I. The second session of the second meeting of the Open-ended Working Group

of the Parties to the Montreal Protocol was hold at the United Nations Office, Geneva, from 26 February to 5 March 1990, to develop modalities for financial and other mechanisms to enable developing countries to meet the requirements of the Montreal Protocol, in accordance with Decisions 5 and 13 of the first meeting of the Parties to the Montreal Protocol held in E[Alsinki from 2 to 5 may 1989.

II.ORGANIZATIONAL MATTERS

A. Opening of the meeting

2. The Chairman declared the meeting open, noting that it had been six

months since the last Working.Group session on financial mechanisms. Be expressed the hope that the desire for constructive and expeditious work would continue.

3. in an introductory statement, the Executive Director of UNEP welcomed

delegates and highlighted the developments in respect of financial mechanisms that had taken place before the session * Specifically, he noted the availability and usefulness of the preliminary results of the studies requested by the first session of the first meeting of the Open-ended Working Group of the Parties (Nairobi, 21-25 August 1989).

4. With regard to the studies on total costs, the Executive Director noted

that the Consultants' studies, together with existing studies, estimated a range of USS1.8 to USSS billion over 10-18 years, taking into account the grace period until 2008 for developing countries. These figures represent present value. With regard to the other total action period, 18 years had been used in most calculations because this represents the period up to the year 2008, whom-developing countries are expected to have fulfilled the conditions of the Montreal Protocol. go emphasized that these costs were expected - to4 pm. I w - Ir unwmly over this time period, with higher expenditures needed during the early years. While noting the utility of the pending country-specific studies in reducing this range, he pointed out that there could perhaps never be an exact estimation of total cost, but he stressed that the absence, of such exact information should not constitute an obstacle to consideration of an appropriate funding mechanism. In this regard, he expressed the desirability of reaching agreement at the meeting on a reasonable rang* of total costs to send to all governments so as to enable then to make specific decisions by the June 1990 meeting of the Contracting Parties.

5. The Executive Director then informed the Working Group of the concepts that had emerged from the Informal Consultations on Financial Mechanisms (Nairobi, 22-24-Jannaty 1990). In particular, he noted the significant convergence of opinions on many issues including, most importantly, the need for the creation of an appropriate funding mechanism based on the principle of additionally.

6. In light of the discussions during the Informal Consultations and taking into account the deliberations of the first Working Group session on financial mechanism as well as the Consultants' reports, the Executive Director outlined the following principles of a general agreement as a basis for the development of a financial mechanism for consideration by the Working Group:

(a) First and foremost, in order to ensure global co-operation, a new funding mechanism must be established and its funds must be additional to existing development assistance.

(b) For reasons of common interest and mutual responsibility, contributions should be on an assessed rather than voluntary basis. One way of ensuring equitable burden sharing would be to base assessments on consumption in a reference year, such as 1986, with possible adjustments to the-for rla for developing countries. Other options include the use of- lump saw assessments or assessments based on GNP.

(c) Existing bilateral and multilateral sources of funding should be aiiintainedl the-funding mechanism should be vietmid primarily as a safety not to cover expected shortfalls from other multilateral as well as bilateral sources.

(d) The mandate and experience of various organizations should be utilized, with UNEP, as the Secretariat of the Montreal Protocol, catalyzing and co-ordinating the work of other organizations in a joint venture.

(e) Decisions on policies and criteria for use of the resources should be taken by the Contracting Parties and this will require strengthening of the Secretariat without however transforming it into a bureaucracy.

(f) While it is the prerogative of each country to determine how to raise funds to meet its assessed contribution, establishing a user's fee for activities that harm the ozone layer has several advantages and may be considered by countries an one of many options.

