local currency: Official Journal of the European Communities, series C multiplied by C.A.P. correcting factor.

I am pleased with the reported progress made in the EC/US discussions of 16 to 18 May in Brussels and with the line you adopted in your meeting with Frans on 18 May on the subject of canned fruit. I should like to clarify our understanding regarding implementation of the U.S.-EC Canned Fruit Agreement, so that this matter may be brought to a close in a way which is mutually satisfactory.

For the marketing year beginning 1 July 1988, the combination of the fixing of the minimum grower price and the aid for canned fruit will be such that the EC Processor's Net Cost, as defined by the US in the recent talks, will be at or greater than US $203 per tonne for peaches and US $159 per tonne for pears. Such an approach is without prejudice to the Commission's reserve over the US methodology.

To avoid there being problems in the future, the Commission has proposed an amendment to a key Regulation (EEC) No. 1277/84 which would limit the aid for canned peaches and canned pears, at maximum, to compensate for the difference between the world market place (based on the prices for fresh products in the main exporting countries) and the minimum grower price in the Community. The world price would be the average of the farm gate price of raw fruit for processing, calculated on a trade weighted basis (by volume of trade of finished product), of principal producer exporting countries outside the EC. Prices shall be converted into a single currency by applying the average exchange rate of the first three months of each calendar year. This amendment will thus ensure that the aid levels for canned peaches and pears are fixed in such a way as not to subsidize the processing operation.

The Commission has also submitted, within the same proposal to Council, a further amendment for early adoption to introduce the concept of a monetary differential amount for canned peaches and canned pears. Such a mechanism should permit the Commission to adjust the level of aid paid in a member state to correct for any gap that may exist between the green and market rate when this is deemed necessary. As such, the monetary differential amounts may be applied to the aid for the 1989/90 marketing year.

If the EC changes the procedures for establishing the aid levels for canned fruit, the Commission agrees to inform the US and to provide the opportunity for consultations with the US before the new procedures take effect. Such consultations would enable the two parties to ensure that the conditions outlined in paragraph 3 above, continue to be met.

Meetings between our respective services shall be held annually, immediately prior to fixing the minimum grower prices and aid levels for canned fruit in order to exchange data and views on the relevant factors included in the calculation of the world market price, as well as the difference between the world market price and the minimum grower price, as outlined above.

I should be grateful if you would confirm my understanding of the EC/US meetings and that the US administration will suspend its action initiated in the Federal Register on 10 May (Reference 64 FR 20219) until 1 October 1989 and withdraw its action once the amendments described above have been adopted by Council.

Thank you for your letter, dated June 30, 1989, which outlines our common understanding regarding implementation of the U.S.-EC Canned Fruit Agreement.

In light of your commitments regarding the EC processor's net costs for peaches and pears for the marketing year beginning 1 July 1989, as well as your commitment to introduce an amendment to ensure that the aid levels for canned peaches and pears are fixed in such a way as not to subsidize the processing operation, I can confirm that the United States will suspend its action initiated in the Federal Register on 10 May until 1 October 1989.

I can further confirm, that the United States will withdraw its action once the amendments described in your letter have been adopted by the Council.

I am writing to inform you that the EC Council of Ministers today approved the Commission's proposed amendment to EEC Regulation 1277/84. A copy of this amendment is attached.

The amendment limits the aid for canned peaches and pears, at maximum, to compensate for the difference between the world market price and the minimum grower price in the Community. In addition, the amendment introduces the concept of a monetary differential amount for canned peaches and canned pears, which will permit the Commission to adjust the level of aid in a member state to correct for any gap that may exist between the green and market rate when this is deemed necessary.

I can assure you that this amendment is consistent with our common understanding regarding implementation of the Canned Fruit Agreement, as outlined in my letter of June 30. Consequently this amendment will ensure that the aid levels for canned peaches and pears are fixed in such a way as not to subsidize the processing operation.

Having regard to Council Regulation (EEC) No 426/86 of 24 February 1986 on the common organization of the market in products processed from fruit and vegetables ⁽¹⁾ , as last amended by Regulation {EEC) No 1125/89⁽²⁾ and in particular Article 5 thereof.

Whereas the calculation of production aid pursuant to Article 5 of Regulation (EEC) No. 425/86 must take account of the price in third countries whereas, in order to assess that factor properly in the case of peaches and pears in syrup and/or natural fruit juice, the farm-gate prices actually paid in the main producing and exporting third countries on the world market for raw material of a quality comparable to that of fresh Community products used for processing should be taken into account; whereas, however, when that price is recorded, the figures should be weighted on the basis of actual exports of finished products from the producing countries concerned on the world market.

