tion. For the United States and Canada, since the domestic markets are not completely integrated, the seven percent loss will be measured against Eastern regions only.

When the group as a whole loses more than seven percent, but less than twelve percent of its normal consumption, each country restrains demand by seven percent, the remaining shortfall is shared among all members on the basis of imports, and countries draw down their emergency supplies as necessary to maintain their consumption at 93 percent of normal. When the group as a whole loses twelve percent of its normal consumption, each country restrains demand by ten percent, the remaining shortfall is shared on the basis of imports, and countries draw down emergency supplies as necessary to maintain consumption at 90 percent of normal.

The agreement provides a general framework for long term cooperation on energy. It was agreed that the areas to be considered included (a) conservation of energy, including cooperative programs on exchange of national experiences and information on energy conservation, and ways and means for reducing the growth of energy consumption through conservation; (b) development of alternative sources of energy such as domestic oil, coal, natural gas, nuclear energy and hydroelectric power; (c) energy research and development; and (d) uranium enrichment.

The IEP also provides for an information system on the international oil market, including a general section to provide data on the market and the operations of oil companies during non-crisis periods and a special section designed to provide the additional information necessary to operate the emergency program. A framework for consultations with individual companies is also provided to assist in the implementation of the emergency program.

The IEP provides for coordination among the participating countries of relations with the oil exporting countries and the less developed importing countries. The participating countries pledge to promote cooperative relations with oil producing countries and with other oil consuming nations. They pledge to keep under review developments in the energy field with a view to identifying opportunities for and promoting a "purposeful dialogue” and other forms of cooperation with producer and other consumer countries.

The agreement establishes the International Energy Agency (IEA) as a permanent, autonomous body under the auspices of the OECD. The new institution is open to all OECD members prepared to assume the IEP obligations. The IEA has a Governing Board, a Management Committee, Standing Groups in the four major areas of the IEP. and a Secretariat. The Governing Board, which is responsible for

decisions and recommendations necessary for the proper functioning of the Program, may meet at Ministerial level, but will normally meet at senior official level. The Management Committee is to carry out the functions assigned to it in the agreement or by the Governing Board. It may examine and make proposals to the Board. The Standing Groups are responsible for work programs in the areas of emergency measures, the oil market, long term cooperation, and relations with producer and other consumer countries. The Secretariat will assist the various IEA organs in carrying out their functions.

The IEA has a system of weighted voting for decision making purposes. Each country receives three general weights plus additional weights based upon oil consumption. Under this plan the combined weights of all 16 countries is 148. The United States holds 51 of these combined weights, or about 34 percent. Most decisions will be made by a majority requiring 60 percent of the total combined voting weights as well as the votes of at least eight countries. Sixty percent of the total combined weighted votes, plus the votes of 12 of the 16 participating countries would be required to prevent the activation of the demand restraint and oil sharing commitments in the face of a general embargo. Similarly, the commitment to come to the aid of a country subjected to a selective embargo could only be overturned by a majority of 14 countries. The system underscores the presumption of positive action under the emergency program. Decisions involving new obligations on participating countries will require unanimous approval.

Each signatory state was given until May 1, 1975, to notify the Government of Belgium that it consented to be bound by the agreement. On the tenth day following the day on which at least six states holding at least 60 percent of the combined voting weights have deposited their notifications of consent to be bound or instruments of accession, the agreement enters into force for such states. For each signatory state which deposits its notification thereafter, the agreements enter into force on the tenth day following the day of deposit. However, the agreement is to be applied provisionally by all signatory states, to the extent possible not inconsistent with their legislation, as from November 18, 1974, following the first meeting of the Governing Board. Provisional application is to continue until the agreement enters into force for the state concerned, or until 60 days after Belgium receives notification that the state concerned will not consent to be bound, or until the May 1, 1975, time limit expires. The agreement is to remain in force for ten years from the date of its entry into force and is to continue in force thereafter unless and until the Governing

Board, acting by majority, decides on its termination. The agreement is subject to a general review after May 1, 1980.

Financial Safety Net

On December 18, 1974, Charles A. Cooper, Assistant Secretary of the Treasury for International Affairs, made a statement before the Subcommittee on Foreign Economic Policy and the Subcommittee on International Organizations and Movements of the House Foreign Affairs Committee, on the U.S. proposal for a financial safety net as part of its general approach to the economic problems created by the sudden increase in the price of oil. Mr. Cooper referred to the problem of distribution of funds among oil importing countries and the need of some countries for supplementary access to credit. The U.S. proposal involved three "tracks”—(a) expanded use of IMF resources; (b) establishment of a new supplementary financial facility associated with the OECD; and (c) creation of a Trust Fund managed by the IMF to channel funds to the poorest developing countries. Mr. Cooper said, in part:

In our view, the IMF would be the first and central track, at the heart of the financing constellation. The IMF would continue to serve as the first line of official multilateral financing for the full range of its membership, following the Fund's basic principle of uniform treatment for all members. We believe that the Fund's existing lendable resources-some $12-$14 billion-could be mobilized effectively in 1975. For the longer term, we are prepared in principle to support a substantial increase in Fund resources through a quota increase.