7. On the subject of transfer of technology, the Executive Director pointed out that the following two related issues had to be addressed: (i) the means of ensuring that patents and proprietary rights for substitute chemicals and technologies are available to developing countries in an accessible and affordable manner; and (ii) the issue of the know-how reauired to work the patents once they have been obtained. A number of new technologies are patented only in a limited number of countries and are thus available to other countries, but they art useless without the know-how, which is available only to the owner of the patent. In this context, the Executive Director informed the Working Group that he had agreed with the Director -General of the World Intellectual Property Organization (WIPO) to convent a meeting on the issue of patents and prop, etary rights before June and that the Director-General of WIPO believes governments have little space for manoeuvre with private industries beyond persuasion and incentives. Tht Executive Director was also expecting a response from the Secretary-General of the International Chamber of Commerce on how industrial conglomerates see the issue of technology transfer.

a. In closing, the Executive Director noted that he sensed a strong consensus on the need for a global partnership to address the issue of development of a financial mechanism to ensure developing country compliance with the Protocol. The challenge faced by the Working Group was to help change that consensus into commitment through formulation of a concrete proposal.

B. Attendance

9. The meeting was attended by delegations from the following Contracting Parties: Australia, Austria, Belgium, Burkina Fasor Canada, Denmarko Egypt, European CxxmmmitY, Finland, France, Germany (Federal Republic of), Ghana, Greece, Guatemela, rrelands. Japan, Jordan, Kenya, Malaysia, Maldives, Malta, Mexico, Notherlandso, New Zealand,, Nigeria, Norway, Portugal, Sweden, Switzerland, Thailand, Tunisia, Uganda, Union of Soviet Socialist Republics, United Kingdow, Uhited States of America and Venezuela.

10. In addition, the-followinq non-contracting countries attended the Working Group sessions Argentina, Brazil, Chad, Chile, China, Colombia, India, Irac, Malawi, Philippines, Republic of Korea, Sao Tom and Principe, Swaziland, and Turkey.

11. Observers from the following United Nations bodies and specialized agencies were also presents United Nations Economic Commission for Europe (ECE), International Labour Organisation (ILO), United Nations Conference on Trade and Development (UNCTAD), United Nations Industrial Development organization (UNIDO), United Nations Development Programme (UNDP), World Bank, and the World Meteorological Organization (WHO).

12. The following organizations also participated: African Development Bank and Friends of the Earth international.

C. Election of officers and adoption of the agenda

13. In accordance with the decision of the first session of the first meeting of the -2 - '-- -enibmi Workinq Group, the fo-Jklowing Bureau elected at that session remained in- off ices

Chairmiant, H.E. Mr. IlUm Ristimaki (Finland) Vice-Chairmen% Mr. Yuji Ikeda (Japan)

Mr. Kwaim A. Tlankocang (Ghana)

Happortsur Mr. Christos Makridis (EEC)

14. The meeting iopto as folInwinq agenda contained in document UNZP/OzL. Pro.WG. (2)

1. Opening of meting

2. Adoption of the agenda

3. Follow-up of the report on the first session of the first meeting of the Open-ended Working Group, Nairobi, 21-25 August 1989: note by the ERecutive Director:

(a) Specific needs of the developing countries:

(i) transfer of technoloqyl

(ii) estimated costsi

(iii) country-specific case studiess

(b) An 12 v I Lem. and methodologies for calculations of the total rz-at of assistanm to. tba-developing countrinal

(c) Existing mechanisms and now mechanism that night be established for the transfer of fundal

M Possible sources of financing

4. Other matters

5. Adoption of the report

6. Closure of the mating

I 11. GENEZRAL DEBATE

15. The Chairman reaueste& the Consultants to present the results of their studies on the total cost to developing countries of conversion from controlled substances and the role that now or existing institutions might play in adatestatering a financial mechanism. The Consultants introduced their studies, summaries of which are contained in UNEP documents UNEP/OzL.Pro.WG.II(2)/3, 4, 5 and 6.

16. The Chairman then called upon the Consultants who had helped to prepare the India country study to present their findings. The Consultants reviewed India's usw of substances presently controlled by the Montreal Protocol and those likely to be controlled by a strengthened protocol. They explained that their results were very preliminary based on the cost model they had used in order to reach the estimated additional cost to India of complying with a strengthenoeW Protocol. Up to this year 2010, the estimated additional cost to the Inft-an scancM was US$ 1.2 billion, discounted (to 1990 dollars) at a real interest rate of 8 per cent. . ver if CFC use for recharging continued, the cost to the year 2010'fell to USS120 million. In this case, the continuing cost beyond 2010 was estimated at approximately USS140 million per annum. The costs may decrease over the years an "learnlnq" and economies of scale decrease thw price differential between existing chemicals and substitutes. However, the incremental costs may increase as the economy grows.

