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Item 3 of agenda - Relations with other organizations

1. Relations with United Nations

The relations between FAO and the United Nations are governed by various articles of the Charter of the latter and more directly by the agreement between the two organizations which the FAO Conference and the General Assembly of the United Nations approved in 1946. These relations are of extreme importance. It is clear that in the technical field as well as in respect of auxiliary services the maximum degree of cooperation is desirable to avoid confusion, duplication of effort, and the consequential waste of funds.

The Commission has, therefore, considered with great care the report of the Director General on the progress so far achieved in developing relations with the United Nations on the basis of the above agreement. It noted with pleasure that exchange of information and of documents, cooperation among statistical services, and assistance afforded to FAO by the Department of Public Information of the United Nations are developing satisfactorily.

The Commission recommended for adoption by the Conference a resolution welcoming the creation of the International Children's Emergency Fund and urging all members of FAO to support its activities. The resolution was forwarded to Commission II for what action it might wish to take on its own behalf and was endorsed by that Commission.

The developments that have taken place in the field of financial and administrative affairs between FAO and the United Nations were discussed in detail. It was felt that while a maximum degree of co-operation was needed in this field, such co-operation should not be allowed to jeopardize in any way the autonomy of FAO. This co-operation should be on the basis of reciprocity and should not place FAO in a subordinate position. Particular concern was expressed regarding the view that the budgets of the specialized agencies should be approved by the General Assembly. The delegates from Ireland, Portugal, and Switzerland raised strong objections to such a procedure since they were not members of the United Nations. It was also the opinion of the Commission that common fiscal controls and common administrative and financial methods should not be allowed to affect FAO's autonomy or lead to additional unnecessary expenditure.

The Commission concluded by endorsing the policy that has been followed so far by the Director-General and recommended that this policy should be pursued. It was felt that it would lead to a better definition of the relationship between the two organizations if a supplementary agreement were negotiated with the United Nations as provided for in the second paragraph of Article XIV of the Agreement. The Commission also recommended that the Director-General submit the draft of any such supplementary agreement to a subsequent session of the Conference for consideration prior to ratification.

2. Relations with Specialized Agencies

The Commission considered the draft Agreement [see Appendix 13] negotiated between the International Labour Organisation and FAO. The representative of ILO informed the Commission that the draft Agreement had been approved in March 1947 by the Governing Body of ILO, which would welcome the early implementation of its provisions. It was stated on behalf of the Director-General that the two organizations had reached agreement in principle to hold joint discussions, after approval of the Agreement, on ways and means of implementing Article 3.

The Commission recommended that the Conference approve the Agreement between the International Labour Organisation and the Food and Agriculture Organization of the United Nations relating to co-operation between the two agencies, and requested the Director-General to notify the International Labour Organisation of such approval and to file the Agreement with the United Nations as provided by Article 10, paragraph 2 of the Agreement. [See Resolutions]

The Commission proceeded to consider item by item the sections of the Report of the Executive Committee to the Conference dealing with FAO's relations during the past year with other specialized agencies and approved them without comment.

3. Relations with International Nongovernmental Organizations

In the field of relations with International Nongovernmental Organizations, the question of the admission of the International Chamber of Commerce to Category 1 status was considered. The Commission noted that the Executive Committee had recommended such action in its report to the Conference, and the Commission endorsed this recommendation.

Item 4 of agenda - Regional offices

The question of the establishment of regional offices was discussed. The Commission had the advantage of perusing the report of the Director-General on the subject. The Commission unanimously came to the conclusion that regional offices should be set up.

The subject was discussed under four main headings: location, functions, finance, and the timing of the establishment of these offices. It was agreed that regional offices should be set up in Europe, the Near East, Asia, and Latin America. Delegations from the Latin-American countries advocated the setting up of not less than three offices for that region in order to serve the Atlantic, the Pacific, and the Caribbean areas respectively.

As regards functions it was agreed (1) that maximum use should be made of the existing local and regional organizations, (2) that there should be close liaison with the work of other international organizations at regional level, and (3) that emphasis should be laid on the problems of the region as a whole as distinguished from individual problems concerning the countries constituting the region.