Our proposals for creation of a financial solidarity agreement among the industrial countries in association with the OECD would supplement IMF resources. This is our second track, designed to assist countries in resisting pressures to take restrictive action or to reduce economic activity to lower than desirable levels-for their own economic and political stability and the health of an increasingly interdependent world.

Our financial insurance scheme is, as I have indicated, designed to support a cooperative energy program. Participants would also undertake to pursue responsible adjustment policies and avoid recourse to restrictive trade measures or other beggar-thy-neighbor policies.

It is important that the facility be large enough to inspire confidence among the participants that in case of real need they will be able to find supplementary financing on reasonable terms. We have recommended a facility with total commitments by all members in the neighborhood of $25 billion in 1975, with provision for additional resources in subsequent years in case of need. Our belief that the facility should supplement existing channels of financing, not replace them, suggests that it should lend on market related terms.

It seems to us appropriate that decisions on the provision of financial support should be based on the overall economic position of the borrowers, not any single criterion such as oil import bills. In practice, it is difficult to distinguish oil deficits from non oil deficits; conventional balance of payments concepts have lost most of their relevance in today's world.

Thus, before granting use of the facility's resources, the participants should be satisfied that the applicant

-was following appropriate adjustment policies, both domestic and international;

was following cooperative energy policies;

-was not imposing trade or other current account restrictions for balance of payments purposes;

-was making reasonable use of its reserves and the best possible efforts to obtain capital on reasonable terms from other sources, both private and public.

Finally, whenever support is provided by the facility, we believe it essential that all members share the credit risk on the basis of their participation. This principle is fundamental to the mutual support system we are suggesting.

Our proposal for a solidarity fund among the industrial countries was formally introduced and discussed at the meetings of the Deputies of the Group of Ten and the OECD's Working Party Three in Paris in late November, as was a similar proposal by the Secretary General of the OECD. No commitments were sought or given; our purpose was to gain understanding and to set out a work program

Our third track concerns assistance for the developing countries. Expanded use of IMF resources and the establishment of a new supplementary financial facility associated with the OECD will help insure orderly access to the world's capital markets, and should help many developing countries secure the funds they need and can productively employ. These are the middle range of developing countries which have been doing quite well during recent years-achieving impressive rates of growth and remarkable export performances. Their demonstrated credit worthiness has enabled them to borrow increasingly on the world's capital markets.

The poorest developing countries, however, most seriously affected by price increases in fuel, fertilizer, and food, need concessional financing. With extremely low levels of income and growth and scant monetary reserves, these countries cannot afford to assume a greater debt burden except on very liberal terms. We have thus suggested the creation of a Trust Fund, managed by the IMF. We would hope that OPEC countries would provide a substantial part of the concessional contributions to the Trust Fund. We have also proposed that the IMF itself might contribute a portion of the profits derived from the sale of a small portion of its gold in the private market. A trust fund of this nature which would offer credit on relatively soft terms-perhaps 2-4% interest and moderately long maturitieswould channel funds to those most seriously affected on concessional terms not appropriate for other borrowers. We hope that the new

IMF/IBRD Development Committee and the Interim Committee will give this suggestion their urgent attention.

I am confident that progress along the three tracks I have described, will make an important contribution to the management of world financial problems in 1975. This in no way implies that the United States or the world should slacken efforts to deal with the more basic problem of world oil prices and supplies.

Dept. of the Treasury News, Dec. 18, 1974, pp. 3-6.

U.S.-Japan

Bilateral Agreements

On July 15, 1974, the United States and Japan signed an Agreement on Cooperation in the Field of Energy Research and Development (TIAS 7905; 25 UST 1679; entered into force July 15, 1974).

The Agreement calls for cooperative activities in a wide range of mutually agreed areas pertaining to energy resources, energy conversion and transmission, and energy conservation, including: solar and geothermal energy applications; storage batteries; gasification and liquefaction of coal; energy applications of hydrogen; magnetohydrodynamic conversion; fuel cells; electrical energy transmission by superconduction or microwaves; advanced propulsion systems; energy conservation; utilization of waste materials and waste heat; and other areas relating to energy research and development as may be agreed.

The Agreement provides for cooperation to take the form of meetings of experts; exchanges of technical information and information on policies, practices, legislation and regulatory activities; visits of scientists to technical facilities; and the conduct of joint or complementary research projects and programs in the field of energy. Meetings are to be held at least once a year, alternately in the United States and Japan, to discuss major energy research and development policy issues relating to the implementation of the Agreement and to review activities and accomplishments thereunder.

It was further agreed that scientific and technological information of a nonproprietary nature arising from the cooperative activities under the Agreement might be made available to the public by either Government through "customary channels and in accordance with the normal procedures of the participating agencies." The disposition of patents, designs and other industrial property arising from the cooperative activities under the Agreement will be provided for in implementing arrangements made between the appropriate agencies of the two governments.

See also Dept. of State Press Release, No. 305, July 15, 1974.