17. In considering agenda items 3(a), (b) and (c), the Chairman suggested that the Working Group focus attention on refining the list of incremental costs that might be covered by the international financial mechanism, as set out in the report of the last meeting of the Working Group (paragraph 12 of UNEP/OzL.Pro.WG.I(l)/3). He also suggested that the Working Group consider the cuestion- of developing a total cost estimate to bring to the attention of governments following this meeting.

18. It was noted that it was premature for the, current Working Group session to formulate estimated total costs for transmission to governments duo not only to the present lack of information and th* status of ongoing case studies, mimb of which will not produce estivAptes until April or June 1990, but also becams& that results of these studies and the assumptions on which they are based were likely to vary an slight changes were made in the critical parameters. Flor example, it was noted that a costly assumption in the draft Indian country study was a significant energy efficiency penalty through the us* of substitutes, and that this assumption may not be true. Furthermore, the cost7 estimates conta-ined in- the draft Indian study Aid n6t take into account the significant possible savings through recycling and conservation. However, while appreciating the difficulty for this meeting of formulating a total cost figure, thw- Working Group agreed that this should in no way impede work on the development of a financial mechanism.

19. A drafting group was established to refine the list of costs that might be covered by a fund or financial mechanism. The Working Group developed the following principles and a refined list of costs to be considered further by governments before the next meeting of the Working Group 7-10 May 1990:

20. In the context of international financial mechanisms, "transfer of technologyO means "facilitating access to environmentally safe alternative substances and technologies for Parties that are developing countries and assist then to make expeditious use of such alternatives" (Article 5, paragraph 2af the Montreal Protocol) by meeting the incremental costs associated with transition from the controlled substances to alternatives and substitutegr.

21. The evaluation of reauests for financing costs of a given transition project would take into account the following general principles:

(a) The most cost effective and efficient option should be chosen taking into account the national industrial strategy of th* recipient country*

It should be considered carefully to what extent the infrastructure presently used for CPC production could be put to alternative uses, thus resulting in docreased capital abandonment.

(b) Consideration of project proposals by the appropriate process sot by th* Parties within tho financial mechanism should involve the careful scrutiny of cost item listed in an effort to ensure that there is no double-countinq.

(c) Savings or benefits that will be gained at both the strategic and project levels during the transition process should be taken into account on a case-by-case basis as provided by the rules established by the Parties.

(d) Incremental cost shall apply only to facilities that were developed prior to the [availability tofl [adoption by] the developing country of substitute technologies.

He) in transition projects to be carried out in joint ventures of companies from a dovoloped and a developing country incremental costs- w;LLL. not be eligible for re t from th* financial mechanisms if the company from the developed country holds over 50 per cent.)

22. Incremental costs that might be covered by the international financial machanism. would incl-A those listed below. If other incremental costs than those mentioned below-are identified and auantified, a-decision as to whether they ar* to be covered by the financial mechanism shall be taken according to guidelines to be laid down by the Parties. Th* incr eme ntal recurring costs shall apply only for a transition period to be defined. The following list is indicative:

*The definition of *availability to' warrants further study and noods to be defined by the Parties.

(a) supply of substitutes

(i) cost of conversion of existing production facilities:

- cost of patents and designs and incremental cost of royaltiesl

- capital cost of conversion;

- cost of retraining of personnel, an well as the cost of research to adapt technology to local circumstances.

(ii) Subject to agreement on a cut-off datep costs due to premature retirement or enforced idleness:

- of productive capacity previously used to produce substances controlled by existing and/or revised protocol provisions; and

- where such capacity is not replaced by converted or new capacity to produce alternatives.

(iii) Cost of establishing new production facilities for substitutes of capacity eauivalent to that of the scrapped plants:

- cost of patents and designs and incremental cost of royalties;

- capital cost;

- cost of training, as well as the cost of research to adapt technology to local circumstances.

(iv) Net operational cost including the cost of raw materials.