The financing of these offices led to considerable discussion. One view was that specific sums should now be allotted for these offices; the other was that the extent to which FAO can make use of local organizations and other international bodies could be decided only after communicating with them, and, as the speed with which work could be commenced in an area is dependent upon several local factors, it would be more proper to leave this aspect of the work to the Director-General with a general directive to commence the establishment of these offices as early as possible. It was also felt that the countries concerned and the appropriate regional and international organizations should meet preliminarily to discuss the details of the work to be done and the extent to which they can contribute to the regional work.

As regards the time when these offices should be constituted, there was general agreement that work should be started as early as possible. One delegate, however, expressed the view that the member nations should furnish the data for the work of FAO's headquarters and that the question of establishing regional offices should be taken up only after the necessary information has been received. The Commission desires to place on record the very good work performed by the European office of FAO in Rome.

The final decision of the Commission was that the Director-General should be authorized to proceed with the work of establishing regional offices and to prepare, in consultation with member countries and other international bodies, plans for the approval of the Council whereby offices may be established in each principal region, and more especially in Latin America, Europe, the Near East, and Asia. In order to secure the highest possible efficiency at a minimum cost, advantage should be taken of any regional machinery when planning and carrying out technical missions.

National FAO Committees

The Hungarian delegate submitted a proposal in which he pointed out that National FAO Committees have been set up and have developed more or less spontaneously in the various member states. He quoted the recommendation adopted at the meeting of representatives of European National Committees held in Rome from 16 to 21 July 1947, whereby a study should be undertaken of the status and functions of such Committees as well as of their relationship to FAO. He suggested that the study should be undertaken by a working group that would report through the Director-General at the Fourth Session of the Conference.

Attention was drawn to the fact that the Executive Committee has already discussed this question a number of times and that the report on the work of its eighth session, which was circulated to member governments on 11 June 1947, contained recommendations regarding the status and functions of these Committees and requested the Director-General to obtain detailed information concerning the status, composition, and terms of reference of these bodies. These recommendations and a request for detailed information were communicated to member governments in a subsequent letter of the Director-General.

Commission III agreed that in the circumstances the Hungarian proposal should be referred to the Director-General in order that he might take it into account when proceeding with the collection and analysis of information as specified above. The purpose of this study, the results of which would be reported to the next session of the Conference, would be to report, after consultation with member governments, the most effective ways in which National FAO Committees might develop their work for the benefit of FAO and of the governments concerned.

Item 5 of agenda - Finance

At the time of the Second Session of the Conference, FAO had been in existence less than one year and was in the preliminary stages of its organization. Little had yet been done in the way of practical internal administration. The Conference, therefore, made two fundamental decisions which can rightly be considered as outstanding among its many recommendations.

The Report of the Committee on Financial Control on its activities since the Copenhagen Conference and the Draft Budget for 1948, which have been placed before the Third Session of the Conference, give ample evidence that the Copenhagen Conference took the right steps in the right direction.

1. FINANCIAL MACHINERY AND METHODS

Commission III has been gratified to note that the Subcommittee on Finance has proved an extremely useful part of the machinery of the Organization and that the report of the Committee on Financial Control contains an exhaustive and enlightening account of the steps taken to ensure a proper management of the Organization's funds. The Commission emphasized that a close scrutiny of all proposals for expenditure is necessary in order to make sure at all times that commitments are kept down to the minimum compatible with a successful discharge of the Organization's activities.