Whereas currency movements of the different currencies of the Member States may in the absence of specific monetary compensatory mechanisms for this sector, result in distortion between producers in certain of those States; whereas provision should be made, in accordance with a suitable decision-making procedure, for the possibility of using a system of monetary adjustment if this proves necessary to ensure normal conditions of competition;

Whereas Regulation (EEC) No 1277/84 should be amended accordingly ⁽³⁾ HAS ADOPTED THIS REGULATION:

The following paragraphs are hereby added in Article 3 of Regulation (EEC) No 1277/84:

7. For peaches and pears in syrup and/or in natural fruit juice, the production aid calculated pursuant to this Regulation may not exceed the difference between the minimum price paid to the Community producer and the price of the raw material in the main producing and exporting third countries.

That latter price shall be principally determined on the basis of farm-gate prices actually applying to fresh products of comparable quality used for processing, weighted according to the quantities of finished products exported by those third countries on the world market.

8. The Commission may, in accordance with the procedure laid down in Article 22 of Regulation (EEC) No 426/86 ⁽⁴⁾, introduce a system of monetary adjustment aiming to correct the production aid by taking account of the impact, on the minimum price less the aid, of the differences which exist between:

- the average of the rates referred to in Article 3 (1) of Regulation (EEC) No 1676/85 over a period to be determined.

This Regulation shall enter into force on the day of its publication in the Official Journal of the European Communities.

This Regulation shall be binding in its entirety and directly applicable in all Member States

Thank you for your letter informing me of the Council's adoption of the Commission's proposed amendment to EEC Regulation l277/84. Based on your assurance that the amendment is consistent with our understanding regarding implementation of the Canned Fruit Agreement, I can confirm that the United States is terminating Section 301 investigation on this matter.

We acknowledge receipt of your letter of 3 December, with which you enclosed Ambassador Yeutter's reply to our Letter of 29 November about our canned fruit and dried grapes problem.

With regard to the United States understandings of the solution reached, we would like to refer you to our letter of 29 November addressed to Ambassador Yeutter, and in particular to the paragraph concerning canned peaches.

May we also take this opportunity to thank you for your help in the resolution of this problem?

I am pleased to enclose Ambassador Yeutter's reply to your letter. The signed original will follow. In providing this response, I wish to express the U.S. understanding that subsidies of the processing operation for peaches either canned as such or as part of fruit mixtures will be fully eliminated with the marketing year which begins in July 1987. Further, it is our understanding that as a result of the actions the EEC has taken on aids for canned pears and will take with regard to aids for peaches, benefits which indirectly accrue to mixed fruit canners will be automatically reduced.

In closing, let me add an expression of my own personal pleasure that with considerable effort on both sides, we have been able to settle this matter, and my own thanks to you both.

Our officials, as you know, have been intensively examining in the last few months how to settle, in a mutually satisfactory way, our dispute on canned fruit and dried grapes.

On canned pears, we recalled in our discussions the reductions of the aid already decided autonomously by the EEC in the last three years, and the fact that the quantity of product benefitting from the aid is limited by a quota.

We are now in a position to confirm that, in order to settle the issue as a whole, the Community will take the necessary steps in order to ensure that for the marketing year beginning July 1986, the EEC production aid for canned peaches by 146,25 ECU/T i.e. 25% lower than that applying for 1985/86. With regard to the subsequent marketing years, we would like to assure you that the Commission will fix this aid in such a way as not to subsidize the processing operation for peaches in syrup either canned as such or as part of fruit mixtures.

We agree that both the EEC and the US should jointly inform the GATT council that we have settled our dispute on canned fruit and dried grapes in a mutually satisfactory way.

Thank you for your letter of November (28). I would like to confirm U.S. agreement to the proposals made in your letter for resolving our canned fruit and dried grape dispute:

1. On canned pears, we note the reductions of aid already decided autonomously by the EEC in the last three years, and the fact that the quantity of product benefitting from the aid is limited by a quota.

2. The Community will take the necessary steps to ensure that for the marketing year beginning July 1986, the EEC production aid for canned peaches will be 146.25 ECU/MT, i.e., 25% lower than that applying for 1985/86. With regard to the subsequent marketing years, the Commission will fix this aid in such a way as not to subsidize the processing operation for peaches in syrup either canned as such or as part of fruit mixtures.

3. We agree that both the EEC and the U.S. should jointly inform the GATT Council that we have settled our dispute on canned fruit and dried grapes in a mutually satisfactory way.

I am pleased that we have been able to resolve this longstanding irritant. Thanks to both of you for your personal efforts in bringing this matter to a satisfactory ending.