(v) Cost of import of substitutes.

(b) Use in manufacturing as an intermediate good

- cost of conversion of existing-equipment and product manufacturing facilities

- cost of patents and designs and incremental cost of royalties;

- capital cost;

- cost of retraining

- cost of research and development;

- operational cost*

*including the cost of raw materials except where otherwise provided for.

(c) End Use

(i) cost of premature modification or replacement of user equipment

(ii) coat for collection, recycling and destruction (if cost effective) of ozone-depleting substances

(iii) cost for providing technical assistance to reduce consumption and unintended emission of ozone-depleting substances

(iv) [operational costs] I

(v) (cost of imports]

23. On the subject of country studies, the Chairman requested countries currently undertaking such studies to report to the Working Group on their status. In addition to the Indian country study described earlier, the following positions wore reported:

China

India

Indonesia

Kenya

A study is being undertaken. Preliminary data will be available after this meeting.

A study is at an early stage and will be completed in approximately six months.

A study is being carried out and is expected to be ready before Jun& 1990.

Phase 11 of the study referred to above will be completed by 15 May 1990.

preliminary work has been carried out to prepare a study, but no detailed information-is available.

The first phase of a study is under way and information on the major sectors has been compiled. The study will not be completed by June 1990, but preliminary figures may be available.

Malaysia Is in the process of identifying a consultant to undertake the study but only preliminary fiqures are expected by June. Malta Is planning to phase-out use of most CPCa in aerosols, and is interested in carrying out a study. Mexico The on-going study will be completed by April 1990. Panama Informed the Secretariat that it would like to carry out a study. Philippines Has informed the Secretariat of its interest in having a study undertaken and submitted a draft proposal to be refined further. Preliminary report will be available mid-June. Tunisia Informed the Secretariat that it would like to carry out a study. Uganda Informed the Working Group of efforts at national level to collect information on consumption of controlled substances and welcomed any form of assistance in carrying out the exercise. Venezuela The study is at a preliminary data collection stage. The report will be ready by the end of 1990.

24. Several Parties informed the Working Group of their activities to assist developing countries in country studies, workshops, training courses and technical---assistancet- one delegation emphasized that funds had been placed--at the disposal of UNEP. These funds were available to undertake studies that would also be useful in establishing national plans for meeting the requirements of the Montreal Protocol.

25. There was a general agreement that the reports on country studies revealed the need for a clearing-house mechanism to provide developing countries with information on technology and also with funding for relevant projects. The studies also underlined the need for opportunities to enable developing countries to exchange views on how to carry out Protocol activities. It was suggested that regional ozone workshops could fill this need. one delegation expressed its interest in and readiness to support the organization of such regional workshops.

Financial Mechanisms

26. With regard to the establishment of financial mechanisms, the World Bank and UNDP expressed their willingness to participate in a joint venture with UNEP, an outlined in document UNEP/OzL.WG.II(2)/Inf.3. TJNIDO also expressed its willingness to assist in undertakinq.studies to facilitate technology transfer.

27. One representative made a presentation on existing co-operative financial transfer efforts and said that it might be useful to consider the following three different activities for a funding machanisat

- to act as a technical clearing-houses

- to undertake pre-feasibility studiesi

- to carry out capital disbursement;

The key considerations for such a mechanism should include:

- a mechanism to co-ordinate activitiesy

- a mechanism to provide technical assistancel

- a mechanism to undertake capital commitments.

28. The Working Group continued with a general discussion on the elements of financial mechanisms and the sources of funding. In this regard, one delegation emphasized that, if agreement on a funding mechanism was not reached, developing countries would not be able to comply with the Protocol in a timely manner.

29. In the general debate, all delegations indicated the need for a fund or any other sort of financial mechanism to enable developing countries to comply with the Protocol. It was the general opinion that the Parties should carry overall responsibility for the policies and guidelines under which it should operate. Bowever, the debate showed that there were different proposals on how to administer such a mechanism or fund and which organizations to entrust with the lead role.