2. ACCOUNTS OF THE ORGANIZATIONS

The Commission took note of the audited accounts of the first financial year ending 30 June 1946 and the audited accounts for the period 1 July to 31 December 1946 and recommends their approval by the Conference. [See Resolutions and Appendix]

3. FINANCIAL SITUATIONS

The financial situation of the Organization as at 31 July 1947 was closely scrutinized. While the present situation would appear satisfactory since the funds available, including the Working Capital Fund, amounted to $2,902,442.61 at that date, the Commission viewed with some concern the substantial arrears of contributions still remaining to be collected. This apparent shortfall in income is due in the main to certain member nations having fiscal years not identical with that of the Organization. The position will be appreciably changed before the end of the year. Nevertheless the Commission requests the Conference to urge the governments that have not yet done so to pay the outstanding balances of their contributions at the earliest possible date. [The Commission proposed a resolution on payment of contributions which was adopted by the Conference]

4. BUDGET FOR THIRD FINANCIAL YEAR (1948)

The Commission had before it the draft budget estimates for 1948. It was noted that whereas the expenditure estimates totaled a sum of $5,000,000, the estimated income from contributions from member governments, including miscellaneous receipts, amounted to $4,522,000, and that the Committee on Financial Control was proposing to meet the shortage in income by means of an appropriation of $478,000 out of the Working Capital Fund. While it was considered that the withdrawal from the reserves of the Organization of $478,000 to meet the income shortage for 1948 could be accepted for one year, such an operation could not be repeated since, failing means being found of increasing contributions from member countries, the reserves of the Organization would be severely impaired.

With the assistance of a special subcommittee the Commission carried out a thorough examination of the draft budget submitted by the Director-General.

a. Contributions

In the light of the figures of the 1948 budget referred to in the previous paragraph, some discussion ensued on the recommendation of the Committee on Financial Control that the present scale of contributions should remain in force for 1948. While doubts were expressed as to the desirability of postponing the issue, the consensus of the Commission was that the arguments put forward by the Committee on Financial Control were valid. It was explained that the adoption of a new and more satisfactory scale was a long and difficult task which could not possibly be carried out before the end of the present Conference, and that various considerations precluded the mere adoption of the United Nations scale which in any event was still provisional. It was therefore agreed to recommend that the Council should undertake and place before the next session of the Conference a further comprehensive study of the scale of contributions.

The Commission also agreed to recommend that the Conference approve (a) the proposal of the Committee on Financial Control regarding the proportionate contributions to be paid by three new members of the Organization, namely Austria - 0.05 percent, Finland - 0.10 percent, and Siam - 0.30 percent; (b) the proposal of the Committee whereby the allocation of contribution for Hungary should temporarily be fixed at 0.15 percent; (c) the suggestion of the Indian and Pakistan delegations that the case of Pakistan should be covered by an arrangement whereby the total percentage contribution received by FAO from the two countries should remain the same as the previous contribution of India on the understanding that India and Pakistan would agree between themselves upon the respective shares which would be paid by each government; (d) a similar arrangement for Burma to be entered into between the Governments of the United Kingdom and of Burma.

It is understood that the countries concerned under items (c) and (d) above will report promptly to the Director-General as to the terms of their agreements in order that the respective percentages can be shown separately in the approved budget. The proportionate allocations listed above under (a), (b), (c), and (d), would apply only to the second and third financial periods since it is recommended that a general study of the present scale would take place during the course of next year. [See Resolutions]

b. Currency Problems

Regulation VIII of the Financial Regulations provides that the contributions shall normally be paid in the currency of the country in which the Organization has its seat. The delegate from France drew attention to the difficulties which some member nations are at present experiencing in obtaining the currency in which their payments must be made under the above provision. He was supported by a number of other delegates in requesting that a study be undertaken as to whether a proportion of annual contributions might be paid in some other currency or currencies to be determined.

A subcommittee was appointed which made a preliminary examination of the question. The principal items of expenditure in countries other than that of the headquarters are regional offices, missions, and conferences and committees. Of these items only the expenditure on regional offices could be calculated in anything more than broad general terms. It was considered as a general rule important that the benefit of paying contributions in other currencies should be equitably shared among members and not simply accrue to the country whose currency was required. It was felt that the whole matter required very careful study, and the Commission could not in the short time at its disposal embody in its resolution any useful guidance to the Council as to the conclusions of its study.

While agreeing generally that such a study might properly be undertaken by the Council, the Commission was of the opinion that if a similar study were undertaken by the United Nations it would be desirable to co-ordinate the investigations. It was also felt that such a study should not be allowed to induce member nations to delay payment of contributions which under Regulation VIII are payable within thirty days after the opening of the financial year.

[The Commission's recommendation was adopted by the Conference]

c. Structure and Flexibility of the Budget

The Commission gave some consideration to the general structure of the budget. It noted that a general allocation for contingencies was provided under Chapter VIII to the extent of $600,000 and that further unallocated amounts appear under various other chapters, the most important of which is an appropriation of $140,000 under Chapter III for recruiting staff to be assigned to regional activities. The Commission therefore felt that the budget contains at present sufficient flexibility in the light of the necessities of an Organization which is still in the process of defining its activities and setting up its establishment.

However, the Commission viewed with some concern that new financial obligations will devolve upon the Organization which will tend to reduce considerably the present flexibility of the budget. Of these can be mentioned for the time being the setting up of the regional offices. It is clear that an increasing portion of budget funds will be required to meet annual recurrent charges and that no great savings can be effected in future budgets without severe limitations on the activities of the Organization.

Moreover it is possible that the Organization may find some difficulty in collecting the total amount of its income, so that a situation might arise where the expenditure would not be balanced by a corresponding amount of income.

The Commission therefore agreed to recommend that the Director-General should watch the developments insofar as the collection of contributions is concerned and should endeavor to regulate expenditure accordingly. Developments in the near future will call for close attention and vigilance. The Commission wishes to make it clear that the Director-General has discretion within the Regulations applicable to control the distribution and progress of expenditure with a view to exercising the strictest economy in the management of funds. Only in this way can a satisfactory flexibility be maintained in a budget where a considerable proportion of the total expenditure is already allocated for personnel expenses of a more or less permanent nature.

d. Supplementary Estimates

The recommendations of the Commission with respect to regional offices involves budgetary implications of far-reaching importance. In order that the Director-General may be in a position to deal with the matter of regional offices in the most effective manner, taking into account the limitations of the over-all financial resources of the Organization and the other requirements to be met, the Commission considered that it was not feasible at this time to designate a specific sum to be made available. Instead the Commission recommends that such regional activities as the Director-General may find it possible to undertake during the coming year, in conformity with the decisions of the Conference, and after consultation with the Council, be financed by drawing upon the contingency fund, or by revision of the general budget, as may be deemed advisable. It was recommended, however, that the budget documentation for 1949 include appropriate information with respect to estimated expenditure, current and prospective, for regional work.

The Commission had before it other proposals involving expenditure, arising out of the work of Commissions I, II, and III. These include modifications of the structure, functioning, and financing of the Council, provision for continuing the work of IEFC, recommendations for additional international or regional conferences, extension of technical studies and services, etc.

After careful consideration of these matters, the Commission approves the recommendation of its subcommittee on finance and recommends that the Conference

[The Commission's recommendations were adopted by the Conference]

The Commission felt unable to recommend specific approval of claims for additional staff arising out of Divisional Reports to Commission II, since the initiation of such requests is properly a function and responsibility of the Director-General and the latter would undoubtedly take into account the recommendations of Commission II in framing his plans for 1948. The same consideration would apply to requests for additional allocations for printing and traveling.

e. Staff Salaries and Benefits

Following a discussion on the revised salary scale, attention was drawn to the fact that the Committee on Financial Control had requested that a comparison of the various salary scales of the United Nations and of the specialized agencies be placed before it at a future meeting for further study. The Commission requested that a detailed report on the results of such investigations be placed before the Conference at its Fourth Session, and proposes that the Conference request the Council, after further consideration of the revised salary scales of the Organization, to submit a detailed report to the Conference at its Fourth Session.

The Commission noted that, although the Committee on Financial Control had not submitted concrete proposals to the Conference regarding the affiliation of FAO with the pension system of the United Nations, the position had been safeguarded by setting aside the necessary funds to provide for FAO's eventual participation in the scheme. It is understood that the scheme is still provisional and may be finalized at the forthcoming session of the General Assembly. The specialized agencies may be asked to decide on their affiliation before the end of the present year. So far as FAO is concerned, it is clear that its present Provident Fund does not afford all the benefits which would be assured through such affiliation. For the above reason it was agreed that the Council should complete its study of the question and might be empowered to approve of FAO's affiliation should an urgent decision be required.