30. The Secretariat infOL the Working Group that the elements of a financial mechanism oi fund could be adopted -as an an4fndment, since a proposal for amendment of the Protocol containing a provision for such a fund had been circulated to all Parties six months in advance of the second meeting of the Parties. The significance of possible adoption an a decision was also discussed. It was suggested that the legal drafting group of the meeting on amendments and adjustments should be asked to further clarify the implications of adopting the elements as a decision and/or as an amendment.

31. The Working Group discussed in detail each of the elements of a fund and a financial mechanism.

32. The Working Group discussed these elements one by one on the basis of the two proposals attached to this report in Annex I and Annex II and made the following cc mmis nts on each of the elementss

A. Establishment of a fund/funding mechanism

(Annex It paragraph 1 and Annex II, paragraph 1)

33. Some delegations preferred the establishment of a 'fund", while others preferred the establishment of a "financial mechanism". Several delegations pointed out that both a fund and other financial mechanisms were necessary. One delegation considered that other financial mechanisms could operate within the fund. Some delegations pointed out that there was not a big difference between the concepts of "fund" and "safety-net*, as contained in Annexes I and II.

34. Some delegations emphasized the necessity of studying further the implications of using various mechanisms so an to be able to choose the most efficient and appropriate.

35. Several delegations stressed the need to use existing institutions and some described three separate functions, namely:

(i) capital investment, (ii) studies, and (iii) technical assistance

to be undertaken by the World Bank, UNDP and UNEP, with one institution to co-ordinate and administer the financial mechanisms in cuestion.

B. Contributions, voluntary or assessed naturej scale of assessment

(Amex 1, paragraph 2 and Annex ir, paragraph 8)

36. Many delegations proposed that only developed countries should contribute. Some delegations expressed their preference for having contributions from all Contracting Parties.

37. Somedelegations indicated their preference for mandatory contributions while others preferred voluntary contributions on an assessed basis. Some delegates preferred to have voluntary contributions from developing countries and mandatory contributions from developed countries. Some delegations stated that it was not important whether contributions were mandatory or voluntary as long as non-payment was considered a violation of the Protocol or Parties recognized an obligation to make their specified contributions.

38. One delegate favoured the formula for trust funds under the Vienna Convention and the Montreal Protocol.

39. Some delegates considered that the United Nations scale of assessment ought to be used on an indicative basis, while others favoured the 1986 level of consumption of controlled substances by the Parties as the bench mark figure.

40. While it is the prerogative of each country to determine how to raise funds, user fees were referred to an one of many ways to generate funds in addition to existing contributions. It was recognized that user fees had an advantage in that they also constituted an incentive to reduce consumption further, although, it was pointed out that if this goal was achieved auickly either no or few funds would be generated further.

C. Additionality

(Annex 1, paragraph 3 and Annex 11, paragraph 9)

41. All delegations approved the principle of additionality after one delegation had sought and obtained clarification regarding the meaninq of the term.

D. Role of bilateral co-operationj clearing-house function

(Annex I, paragraph 4 and Annex II, paragraphs 1 and 2)

42. It was the common understanding that bilateral co-operation should be used, but only when agreed mutually by the countries. There were slight differences of opinion regarding the priority to be established between bilateral and multilateral assistance. Parties should have ecual access to both.

43. Some delegates proposed that bilateral aid payments could be deducted from a Party's contribution according to guidelines to be established by the Parties, while other delegates opposed this principle. Some delegates considered that such deductions should be permitted subject to a minimum direct contribution to the fund or funding mechanism.

44. Several delegates emphasized the necessity of having a clearinq-house mechanism to give guidance to and co-ordinate bilateral and multilateral co-operation.

45. One delegate stressed the importance of using the framework for a clearinq-house and technical assistance already laid down in the Montreal Protocol.

E. Channelling of funds within the recipient country

(Annex I, paragraph 5 and Annex II, paragraph 10)

46. Many delegations felt that the resources of a fund should be channelled through the governasixts. of the recipient countries. One delegate, supported by others, suggested that funds should be channelled to developing countries with the concurrence of their qovernments, but not necessarily through the governments.

F. Administration/management

(Annex 1, paragraphs 6-7 and Annex II, paragraphs 5-7)

47. It was the general understanding that the Parties should decide on terms of reference for a fund and a financial mechanism, set up guidelines and revise them periodically.

48. Many delegates supported the establishment of a small executive body to supervise the activities of a fund or a funding mechanism. Some preferred to refer to it as a co-ordinating body. Several delegates supported the .1911IF-Impt of this body having a balanced representation between countries operatinq under Article 5 and those not operating under Article 5 and being supported by economic and technical expertise. The responsibilities of the executive committee should be further examined.

49. Several delegates emphasized the need to make use of the capabilities and expertise of other existing organizations such as UNOP, UNIDO, the World Bank, regional banks and bilateral donors and to associate them with the process. The representatives of the World Bank und UNOP provided information on their organizations' mandates and involvement in environmental issues. The Executive Director was asked to seek the opinion of these multilateral institutions on their possible role in the financing mechanism and their views on the early operations to be carried out. Be was also asked to circulate the individual view& so obtained frow UNDR, 08= and the World Bank to the next meeting of the. Vociting Group and replies from the other institutions not later than the semnd meeting of. the Parties in June.

50. Several delegations expressed the view that the saf*ty-net function should be handled by the World Bank, while several others suggested that this remain with-the Parties. One delegate suggested thAt-untir further - - information was obtained on the organizations it was premature to select them at this stage.

51. In connection with the clearinq-house function, several delegates perceived this an a task for the Secretariat of the Montreal Protocol. One delegate expressed the desirability of reauesting UNEP's industry and Environment Office to undertake this function, bearing in mind its experience with technology transfer.

G. Time-f ram

(Annex I, paragraphs 8-9 and Annex 11, paragraph 4)

52. It was the general understanding that a fund or a financial mechanism should functim- until the reauirements of the Montreal Protocol were completely mat and that it would be useful to operate with three-year rolling plans.

H. cost

(Annex I, paragraphs 1 and 10 and Annex II, paragraph 3)

53. The issue was discussed in the context of the principles and refined list which is detailed in paragraphs 20-22.

54. One delegation suggested that, while the concept of incremental costs is applicable to compute the burden on a country, it is not a good guide for disbursements from the fund for sector-wise projects'" the country concerned might us* croms-sectoral subsidies to promote compliance with the Protocol. It suggested a system of project-wise disbursements from the fund.

55. In light of the coments by delegates, the Executive Director of UNEP presented a set of points that could be taken into account by the Parties at their second meeting in June. These points are attached to this report as Annex III. They were collated by the Executive Director and submitted to the governments for their consideration at the next meeting of the Working Group, together with Annexes I and II.

56. By a separate decision the meeting was postponed from 4-6 April 1990 to 7-10 May 1990.

57. On the issue, of the amount of funds that may be needed, one delegation noted the need to address initial funding to show good will, and to initiate the activities of the funding mechanism. In this regard, several delegations put forward a discussion paper on principal activities which would reauire funding during the first three years. These includes

(a) establishment of an executive committee or co-ordinatinq body to developr giriftlines and to cc-ordinate- and oversee technical andfinancial assistance activitiesp _*

(b) initiation of country and sector --speci f ic studies and training courses and organization of regional workshops; and

(c) initiation of project-specific feasibility studies and capital funding for first project proposals reaching the implementation stage, (e.g. aerosols, recycling, foams, solvents).

ELEMENTS TO BE CONSIDMM Em FmmciAL mzcmnsm TO BE INCLMED IN IM MONITMAL PROTOCOL

(Proposal by China, Finland-, the Group of 77 and the Netherlands)

1. A Multilateral Fund shall be established during the second meeting of the Parties in London in 1990 to finance the cost of technology transfer and all the incremental costs of the c=mtries operating under Article 5 of the Montreal Protocol.

2. The Fund- shall be contribute& an an obligatory basis by the Parties not operating under Article 5 of the Protocol in proportion to their calculated level of consumption of controlled substances in 1986.

3. The contributions to the Fund shall be additional to other financial flows to the countries operating under Article 5 of the Protocol.

4. Bilateral co-operation shall be encouraged between developed and developing countries that are Parties to the Protocol. As and when needed the Fund shall act in the capacity of a clearinq-house.