With reference to the provision in the budget for income tax payment on salaries of certain nationals, the Commission expressed the hope that the governments concerned would see their way to ratifying at the earliest possible date the draft convention on diplomatic immunities and privileges so that such a provision should not continue to appear in future budgets.

f. Conference and Committees

The Commission noted that the cost of the Annual Conference and of meetings accounts for an important share of the expenses of the Organization and urges that plans for such activities should be carefully considered in the light of their financial implications. It felt that as a general rule such meetings should be held at the headquarters of the Organization or at the seat of regional offices where facilities are greater and less expenditure is involved. It recognizes, however, that there may be conditions when it is advisable that meetings should be held in different places and believes that in such cases the extra expenditure entailed for the Organization might be borne by a host government.

In this connection the Commission believes that as a general rule delegates appointed to represent their governments should have their expenses defrayed from their national funds, while experts who are requested in a personal capacity to participate in meetings convened by FAO should be reimbursed by the Organization. The Commission realized, however, that this question is complex and considered that the Council should make a detailed investigation of the problem in order to draw up guiding principles.

g. Contingencies

In considering in broad terms the provision of funds for contingencies, the Commission had in mind that out of $600,000 provided in the Contingencies Chapter of the Budget as presented by the Director-General, considerable sums would be required to implement the various recommendations of the Conference. The Commission considered that nevertheless funds must always be kept in hand for emergency commitments. Since in 1948 the Organization is budgeting to incur expenditure, most of which is recurrent, beyond the total of its income for the year, the Commission considered that it would not be advisable to make provision at this time for any further expenditure on contingencies as had been recommended by the Committee on Financial Control in its introduction to the Budget. In other words, the Director-General must, because of his separation from the legislative body of the Organization for twelve months, keep funds in hand for emergency expenditure, but in 1948 such funds must be found from within the $5,000,000 limit of the Budget. The Commission felt that in a future year, when the Organization's income and expenditure have taken a more permanent shape, it may be feasible to provide means of making emergency expenditure from reserves without requiring the approval of the Conference.

In connection with the various appropriations for unforeseen expenditures which are to be found in certain chapters of the Budget, it was proposed that these appropriations should properly be transferred to Chapter VIII which has a provision for contingencies. This suggestion, however, gave rise to a number of objections since it would result in preventing the Director-General from meeting unforeseen expenditure, under those specific chapters, except by retransferring from Chapter VIII which would require the authority of the Council. It was, therefore, agreed to recommend that these appropriations should stand for the Third Financial Year on the understanding that a study of the most appropriate regulations to govern the whole problem of contingencies should be undertaken by the Council.

Accordingly, the Commission recommends that the Conference request the Council to undertake a study of the regulations covering contingencies, examining inter alia the desirability of

[See Resolutions]

h. Adoption of the Budget

In the light of the above observations the Commission proposes that the Conference adopt the Budget for the Third Financial Year approving: (a) an amount of $4,524,500 in respect of contributions to be collected from member governments and of miscellaneous receipts, (b) an amount of $475,500 as an appropriation from the Working Capital Fund; and (c) an amount of $5,000,000 in respect of expenditure estimates.

[See Resolutions and Appendix C]

5. AMENDMENTS TO FINANCIAL REGULATIONS

a. Working Capital Found

The Commission had before it the draft regulations proposed by the Committee on Financial Control, governing maintenance, administration, and expenditure of the Working Capital Fund.

In considering this matter the Commission had in mind that at present the Working Capital Fund has a dual purpose: (a) to provide funds to carry on the activities of the Organization until its income can be fully collected, and (b) to constitute the Organization's general reserve.