5. The resources of the Fund shall be channelled through the Governments of the recipient countries.

6. The Fund shall be under the authority of the Parties to the Protocol. An Executive Committee shall be established on the basis of a balanced geographical distribution and a ba ' lanced representation of the countries operating under Article 5 of the Protocol and others.

7. The proposals to incur expenditures from the Fund will be processed by the Secretariat of the Protocol assisted by such relevant and competent organizations an may be designated by the Parties.

S. The Fund shall be active until such time as the objectives of the Protocol are completely met.

9. The activities of the Fund shall be planned in terms of consecutive three years periods and the cost of the approved activities shall be committed by the Parties not operating under Article 5 at least six months before the start of the period.

10. The types anc categories of incremental costs to be financed shall be specified by the Parties to the Protocol during their second meeting in London in June 1990.

AnnexII

ELEMETS FOR A DECISION OR AN AKENDKzNT

(Proposal by the United Kingdom)

1. A funding meftanism shall be established by the Parties to the Montreal Protocol to provide financing to developing countries to facilitate their compliance with the Protocol. The mechanism shall provide a clearing house function and a safety not.

2. An part of this funding mechanism bilateral and multilateral co-operation shall be encouraged between developed and developing countries that are Parties to the Protocol, through the clearing house. The multilateral agencies shall.be invited to undertake within the clearing house those activities best suited to their charters and experience.

3. The funding mechanism shall meet the agreed costs of technology transfer and agreed incremental costs of compliance of the developinq countries which are Party to the Protocol. The types and categories of the costs to be met (preliminarily outlined in pare 12 of the Report of the First Session of the First Meeting of the Open-ended Working Group) are to be specified at the meeting of the Parties in London, June 1990, and at subsequent meetings of the Party.

4. The funding mechanism (and the contributions to itj shall be planned in term of consecutive three-year periods till the requirements of the Protocol are completely not.

5. The policies, financial rules, procedures and institutional mechanisms as well an the financial frame of the safety-net'shall be decided by the Parties.

6. As and when needed, the safety-not mechanism shall take care of those funding requires tents which are not covered by bilateral or multilateral co-operation between the various Parties.

7. This safety not mechanism shall be administered by a lead agency which should be the World Bank.

8. The costs of the approved activities for each three-year period shall be met by the Parties to the Protocol in proportion to their contributions to the UN scale.

9. The contributions to the funding mechanism shall be additional to other financial flows to the developing countries.

10. The financial flows shall be arranged in co-operation with the government of the recipient country.

UNEP/OzL. Pro.WG. I 1 (2) /7 8 Annex III

ANNEX III

PROPOSAL BY TRE EXECUTIVE DIRECTOR

1. A Funding mechanism shall be established by the Parties to the Montreal Protocol to provide financing to the developing countries to facilitate their compliance with the Protocol. The mechanism shall provide:

(a) a multilateral fund;

(b) a clearing-house function;

(c) contributions in kind, especially in respect of transfer of technology.

2. The Multilateral Fund shall be used to finance all agreed incr ntal costs of the countries operating under Article 5 of the Montreal Protocol.

3. The contributions to the Fund are to be based on the (scale of assessment of the U.N.) (the calculated 1986 consumption level.of controlled substances). The contributions percentages and figures for each three-year fiscal period shall be adopted by the Parties.

4. Contributions to the Fund shall be additional to other financial flows to the countries operating under Article 5 of the Protocol.

5. The Fund shall be under the authority of the Contracting Parties. For that purpose* the Conference of the Parties shall establish an Executive Committee on the basis of a balanced representation of Parties operating under Article 5 and those not operating under Article 5.

6. Bilateral co-operation shall be encouraged between developed and developing countries that ace Parties to the Protocol. Contributions in the form of bilateral co-operation - in cash or in kind - can, according to criteria to be adopted by Parties be deducted from the agreed contributions to Multilateral Fund.

7. The clearing-house function of the Funding Mechanism can be used to facilitate the transfer of bilateral-and other multilateral financial resources that would be available for assisting developing countries operating under Article 5 of the Montreal Protocol to meet the requirements of the Protocol.