The Commission felt that a time may come when a separate general reserve fund should be created. However, it was not yet possible to make an accurate determination of the minimum amount for the first of these purposes, and in view of the limited monies available it was impossible to recommend that the Working Capital Found should be decreased and a separate reserve fund established. Accordingly, it recommends the amendment of Financial Regulation XI. [See Appendix B for text of amendment.]

b. Other Amendments

The Committee on Financial Control proposed the amendment of paragraph 4, Regulation III (Preparations of Annual Budget), the addition of paragraph 5 to Regulation XIV (Expenditure of Funds), and the amendment of Regulation XVIII (Examination of Audited Accounts). The Commission recommends approval of these amendments with a slight modification as to the date when the draft annual budget should be considered by the Council. It was felt that the consideration of the Budget by the Council should not take place too long before the commencement of the financial year to be covered, thus enabling the inclusion of all estimated requirements. [See Appendix B for text of amendments adopted by the Conference.]

6. REPORT OF THE COMMITTEE ON FINANCIAL CONTROL

Subject to the preceding observations and recommendations, the Commission proposes that the Conference take note of the Report of the Committee on Financial Control and record its appreciation of the excellent work which the Committee on Financial Control and the Subcommittee on Finance have been able to carry out in the course of the last year and the valuable progress which has been made towards the development of sound budgetary, financial, and accounting procedures. the Commission also wishes to stress the necessity of exercising strict economy in the handling of funds through a system of internal control.

[See Resolutions]

7. CONCLUSION

At present the financial situation of the Organization appears favorable, due to the surplus of receipts for the first two financial years resulting in the sound position of the funds in hand and the possibility of balancing the budget for 1948 without grave difficulty. Nevertheless, the financial future of the Organization needs to be given constant and serious consideration.

The Commission emphasizes to the Conference, the Council, and the Director-General, the necessity for strict economy in all administrative activities in order to avoid in the near future a curtailment of the activities of the Organization or a general increase in contributions.

Item 6 of agenda - Site of the permanent headquarters of FAO

It was decided by the Second Session of the Conference that the Director-General should submit to the present Session a report to be prepared after consultation with the Executive Committee on the question of the permanent site of FAO. This Report has been circulated to the Conference, and legal aspects of the question were further clarified in a note by the Director-General.

Article IX of the Constitution provides that the seat of the Organization shall be determined by the Conference. The latter made such a determination at Quebec when it enacted Rule XXXII of the Rules of Procedure, which reads as follows:

It will be recalled that at the time of the Quebec Conference the permanent seat of the United Nations headquarters had not yet been selected. This however had been done when the Agreement between the United Nations and FAO was formally approved, and the latter contained, under Article X, a statement reiterating that the permanent headquarters of FAO should be situated at the permanent headquarters of the United Nations. However, this statement was made subject to the following provisos:

The discussion in Commission III centered on one issue of substance, and one of procedure.

On the substantive issue, that is to say, on the choice of the site itself, a number of delegates favored centralization of all specialized agencies at or near the headquarters of the United Nations, while others thought that an even distribution of the specialized agencies throughout the world would be desirable. This difference of opinion was complicated by the fact that some delegates, while favoring the choice of a site in the United States, did not think it desirable that it should be in New York itself, and that other delegates made their choice of a site dependent upon the way in which the regional offices would function.

Regarding procedure, some were of the opinion that a decision should be reached immediately, while others felt that a further study of the problem would help to clarify the position. It was, however, argued that, since it appeared that a majority of delegates were opposed to the apparent implication that the foremost agricultural organization of the world should settle in a skyscraper in the center of New York, Rule XXXII of the Rules of Procedure should be abrogated before any further consideration of the issue.

In conformity with a motion of the United Kingdom delegate, which was approved by Commission III, a vote was taken during a plenary meeting on the deletion of Rule XXXII on the understanding that any such decision would in no way prejudge the selection of the site since the purpose of this consultation was merely to make the way clear for all possible solutions and that New York might still be selected. However, the proposal to abrogate the above rule was rejected by 22 votes as against 20 which favored the abrogation. Two delegations abstained.

At a subsequent meeting of Commission III, a motion was submitted by the delegate from Canada on the basis of suggestions made at an earlier date for further study of the problem. This motion was amended in the form of the following resolution which the Commission unanimously recommends for approval:

[See Resolutions]

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